Nov. 7, 2012, 3:08 p.m. EST
Market experts to Obama, Congress: Avoid the cliff
After election, investors worry about resolution of the fiscal cliff
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Nov. 7, 2012, 3:08 p.m. EST
Market experts to Obama, Congress: Avoid the cliff
After election, investors worry about resolution of the fiscal cliff
Stories You Might Like
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By Wallace
Witkowski, MarketWatch
SAN FRANCISCO (MarketWatch) — The politicians have talked the
talk of bipartisanship and fixing the economy over the past several weeks, the
voters have spoken, and now is the time to walk the walk.
With the re-election of President Barack Obama and Congress still divided on
Tuesday night, the stage is set for a potentially nasty fight over how to avoid
January’s so-called fiscal cliff of spending cuts and tax hikes. Read: Where to
invest now that Obama has won the election. 
President Obama's to-do list
What are the top three tasks that lie ahead for the newly re-elected President Obama?Kashkari sees a 60% to 70% chance that about two-thirds of the provisions in the fiscal cliff will get “punted” for six months to a year, allowing for the economy to avoid a recession and experience very moderate economic growth.
Unemployment benefits and the payroll tax cut will likely not get extended, while the hike on dividend and capital-gains taxes, the expiration of the Bush-era tax cuts and required defense spending cuts will get kicked down the road, according to Kashkari, who oversaw in 2008 the federal bailout for the financial sector known as TARP.
That, however, is the base-case good scenario. Democrats and Republicans can make things much worse if they go over the cliff altogether, which carries with it a 30% chance of another recession, or engage in extreme brinkmanship before they punt, Kashkari said. Such scenarios would result in the same sort of extreme volatility that occurred with the debt-ceiling wrangling last year, which damaged confidence.
Election 2012
• Barack Obama wins another four years
• Obama victory sets up the next battle
• Five things the Republicans must do now
• Time for Obama to show leadership on taxes
• Three global tasks for the second term
• Democratic wins may thwart grand bargain
• Three post-election concerns for investors
• Obama: The best is yet to come for America
• Romney urges an end to political bickering
/conga/story/misc/election.html 234587
• Barack Obama wins another four years
• Obama victory sets up the next battle
• Five things the Republicans must do now
• Time for Obama to show leadership on taxes
• Three global tasks for the second term
• Democratic wins may thwart grand bargain
• Three post-election concerns for investors
• Obama: The best is yet to come for America
• Romney urges an end to political bickering
Anxiety was evident on Wall Street on Wednesday, with the Dow Jones Industrial Average /quotes/zigman/627449 DJIA -2.36% falling more than 250 points. Read: U.S. stocks slammed on fiscal-cliff worries.
Dan Greenhaus, chief global strategist at BTIG LLC, sees falling off the fiscal cliff as a base-case scenario and projects the S&P 500 index /quotes/zigman/3870025 SPX -2.37% could fall as low as 1,200 by the end of the year.
The S&P 500 has rallied more than 11% year-to-date, but slumped 2% on Wednesday to 1,399.79 in afternoon trade.
Election 2012: As it happened
Take a look at some of the most memorable moments from the Romney and Obama campaigns in the 2012 Presidential Election night.One possible tactic would be for the Obama administration to create new tax incentives for businesses to begin hiring in return for the elimination of the Bush-era tax cuts, Belski said.
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By Wallace
Witkowski, MarketWatch
“Some people think the only way to grow the economy is through tax cuts. That ideology did not prevail,” said Keefe, who noted that Obama won in every battleground state. “There will be pressure on the Republican party to come to the table and give up their intransigent position.”
The role of government in boosting the economy is also important.
The Obama victory was good news, because the president has placed more emphasis on the government’s role in getting more people back to work, according to Eric Maskin, a Nobel Prize-winning economist.
“Romney’s more laissez-faire approach would, I suspect, have made for an even
slower recovery, and his and the Republicans’ refusal to raise taxes on the rich
seems wrong-headed,” Maskin said.
Andrew Lo, a professor of finance at MIT Sloan School of Management, said that Obama’s re-election ensured that the Dodd-Frank Wall Street reform legislation will remain in effect. But perhaps Lo’s biggest point is that “any president has limited control and impact on financial markets.”
Pimco senior vice president Libby Cantrill believes the president has less policy room to maneuver than many assume, given the deeply divided Congress and the fragile economy. Expect short-term market volatility until the fiscal cliff is resolved, Cantrill said in emailed comments. She’s predicting that Congress will address the fiscal cliff with a “mini deal” in the lame-duck session, representing a loss of 1.5% of GDP in 2013.
Jaffee pointed to California’s Proposition 30 as an example of a turning tide on taxes. The proposition, which won 53% of the vote, will increase the state’s sales tax and hike taxes on incomes over $250,000 for four years to raise about $6 billion for California schools.
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Obama victory means tax cuts not the only way
Joe Keefe, chief executive of investment advisor Pax World Management LLC, believes the election gives President Obama a mandate to resolve the country’s budget impasse.“Some people think the only way to grow the economy is through tax cuts. That ideology did not prevail,” said Keefe, who noted that Obama won in every battleground state. “There will be pressure on the Republican party to come to the table and give up their intransigent position.”
The role of government in boosting the economy is also important.
The Obama victory was good news, because the president has placed more emphasis on the government’s role in getting more people back to work, according to Eric Maskin, a Nobel Prize-winning economist.
What will happen to fiscal cliff?
LPL Financial Chief Market Strategist Jeff Kleintop on what the election results mean for the economy and the markets, especially with the impending fiscal cliff on the horizon.Andrew Lo, a professor of finance at MIT Sloan School of Management, said that Obama’s re-election ensured that the Dodd-Frank Wall Street reform legislation will remain in effect. But perhaps Lo’s biggest point is that “any president has limited control and impact on financial markets.”
Pimco senior vice president Libby Cantrill believes the president has less policy room to maneuver than many assume, given the deeply divided Congress and the fragile economy. Expect short-term market volatility until the fiscal cliff is resolved, Cantrill said in emailed comments. She’s predicting that Congress will address the fiscal cliff with a “mini deal” in the lame-duck session, representing a loss of 1.5% of GDP in 2013.
Voters show more stomach for tax hikes?
The Obama victory suggests that attitudes toward tax increases may be shifting, with exit polls suggesting a majority of voters were in favor of some sort of tax hike, according to Diane Jaffee, senior portfolio manager at TCW who oversees about $5.5 billion in large-cap stock investments.Jaffee pointed to California’s Proposition 30 as an example of a turning tide on taxes. The proposition, which won 53% of the vote, will increase the state’s sales tax and hike taxes on incomes over $250,000 for four years to raise about $6 billion for California schools.
Wallace Witkowski is a MarketWatch news
editor in San Francisco. Ian Salisbury, Elizabeth O'Brien and Charles Passy
contributed reporting to this story.
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