Friday , 24 November 2017


These 8 Other "Cliffs" (In Addition to the "Fiscal Cliff") Could Also Cause the Markets to Crater

In his effort to get lawmakers to mobilize, Federal Reserve chairman Ben Bernanke coined the term “fiscal cliff” in a testimony before the House Financial Services Committee on February 29, 2012. Investors consider it to be one of the biggest…risks that could cause markets to crater but since February, analysts have pointed to a host of other “cliffs” that threatened to destabilize the markets and the economy. Here are 8 others that people are talking about most. Words: 1140

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), may have edited the article below to some degree for length and clarity – see Editor’s Note at the bottom of the page for details. This paragraph must be included in any article re-posting to avoid copyright infringement.

So say edited excerpts from the introduction to an http://business.financialpost.com article* entitled There are actually 9 ‘Cliffs’ investors should be freaking out about.

The article goes on to say, in part:

We’ve rounded up the nine “cliffs” that everyone seems to be talking about the most.

1. The Fiscal Cliff

Fiscal Cliff

Bloomberg Briefs

Federal Reserve chairman kicked off the cliff craze on February 29, 2012, when he testified before the House Financial Service Committee, saying:

“Achieving long-run sustainability and providing comfort to the public and the markets that deficits will come under control over a period of time – that’s very important for confidence and for creating more support for the recovery. But at the same time, I think you also have to protect the recovery in the near term.

Under current law, on January 1, 2013, there’s going to be a massive fiscal cliff of large spending cuts and tax increases. I hope that Congress will look at that and figure out ways to achieve the same long-run fiscal improvement without having it all happen at one date.” Source: Reuters

2. Federal Deposit Insurance Cliff

BofA analysts Priya Misra and Brian Smedley have issued a warning about another “cliff” facing markets at the end of the year: the “$1.6 trillion deposit cliff” the U.S. banking system faces when special FDIC insurance provisions expire on December 31, 2012, which could “cause dislocations within the banking system” and send short-term interest rates on Treasuries negative while simultaneously increasing the funding costs banks face.
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3. Treasury Security Supply Cliff

In a note entitled The “cliff” facing US Treasury supply, Societe Generale economist Aneta Markowska wrote:

“We expect that the Fed will continue to buy long-dated Treasury securities beyond the Maturity Extension Program which expires at the end of the year. Maintaining the $45bn/month buying pace through 2013 would reduce net supply of Treasury paper by a further $540bn. Given our fiscal assumptions, this would leave only $281bn of new Treasury debt available to investors. This constitutes a 75% drop from Fed-adjusted supply in FY’2012.”

Treasury Security Supply Cliff

Source: Societe Generale

4. Corporate Earnings Cliff

Barry Ritholtz, in a recent interview on Bloomberg TV said:
“I have cut back on some major holdings, and raised our cash levels to 25% in the asset allocation model I manage…Note that these portfolio moves have nothing to do with the upcoming elections or the fiscal cliff. I agree with what Michael Belkin said at the Big Picture conference: ‘People should forget the Fiscal Cliff, this market is all about the Earnings cliff.’”

5. Regulatory Cliff

According to an article in Barron’s:
“The fiscal cliff is not the exclusive reason for corporate America’s paralyzing vertigo: A pending ‘regulatory cliff’ also is contributing to dizzying uncertainty that has put the brakes on major investment decisions and, consequently, hiring…the CEOs are keeping [a] wary eye glued to the Federal Register, where final rules from government departments and agencies are announced and published after passing through the bureaucratic pipeline.”

6. Drug Patent Cliff

According to the Wall Street Journal:

“European pharmaceutical firms, along with their global counterparts, are seeing the worst effects of the so-called ‘patent cliff’ this quarter, where patents for drugs expire in major territories but aren’t replaced rapidly enough to replace lost revenues. The losses are amplified by austerity programs by major customers such as health care authorities, under pressure to cut spending.”

7. Japan’s Fiscal Cliff

In a note titled Did You Know Japan’s Fiscal Cliff is Right Around the Corner?, BofA’s Brooks Thompson writes:

“The current political stalemate has delayed legislation to finance the budget and Japan’s coffers are expected to run-out by end of November, which would lead to technical default. I don’t want to overly exaggerate, but I’d say this is a much more current and (somewhat) serious reality than the BOJ buying foreign bonds…I have not heard one inquiry about Japan being on the brink of default. We’re not talking about 3yrs, 5yrs or 10yrs from now, this could technically happen as early as December.”

8. Global Economic Cliff

Doug Kass, in an interview on CNBC recently said:

“The Global Economic Cliff Is Disappearing…While I am still in the camp that expects subpar global growth, recent indications are that a self-sustaining economic recovery is in place and that the recessionistas are dead wrong. Indeed, among the developed countries, the U.S. is shining…High-frequency economic releases during the past four weeks suggest a slight reacceleration in domestic growth that should continue into 2013 — of course, this is dependent upon how meaningfully and quickly the fiscal cliff is addressed.”

9. Monetary Policy Cliff

This cliff has been resolved by QE3 but before that action was announced, Goldman Sachs chief economist Jan Hatzius wrote:

“The economy now faces a ‘monetary cliff’ in addition to the ‘fiscal cliff’ in early 2013. Although we have generally subscribed to the ‘stock view’ of the Fed’s asset purchase programs, we do believe that unconventional easing is subject to ‘decay’ and that there are some modest ‘flow’ effects at the very long end of the yield curve. Taken together, these factors make a convincing case for additional easing in early 2013.”

*http://business.financialpost.com/2012/11/07/there-are-actually-9-cliffs-investors-should-be-freaking-out-about/

Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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