Last Friday, President Obama announced his invitation to bipartisan congressional leaders to find a solution to the pending fiscal cliff. This of course remains the primary focus of investors, especially since the election is over. The fear of recession brought upon by the expiration of the Bush tax cuts and the automatic spending cuts which will occur if a deal is not reached by December 31 looms larger than ever, as we saw last week when the stock market had one of its worst week's in years.
Despite the massive challenges Washington faces at home, last week the White House also announced that Obama will be leaving the country for a tour of Southeast Asia, November 17-20, 2012. So unless our leaders are able to suddenly reach a deal in the next few days which has eluded them for years, the President will be "out of the office" for what will be a very rough period for the stock market, as it gets no answer to its continued worries. Obama's absence from the U.S. during this crucial time will also send a negative signal to investors about his priorities, and market jitters will only grow as he is away.
Meanwhile, back on the home front, politics go on and there is nothing new under the sun.
Obama says he is open to "compromise and new ideas." House Speaker Boehner says he is open to "new revenues."
Obama says the election is proof he has the mandate of the American people, while ignoring the fact that nearly half the country voted against him. Boehner says a Republican house is proof he has a mandate, while ignoring the fact that Obama was re-elected and Democrats control the Senate.
So expect the can to get kicked down the road even further, and expect your equity portfolios to suffer unless you protect yourself before yet more news of "no news" about the fiscal cliff hits the media later this week.
Despite seemingly conciliatory language by both Obama and Boehner last week during their respective press conferences, both leaders later qualified that their basic positions have not changed. The Speaker will not support an increase in taxes for wealthy Americans earning more than $250,000 annually. And the President will not allow the continuation of current tax breaks on the wealthiest 2% of Americans.
So this week we will be no closer to an actual cliff solution. Brace yourself for this reality to sink further into the psyche of the market over the next 10 days as people become more disappointed and disillusioned, as the issue drags on and on, despite CNBC's nifty "Rise Above" buttons. (Does CNBC really think more buttons is going to get anything done?)
Let's face it, everyone in Washington knows what needs to be done, and they know the damage it will do to the U.S. economy and especially the stock market if they don't get it done. But that is not their primary concern next week.
Our politicians will not resolve this massive issue next week because they simply don't have to... yet.
They want to appear strong and most importantly, they want to do nothing that could damage their own re-election chances when their time comes. And they are people just like you and me--most of whom have always waited until the last minute to get anything done (just like we did in college with our term papers).
In Washington, it's all about power, egos and prestige, and it always will be, which is why Congress and the White House will delay a solution as long as they can, hoping for the other side of the aisle to fold their cards first. Congress and the President will play more brinkmanship, and the fear of American investors will grow and grow as each day passes with no solution.
So be prepared for a very rough couple of weeks as more political posturing is done this week, only to be followed by Obama leaving the country on November 17th for a four-day tour of southeast Asia with stops in Thailand, Myanmar and Cambodia. Those are important places for any President to visit, but that trip can wait. The President should carefully consider postponing his travels until our own pressing issues get worked out.
The stock markets will continue to suffer as politicians continue to place their own political agendas above those of the citizens who elected them. We are seeing the importance of the fiscal cliff play out right before our eyes as the stock market produces enormous pullbacks. Investors are filled with frustration and fear--and fear is never good for a market that already climbs a wall of worry.
Our top CEOs are begging Washington's leaders to address the fiscal cliff that has so many of them on hold--waiting to invest in their businesses and waiting to hire new employees until they at least know where everything stands.
We need our leaders in Washington to focus solely on the fiscal cliff until it is resolved. We need real progress--not more rhetoric. And we need it now--not on New Year's Eve.