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It's more important to the market than the Fiscal Cliff, the sequester and all the debts of Italy, Greece, Portugal and Spain combined

The drama of the Fiscal Cliff and the recent sequestration circus, plus the trials and tribulations of these four countries (which have run up huge deficits) have been well documented and known for quite some time. What is more important, in my opinion, is not the size of the debt which is staggering, but rather what is happening in the market and the market's perception of current events.

Market perception trumps everything else out there. Market perception trumps market fundamentals every time. Market perception is the one card that the government cannot control. It is the card that can potentially give the individual trader an edge.

So what is market perception? Well, have you ever noticed that when some big world event happens, or a new "hot" IPO hits the markets (remember FaceBook, Zynga and Groupon?), traders expect that market to go in the talked about direction and typically it does. What doesn't get talked about is how the market then corrects itself and the technicals really come into play.
[Read more...]

The Fiscal Cliff Was A Wasted Opportunity

The label "the fiscal cliff" evoked the fear that something terrible was about to happen if the previously legislated spending cuts and tax increases came into effect. From my point of view, our nation's deficits and debt are growing at an alarming rate and need to be cut back. The reason these laws were enacted was to offer markets some hope that we would eventually work toward eliminating our serious deficits. But the prevailing opinion that such drastic decreases in our deficit would slow our economy and bring recession created the impression that this "cliff" must be avoided.

The chart below indicates the size of our federal government's budget deficit. The blue bars reflect what would have happened if there were no legislative changes, and the harsh measures of tax increases and spending cuts occurred. The red bars reflects potential tax increases, the green spending cuts, and the purple is additional interest paid on the expanded debt as a result of bigger deficits. The cliff is seen in the rapid drop of the deficit in the first few years of the blue bars. [Read more...]

House passes fiscal cliff bill

Legislation to block the "fiscal cliff" is headed to the White House for President Barack Obama's signature. The bill will avoid, for now, the major tax increases and government spending cuts that had been scheduled to take effect with the new year.

Final approval came in the House on New Year's Night. The vote was 257 to 167.

The Senate passed the bill less than 24 hours earlier.

The measure raises tax rates on incomes over $400,000 for individuals and $450,000 for couples, a victory for Obama.

It also extends expiring unemployment benefits for the long-term jobless, prevents a cut in fees for doctors who treat Medicare patients and cancels a $900 pay increase due to lawmakers in March.

Fiscal cliff deal reached

Racing against the clock, the White House reached agreement with congressional Republicans late Monday on a deal to prevent across-the-board tax increases and spending cuts to government programs from taking effect at midnight, according to administration and Senate Democratic officials.

These officials said a New Year's Eve vote in the Senate to ratify the deal was possible later in the evening, barring opposition from majority Democrats.

There was no immediate confirmation from aides to the top Republicans in Congress, Sen. Mitch McConnell and House Speaker John Boehner.

Vice President Joseph Biden headed for the Capitol to brief the Democratic rank and file. [Read more...]

Leonard Melman Finds the Fiscal Cliff a Boon for Precious Metals

The Gold Report: Leonard, what are the most pressing issues facing investors today?

Leonard Melman: Let's start with the fiscal cliff. If America falls into this abyss, the combination of tax increases and spending reductions will slow down economic growth. Interestingly, political leaders in Europe are calling for increasing taxes and decreasing spending in order to solve their problems. I find it amusing that the solution to economic problems being proposed by leaders on the European side of the Atlantic is thought to be the problem on the American side of the Atlantic.

TGR: How do you account for the disconnect?

LM: It is due to a philosophical inconsistency and a lack of economic understanding on the part of the world's political leaders, most of whom are not well qualified as economic thinkers, nor as philosophers for that matter.

TGR: How important is a philosophical stance to making a cogent economic analysis? [Read more...]

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