Ticking Fiscal Cliff Clock Costing Economy Today

The likelihood of the American economy slipping into economic recession increases with each passing day. We are not okay up until the day tax rates increase and other stimulus disappear. No, rather, because of the stifling situation brought about by Congressional gridlock, businesses have frozen discretionary capital spending plans that are supportive to the economy. In the absence of such spending, economic growth is hampered today and every day heading into January 1st.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Fiscal Cliff

This article is not measuring the impact of falling off the fiscal cliff, which many experts say could drive the economy into recession and most agree will significantly hamper economic growth. Rather, I want to point out that the stifling impact on business plans is affecting the economy today and every single day in which this situation is not mitigated.

Now, let’s not ignore the philosophical differences of opinion with regard to taxes and economic drivers. Republicans and Democrats are not simply protecting constituents, at least not for the most part. They are also seeking to employ economic tactics which they believe will spur economic growth and help balance the budget at the same time. Opinions vary, and the philosophical divide is vast. Where should the threshold dividing the rich and the poor be marked, and at what point or income level does taxation stifle economic growth? What is fair and consistent with the ethos of American capitalism? These are important questions at the root of the argument and so the debate and discussion is at least somewhat just. Still, compromise is the key for our leaders to keep philosophical divide from damaging us all in their efforts to save America.

It is clear by the actions of the stock market that this fiscal cliff issue is important for tomorrow but also for today. The SPDR S&P 500 (NYSE: SPY) is down 7.4% since its September peak, and I expect it will continue downward without resolution to the fiscal cliff issue. The industrials are lower as well, with the SPDR Dow Jones Industrial Average (NYSE: DIA) down 7.1% since its fall peak, and the PowerShares QQQ (Nasdaq: QQQ) is lower 11% from its top mark. The message has been multi-fold, beginning with the realization that corporate earnings season would not support the valuations achieved by stocks on central bank fluffing. The second hit came with the reelection of President Obama, which was clearly a let down to the investment community. And now it is the lock-on focus of investors and businessmen on the critical economic change in store for the close of the year.

Small businessmen were reported to be more optimistic lately, but that was based on a survey taken before the election and likely on the expectation of a different result. Consumers, less sophisticated and sensitive to economic warnings, will react to higher taxes and deteriorated economic conditions should they dawn in 2013. The Consumer Discretionary Select Sector SPDR (NYSE: XLY) is only off its high for the year (trailing 52 weeks) by 5.6%, but retailers are bearing the cost of long-lasting soft economic conditions and tighter competition for fewer dollars. The SPDR S&P Retail (NYSE: XRT) is off by 7.1%, and there is a clear shift in spending accelerating toward discounters like Wal-Mart (NYSE: WMT) and Amazon.com (Nasdaq: AMZN) away from the traditional stores and marketplaces.

In times past, we could look overseas for support to American exports for companies like Caterpillar (NYSE: CAT) and bellwethers like General Electric (NYSE: GE), but Europe is actually deteriorating, not improving. China’s growth is volatile due to its ties to the west, and its data is questionable due to corruption and inadequate reporting. The last thing we need today is a severe disruption to domestic business activity, and so some sort of compromise must be accomplished. In addition, I believe that any support to the budget garnered from revenue generation (taxes) should be cautiously undertaken, limited in reach and focused to avoid damage. It’s not yet time to put broad belts across the waist of the economy, but rather to cure inefficiencies in capital distribution toward economic growth initiatives. I’ll continue to independently cover this critical issue and aspects of the economy for the sake of all Americans, so stay tuned.

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