The coverage of the Fiscal Cliff has been breathless (countdown clocks, zany graphics) and uninformative.
There’s plenty of time to reach a deal, and yet every utterance is being treated as though it’s some crucial puzzle piece that will help determine whether we live or die.
That’s why we can’t stop looking at this chart, which we’ve already mentioned once or twice this week, and which we recently just came across again in SocGen’s big 2013 chartbook. It compares the VIX (a measure of uncertainty) with the Policy Uncertainty Index (which tries to gauge uncertainty by using a combination of political events and newspaper headlines).
You can click the chart to enlarge, but the gist is that the market isn’t freaking out in any way near the level that the media is.
Unfortunately, there are some signs of the Fiscal Cliff already becoming a self-fulfilling prophecy in terms of economic slowdown as people really do fear a plunge into the abyss.
It’s well known corporate investment has taken a hit in recent months, and this week we got our first sign that the consumer is starting to creak.
But overall the point is that there’s still plenty of time for a deal, political posturing is to be expected, and it’s very plausible for both parties to reach a deal that will be favourable.
The story ever since the election has been the breathless over-analysis and the market’s refusal to play along.
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