The Cliff Is Dead, Long Live The Cliff: Futures Soar

Tyler Durden's picture


And so after much pomp and posturing over the past 48 hours, much of which will likely reshape the layout of the GOP in both chambers, both the Senate and the House passed the first concurrent tax hike and permanent tax cuts in about two decades. The net result of this will be a roughly 1% drag on GDP, even as the US budget deficit increases relative to the CBO's old baseline, and the beneficial impact from the tax hikes offsets roughly two weeks of spending. In other words, while addressing the tax part of the equation, politicians delayed the spending part of the problem for exactly 60 days by punting on the expiration of the sequester, or the government spending cuts. They also delayed addressing the debt ceiling, perhaps the most integral part of the Fiscal Cliff, which has now been breached and which as of this moment means the US can't incur one additional dollar in additional debt.

So looking forward it means the US now has about 4 separate cliffs: the debt ceiling cliff in February/March, the sequester cliff in March, the farm bill cliff in September and the expiration of jobless benefits on December.But that's all in the future, and it will all be a function of just how quickly the GOP rolls over to once again confirm that when it comes to the stock market, America has just one political party. The party of up at all costs, which in turn is manifested right now in the first futures print of the New Year, with both the S&P and the DJIA futures up nearly 2%, and with the E-Mini up some 50 points, or half a turn of S&P multiple expansion in two trading sessions: a nice rally to show just who Washington truly works for.

From a big picture perspective it means one thing: the Fiscal Cliff discussions aren't going anywhere, and will continue to dominate the airwaves over the next two months, only this time far more attention will be paid to the debt ceiling part of the cliff, an issue Obama said last night he will not yield to republicans, and on which republicans said they will demand far more concessions.

In peripheral news flow, corporate revenues and earnings continue to grow below trend, and economic growth will certainly be impacted adversely as none of the uncertainty has been removed, but merely delayed. European final manufacturing PMI declined from 46.3 to 46.1, even as the UK soared ahead of Mark Carney taking the helm of the BOE. Peripheral European bonds continued their declining, with Spain and Italy reaching nearly 2 and 3 year yield lows, respectively.

That said the main mission has been accomplished: all relevant newsflow has once again been pushed back from the main news stream and relegated to the backburner, where anything not meeting expectations can be "explained away" using the Cliff as a scapegoat for both Q4 2012 and Q1 2013.

In terms of actual expected US data today, we have the Manufacturing PMI at 8:58 am, Construction spending at 10 am (expected to drop from 1.4% to 0.4%) when the latest Manufacturing ISM is also released and is expected to rise from 49.5 to 51.5, and finally the December FOMC minutes at 2:00 pm.

Some more on what to expect today from SocGen:

A last minute deal saved the US from going over the fiscal cliff means that the start of the new year is being greeted by a 'risk on' boost to cross assets. JPY funded risk positions have been bid up causing USD/JPY to vault 87.00 and EUR/JPY to set sights on 116.00. Long-term core bond yields and swaps have backed up in the process and a round of decent US ISM data today and payrolls on Friday could cause the correction to deepen in 10y and 30y sectors in particular with yield curves steepening in the process. A break of 1,450 for the S&P-500 could presage a move back up to the September'12 high of 1,474. However, critics were quick to pour cold water on the US fiscal Bill, and the lopsided nature of the deal that focuses on tax increases and is devoid of any commitment to cut public spending will cause tense negotiations to resume over the weeks ahead as the focus now shifts on how to raise the $16.4trn debt ceiling by March. The CBO calculates that the latest agreement will add $4trn to the US deficit. Nevertheless, the negative short-term impact on the economy (and sentiment) appears to have been contained as we now wait for the Bill to be signed into law. In the meantime, we suspect that shorting JPY will continue to be popular as PM Abe takes the reins. Data today includes EU and UK manufacturing PMIs and the US ISM. Germany sells 5bn in 2y notes.

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Wed, 01/02/2013 - 08:36 | 3114412 Cable Guy
Cable Guy's picture

Have faith the government will wisely spend these new found monies!

Wed, 01/02/2013 - 08:41 | 3114417 Zer0head
Zer0head's picture

TeeParty is toast if Boner is re-elected as Speaker and markets will go to the moon - if he is replaced by Cantor (unlikely) just the opposite January 3 will decide the future cliffs

Wed, 01/02/2013 - 08:42 | 3114420 SmoothCoolSmoke
SmoothCoolSmoke's picture

Kicking the Can. Sorry, but it works.

