Market Reacts To Fiscal Cliff Resolution

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By

Sam Robson

Published in Investing on 2 January 2013

The FTSE 100 soars on the positive news.

The FTSE 100 (UKX) rose 90 points as the markets opened this morning, following the announcement that the House of Representatives has passed the fiscal cliff bill in the US.

The Republicans and Democrats came to a compromise at the last minute over the deal, which will impose tax rises on the country's wealthiest, sparing the working- and middle-classes. On Tuesday night, Congress voted in favour of the bill with a majority vote of 257 against 167.

If no agreement could have been reached between the two political parties by 1 January -- the fiscal cliff being midnight on 31 December 2012 -- then every American taxpayer faced an automatic rise, totalling $536bn. Additionally, spending cuts from domestic and military programmes of $109bn would likely have caused markets around the world to be affected if the issue had not been resolved, not to mention a slow economic recovery.

As it is, the Footsie now finds itself ever closer to the 6,000 mark following its 90-point/1.5% climb, while around the world markets have also responded positively, with Hong Kong's Hang Seng index up 2.1% and Australia's ASX 200 increasing 1.2% at the time of writing.

The FTSE 100 contains many strong dividend-paying investment opportunities, and "8 Popular Dividend Shares Held By Britain's Super Investor" reveals the favourite income stocks held by Neil Woodford, who has thrashed the FTSE 100 during the 15 years to 2011 by favouring steady and reliable blue chips. Just click here to download the free report today.

> Sam does not own shares in any company mentioned.

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Comments

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MySockBrokeHer 02 Jan 2013 , 11:40am

We want more! We want more!

TMFSamR 02 Jan 2013 , 11:44am

Up 2% now, having broken the 6,000-point mark -- looks like you got your wish!

DrFfybes 02 Jan 2013 , 11:48am

My Goodness, you mean the politicians played brinkmanship right up until the last possible minute but then managed to save to World from financial meltdown by agreeing a compromise just in the nick of time, rather than go down in history (and in the polls, and in the next election results) as the bunch of in-fighting incompetents who caused another global recession?

Who'd have thunk it?

F958B 02 Jan 2013 , 12:12pm

The only thing that US politicians did, was kick the can down the road; it'll be an even bigger problem the next time because the distortions will have got worse - rather like 2010-12's repeated Euro-zone crisis meetings where politicians meddled while Rome and Athens burned.

Under Obama, the US government has added more debt than all previous US presidents combined.
The US spending cuts (and tax rises) still need to happen - Obama can't go on spending $3 for every $2 received in taxes, with the shortfall being monetised (printed) by the Federal Reserve.

At some point, markets will have a reality check and one or more of the following will happen:
1. US inflation soars.
2. US interest rates soar.
3. US Dollar collapses.
4. The sudden violent adjustment due to soaring cost of living and/or soaring interest rates brings on another very severe recession.





Algernon1979 02 Jan 2013 , 12:50pm

What F958B said!

ANuvver 02 Jan 2013 , 1:08pm

Classic example of markets hating uncertaintly. Markets surely felt that some kind of non-deal deal would be achieved at the 11th hour (and not before), and what we're seeing now seems to be not so much "risk on" as "threat deferred".

As F points out, the news isn't great and this is certainly not over.

With any luck, these episodes will at least temper the smug high-handed US criticism of the deficiencies of European political structures.

But for the short term at least, traders seem content enough knowing where they stand.

Interesting also that Obama shot one across Congress' bows about not obstructing the mechanism for paying bills that have already been run up. Personally, I'd love to see a rerun of August 2011 and I wouldn't rule it out.

HNY to all.

ANuvver 02 Jan 2013 , 1:12pm

Further to F:

So...

1. Bad for bonds.
2. Bad for bonds.
3. Bad for bonds.
4. Bad for everything?

IDPickering 02 Jan 2013 , 1:24pm

They'll be a film about this knowing our American friends ;-)

Or should I say Movie. ..."Fiscal Cliff " starring....

F958B 02 Jan 2013 , 1:28pm

1. Good for gold.
2. Good for gold.
3. Good for gold.

I think that some time soon, in response to the US joining Europe in can-kicking, and the money printing, we'll see gold's decade-long uptrend shift up a gear (as most uptrends ultimately do - and just as the 1970's one did; gold went from $100/oz in 1976 to $850/oz in 1980 as confidence disappeared in the US government, its debt, the inflation and status of its currency).

In the next couple of years, I expect gold to be one of the best performing assets. I think gold will move to new highs to reach at least $2100 within a couple of years.

I have 20% of portfolio in gold. I very nearly added more recently when gold almost touched £1000/oz ($1650) but my dealer was closed when I went to make a purchase.

ANuvver 02 Jan 2013 , 2:06pm

F: Bullion sovereigns and Britannias presumably?

25% in two years. Maybe.

Think you could be ultimately right, but then we're all ultimately dead, aren't we!

F958B 02 Jan 2013 , 2:48pm

I was planning to take up Baird&Co's offer on Aussie Nuggets and Kangaroo's.
Then found that they closed earlier-than-expected for Christmas.

Not to worry; I still have lots of gold which I bought in the low-£200's/oz ($300-400/oz) in the early-2000's so I'm not desperate for the stuff.

I'm not much of a fan of Britannia coins because of the usually high mark-up.........but at the right price I'd have some as they are beautiful coins.
Gold Eagles are nice coins too but also usually highly marked-up in price, but I have some which I picked up at a good price some years ago.

Krugerrands are usually the next most cost-effective, then Sovereigns. I sold the last of my Krugerrands in summer 2011 when gold had a blowout, but retained the Sovs as they're free from CGT and would come in useful at a later time when maybe I wanted to minimise CGT liability if gold shoots higher again.

But the "best" coin to buy does vary a little with supply and demand (hence Baird&Co appear to have an overstock of Aussie coins which they're discounting in recent weeks).

ANuvver 02 Jan 2013 , 3:26pm

Interesting stuff, F. Offloading on Aussies, eh?

Numismatics aside, the CGT break on sovs is the USP for me. I love the young head shields - beautiful pieces of history - but it's more about "never mind the quality, feel the width" for me.

innocentatlarge 02 Jan 2013 , 6:12pm

Irrational exhuberance I think. You could understand the market rising sharply if the US leaders had launched a policy initiative focussed positively on the fundamental economic problems. But all they have done is promise not to shoot the country in the foot and make matters worse for the next two months.

ANuvver 02 Jan 2013 , 6:23pm

Pickering:

Can't resist that.

Tom Cruise is Fiscal Cliff in...
Jack Overreacher II - Shorting the Market.

Featuring Samuel L Jackson as Barack Obama, Kate Winslet as Nancy Pelosi, Steven Seagal as John Boehner and Hugh Grant as some whimsical guy who runs England, or something.

ANuvver 04 Jan 2013 , 8:34am

F:
Trip to the dealer today, perhaps?

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