Fiscal Cliff Notes
Don’t get sucked into the pessimism. Why are
investors and big business leaders so surprised?
U.S. stocks hit a three-month low yesterday as big business leaders and institutional
investors continue to be spooked by the looming fiscal cliff, continued worries
about Europe and finally admitting to themselves that they’re facing four more
years of a President who may not necessarily be anti-business/anti-wealthy people, but is certainly
hell-bent on spreading the nation’s wealth (and financial pain) around.
This didn’t exactly come out of left field like Hurricane Sandy. Duh.
The threat of spending cuts, an end to coveted tax breaks and a financially weak Europe have been issues for a long time. Iranian hostilities didn’t just bubble up yesterday. And the prospect of Mr. Obama winning a second term shouldn’t strike any rational person as a huge upset. Most reliable polls had him as a slight favorite for several months, even before challenger Romney’s ill-fated “47-percent” remark. The only thing that surprises us is the level of surprise. You’d think there might have been a contingency plan or two put in place? They’re not small-mid business owners and B2B marketers like us.
Sure the Dow is off about six percent since the President won re-election, but isn’t this the same administration that held the White House during an 85 percent gain in the Dow during its first four-year term?
If you’re a business owner or B2B marketer, don’t get sucked into the recent wave of pessimism. The macro-problems we’re dealing with have been with us a long-time and we’re still seeing slow but steady gains in hiring, job creation, home prices, consumer confidence, business confidence and more.
Great companies will continue to do well. Great products will continue to sell. And great marketing will continue to create demand for great products made by great companies. It’s those on the margins who might get whacked if they don’t get it together ASAP.
Are things great? Not by a long shot.
The Institute of Supply Management’s business confidence index is at 51.7, just slightly below its historical average of 52.8, but a significant drop from the low-60s it reached mid-year. About three-fourths (73%) of the corporate elite who attended this week’s Wall Street Journal CEO Council conference in Washington said their primary concern was the "fiscal cliff," the federal spending cuts and tax increases that begin in January unless policy makers intervene. Only one in eight (12%) said their top fear was Europe's financial crisis.
The President and Congress are trying to put together a long-term deficit-reduction package that could replace the fiscal cliff, but they have made little progress and have just seven weeks to cut a deal. Experts say the fiscal cliff would raise taxes roughly by $400 billion and cut spending by roughly $100 billion in 2013. Several economists say the measures would cause another recession. The President and House Speaker John Boehner claim they’re open to compromise and don't want to replay the BS that occurred last year during a fight over raising the government's borrowing limit. But you know negotiations will go slowly, most likely into 2013—i.e. over the perceived cliff.
The Wall Street Journal report that several CEOs at its conference claimed this uncertainty has prompted them to make contingency plans for layoffs and prepare for a sharp economic contraction, which is holding back investment. You know that’s an excuse.
Business leaders and policy makers have known of the fiscal cliff since it was created last year as part of the deal to raise the debt ceiling. But few paid much attention to it because they were focused on the presidential race. "The narrative of the country was completely dominated by the election, and that's changing currently," said Stephen Schwarzman, chief executive of the Blackstone Group., a private-equity firm.
Our take: Congress will likely extend all expiring tax cuts for at least another year and make gradual plans to shore up the deficit and even out the tax pain faced by businesses and individuals of all income levels.
The long-term U.S. deficit must be addressed, Seifi Ghasemi, CEO of Rockwood Holdings told the Journal, but, "I wouldn't lose a lot of sleep if we have negative growth for one quarter in order to solve the longer-term problem."
We’re sleeping OK as well. Maybe not all the way through the night, but at least we’re getting some rest. We’re hitting it hard right now—not waiting till 2013 to find out what may or may not happen. We suggest you do the same.
TAGS: Hurricane Sandy, fiscal cliff, Institute of Supply Management, business confidence index, Stephen Schwarzman, Blackstone Group, Seifi Ghasemi, Rockwood Holdings