A Gloomy Reality Sets In: 2013 Will Be Tough, ‘Cliff’ or Not
A gloomy reality sets in: 2013 will be tough, "fiscal cliff" or not.
Man, are traders in a glum mood this morning. The source of this funk is the realization that it's go to be a tough slog next year, even with a fiscal cliff deal. (Read More: Obama Takes 'Fiscal Cliff' on the Road; GOP Stews.)
How's this for defeatist thinking: We lose either way. If they agree on a deal on the cliff that is credible, it will contain tax increases and spending cuts that are detrimental to the economy. If they don't approve a deal, there are still mandatory spending cuts that kick in that are likely worse.
Pass the hemlock. And that's the good news.
The bad news is that traders have more short-term worries, such as: 1) getting through today, the end of the month, without a significant loss, considering the S&P 500 is up a measly 0.3 percent in November; and 2) getting through December.
Getting through today involves navigating a simple issue: Traders are reluctant to go long into the weekend with the risk that any third-rate Congressman or Congresswoman appearing on the Sunday talk shows could say something wildly inflammatory on the fiscal cliff negotiations that will leave us with S&P futures down 15 points at 9 a.m. Monday morning.
Navigating December is even trickier: Where does it leave you, when you are underperforming for the year and you are facing the last year of the month, loaded up on stock, facing massive uncertainty on the fiscal cliff? It leaves you in a heap of trouble. It's difficult to sell when you are underperforming. It leaves you buying a lot of protection (still relatively cheap, surprisingly), or just hoping.
1) Stock futures weakened a few points as personal spending in October came in down 0.2 percent, below expectations of a gain of 0.1 percent. This, in addition to the slower retail sales numbers, confirms that consumers don't have as much spending power as they used to.
2) Japan stimulus: All parties in the pool. I'm convinced the future lies in Japan. While the rest of the world is engaged in an austerity orgy, Japan, as Adrian Miller from GMP Securities remarked to me, is doing anti-austerity.
Last night, the Japanese cabinet, tapping "reserve funds," approved a $10.7 billion stimulus package, twice as big as one approved in October. This is on the fiscal side — this is the government of Japan, not the central bank. The Bank of Japan has its own asset purchase program. (Read More: Is Japan's Economy on the Mend? Factory Output Jumps)
In my list of five 2013 predictions, which will be out Monday, my number four prediction is one widely shared on the Street:
"Massive (quantitative easing) continues in Japan: yen down, Japan stocks up. Japan is going to embark on a massive massive money printing spree; Shinzo Abe, who will likely be the new prime minister (second time around!) wants to target two percent inflation, instead of one percent now (they are trending NEGATIVE inflation right now). The rest of the government and the central bank seem to be in line with these policies."
It's happening even earlier than I thought.
Never mind that there is an election coming in December, and the current party in power, the Democratic Party of Japan, is trailing badly in the polls, and that the Liberal Democratic Party, led by Shinzo Abe, is widely believed to be the front runner. He appears to be in favor of even more stimulus.
My point: It doesn't matter who is in power in Japan. Everyone believes the answer is more stimulus. Everyone wants the yen weaker.
Betting against the yen has been one of the world's great bets for several years. The bet has been a disaster ... the yen has strengthened against the dollar since 2007.
No matter: It's on everyone's list of the Top Trade of 2013. This time, they might be right.
—By CNBC's Bob Pisani
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