On the fiscal cliff, did you really expect anything to be done? Did you even want anything to be done? I've been convinced that no deal would happen, and I positioned myself accordingly. Now I'll tell you what will happen next and how to play it.
No deal happening is now a better outcome than a last-minute, superficial can-kick arrangement. Think about it: Wouldn't it be the greatest indictment of our incredibly dysfunctional government if Congress could manage to carve out some superficial deal in the last 18 hours of the year when it has been unable to do anything but jawbone for the past 18 months? Even an election seemed to settle nothing. What are we paying these guys for?
Let me tell you what Congress can't do: It can't come together to craft a bipartisan budget deal that can get enough votes to pass both houses and the White House. Is this the new normal, or just the sad lot of this president? I'm not sure, and only time will tell. But I'll tell you what our bipolar Congress still has shown that it can do: It can pass bills that either increase spending or cut taxes. It has proven that it at least can do that. So now, our budget process will move along that way and that way only.
That's why the fiscal cliff is progress, in its pathetic own way. We'll go over the cliff, with tax rates going up on everyone and spending getting cut on both entitlements and the military. And that's when Congress will start to work.
One by one, bills will come to the Congress. A bill will be presented to extend tax cuts for those making under $250,000. An extension of unemployment insurance will be brought to the floor. Some spending will be restored to the military. The "doc fix" will be reintroduced. These bills will all likely pass. As far as I know, only the Alternative Minimum Tax can't be retroactively removed from the fiscal cliff, at least not completely. Otherwise, everything can be reshaped through single bills coming through Congress.
And there's your opportunity in the market and the one I'm hoping to take advantage of. If the "cliff dive" generates a drop in stocks (which seemed to begin on Friday), you should be looking to buy your favorite issues as they drop during the first few days and weeks of the new year.
Because that will be followed by separate bills coming through Congress, trying to selectively restore the worst of the damage. And with each separate bill and its passage, you'll also move away from the most economically damaging austerity pieces of the cliff dive and see a firming of the equity markets.
Is this any way to run a government? Of course not. But it's the government we've got. Now forget your frustrations and trade it right. Happy New Year.