3 pressure points that could force a fiscal cliff deal
The odds of reaching an agreement aren't great, but here's what it might take.
What will force the hands of Congress and the president to make a budget deal before taxes shoot up and spending slams down? What inputs do they need?
I see three pressure points.
The first is a precipitous decline in the stock market. We have two precedents for the market to matter: the TARP vote and the deal in Europe. After TARP initially failed, the market took a real hammering, and that was because sellers knew they had to get out before the banking system collapsed.
You have heard a series of banking CEOs say their institutions wouldn't have collapsed if TARP had failed to pass. That's nonsense. Short sellers controlled the market, and they could bring stocks down, which then caused ratings agencies to panic, which then stopped funding to banks and then brought collapses. The bank CEOs couldn't stop that trend. They should stop pretending they did. Congress swung into action only after the hideous sell-off.
There's no secret to the when the central bank got a deal to move along: when the stock markets collapsed and the bank stocks looked like they would be rolled.
So my simple take is a 1,000-2,000-point bone-crusher comes first and a deal later. Chances: 50/50.
The second? The beginning of a shoot up in employment claims as everyone from the biggest executives to the smallest of small-business men know it is time to fire. Why not? We rewarded executives who "saw it coming first" with higher stock prices, and "saw it coming" meant who fired the most the fastest. You will see that from the claims. I don't have to put odds on that. The game is already happening.
Third, in order to stop the fiscal cliff jump, CEOs who contributed to the Romney campaign and to opponents of the Democrats recognize they backed losers and actually ask the congresspeople they invested in to make a deal rather than have a recession that will kill profits, lower stock prices and maybe affect CEO compensation. This may not happen, because No. 2 says they can slash hiring and still do well personally and with their stocks, but there have to be some executives who say they are not going to continue to front losing, divisive leaders.
Of course, the Tea Party people are willing to crucify hiring upon a cross of 15% tax rates for hedge fund managers, perhaps the greatest bit of Grover Norquist-inspired insanity yet. But as a former hedge fund manager who paid ordinary income, I could see selfish hedge funds really funding financial Armageddon because they can get short and make up the lower tax rate that way.
Oh, come on, that's not cynical, that's good business. The prospects of business leaders actually helping to get a deal done has increased to 50% also simply because they are money men and backing losers turned out to be a really bad strategy.
So there are the players. That's the game plan. I don't like the odds, because issue two has already started and you can gift-wrap a 2013 recession come no deal by Christmas.
That means staying lean, investing with companies that don't have to rely on U.S. consumers, who will be hammered, and just waiting for the punishment from having Congress sink into partisan politics instead of rising above to get a deal done.
Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust.
More from TheStreet.com
0016T: Do you expect me to talk?
Geithfinger: No Mr. Boehner, I expect you to die.
This health care is a simple fix. Everyone pays into a pool every paycheck. Based on your salary, you pay 2,3,4,5 dollars every week or two weeks that goes directly into a American HealthCare Tax. Leave the businesses out of it and let the American workers pay into it. Even people who collect an unemployment check would pay 2 bucks a week.
With 100 million workers, you would generate almost a billion dollars a month.
Done. Have a nice day and "don't forget to tip your waitress on the way out."
OMG- passing a budget so that you know what you need to plan for !?!
This congress & president have never seen anything like that yet- Maybe one of you can send them a Quick Books program to get them started. Oh-wait; don't forget to hire a advisor to teach them how to use it.
cut spending, raise the interest rate, increase import tariffs on items that are below US market standards.
Who was it that freed up the mortgage lending standards so everyone could have the opportunity to bankrupt America with crap credit and crap lending? Who was it that passed policy that allowed banks to make a commodity out of our homes by way of Home equity loans?
Our good friend Slick Willy, Bill Clinton. Liberal policy for the masses.
See when the governemnt tries to intervene so that everyone gets a peice, IT ALWAYS BACK FIRES! Not everyone can be entitled to a piece, that happens naturally by hard work.
I'm all for regulation at the central bank level. I'm all for regulation of the investment companies who can move enough bad decision capital to roll over the credit market.
NO to Obama. You have no record to prove your economic decision making. I do not trust you or Harry Reid. Do not take another dime from my fellow americans unless you can pass a budget!
Everyone should send a message to their congressman about keeping their party ideology on side, use their own intellect and work for american people, otherwise it is their last term in congress.
NO TAX HIKES UNTIL THE SENATE APPROVES AND PASSES A FED BUDGET BILL INTO LAW!!!!
Why should small businesses and high income individuals pay more, when the congressional democrats can't prove to the people that they can be responsible with our money. Hell no, absolutely not. That's a horrible deal! The people shouldn't stand for it.
Obama did not tell us he was going to take billions out of medicare to fund the ACA. What else is Obama not telling us that he has in store with our tax payer dollars?!?
i don't trust Obama one dang bit. He has already been too dishonest with too much sneaky business going on in the Whitehouse. No more policy by executive fiat. Pass a damn budget politician!
Why is Warren Buffet's prostate cancer treatment being paid for by Medicare? Because he paid in is your answer? So much for compromise
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Despite its size, the IPO will create just two new members of the 10-figure club from its executive ranks. A few others could net hundreds of millions.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.