Kudlow: Washington & Wall Street on Collision Course?

Five Players Who Can Drive Us Over the ‘Fiscal Cliff’
Steve McAlister | Photodisc | Getty Images

Washington and Wall Street may be over 200 miles apart, but nonetheless, they seem to be on a collision course and the damage may already be unavoidable.

So says Larry Kudlow and Trend Macro Chief Investment Officer Don Luskin after parsing through a slew of earnings releases.

Take Google, which released earnings earlier in the week, as an example.

Although Google earnings came out a few hours earlier than expected due to a 'fat finger' accident – that's not the issue.

The problem is that Google -- long the leader in search advertising, with 75 percent market share, should be thriving as the recovery takes hold.

But it isn't thriving - it's struggling.

Of course you could argue that Google's miss is a single stock story – but Microsoft missed too.

So did Chipotle.

So did Danaher and Philip Morris - this list, in fact is rather long.

"I think we're getting near the exhaustion phase of the recovery in earnings," said Luskin on The Kudlow Report.

That's a problem not only because results will likely drag down the stock market – Luskin says the results are also a sign that the economy is starting to stall.

And in a fragile environment, companies will not be able to withstand the likely squabbling that's expected between Republicans and Democrats over the 'fiscal cliff,' that is the confluence of tax hikes and spending cuts that could go into effect as soon as January 2013.

"And that's what I fear is in the future," said Luskin. "The process of getting to the compromise could be so onerous – the economy could be absolutely shattered."

It's not just Don Luskin and Larry Kudlow that are worried.

The concern is getting so great that a group of top Wall Street chief executives, including Jamie Dimon ofJPMorgan, Lloyd Blankfein of Goldman Sachs and Michael Corbat, the new head of Citigroup, sent a letter to Congress and President Obama on Thursday urging them to find common ground.

"At a time when economic growth is less than 2 per cent, and with nearly 25 million Americans either out of work or underemployed, the still-fragile US economy cannot sustain – and the American people do not deserve – the impact of more gridlock in Washington," they wrote.

Luskin is skeptical that a grand compromise is reached - at least not before lawmakers send Corporate American into a tailspin.

"I'm honestly scared," he said.

Tune in:

"The Kudlow Report" airs weeknights at 7 p.m. ET.