Investors have more than enough reason to shun stocks, with the economy going nowhere fast and the fiscal cliff inching closer. Add to this the unfolding scandal about the September attacks on U.S. facilities in Benghazi, Libya.
Investigating the possible cover-up may be unpleasant for Wall Street as well as Washington. Here's why.
First, the fiscal cliff deadline is almost here. I believe House Republicans will reach a compromise with the Obama administration before automatic the tax increases take effect Jan. 1. Yet every hour spent examining what General David Petraeus, former director of the Central Intelligence Agency, said or whether Susan Rice, U.S. ambassador to the United Nations, lied on TV, is an hour not spent resolving the fiscal cliff.
If we reach 2013 and tax rates go up, the stock market could take a nasty fall,
Second, whatever happened in Libya won't help the Middle East peace process – and might do the opposite. Instability in the world's key oil-exporting region adds a substantial risk premium to energy prices. And the Hamas rocket attacks on Israel are adding to the tension.
The risk premium is directly correlated to the price of gasoline and heating oil. When American consumers have to spend more on energy, they spend less on other things. Consumer spending is the key to economic growth. A lean holiday season for retailers will show up in stock prices very quickly.
Third, remember how this whole mess happened. Petraeus (who really ought to know better) used public email with his girlfriend. The FBI apparently read it. You can bet other people in Washington also conduct “affairs” this way... and they are right now wondering who reads their e-mail.
Don't be surprised if progress in Washington slows down dramatically as key players decide to keep private conversations private. Unfortunately, time is running out if we are to avoid the fiscal cliff. The odds still favor at least a temporary fix. If I'm wrong, stocks are in for a sharp correction.
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