I got a bit of stick from my investment colleagues this past week for daring to suggest that we might be near the bottom of the market cycle given that markets had lifted for two days in a row.
Of course I wasn't suggesting that two days' market movement signifies a trend. The reason for my call (and I will claim guru status if November 2012 turns out to be a turning point) was that the explanation given for the market's two day-run was increasing confidence that the United States fiscal cliff will be dealt with.
You will recall that the fiscal cliff is a US$600 billion ($735.5b) combination of tax hikes and government spending cuts that are due to kick in at the start of 2013 unless the Republicans and Democrats agree a compromise.
Last time such a political compromise was required, the discussion centred on the debt ceiling, and the protracted negotiations wreaked havoc in markets. Politicians debated until the 11th hour in order to maximise television coverage and score political points.
They don't have the same luxury this time because unnecessary posturing will quickly lead the American economy into recession.
The world generally knows that a fiscal cliff plunge will be averted - no politician is that stupid - and yet the fear of political argy-bargy in the weeks leading to Christmas have had a distinct cooling effect on market and economic performance. Corporates have put off spending money or making decisions, just in case another recession lies ahead. Investors are reluctant to buy any stocks, just in case a recession prompts another market collapse.
We're in one of those awkward phases, a bit like the build up to Y2K, where we know everything is going to keep working after D-day, but we're not confident enough to boldly move forward.
It is understandable therefore that when both Republican and Democrat leaders talked about getting over the fiscal cliff unscathed, the market reacted positively. If the politicians acknowledge that we're scaring ourselves needlessly, who are we to argue?
The market's positive response was also assisted by the release of some pleasing housing numbers, the latest in a series of improving economic data.
That's the thing about these looming menaces - we focus so much on dealing with them or averting them that we overlook other things happening that are sometimes positive and part of the solution to the crisis.
For the pessimists among us, even conciliatory political words won't allay concerns about the fiscal cliff and its consequences. And the reality is that a bipartisan agreement in December will simply push the problem a few years out.
But it's not hard to imagine that with a few years' reprieve that allows economic momentum to build and America's debt issues to be dealt with, the fiscal cliff may well turn out to be more knoll than scary precipice.
Carmel Fisher is managing director of Fisher Funds, an investment manager and KiwiSaver provider.
- © Fairfax NZ News
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