Tags: Fiscal | Cliff | Fears | us

BlackRock’s Doll: ‘Fiscal Cliff’ Fears Are Overblown, US Will be Fine

Wednesday, 13 Jun 2012 07:53 AM

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Fears that the economy will drive over a fiscal cliff and plummet into the depths of recession are way overblown, says Bob Doll, chief equity strategist at BlackRock.

At the end of this year, tax cuts are set to expire at the same time automatic spending cuts are set to kick in, a combination widely known as a fiscal cliff that could siphon hundreds of billions out of the economy and threaten to offset any growth the country may produce.

The White House and Congress could work to avoid it by extending deadlines or adjusting the timing of spending cuts, though fears persist that political bickering could get in the way of compromise similar to the debt-ceiling debacle of 2011, which cost the country its AAA rating from Standard and Poor's when brinkmanship nearly threw the country into default.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

That's not going to happen, Doll says.

The fiscal cliff is a serious matter, and the nation's leadership will put partisan differences aside and steer the country away from disaster.

"In the United States, we believe the current economic angst is misplaced, although uncertainty over the fiscal cliff issues will help ensure that markets remain turbulent. Our view is that some sort of compromise should materialize, which should help the U.S. economy remain on stable footing," Doll writes in his weekly investment commentary.

Expect U.S. stock markets to hold up well this year.

"From a fundamental perspective, valuations are attractive, corporate earnings remain solid and technical indicators suggest that markets may be poised for the next 'risk on' phase. In all, we believe that the cyclical bull market for stocks remains intact."

Even Standard & Poor's expects the nation's politicians to act to avoid recessionary fiscal adjustments.

"One thing we do expect Republicans and Democrats to agree on — given an unemployment rate of about 8 percent and continued risks to the U.S. economic recovery — is avoiding sudden fiscal adjustment," U.S. ratings agency Standard & Poor's says in a statement.

"We expect that a sudden fiscal adjustment could occur if all current tax and spending provisions, set to either expire or take effect near the end of 2012, go forward in accordance with current law."

The ratings agency has assigned the U.S. with a AA+ long-term rating but still carries a negative outlook thanks to political finger-pointing that often delays decisions to pay down debts.

A negative outlook means more downgrades are possible.

Other agencies warn that failure to address the fiscal cliff now could spell disaster for the economy.

The nonpartisan Congressional Budget Office has said the economy will officially fall into recession if the White House and Congress don't act now.

Specifically, the CBO warns that gross domestic product will contract by a net 1.3 percent during the first six months of next year if Congress and the White House fail to change the dates to when tax cuts expire and spending cuts take effect.

"Such a contraction in output in the first half of 2013 would probably be judged to be a recession," the CBO reports, according to the Associated Press.

The economy grew 1.9 percent in the first quarter of this year, down from an initial estimate of 2.2 percent.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video



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