These 8 Other "Cliffs" (In Addition to the "Fiscal Cliff") Could Also Cause the Markets to Crater
Lorimer Wilson November 16, 2012Comments Off on These 8 Other "Cliffs" (In Addition to the "Fiscal Cliff") Could Also Cause the Markets to Crater1,995 Views
In his effort to get lawmakers to mobilize, Federal Reserve chairman Ben Bernanke coined the term “fiscal cliff” in a testimony before the House Financial Services Committee on February 29, 2012. Investors consider it to be one of the biggest…risks that could cause markets to crater but since February, analysts have pointed to a host of other “cliffs” that threatened to destabilize the markets and the economy. Here are 8 others that people are talking about most. Words: 1140
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), may have edited the article below to some degree for length and clarity – see Editor’s Note at the bottom of the page for details. This paragraph must be included in any article re-posting to avoid copyright infringement.
So say edited excerpts from the introduction to an http://business.financialpost.com article* entitled There are actually 9 ‘Cliffs’ investors should be freaking out about.
The article goes on to say, in part:
We’ve rounded up the nine “cliffs” that everyone seems to be talking about the most.
1. The Fiscal Cliff
Bloomberg Briefs
Federal Reserve chairman kicked off the cliff craze on February 29, 2012, when he testified before the House Financial Service Committee, saying:
“Achieving long-run sustainability and providing comfort to the public and the markets that deficits will come under control over a period of time – that’s very important for confidence and for creating more support for the recovery. But at the same time, I think you also have to protect the recovery in the near term.
Under current law, on January 1, 2013, there’s going to be a massive fiscal cliff of large spending cuts and tax increases. I hope that Congress will look at that and figure out ways to achieve the same long-run fiscal improvement without having it all happen at one date.” Source: Reuters
2. Federal Deposit Insurance Cliff
BofA analysts Priya Misra and Brian Smedley have issued a warning about another “cliff” facing markets at the end of the year: the “$1.6 trillion deposit cliff” the U.S. banking system faces when special FDIC insurance provisions expire on December 31, 2012, which could “cause dislocations within the banking system” and send short-term interest rates on Treasuries negative while simultaneously increasing the funding costs banks face.
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3. Treasury Security Supply Cliff
In a note entitled The “cliff” facing US Treasury supply, Societe Generale economist Aneta Markowska wrote:
“We expect that the Fed will continue to buy long-dated Treasury securities beyond the Maturity Extension Program which expires at the end of the year. Maintaining the $45bn/month buying pace through 2013 would reduce net supply of Treasury paper by a further $540bn. Given our fiscal assumptions, this would leave only $281bn of new Treasury debt available to investors. This constitutes a 75% drop from Fed-adjusted supply in FY’2012.”
Source: Societe Generale
4. Corporate Earnings Cliff
Barry Ritholtz, in a recent interview on Bloomberg TV said:
“I have cut back on some major holdings, and raised our cash levels to 25% in the asset allocation model I manage…Note that these portfolio moves have nothing to do with the upcoming elections or the fiscal cliff. I agree with what Michael Belkin said at the Big Picture conference: ‘People should forget the Fiscal Cliff, this market is all about the Earnings cliff.’”
5. Regulatory Cliff
According to an article in Barron’s:
“The fiscal cliff is not the exclusive reason for corporate America’s paralyzing vertigo: A pending ‘regulatory cliff’ also is contributing to dizzying uncertainty that has put the brakes on major investment decisions and, consequently, hiring…the CEOs are keeping [a] wary eye glued to the Federal Register, where final rules from government departments and agencies are announced and published after passing through the bureaucratic pipeline.”
6. Drug Patent Cliff
According to the Wall Street Journal:
“European pharmaceutical firms, along with their global counterparts, are seeing the worst effects of the so-called ‘patent cliff’ this quarter, where patents for drugs expire in major territories but aren’t replaced rapidly enough to replace lost revenues. The losses are amplified by austerity programs by major customers such as health care authorities, under pressure to cut spending.”
