Fiscal Cliff Update: 'Little Progress Toward A Compromise In Past Ten Days"

Tyler Durden's picture

Two Fridays ago on November 16, just as AAPL was in danger of plunging below the absolute last support level of $500 after which freefall for it and the entire market begins, a truly unexpected deus ex machina appeared for those still clinging to long stock positions: politicians, in this case John Boehner and Nancy Pelosi, who held a press conference in which they defined the recently launched "Fiscal Cliff" talks as "constructive."

In reality, this appearance was nothing but a photo opportunity for talking heads (as explained in "Risk Ramp on Boehner Banality"), and one which as Nancy Pelosi herself admitted later, served simply to halt what then looked like an assured free fall in the markets. Since then the ongoing rally in stocks and the EURUSD has been predicated on the "constructiveness" of the talks actually being real. Because while a fiscal cliff solution, or rather a compromise - one in which the status quo will be extended and no news spending cuts or major tax hikes will appear, will certainly be implemented, the question is what will take to get the career politicians to bend to even this tiny "compromise" and what is the sequence of events of such a catalyst. As is well-known, Goldman, unlike almost every other sellside group on Wall Street, except for Morgan Stanley, still sees a tumble in the S&P to unchanged for the year levels as being the key driver that forces DC to cobble a deal (to be sure, Goldman then expects stocks to surge to over 1500 for 2013).

Judging by the latest update from Reuters, Goldman will likely be right, if only in the short term. As Reuters admits, " U.S. lawmakers have made little progress in the last 10 days toward a compromise to avoid the harsh tax increases and government spending cuts scheduled for Jan. 1, a senior Democratic senator said on Sunday." That this update comes after the "big" market swoon into the recent lows from November 16, is certainly cause for alarm, because it means that at least one more violent market whipsaw to the downside will have to take place before there is any cliff progress to report.

From Reuters:

 U.S. lawmakers have made little progress in the last 10 days toward a compromise to avoid the harsh tax increases and government spending cuts scheduled for Jan. 1, a senior Democratic senator said on Sunday.


"Unfortunately, for the last 10 days, with the House and Congress gone for the Thanksgiving recess ... much progress hasn't been made," Dick Durbin, the No. 2 Senate Democrat, told ABC's "This Week" program.


A deadline is looming. Absent action by lawmakers and President Barack Obama, roughly $600 billion in tax increases and spending cuts will start to hit households and companies in early January.


Durbin said Democrats are willing to allow small changes to parts of these entitlement programs, including public health insurance programs for the elderly and poor, but the Social Security government pension program should not be on the table.


"Bring entitlement reform into the conversation. Social Security, set (it) aside," Durbin said.

In other words, our assessment of the Boehner-Pelosi photo-op was once again spot on.

Remember: politicians are never in a rush to "resolve" something unless real money loss - either their own or of their primary lobbyists - is at stake. And Wall Street will make sure of just that. It will also be sure to buy ahead of everyone else once the real can kicking exercise du jour is completed. At least until the realization that nothing has been actually resolved kicks in. That bridge will be crossed in due course.

But first a far more looming bridge is that of the Cliff, on whose crossing there has been no progress made, for which Obama has said will demand double the previously expected amount in tax hikes ($1.6 trillion over ten years, or enough to fund the US budget deficit for one month), and which will collapse very soon, as there are now just 12 full sessions of Congress until the end of the year.

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viahj's picture

Must be wurkin' pretty gud, they ain't wearing sticky feather suits.

Mike in GA's picture

That's the kind of expenditure that needs to be cut NOW!

Peter Pan's picture

How about another war in the Middle East? Ths should justify another increase in the debt ceiling.

Atomizer's picture

Your fiscal cliff coincides with a law deadline, the date is  January 15, 2013


Once old law is purged off the books, new law displaces old rule of law. The lack of transparency permits quick amendment’s in retaining new governing control.

Caveat emptor bitchez 

A Lunatic's picture

My State nullified this piece of shit law years ago........

Atomizer's picture

What happens when the Federal Government nullifies the States laws under a manufactured National Security event. How will your state handle this piece of shit law nullified years ago? I hope you have a Plan B?

A Lunatic's picture

I suspect it will be ignored once again. I don't live in Kalifornistan...........

DbePrepared's picture

Here's the move.

1.  Let Cliff arrive. taxes raised - check

   2.  Reduce taxes - i.e. bring 'em back down.  check - POTUS 1 - GOP 0

3.  Can kicked down the Road - Ctrl 'P........

cowpieflapjack's picture

Why does the calendar have a November 31st?

DavidC's picture

As it's the last year of the Mayan calendar they added another day for people to get everything prepared in time.


virgilcaine's picture

In 2006 the Deficit was 8 Trillion when Hairry Reid started talking about it. Today it's 16 Trillion and he is still talking about it. This is the leadership you've come to expect!

DavidC's picture

A million sounds a lot. A trillion is just a number...


Miss Expectations's picture

"Make 'em work nights!"

Veruca Salt

cxl9's picture

The Fed will print.

The government will borrow and spend as usual.

The can will be kicked.

