Business News

Could the Yanks kill the rally?

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by Peter Switzer

Another go-nowhere day for stocks as the world’s market makers, or breakers, wait for news out of Europe. However, a great focus of the ‘fiscal cliff’ problem emerged with Goldman Sachs apparently telling clients to get out of stocks before the US economy goes over the ‘cliff’!

Overnight the Dow lost 3.56 points to end at 13,271.64 while the S&P 500 lost less than a point, a measly 0.03, to finish at 1418.13.

The simple conclusion gets down to this: enough buying has happened but there isn’t a big commitment to selling, at least for the moment.

I should report that the Europeans are starting to open their big mouths and there was a bit of negativity generated about what the European Central Bank (ECB) might come up with, but European stock markets were down by much, suggesting the comments had little real impact.

The big news could be the Goldman Sachs matter where its chief equity strategist

David Kostin, sent a note to clients pleading with them to take money out of stocks before the fiscal cliff KOs stock prices!

CNBC reported this from Kostin:

“Political realities and last year’s precedent suggest the potential that Congress fails to reach agreement in addressing the fiscal cliff is greater than what most investors seem to believe based on our client conversations.”

By the end of this year, payroll, capital gains and dividend tax cuts are automatically wound up. Also there will be automatic spending cuts if the Congress does not agree to find cuts to a certain amount.

The Yanks need an election result that will help the Congress avoid a fiscal cliff that could lead to a US recession and that’s why Kostin is so worried.

Last year the S&P 500 collapsed 11 per cent in 10 trading days when the Congress refused to play ball on the budget cutbacks.

I cannot believe the Yanks could be that stupid to let their economy go over the cliff but I have been surprised by US political stupidity before and so you can’t rule it out.

I’m watching this one play out right now and I should add that Goldman’s Kostin has the S&P 500 at 1250 or so and that can explain some part of his pleading.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Tuesday, August 21, 2012

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