The market has been rallying since Friday afternoon, when politicians gave off noises that there was a nice thaw in the Fiscal Cliff negotiations.But not everyone is buying into the “easy deal” hype.
Among them: top Nomura US economist Lewis Alexander.
There are two reasons why you should listen to him, and maybe take him more seriously than the typical Wall Street economist. One is that he was just down in Washington talking to contacts. The other, and this is more importantly, is that he used to be part of Tim Geithner’s Treasury Department, so it’s safe to assume he’s very well sourced (and prior to that he was at Citi).
He identifies four key points where the two sides remain far apart:
- Still no actual agreement on tax rates.
- Still no sign that Democrats will give any ground on entitlements.
- Still not clear that the Democrats and Republicans are close to a number on revenues.
- Other spending cuts not agreed to.
Those might sound obvious, but he adds some more meat to his argument:
At this point it does not appear that the two sides have exchanged specific proposals. Consequently, it is not clear whether these differences can be bridged.
It does not appear that the need to raise the debt limit early in 2013 is being actively discussed as part of the “fiscal cliff” negotiations. Any agreement on fiscal issues that does not include an increase in the debt limit would provide only short-term relief to markets.
We continue to believe that it is marginally more likely (55%) than not that a broad agreement to a framework for implementing deficit reduction can be reached before the end of this year.
There is a possibility that things will go smoothly from here and a deal could be reached relatively early in December. But this does not seem like the most likely way a deal will be reached.
So at least not everyone is buying the Ben White Fiscal Cliff story “over” argument. Expect more developments after Thanksgiving.
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