The markets have been obsessed with fiscal-cliff worries ever since the election. While I understand why the resolution of this potential $600 billion erasure from 2013 GDP is rightly a giant concern, it’s by no means the only thing markets need to be fearful of right now.
In fact, the recent myopia over the fiscal cliff reminds me of a scene in perhaps the best martial arts film ever, “Enter the Dragon,” starring the late, great Bruce Lee. The scene I’m referring to features Lee providing instruction to a young student. After the student is taught a lesson on how to put “emotional content” into his martial arts moves, he begins to think about what was learned and he then stares down at Bruce’s finger.
Bruce then tells him, “Don’t concentrate on the finger, or you will miss all that heavenly glory.” To investors, I offer my own version of this proclamation, “Don’t concentrate on the cliff, or you will miss all of the real danger.”
What is that real danger?
Well, for starters, there is the market on a decided technical sell-off that began in October and that has taken stocks in the S&P 500 Index down below both the 50- and 200-day moving averages.
Then we have earnings, which have been abysmal in Q3. In fact, as an aggregate, earnings in the market have been some of the worst we’ve seen during the past three years. I suspect this could once again be an issue in Q4, and that means we could be in for some very rough fundamental waters going forward.
Then there’s Europe, which has been largely drowned out by the fiscal cliff, but it shouldn’t be. In fact, the bailout negotiations, along with protests over austerity measures in many countries that need bailout funds, has put the fate of this key region up in the air once again, and this is something that likely will be around much longer than the fiscal cliff.
Finally, there is a growing realization that the effect of the Federal Reserve and its “QE Infinity” program is basically wearing off, and that it’s already priced in to the markets. If this situation is true, and I suspect it is, the relative upside going forward for a QE stimulus will be minimal at best.
As you can see, there is much more to worry about besides just the fiscal cliff, and concentrating on that singular issue will very likely cause you to miss the real dangers to your money.