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I hate advising on the short-term

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by Peter Switzer

Another day before the fiscal cliff, and Wall Street refuses to believe that the US Congress and President Barack Obama can screw up the negotiation process so badly that it will spook the stock market into a sell-off. However, unfortunately, they could!

And so the next question is — how bad could the sell off be?

Back in 2008 when the Republicans actually strongly opposed George Bush’s recommended bailout for the financial sector, the Dow dropped 777 points! That was the biggest dumping ever, Associated Press informs us.

That was then, this is now

Last year the Congress had a budget stand off and stocks were crushed around August-September, but it did coincide with the USA losing its AAA-rating.

Things are different now and the fiscal cliff could throw the USA into recession, but I wouldn’t expect a massive sell-off if the December 31 deadline isn’t met by the Congress.

That said, I would expect a sell-off as the stock market is remaining tentatively positive because it seems assured that a deal will be struck to avoid the US economy going over the cliff into recession.

If that deal doesn’t happen before New Year, then certainty will be replaced by uncertainty and stocks will fall.

Marking time

Overnight the Dow was up 14.75 points or 0.11 per cent to end at 13,169.88 while the S&P 500 was up a mere 0.48 points to finish at 1418.55.

This is real marking-time stuff, but let me inform you the technical charts say you should be buying stocks. Charts can’t, however, anticipate the left-field great or crumby event that help or hurt stocks. What Congress or President Obama say is such an event, and so the cautious would simply wait until a deal is done.

Sure, you could miss a few per cent by not buying now, but it could prevent you going long and copping a kick in the pants if something dumb emerges in the cliff negotiations before the end of the year.

Short term vs. long term

I hate second-guessing markets in the short-term, but I know a lot of my readers and clients like the thrill of the chase. By the way, Gary Stone of Share Wealth Systems says the charts say it’s again safe to play the market, but charts can be blindsided by a shock development as I argue.

Personally, I like the “buy right and sit tight” as Vanguard’s founder Jack Bogle would say, and it is especially so when I think we have another good year for stocks ahead in 2013 after this damn fiscal cliff rubbish is out of the way.

That’s why I hate advising on short-term guessing games!

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.

Watch more from Peter on SWITZER TV.

Published on: Tuesday, December 11, 2012

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