The key story in the financial media today is weakness in retail sales. The easy and convenient explanation for the weakness is that uncertainty about the financial cliff caused people to hold back.
Maybe the fiscal cliff is having some impact, but I suspect that cautious spending is due to more fundamental concerns about the economy. I have yet to hear anyone who thinks that a fiscal cliff deal is going to be a major positive catalyst. It does remove some uncertainty, but many are afraid that the combination of higher taxes and less spending will only make the problems worse.
The positive spin is that a fiscal cliff deal will give us more certainty and that will enable business to make better plans and to start to grow again. It is going to be a relief just not to hear the phrase "fiscal cliff' again, but many are worried that other, deeper problems will come to the forefront once we move past the fiscal cliff issue.
In the short term I think we have a good chance of at least one positive spike before the end of the year. With President Obama returning to Washington there will be pressure for him to give the appearance of making progress and therefore is likely to say something positive. There may also be some end-of- the-year window dressing pressures as things wind down, which is supportive of a long bias.
I'm going to continue to try to position to catch a fiscal cliff deal rally, but after that is done I'm worried about where the market and the economy are headed. I have little faith in our political leaders and a fiscal cliff deal is going to simply highlight their limited capacity to really fix the problems that we face.