CEOs suggest [4] a major reason they are not spending is 'policy uncertainty', politicians blame the other side for stifling growth because of 'policy uncertainty', and brokers, bankers, & economists whine that the only reason the Dow is not at Bernanke's goal-seek'd 36,000 is the 'policy uncertainty'. If only the 'fiscal cliff' issue [5] would go away - we'd all have a pony and life could go on. Sorry to burst that bubble [6]; as we noted here [7], the market is priced for a total compromise [8] and earnings expectations appear to imply a full fiscal cliff resolution in Q4. The hope remains that 'even if we were to go off the fiscal cliff, the political reaction will be swift and vengeful and we will see a 'V'-shaped recovery - so do not worry'. There are two small (ok, very large) problems with that thesis: 1) the self-reinforcing shadow-banking collateral squeeze that would occur as asset values dump again and liabilities remain; and 2) the record-high polarization among our political class. Something to ponder as earnings outlooks continue to drop...
[9]
Chart: JPMorgan