5 Risks Besides the Fiscal Cliff

Barry Ritholtz has really been beating the table on the fact that there’s more to the current macro story than the one story everyone appears focused on – the fiscal cliff.  In a story yesterday he outlined 5 other (equally important) concerns:

“As we discussed last night, it behooves investors to consider what else is driving equity markets. I can think of at least five factors:

1) Earnings are the weakest in 3 years

2) Portfolios have been poorly positioned for higher Capital Gains and Dividend taxes

3) Europe crisis unresolved, and getting worse

4) The 17% rally in first 3 quarters had markets ahead of themselves

5) The decreasing impact of Federal Reserve QE.

The fiscal cliff amounts to about $600 billion in friction spread out over the course of 12 months. Fair estimates are that it will cost about 0.50% off of GDP, now estimated to be about 2.0% for the calendar year 2013.

I submit that these other factors weigh at least as much, if not more, in the markets current action.”

So now the question remains – wall of worry for the market to climb or risk that are not yet priced in?


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

More Posts - Website

Follow Me:


  1. I’ve always wondered what Barry’s investment returns look like. He is always pointing out his accurate investment calls, but there’s no track record, is there? Or is there?

  2. I wonder too ,but I will say this about Barry, he is pretty level headed. He always emphasizes not letting politics or fear dictate your investments. Just look at data and trends. He’s not in MR paradigm completely but he is pretty close I think.

  3. I think they only run private accounts so you will never see public results. Also in a Barron’s story maybe 6 mo ago I saw Fusion IQ runs $300M. Frankly with all the press they get I thought it would be a multi billion operation.

  4. That article is making predictions based upon a single recession. To see if it has any utility, it would need to be tested against several different recessions. Also, it would need to be ran in relation to the number of increasing dividends (ie. as more companies increase dividends, the number of decreasing dividends must also increase to signal an event). Perhaps reductions in increases is a better indicator. Perhaps there is a ratio between reductions and increases that is a better indicator.

    In other words, a single event cannot produce significant, useful, information regarding a pattern. IMO, the article is designed to promote an point of view, not provide useful information.

  5. I generally agree that the Fiscal Cliff is a massively overblown issue. The market is just acting as a short term “voting” machine to force the issue, but the Fiscal Cliff is not such a big deal in the context of everything else. The numbers required to either promote growth or reduce debt are far bigger than those discussed in the Fiscal Cliff.

    The bottom line is that it is difficult to escape the natural course of a de-leveraging cycle.

    Perhaps the most dangerous thing of all is to linearly extrapolate recent trends in an environment dominated by continued trend reversals.

  6. It could go either way so I’m trading day to day. Been in cash about a month now, put 20% in this AM. Rather bullish action in SPY since Friday. Trying to catct a couple weeks worth of rally. After that, who knows.

  7. The SPX is down a bit more than 5% since the Fed announced QE3 9/14. The recent bullish action may be very short term. I concur with Ritholtz that there are many more risks than the Cliff. I’m very underweight equities and holding a mix of cash and bonds. Good article.