Wed, 01/02/2013 - 08:53 | 3114421 Monedas
Monedas's picture

Cheers !                 Cliff Claven rules !                Clifford :  (klif  ford)   1. A poor place to cross a  stream due to steep access !

Wed, 01/02/2013 - 08:45 | 3114424 lifetide
lifetide's picture

The Tea Party movement officially died from a betrayal of mass proportions.

Wed, 01/02/2013 - 09:44 | 3114523 flattrader
flattrader's picture

Tea Pary dead?  Did the Koch Bros. pull their money?

Wed, 01/02/2013 - 08:48 | 3114429 espirit
espirit's picture

Red + Blue = Purple.  The color of the Fascist Party of Amerikan Banksters.

Time to tune out and bunker down.

Wed, 01/02/2013 - 08:50 | 3114432 hapless
hapless's picture

"The party of up at all costs, which in turn is manifested right now in the first futures print of the New Year, with both the S&P and the DJIA futures up nearly 2%,"

In what terms?  USD in the shitter...

Wed, 01/02/2013 - 08:52 | 3114435 I am a Man I am...
I am a Man I am Forty's picture

So predictable and so easy to make money doing the opposite of the lemmings.

Wed, 01/02/2013 - 08:55 | 3114441 overmedicatedun...
overmedicatedundersexed's picture

will vote for a gop guy next election to stop the spending and debt, must vote gop to stop dem socialists, must vote must vote must vote save gun rights vote gop, secure the borders vote gop, must increase my meds it seems voting gop has not worked, what is wrong, oh take this pill, that's better, must vote gop.

Wed, 01/02/2013 - 08:57 | 3114443 Smuckers
Smuckers's picture

The wealth effect just stretched the lips of my anus about 2%.


Wed, 01/02/2013 - 08:58 | 3114444 Monedas
Monedas's picture

The deception lies in the discovery that the Republicans are hardly any better than the Democrats, in practice .... hardly a ringing endorsement for the Democrats ? 

Wed, 01/02/2013 - 08:59 | 3114445 youngman
youngman's picture

It amazes me that the Tea Party is made out to be a bad because they want to live within their means....if that is bad...what is good...think about inflation good for the average it is hyperinflation good for the average joe...nope....but hey those Tea Partiers are bad bad bad

Wed, 01/02/2013 - 09:03 | 3114452 Seasmoke
Seasmoke's picture

Avoid deflation at all costs.

Wed, 01/02/2013 - 09:00 | 3114447 Seasmoke
Seasmoke's picture

Status quo at all costs.

Wed, 01/02/2013 - 09:02 | 3114451 lifetide
lifetide's picture

I take my cues from Standley Johnson.



Wed, 01/02/2013 - 09:12 | 3114472 stormsailor
stormsailor's picture

i bet every asshole in congress made a ton of money.  the move was done before you could take part in it

Wed, 01/02/2013 - 09:21 | 3114484 Waterfallsparkles
Waterfallsparkles's picture

I do not know about anyone else but as a Trader I feel like I have been battered and beaten.  Spent the whole Christmas holiday worring about my Stock account.  Same with New Year.  It spoiled the whole Holiday for me.

What I hate the most is that they tie the Stock Market into compelling Law Makers to do the Bankers bidding.

Black and Blue but lived to Trade another day.

Wed, 01/02/2013 - 09:28 | 3114487 Zer0head
Zer0head's picture
The mechanics of Boners speakership on Jan 3

In short, with Jackson having retired, as few as 17 House Republican members now can deny Boehner an “absolute majority” of the total 434 expected votes on Jan. 3, if all the Democrats back Pelosi.

Wed, 01/02/2013 - 09:29 | 3114493 rsnoble
rsnoble's picture

I was rather unpopular the last few weeks telling everyone not to go all in short ahead of this.  Now you know why.

Did I know 100% for sure? No, and anyone that said they did are too convinced of themselves and sometime or another will get whacked because of that.

I merely thought it was highly likely. 

Now is the time to watch and see how this shit all reacts.  I have real doubts if this is going to result in some new rally (sorry but reaching the old highs again and/or slightly going over doesn't count as rally) but more of another bullshit means of protecting the previous gains.  I don't think it will work but we'll see.

