Fiscal Cliff Coming Sooner than You Think
There’s been plenty of talk about the fiscal cliff and how the end of the year is a key period for investors. Well, that timeline may not be quite right.
The fiscal cliff refers to the tax cuts and spending programs that are set to expire at the very beginning of 2013. And there's been a lot of talk about how the period after the election but before the end of the year could be volatile as lawmakers grapple with what to do.
However, we’re hearing the ripple from those headwinds will likely blow across the economy and by proxy the stock market sooner than the end of the year – much sooner.
“We really think it’s going to start hitting in the third quarter – and build from there,” says Michael Hanson, Bank of America economist during an interview on CNBC’s Fast Money.
He compares the fiscal cliff to a hurricane.
“You don’t board up the windows when the storm hits, you do it when you hear the storm is coming. “We think the fiscal cliff impacts the market not on December 31st but months before.”
To make the situation all the more perilous, Hanson doesn’t think the Street is properly factoring in the preparations that companies will have to make.
“If lawmakers can’t find common ground and nothing is enacted at all, 3.6% will be shaved off growth,” explains trader Josh Brown, author of The Reformed Broker blog. “In the event of that worst case scenario, the US will go into recession. No question.”
Although it’s widely believed that Congress will find some kind of common ground, it’s also widely believed no compromise will happen until the last possible minute.
And sometimes lawmakers like to grandstand like they did in 2008 when the House rejected TARP. Events such as that make the worst case scenario if not a probability at least a possibility.
Companies have no choice but to prepare for that. “The fiscal cliff isn’t about 2013, it’s about right now,” Hanson concludes.
Posted by CNBC's Lee Brodie
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Trader disclosure: On June 20, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Karen Finerman is long AAPL; Karen Finerman is long BAC; Karen Finerman is long JPM; Karen Finerman is long WMT; Karen Finerman is long TGT; Karen Finerman is long MSFT; Karen Finerman is long M; Karen Finerman is short SPY; Karen Finerman is short IWM; Karen Finerman is short MDY; Tim Seymour is long BAC; Tim Seymour is long INTC; Tim Seymour is long SBUX; Brian Kelly is long AAPL; Brian Kelly is long BAC; Brian Kelly is long PNC; Brian Kelly is long JPM; Brian Kelly is long WFC; Brian Kelly is long DD; Brian Kelly is long DOW; Brian Kelly is long MMM; Brian Kelly is long GNRC; Guy Adami is long C; Guy Adami is long GS; Guy Adami is long INTC; Guy Adami is long AGU; Guy Adami is long MSFT; Guy Adami is long NUE; Guy Adami is long BTU
For Josh Brown
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For Lawrence Goodman
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CNBC.com with wires.