Plenty to Fear besides Fear Itself

by Laura Ehrenberg-Chesler on November 8, 2012

in Debt,deficit spending,Fiscal Policy,Foreign Markets

This morning Ed Yardeni talked about “kicking the fiscal can down the road” and avoiding an apocalyptic scenario, at least temporarily.  He thinks this is likely.  We think it’s likely, but not necessarily preferable.

If the fiscal cliff isn’t averted, then investors will be even more worried about the outlook for the global economy. A recession in the US would greatly exacerbate Europe’s recession and increase the odds of a hard landing in China. If this apocalyptic scenario is postponed for a year with a deal in Washington, as I expect, then yesterday’s plunge in the S&P 500 could be followed by a significant yearend relief rally back towards the year’s high of 1465.77 on September 14. I haven’t given up on a yearend run towards the record high of 1565.15 on October 9, 2007.

Rather than Apocalypse Now!, it should be another Apocalypse Later! As I’ve observed numerous times since the beginning of the latest bull market, it has been a series of relief rallies following the postponement of all sorts of apocalyptic scenarios. Investors have had plenty to fear besides fear itself.

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