Who Wins In This Game of Chicken?

Imagine President Obama behind the wheel of a Chevy Volt, brow furrowed with his side-kick the gaunt Harry Reid riding shotgun.

Obama’s got his foot pedal to the metal… and the totally eco-friendly Volt is ‘roaring’ down the road at 55 mph in a game of chicken.

Approaching in a cushy country club Caddy are GOP ‘leaders’ John Boehner and Mitch McConnell, also with the pedal to the metal, also refusing to turn away.

On the side of the road are the American people, staring on in disbelief as these reckless men gamble on the economy with their daredevil antics.

The Bond market is going up, which means the smart money is betting on continued uncertainty. The stock market so far has avoided a complete meltdown, but has abruptly ended the rally that began in mid-November.

Considering that the debate now is between whether tax increases hit everyone above $250k (Obama’s position) or $1,000,000 (Boehner’s position) with a middle ground potentially at $400k getting little love.

Also consider that Bill HR8 is the House Republican’s solution to the Fiscal Cliff and it sits squarely on Harry Reid’s desk – and as most Republican bills do, it will remain there to gather dust because the Democrat Senate Majority Leader does not want it to come up for a vote.

Because the conclusion you could draw from this is that either the game of chicken is all theatrics and the two sides will steer clear at the last minute…

…or, they are ignoring the solutions on the table because one or more parties involved believe that going over the Fiscal Cliff is a win.

It’s unclear what we can learn from Congress returning to DC in the final days of the year for the first time in about 40 years.

Either they are ready to do a deal or they all want to have political cover just by being present and wringing their hands.

As I mentioned yesterday, the debt ceiling will need to be raised in the next 60 days and may be the GOP’s only leverage against the newly re-elected and emboldened President Obama.

Consumer Confidence has taken a nose dive and the holiday shopping sales figures are off significantly from last year which suggests the next economic figures are going to stink, too.

The odds remain with my outlook that these politicians, ever more concerned with their self-preservation than anything else, will patch together some kind of deal at the last minute.

Remember, the deal doesn’t have to work and solve our debt problem, it just has to look better than the Fiscal Cliff to the markets.

You’d think that the leaders in both parties would seize that path, wouldn’t you?

But if we go off the cliff it is likely because Obama decided that he can blame the GOP with the wreckage, or because Boehner believes the Democrats have further to fall in the aftermath than the already reviled Republicans.

As I write this the stock market futures sold off sharply after the close to test the lows set during last week’s mini-flash crash, so it’s clear the outlook is bearish for a deal.

All eyes will be on December 31st for the last trading day of the year and whether the bulls can hold that level and rally.

The question to ask in the last few days of the year is who wins this historic game of chicken?

Stay tuned. More to come as we approach the Fiscal Cliff’s edge.

Good Investing!

David K. Miller
Managing Editor, Absolute Wealth

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