Wed, 01/02/2013 - 09:35 | 3114495 ZeroAvatar
ZeroAvatar's picture

Is that a North Korean flag on Zerobama's lapel pin?


"Higher taxes for thee, champaigne and caviar for me!  Salut!"

Wed, 01/02/2013 - 09:41 | 3114517 roadhazard
roadhazard's picture

LOL, repubicans rejected less and lesser deals until they got NONE.

Folded like a bad hand like I knew they would. Most repubicans constituents are Not the rich.

Wed, 01/02/2013 - 09:45 | 3114526 Tsar Pointless
Tsar Pointless's picture

Wow. Something in the Pittsburgh Post-Gazette that is actually worth reading.

Dan Simpson, a former U.S. ambassador, is a columnist for the Post-Gazette.

See ya at S&P 1500, bitchez!

Wed, 01/02/2013 - 09:52 | 3114537 SmoothCoolSmoke
SmoothCoolSmoke's picture

Despite all our rage we are still just rats in a (Bankster) cage.

Wed, 01/02/2013 - 09:52 | 3114540 orangegeek
orangegeek's picture

Not all futures.


US Dollar falls hard.  Interestingly enough, the Euro rockets (check weightings).  Europe, on the verge of financial collapse, has a currency that is increasingly more valuable that the USD.


It all makes sense. *eyes crossed*

Wed, 01/02/2013 - 10:05 | 3114568 AynRandFan
AynRandFan's picture

What this proves is that the party willing to sacrifice the nation for the sake of political power will always win.

Wed, 01/02/2013 - 10:16 | 3114607 El Hosel
El Hosel's picture

We have two parties "willing", that is the problem... They always win.

Wed, 01/02/2013 - 14:08 | 3115364 Oldwood
Oldwood's picture

Good Cop/Bad Cop. It works all the time.

Wed, 01/02/2013 - 10:15 | 3114604 ptoemmes
ptoemmes's picture

Ah yes, one could almost be excused to refer to the new scapegoat as the Sandy Cliff in an attempt to segway from history.

Wed, 01/02/2013 - 10:25 | 3114636 Grand Supercycle
Grand Supercycle's picture

Wile E. Coyote awaits...

As mentioned, recurring short squeezes propelling markets higher just ensures the Wile E. Coyote drop will be brutal.

Whether it’s caused by fiscal cliff, debt ceiling, Europe or flesh-eating zombies invading Wall St, it doesn’t matter because another crash is guaranteed.

It’s a no brainer. Charts don’t lie.

More updates

Wed, 01/02/2013 - 10:31 | 3114651 TrustWho
TrustWho's picture

...And now the setup and anks will take more of your money.

Is Crony Capitalism a Big Fucking Deal? For me, you better believe it!  Jamie Dimon

Wed, 01/02/2013 - 11:46 | 3114893 Neo1
Neo1's picture

Irrecusable obligation, which according to 'Bouvier's Law Dictionary' (1914 ed.), is "a term used to indicate a certain class of contractual obligations recognized by the law which are imposed upon a person without his consent and without regard to any act of his own." This is distinguished from a recusable obligation which, according to Bouvier, arises from a voluntary act by which one incurs the obligation imposed by the operation of law. The Income Tax succinctly described is an irrecusable obligation.

However, if anyone else accepts this private credit and uses it to purchase goods and services, the user voluntarily incurs the obligation requiring him to make a return of income whereby a portion of the income is collected by the IRS and delivered to the Federal Reserve banksters. Actually the federal income tax imparts two separate obligations: the obligation to file a return and the obligation to abide by the Internal Revenue Code. The obligation to make a return of income for using private credit is recognized in law as an irrecusable obligation. The voluntary use of private credit is the condition precedent which imposes the irrecusable obligation to file a tax return. If private credit is not used or rejected, then the operation of law which imposes the irrecusable obligation lies dormant and cannot apply.

A Banksters defeatism (realization of defeat) nightmare, Being forced to Return to Real Money=United States Note=Lawful Money, Use the Remedy within the Federal Reserve Act. Redeemed 12USC411, Refusal Penalty 12USC501a  Stop being a Slave!!!!!! This is Tax Free Money!!!!!!!!

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