7. Japan’s Fiscal Cliff
In a note titled Did You Know Japan’s Fiscal Cliff is Right Around the Corner?, BofA’s Brooks Thompson writes:
“The current political stalemate has delayed legislation to finance the budget and Japan’s coffers are expected to run-out by end of November, which would lead to technical default. I don’t want to overly exaggerate, but I’d say this is a much more current and (somewhat) serious reality than the BOJ buying foreign bonds…I have not heard one inquiry about Japan being on the brink of default. We’re not talking about 3yrs, 5yrs or 10yrs from now, this could technically happen as early as December.”
8. Global Economic Cliff
Doug Kass, in an interview on CNBC recently said:
“The Global Economic Cliff Is Disappearing…While I am still in the camp that expects subpar global growth, recent indications are that a self-sustaining economic recovery is in place and that the recessionistas are dead wrong. Indeed, among the developed countries, the U.S. is shining…High-frequency economic releases during the past four weeks suggest a slight reacceleration in domestic growth that should continue into 2013 — of course, this is dependent upon how meaningfully and quickly the fiscal cliff is addressed.”
9. Monetary Policy Cliff
This cliff has been resolved by QE3 but before that action was announced, Goldman Sachs chief economist Jan Hatzius wrote:
“The economy now faces a ‘monetary cliff’ in addition to the ‘fiscal cliff’ in early 2013. Although we have generally subscribed to the ‘stock view’ of the Fed’s asset purchase programs, we do believe that unconventional easing is subject to ‘decay’ and that there are some modest ‘flow’ effects at the very long end of the yield curve. Taken together, these factors make a convincing case for additional easing in early 2013.”
Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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The Shanghai Stock Exchange Composite (SSEC) index is at a crucial crossroads with serious implications as to whether or not slower global growth is at hand. Take a look at where it currently is and continue to watch closely in the days ahead.
The primary driver of stock prices over the last three years has been the anticipation of more monetary stimulus from Central Banks…[and if one] were to remove the market moves that occurred around Fed FOMC meetings (the times when the Fed announced new programs or hinted at doing so), the S&P 500 would be at 600 today. [As such,] by announcing a program that will be on going in nature, the Fed has removed the anticipation of future Central Bank intervention from investors’ psychologies. This could become highly problematic, especially if these latest announcements turn out to be duds. [Are you doing what needs to be done to protect yourself?] Words: 682
The internet is awash (drowning?) in hundreds of doom and gloom videos providing dire warnings of coming world depression, food shortages, rioting in the streets, rampant (hyper) inflation, deepening banking crisis, economic apocalypse, financial Armageddon, the demise of America – well, you get the idea. Below is a small sample of such videos with a hyperlink to each.
“The end of the world as we know it” is what David Korowicz predicts is coming sometime this decade – an “ultimate” crash that will be irreversible – TEOTWAWKI! Words: 1395
Something really strange appears to be happening. All over the globe, governments and big banks are acting as if they are anticipating an imminent financial collapse. Here’s some of what is being said and is apparently happening. Words: 1200
Many people refer to me as a “doom and gloomer” because I run a website called “The Economic Collapse”. [Just because] I am constantly pointing out that the entire world is heading for a complete and total financial nightmare, [however,] I don’t think that it does any good to stick your head in the sand. I believe that there is hope in understanding what is happening and I believe that there is hope in getting prepared. [This article does just that.] Words: 2432
Governments everywhere are becoming more distressed and desperate as economic realities dominate the political doublespeak. The world is at a dangerous point. Much of what we thought we knew and assumed regarding governmental behavior and economics is beginning to be reassessed. Governments of the world are out of money and out of ideas. The ponzi scam that has been perpetrated for over fifty years is collapsing under its own weight. There are not enough suckers and capital left to sustain the fraud. [Let me explain further.] Words: 999
Industrialised countries today face serious risks – for their financial sectors, for their public finances, and for their growth prospects. This column explains how, through our financial systems, we have created enormous, complex financial structures that can inflict tragic consequences with failure and yet are inherently difficult to regulate and control. It explains how this has happened and why there are more and worse crises to come. Words: 2434
There is a clear link between our system of fiat (paper) money, the supply of money and credit in an economy, and the 30-year boom that came to a dramatic end in 2008. It’s only by understanding this link that investors (and anyone with wealth) can appreciate just how fragile our financial system is, and what to do to protect themselves from its inevitable collapse. [Let me explain.] Words: 961
For over two years now, I’ve been warning that the 2008 Crash was just a warm up and that the REAL Crisis would occur when the stock market realized that the Central Banks, lead by the US Federal Reserve could NOT actually hold the financial system together. Well, the Crisis I’ve been warning about is here. [Let me explain.] Words: 306
What is the “Fiscal Cliff”? What would its ramifications be? Will it tip the U.S. into a recession? What are the critical economic building blocks that would be adversely affected? How best should you position your portfolio for such an eventuality?
