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By Charles Biderman

I officially declare that the Bernanke Put is dead and buried. Nobody even talks about it anymore. It has been a while since someone on CNBC said there is very little risk in being long stocks since Ben Bernanke has the stock market's back.

Nowadays, those same talking heads are worrying about the fiscal cliff. For what it is worth, on the August 27 video I predicted that the Bernanke Put would die when the current form of quantitative easing would be announced. Lo and behold on September 14 the day of the most recent fed easing, the S&P 500 peaked at 1466. And ever since then stocks have been selling off and opened Monday down about 6%.

Previously I had predicted that the current QE would have very little impact on both the stock market and the economy. And that is what happened. Why did I predict that? Short term interest rates are already at zero and it has been five months now since mortgage rates reached current record low levels. So yes, as a result of Operation Twist, after-tax income rose to a $300 billion in annualized growth this past June through September. That was up from a $200 billion growth rate over the first five months of 2012. Since October, after tax income - remember this is a before inflation number - has dropped back to a $200 billion growth rate. In other words, the Fed this year will in essence print half a trillion dollars that will not improve after tax income nor help stock prices grow. And that is on top of a $1.1 trillion federal deficit.

So the US economy is currently barely growing despite huge amounts of deficit spending and money printing.

Now that the election is over and there was no stock market euphoria that Mr. Obama was re-elected we almost certainly facing higher taxes this year end regardless of whether there is a deal or not.

Let us look at what could happen. First it is possible that no agreement will occur and taxes will go up and spending cut. If no deal happens, then stock prices will trade lower through year end. On the other side of the spectrum there is a remote possibility that something good for the economy could be agreed to. What would that be, you ask?

In my opinion the only good thing would be massive cuts in government spending and no increase in taxes. Unfortunately, I see almost no chance of that happening. Then in between something good and no deal is some sort of deal.

Most likely is very little change in spending but higher taxes. The odds of no tax hike is remote, in my opinion. What I think is most likely is higher taxes on capital gains, dividends and incomes over $250,000 to $500,000 per year.

Higher capital gains and dividend taxes will raise about $100 billion. I also expect that the 2% payroll tax cut will be rescinded, and cost tax payers $150 billion. That's is about $250 billion in higher taxes. Compare that $250 billion to this year's $200 billion increase in after tax income. So next year's higher taxes in essence means US after tax income will decline next year. And that is my definition of a recession. And remember, that a decline in US after tax income has to impact Europe and the emerging world, which in turn will negatively impact US after tax income.

Here is my game plan to take advantage of the process. When news of some proposed fiscal cliff solution pops stock prices for a few days, I plan on adding to my short positions. Why? I see no way that the US economy will grow next year based upon what is likely to happen this year end.

Source: Bernanke Put Dead, Very Little Chance Stocks Avoid Year End Sell-Off