Tags: Goldman | fiscal | cliff | stocks

Goldman Sachs: Sell Stocks Before ‘Fiscal Cliff’ Hits

Monday, 20 Aug 2012 01:53 PM

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Investors should sell stocks now before a sharp fiscal adjustment strikes the country at the end of the year, Goldman Sachs told clients.

At the end of the year, Bush-era tax cuts and other tax breaks are set to expire, while automatic cuts to public spending kick in, a combination known as a fiscal cliff that could send the country sliding into recession next year if left unchecked by Congress.

Don’t expect Congress to act in an election year, said David Kostin, Goldman Sachs’ chief U.S. equity strategist.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

Congress waited until the last second to raise the government’s debt ceiling in 2011, nearly throwing the country into default, which sent stocks plunging.

A repeat performance is likely.

“Political realities and last year’s precedent suggest the potential that Congress fails to reach agreement in addressing the fiscal cliff is greater than what most investors seem to believe based on our client conversations,” Kostin wrote in a note, according to CNBC.

“Last year, the deadline for Congress to raise the federal debt ceiling was known months in advance,” Kostin added.

“Nevertheless, Congress was unable to reach an agreement that satisfied all factions. Investors were stunned and the S&P 500 plunged 11 percent in 10 trading days.”

Some lawmakers have said they would deal with the fiscal cliff after elections or even early next year on a retroactive basis.

Yet fears of what it may do to the economy are already manifesting in the economy, others say.

Investing and hiring remain at bay as companies hold off on expanding due to uncertainty surrounding the fate of the economy.

“Businesses are already curtailing investments in machinery and information technology as a hedge against a contracting economy in 2013, and consumers are spending less,” University of Maryland economist Peter Morici wrote in a note, according to The Christian Science Monitor.

Other experts echoed Morici’s concerns over the damage uncertainty can inflict on the economy.

“When policy uncertainty levels are high, that does not bode well for future economic performance,” said Steven Davis, a University of Chicago economist, The Monitor added.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.


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