The US fiscal cliff riddle
After the elections of November 6th, the Congress is set to return the week of November 12th to begin to work on a year-end fiscal package. This means that the Congress has four weeks from the time it returns until December 21st, the latest date on which it would normally adjourn for the Christmas holiday. Considering that legislative debate over the last few years has been characterized by indecisiveness and last-minute agreements, one would not expect this time to be different. With serious conversations likely to begin only after Thanksgiving, it looks like an agreement could remain in the air until at least late December. If one considers that equities trade at 4-year highs while earnings are at 3-year lows, we could easily assume that the dismal reality of the fiscal cliff has not been priced-in yet and as no real progress is expected until December (at the earliest,) it could be the markets, i.e. a correction, that could come first to put pressure on the politicians to act.
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