2013-01-03
A politically induced recession has been averted. On January 1 the US Congress managed to cobble together compromise legislation strong enough to avert a fiscal cliff that threatened to send the US economy into recession. The bill blocked most broad-based tax increases on the middle class while increasing taxes on top earners, capital gains and stock dividends. While the outcome could have been far worse, the Congress has done little to solve the longer-term US budgetary problem, which is the cost of health care.
So should the markets be happy or dejected? Well, I would say this compromise is a short-term victory for the business cycle. The worst-case scenario was averted, and a patchwork compromise law — a hallmark of our political system — prevailed.
By passing the legislation the Congress has essentially prevented the US economy from falling into another recession. For that alone markets should be happy. For those hoping that the new legislation would solve America’s long-standing debt problems, there is disappointment.
But most important for investors is that this combination of deferrals, tax increases and compromises that was created to avert the fiscal cliff allows the progression of the business cycle.
The financial markets can now refocus on the essentials: earnings and private sector cash flows. Both of those metrics should gradually improve in 2013. And, with at least a chunk of uncertainty off the tables, consumers and companies can put some of their sidelined cash back to work.
Not bad news for the second day of the year.
No forecasts can be guaranteed.
The views expressed are those of James Swanson and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation or solicitation or as investment advice from the Advisor.
24070.57
Of cliffs, bumps and cycles
A politically induced recession has been averted. On January 1 the US Congress managed to cobble together compromise legislation strong enough to avert a fiscal cliff that threatened to send the US economy into recession. The bill blocked most broad-based tax increases on the middle class while increasing taxes on top earners, capital gains and stock dividends. While the outcome could have been far worse, the Congress has done little to solve the longer-term US budgetary problem, which is the cost of health care.
So should the markets be happy or dejected? Well, I would say this compromise is a short-term victory for the business cycle. The worst-case scenario was averted, and a patchwork compromise law — a hallmark of our political system — prevailed.
By passing the legislation the Congress has essentially prevented the US economy from falling into another recession. For that alone markets should be happy. For those hoping that the new legislation would solve America’s long-standing debt problems, there is disappointment.
But most important for investors is that this combination of deferrals, tax increases and compromises that was created to avert the fiscal cliff allows the progression of the business cycle.
The financial markets can now refocus on the essentials: earnings and private sector cash flows. Both of those metrics should gradually improve in 2013. And, with at least a chunk of uncertainty off the tables, consumers and companies can put some of their sidelined cash back to work.
Not bad news for the second day of the year.
No forecasts can be guaranteed.
The views expressed are those of James Swanson and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation or solicitation or as investment advice from the Advisor.
24070.57
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