Tags: BofA | fiscal | cliff | eurozone

BofA Survey: Fiscal Cliff Ousts European Crisis as Top Concern Among Fund Managers

Thursday, 20 Sep 2012 08:12 AM

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A combination of expiring tax breaks and inbound government spending cuts scheduled to take effect at the end of the year worries fund managers more than the European debt crisis does, a monthly Bank of America/Merrill Lynch survey of fund managers finds.

The European debt crisis has topped the list of worries for 17 months prior.

At the end of 2012, the Bush-era tax cuts and other tax breaks and benefits are set to expire at the same time automatic cuts to government spending kick in, a combination known as a fiscal cliff that could send the economy sliding into recession next year if left unchecked by Congress.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

The Bank of America/Merrill Lynch survey for September found that 35 percent of the respondents branded the fiscal cliff as the largest risk going forward, up from 26 percent in August, according to CNBC.

Meanwhile, 33 percent of the respondents said the eurozone debt crisis was their biggest concern, down from 48 percent in August.

The survey included responses from 186 fund managers who oversee a combined $524 billion.

“Investors now view the U.S. fiscal cliff as a greater threat than the eurozone — and the upcoming election is putting these fears into sharper focus,” Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, said in a statement.

The nonpartisan Congressional Budget Office (CBO) estimates that the economy could contract by 0.5 percent next year and unemployment rates would rise to around 9 percent by late 2013 if lawmakers fail to steer the country away from the fiscal cliff.

“I think the stakes of fiscal policy are very high right now,” CBO Director Douglas Elmendorf said recently, according to The Associated Press.

Lawmakers have been unwilling to touch tax and fiscal issues in an election year, though some have suggested they could convene after elections or even in 2013 with retroactive legislation to tackle the problem.

“So far, there has been surprising little discussion about it,” said Sen. Dan Coats, R-Ind.

“It’s being pushed backed until after the election. We need to address it.”

Some have said it could take six months to fix the problem on a retroactive basis this year, which could slow recovery even if a recession is avoided, as businesses would remain uncertain over how much taxes they would be paying and put off investing in new projects and adding payrolls.

“It would place a cloud over business and investment decisions,” Coats said.

“If there is one word that explains why the economy is doing bad, it’s uncertainty. We have too much uncertainty.”

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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