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
How come there isn't a disclaimer at the end of this article stating that Mr. Cramer is not shorting the market????? One more thing. It's a shoot up in "UNemployment claims", not "Employment claims".
Each Cabinet should get a certain percentage of the budget by law and be voted on separately. You want to change the percentage, vote on it
Congress now play the semantics bulls--t game. What is the difference of raising the "tax rate" or closing the loopholes and deductions from the very rich? NOTHING but semantics.
Either you ask the richest to pay $ 25,000-40,0000 more on 1 million income or you raise the dividend rate from 15% to 25% on their million dollars of diviidend income($10,000) and take away the $25,000 property tax deduction and $15,000 mortgage interest deduction on their $750,000 house, or on their second home or yacht or super RV that are considered second homes.
Math is math. All this is semantics to "not raise the tax rate" and upset Grover, Rove,and FOX and 50 tea party republicans who hold the rest of the party and country hostage.
Novel idea: Offer only Americans a 5 year "American T bill" Pays all citizens buying 2%, TAX free, Trillions come into treasury over next 5 years, pay back Chinesse and all foreighn countries.
Poor Cramer can't hustle the stocks when they aren't being manipulated by the recipients of our money to prop up the phony market. After all, what would he do without a positive market?
Koo... Romney wanted to build a stronger military also ..... but as noted by you. Look back at Reagan....and the Bushs. A larger stronger military never solved our problems !
When are the politicians going to grow up......stop calling other world leaders names as if they are playing in a sand box...... as if children ? Relating to Rumsfelds.....Shock and Awe... Abu grave issues.
We need a stronger military...when the leaders such as Petraeus cant keep their pants on ? Obama dont have any idea what happened in Benghazi yet....... we need a stronger military when no one knows whats happening ???
At least Obama never suggested a more powerful military !
Lets try a more effective military ?
the fiscal cliff will be the best thing ever for America
add in a 50 percent tax hike on all income of the super rich and a 25 percent tax hike on those making above $250,000 a year
getting rid of all loop holes --- people forget that the Reagan deal with lower tax rates came with getting rid of all the corporate and high income loop holes which increased revenue.
Somehow the tax rates stayed low for the super rich yet the loop holes made their way back into the tax code. Hmmmm funny how the loop holes for the middle class never came back.
If the loop holes for the super rich were done away with and their taxes increased by 50 percent then we could almost pay off the debt.
After all the debt is merely a function of the super rich not paying enough taxes and paying and hiring people at a livable wage.
So the super rich caused the debt and they can clean it up.
Close the banks. Reconcile, regulate, create ample supervision and re-open minus anyone in them now (nobody picks good apples from a rotten bushel). End the Federal Reserve or audit it. Likely, holders of it's Notes also borrowed or sabotaged to warrant the issue of those Notes. We need that reconciled, dashed, and our cash flowing through Main Street. There is no such role as a Financier. No retirement planners, no fund anybodies, no traders, no Wall Street. They are anti-American in every possible aspect. We have seniors who cannot procreate and raise kids, cannot work day-jobs, cannot sustain labor... making more now than they did when OF working age. That ends... I don't care big their mouths and threats are. Eat your oatmeal and shut up. Our nation was never designed or fought-for for these current circumstances. You want a social and new world order? MOVE. Free America to be the fresh entrepreneurial innovative dynamic place where rules are made by interactivity not the whim of fools.
It's either cooperation or war. If it's war, be careful what you wish for. You have no idea what end you start because you are mean and greedy and selfish.
There will be no fiscal cliff ! No more than there had been a government shut down.
There will only be a watered down version to delay any responsible action.
I sure love how an old short-seller like Cramer is suggesting that one of the ways to force a fiscal cliff decision is for Wall Street hedge funds to just pump-and-dump then stay out until a decision is reached. Great advice that will hurt the little guy, Cramer. What the GOP needs to do is realize that half of the country thinks the Tea Party GOP is a bunch of religious fanatics totally disinterested in politically taking care of the responsibilities of their positions. The Tea Party needs to be thrown out and it should be a warning in the future that the Tea Party is an American Taliban. The GOP needs to desperately come back to the center and focus on being the party of small business again because this 30-year detour to the far right has been a humiliating disaster. It should be noted that Eisenhower warned us of the financial abyss we could fall into if the military-industrial complex is unchecked as it was under Reagan and both Bushes. Now we're broke. Even Romney's own father, after a tour of Vietnam, realized very early on that the war was not winnable and that politicians were lying to the American people about their successes and the extent of their failures in the war. Romney, Sr. came out against the war and lost the GOP nomination for President. His son decided to continue along this right wing path and lost. We are broke. There is no more money for policing the world and we have failed at policing our own borders and are losing the drug war. We need to be energy independent and we need a budget deal soon to make this market go up. Citigroup raised guidance on Disney this morning so there is hope. 2013 may be better than we think.
Copyright © 2014 Microsoft. All rights reserved.
VIDEO ON MSN MONEY
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.