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(Stockbyte/Getty Images)
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Inside the Market

The 'fiscal cliff' is not the end of the world Add to ...

It looks like the Mayans were wrong. The world didn’t end today, at least not yet.

Could there be a lesson here for the doom and gloom crowd worrying about the “fiscal cliff” bringing on the financial apocalypse?

Murray Leith, director of research at Vancouver-based investment dealer Odlum Brown, thinks so. He used the failed end of the world prediction from the Mayan calendar to segue into some of the irrationality out there over the “cliff.”

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In a note to clients that neatly spoofed the Mayans (using this graphic), he said that “deal or no deal, it’s not the end of the world.”

Here’s Mr. Leith’s take:

“While a budget deal to advert the so-call fiscal cliff is less likely before year-end, our investment strategy does not change. We still believe share ownership in quality businesses is the best way to preserve and grow wealth. In fact, our faith in common stocks is greater today given the attractive level of equity valuations relative to fixed income alternatives.

The term ‘fiscal cliff’ is sensational, yet it is not reality. Without a budget agreement, the U.S. economy will face $600-billion of tax increases and spending reductions over the course of 2013, not all at once the moment we ring in the New Year. Whether there is a deal or not in the near-term, the U.S. economy is not about to fall off a cliff. If [a] budget deal is not achieved before year-end, we believe one will be reached early in the New Year, and soon enough to save the U.S. economy from recession.”

In fact, the U.S. economic backdrop is actually improving, according to Mr. Leith, who pointed out that the U.S. Commerce Department on Thursday said growth in the third quarter advanced at a decent annual clip of 3.1 per cent, up from earlier estimates of 2.7 per cent, while today’s announcements had U.S. incomes and consumer spending both climbing more than forecast.

Here’s a more down to earth prediction from Mr. Leith and some practical advice

“A year from now, it’s likely that the fiscal cliff will be long forgotten. The world will not have ended and the economic recovery will have advanced, albeit modestly. We think the odds are good that stock prices will be higher. In the interim, try to ignore the unnerving market commentary and enjoy the holiday season.”

 

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