That is all you need to know.

bugs_'s picture

Ask the Greeks for advice.

vote_libertarian_party's picture

No mention on todays talking heads Fiscal Cliff discussion:


No mention of kicking the can (the compromise) will mean finally US debt downgrades by the big 3


No mention of the Fed has delayed a visible depression by printing $100B per month


I even heard one reporter say a deal will mean we will finally start reducing our DEBT...not deficit, out debt 

slackrabbit's picture

they've already agreed to raise the debt limit, but they'll still put on the pantomime....

FinalCollapse's picture

WTF - these motherfuckers don't work on Mondays????

Locked them (Congress of Baboons) up in one small room without access to restroom until they get it resolved. No Christmas for these morons.

Joebloinvestor's picture

If one ever needed a reason to HATE BOTH parties, here ya go.

Neither wants to make the "hard" choices that are gonna be needed to save the FIAT.

The problem is two fold (IMO).


2. Take away the politicians ability to use the printing press.

my wag's picture

People around the world are still buying our low interest bonds...backed by the Full Faith and Credit of the United States

Winston Churchill's picture

Only short duration ones,the FedRes is buying the longer term ones.

Ask yourself why ?

Nobody else wants them.

The demand for short term UST's will last only as long as the petro dollar.

The US debt is never going to be repaid.


agNau's picture

Compromise is in the works.
Timma wants to eliminate the debt ceiling.
Baner wants austerity.
Bammy will show willingness to work together.
Adding one more zero before the decimal onto the debt ceiling AND, making a FIRM commitment to spending cuts in 2016!
Bammy, cover of Time again!
Not prediction.

scatterbrains's picture

"Real money on the table" What real money ? I thought the fed just printed it up...  Is this a fight about money or control ? Why should they bother to do a deal when doing nothing causes them only 50% of the blame.. which even that can be managed away over the course of the next 4 years through the MSM and before the next election cycle.  Money to them and the creation there of is just a tool by this point to be printed into existence to further their goals.  I say they do jack squat shit and let the markets fall... they have the tools to fluff the market back up again in due time. 

dragoneyes74's picture

I agree with this.  I'd be suprised if we didn't see the selling return this week, or soon thereafter.  Very close to perfect backtests in stocks, the dollar, and the Euro.  I do wonder, though, if the politicians learned from the Aug 11' debt ceiling meltdown that they should sing kumbayah and hold hands in public and keep the knife fights in private, which would lighten what should be one more downleg for equities.  

I would think silver should pullback a little, then grind upward to $37 before it's time to reevaulate.   

TraderTimm's picture

I've been thinking about these things for a while, and frankly I can't come up with a reason why the below scenario wouldn't be true under current conditions.

1) Spend to the sky, then redefine what the bounds of 'sky' are, and keep on spending

2) Discourage methods to reduce or slow population growth - they need new income streams from taxable bodies. This would also make immigration another perceived route to tax revenue, so relaxed protocols for incoming potential citizens is encouraged, but not expatriation or renouncing citizenship.

3) Encourage methods that increase fertility and social behavior for population growth - cynically, you could make an argument that hormones entering the food chain are part of this, not just a quick profit-center for farmers and meat-processing

4) Encourage social dynamics focused on emotional appeal and ad-hoc reasoning - never with rational logic, but only used to amplify situations and more easily 'steer' discourse on a given topic. It is similar to the mob dynamic where the collective IQ seems to drop sharply.

5) If a person can't be taxed successfully, make sure that they at least enter a program where profits can be extracted - from overbilling and estimation of funding to skim off the top, or privatized prisons where paying 35 cents an hour is standard. (Some of this work is now being put up for bid to private companies, not just government contracts)

6) Encourage surveillance methods with no recourse - lack of transparency on how and why they are used is key here, in addition to no legal protections. A good litmus test is - if you used the same methods and you would go to jail, but a state or government agency wouldn't - you're in an asymmetric surveillance system.

7) Encourage financial tracking and 'tagging' - make sure you know where all the flows are, that the banks are reporting on non-trivial amounts, or even smaller activities as mandated by the surveillance initiative. This of course is not applied to the system doing the tracking.

This is where we are right now. And I don't have any solution to it, other than trying to isolate as best as I can.


gould's fisker's picture

I am simply shocked that the markets may have been a wee bit optimistic on DC's ability to confront a crisis--it's not like we had the last two years to make a judgment on the prospects.  And before a crisis can be addressed, it actually has to be confronted, sized up, acknowledged, etc. HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA

media_man's picture

When does Congress / Obama confiscate my 401K & pension to pay for all this crap?  How much time do I have before I should just quit my job & pay the 50% tax & penalty to get it out of the country?

media_man's picture

When does Congress / Obama confiscate my 401K & pension to pay for all this crap?  How much time do I have before I should just quit my job & pay the 50% tax & penalty to get it out of the country?

Quaderratic Probing's picture

Obama has said will demand double the previously expected amount in tax hikes

With this as an opening position he is saying screw you I know this is unacceptable so over the cliff we go. Automatic cuts and higher taxes are comming. People with 401k don't pay anyway, only tax on the open market stockholders.

are we there yet's picture

Alex Hannold might be the only onte able to free climb our fiscal cliff.