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
When Boehner said " fall in line" to the GOP Congressmen was he talking about Ryan and Cantor or Moderates considering rejecting Nordquist's pledge. I'll say the latter
Some Dweeb just HAD to put an expiration date on the Bush tax cuts to make it more palatable to the fools who had no idea what was going to go down in 2008. Trickle Down Economics. YAY! We won't NEED the cuts by 2010 and they can safely expire. No need to worry about silly deficits said Cheney the Fool-- surpassed ONLY by Rummy the Dummy and his Iraq War assertions---- Reagan proved we will GROW our way out of them!--- Yeah right ya Chump
Until Republicans face their demons, nothing will change. Like drug addicts they wander around blaming everybody else for their degradation. They say we have a spending problem when clearly they are the only users in town.
2002 total Federal spending $2.011 trillion
2009 total Federal spending $3.518 trillion, a $1.507 trillion dollar increase by Republicans
2012 total year end projection $3.627 trillion, a $109 billion increase, almost 15 times less than Republicans, the only way to cut spending is keep Republicans out of office.
This has been a public service message.
Tax cut expirations are not a tax hike. It's merely nature taking its course due to gridlock. It's ALL about semantics
Nordquist's political extortion of GOP Congressmen is akin to McCarthy's extortion of Congressmen during the Red Scare-- And he is about to take just as big a fall from grace
If you didn't like the ideas in my last post, we could always take our 'one time' dividends pay out now to avoid the tax increase, and invest them offshore in Jamaica's new casino ventures- they just approved them; So its either you work with us to help maintain America's strong economy with multi pronged approach by reducing the entitlements & taxes or we'll go - you know-
WHERE THE MONEY IS !!
Be sure to tell your congressperson that !!
In reality the Tea Party was a pseudo- Libertarian coup of the GOP lead by " mavericks" like Palin who took great issue with their Old Guard. Did it work? The outcome is still somewhat in doubt. Ryan or Christie who will it be next? The GOP has a BIG choice to make. Already the Tea Party, Rush and Fox News have been publicly repudiated by Moderates in their ranks like Steve Schmitt, Michael Steele and David Brooks
To all who receive SSI & SSDI : ( regardless of disability or developmental disability)
I & my peers will be pushing for you to enter the work force in either self employment or wage employment. Provisions already exist in the SSA for you to do this without jeopardizing your cash benefits until you reach the 'break even' point in which you no longer need them.
You voted for Obama, now it's time to do your part and go to work for the America you voted for !
Last election , the same crap, different words... oh the government is going to shut down , no budget deal, blah blah blah..
Someone tell our PAID EMPLOYEES< CONGRESS AND SENATE, that enough is enough. Do your job or we will recall you, one by one , and replace you with people that have a unified , strong and health America in their heart and mind. With Actions that prove it.
Here's a clue GOP. Get rid of your Bible Thumping Akin types. The Liberal Women just put a stake in that dinosaur's heart for good
Craig, We don't have a spending problem you do, incompetent fiscal policies from the last three Republican Presidents have lead us to the Greek Shores.
GDP to debt increases by Presidents,
Reagan + 21% increase Carter - 3% decrease
Bush Sr. +14% increase Clinton- 10% decrease
Bush Jr. + 28% increase Obama + 16% increase
Total Republican increase 63% Total Democrat increase 3%
Your the problem Craig, because you just don't get it, the road to Greece runs through the Republicans.
With the Speaker of the House and the President saying they are ready to compromise it sounded like there was hope, until the Speaker said to raise revenue without any tax hikes and the President said there must be tax hikes on the "rich". Each poisoned the process, dooming it. Hope everyone has a parachute, it is a very tall cliff and we are going over it.
Copyright © 2013 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.
The hotel giant and the food service company started trading on the New York Stock Exchange Thursday.
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.