Saturday, December 22, 2012

The Serenity of Falling ??

In our rush to fall over the Fiscal Cliff, I took a wrong turn onto Memory Lane and ran into the classic 1991 video by Chris Isaak called "Wicked Game" -- where he was so blissfully serene about falling . . . in love . . . if not into recession, like us?  If the temporary state of falling is so blissful, America could use some more of it!

Here are some of my current thoughts on falling:

Q -- Will the United States of America go over the Fiscal Cliff?
A -- Yes!

Q -- Does it matter?
A --  Yes, but the world will not end (despite what the Mayans predict).  However, this failure demonstrates our continuing inability to govern ourselves and makes it almost certain we'll receive our second credit downgrade.

Q -- What will happen after year-end?
A -- If a deal is reached in the first week or so, there will be minimal impact on the economy.  If there is no deal until the latter part of January, the risk of causing a recession increases dramatically.

Q -- How bad will the recession be?
A -- It depends on how long we continue to fall before a deal is struck.  Early resolution minimizes economic damage.  Econometric models have predicted as much as a 6.4% GDP decrease, similar to the 2008 recession.  Unemployment would quickly pass 10% again.

Q -- You don't seem particularly concerned about taxes increasing?
A -- Increasing any taxes certainly will not help the economy in the short run, but I believe any tax increases will be limited to "the successful and the lucky," allowing the vast consuming middle class to continue the recovery.  There is no shortage of capital at this time.

Q -- How will the stock market handle all this?
A -- It will continue to leak value until it smells a deal, when I expect a strong rally.  

Q -- Why do you seem so sanguine about it?
A -- The market is telling me there is considerable underlying strength.  After the Republican "Plan B" was pulled late on Thursday night, Dow futures immediately dropped 297 points.  By the time the market closed on Friday afternoon, it was down only 120 points.

Q -- Will history be kind to Obama about all this?
A -- I doubt it, because he ignored his opportunity to be a "transformational" president by not aggressively curbing entitlements.

Q -- What is the "lesson-learned" for you?
A -- While politicians complain about what regulators do to business, they should also complain about what the politicians do to the economy!

If you don't feel blissfully serene yet, just Google that video . . . and think about what's really important!