Every talk show, financial news report has been saturated with the so called fiscal cliff that has hidden what is really going on in the economy. Most people I talk with have various levels of understanding what the Cliff is and what will happen if it comes into effect. As usual this fear mongering by the press and the politicians is in my perspective somewhat overblown. First of all not all of the provisions go into effect immediately and like all politically sensitive tax changes, they are subject to change either retroactively or by amendment. This reminds me of Y2K when we all sat around our computers on December 31,1999 waiting to see if the computer world as it was then would come to a grinding halt. At 12:05 am January 1, 2000 all was well. Now don’t get me wrong this situation is serious not only for the economy but what I feel is the most important is how America is viewed by the world for not being able to manage its affairs.
The most important barometer to focus on in this uncertain atmosphere is the market itself. The market has weathered in the last two years a lot of bad news, but since March 2009 the market is up quite attractively. However, even with these 100% gains during this time I still find on a daily basis that the investing public is sitting on loads of cash still remembering the past correction which is now about five years old. I even had someone tell me that he is afraid now because stocks are two high and he wants to wait for a pull back. He was probably the same fellow that said there was too much risk when the S&P hit 660.
As I have stated before with the price-to-earnings ratio on the S&P at 13 with history showing 17 to be normal and still attractive what is it going to take to change investor sentiment? Tomorrow I will list all the good news about how the economy is performing, however what will bring back the investor will be when the market goes up 1000 points on the fiscal cliff agreement. Remember most retail investors buy high and sell low or just stay in cash waiting for another excuse to stay out of the equity markets.