We all know that high debt is a growth killer and, at the moment, the U.S. has a budget deficit of about $1 trillion. That’s a very big number…The question is, at what point do countries have to deal with high debt levels? How high do debt levels have to be before one has to deal with the problem by lowering budget deficits? Also, what are the consequences of such debt and budget reductions? Words: 500
“Portfolio managers have been swayed by hope over experience” when it comes to anticipating the effects the fiscal cliff will have on markets. Investors aren’t giving as much attention to the fiscal cliff as they should be, and that may be helping to set the markets up for a repeat of last year, when the debt ceiling negotiations sent stocks plummeting.
The outcome of the election of 2012 will [only] determine the rate of speed at which we approach the [financial] cliff [because] neither political alternative is willing to change course, to steer away from the cliff. The cliff is so high that whether we go over it at 200 mph (Obama) or whether we merely slip over the edge (Romney), the end result is the same — fatal for the economy and perhaps our entire political system. It is the fall that will kill us. [This article explains why that is going to be the case.] Words: 1135
Under current law, a sharp reduction in the federal budget deficit between 2012 and 2013 will cause the economy to contract but, the Congressional Budget Off ice projects, will also put federal debt on a path more likely to be sustainable over time. To illustrate the eff ects of fiscal tightening, CBO compared its projections under current law (the “baseline” projections) with projections under an alternative set of policies — two scenarios in a broad spectrum of choices – in the infographic below.
The U.S. federal government is scheduled to implement a fiscal tightening of unprecedented severity (approx. 5% of GDP) at the start of 2013. The last time a tightening of such proportions occurred (3% of GDP in 1969) it presaged a recession. Thus, unless mitigated by an act of Congress, we expect the fiscal cliff would lead the U.S. into a recession in 2013. Below, in 26 charts, we examine all aspects of the impending crisis to gauge its potential impact on the credit markets and, by extension, our strategic investment recommendations.
This post shows JPMorgan’s estimated probabilities on four different fiscal cliff outcomes, conditional on who wins the presidential election in November.
Unless the government acts quickly, it is probable that the term “fiscal cliff” will become a household phrase over the next few months. Unfortunately, this is reminiscent of the budget ceiling crisis about a year ago. In this report we will explain what the cliff is, discuss the worst case scenario, and determine what, if anything, you should do about it. Words: 1436
The International Monetary Fund, the U.S. Congressional Budget Office, the National Association of Manufacturers and many other authorities are now warning that with the largest tax increase in U.S. history — plus the largest government spending cuts our nation has ever seen – one of the deadliest financial crises in U.S. history is set to strike the U.S. economy beginning this coming New Year’s Day. Barring a miracle in Washington….. Words: 1028
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Bernanke coined the term “fiscal cliff” in a testimony before the House Financial Services Committee on February 29, 2012. Investors consider it to be one of the biggest…risks that could cause markets to crater but since February, analysts have pointed to a host of other “cliffs” that threatened to destabilize the markets and the economy. Here are 8 others that people are talking about most. Words: 1140
