Experts: ‘Fiscal Cliff’ Represents Buying Opportunity

Thursday, 03 May 2012 07:16 AM

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The United States is headed toward the edge of a "fiscal cliff" but investors shouldn't fret but rather, prepare for a buying opportunity, experts say.

At the end of the year, the Bush tax cuts are set to expire while automatic spending cuts are set to kick in, a combination that could suck hundreds of billions of dollars out of the economy.

Election-year politics have many worried that the nation's leadership won't be able to address the issue, since the cliff approaches Dec. 31, when a potential lame duck government could be in office.

Editor's Note: Sept. 18 Cover-Up Is a Final Turning for America

Have no fear, investors say.

Unlike the debt ceiling fiasco that nearly drove the country into default, the fiscal cliff involved deadlines that can rather easily be extended by politicians who want no part of the drama that could unfold, especially since it could mean a return to recession.

"We do not see the doomsday scenario playing out: policymakers are unlikely to drive the U.S. economy off the fiscal cliff," says JPMorgan Chase economist Michael Feroli, according to CNBC.

"Nonetheless, fiscal policy will continue to be a drag on the economy next year."

Other see a buying opportunity.

"We anticipate the market will show a smaller-amplitude reaction to the political drama developing around the U.S. fiscal cliff," says Thomas J. Lee, JPMorgan's chief market strategist, CNBC adds.

"The fiscal cliff is enormous...but there is sufficient common ground to expect much of this to be delayed."

While the issue is sure to spark election-year rhetoric and finger-pointing, relief buying will ensue in U.S. stock markets if the Bush tax cuts are extended or spending cuts adjusted.

"In 2012, the fiscal cliff carries major economic consequences...but (is) unlikely to trigger a financial crisis," Lee says.

"Of course, we ultimately expect some form of 'can kicking' but even if this comes down to the final week of December before action, we expect markets to become more comfortable with the notion this is not a financial crisis ala 2011," Lee says, referring to the debt-ceiling debacle.

Others agree that lawmakers realize they can't afford to allow the country to go over the edge.

"I think coming up to the edge of Niagara Falls in the row boat might finally force Congress and the President to do something," says Keith Poole, a professor at the University of Georgia who has studied political polarization, according to the AFP newswire.

Federal Reserve Chairman Ben Bernanke has warned that Congress and the White House must act as monetary policy authorities can't help the country with fiscal matters.

"We'll have to take fiscal policy into account to some extent," Bernanke said at a press conference.

"I think it's very important to say that if no action were to be taken by the fiscal authorities, the size of the fiscal cliff is such that there's, I think, absolutely no chance that the Federal Reserve could or would have any ability whatsoever to offset that effect on the economy," the Christian Science Monitor reports.

Editor's Note: Sept. 18 Cover-Up Is a Final Turning for America



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