Impacts of the "Fiscal Cliff"

On December 31st, 2012 tax increases and large spending cuts will be taken into effect due to President Obama's Budget control act of 2011. Economists are predicting that if these measures due take place, the economy will most likely hit a recession. Both Republicans and Democrat's agree that this plan, also known as the "fiscal cliff", needs alteration. However, congress cannot seem to come up with a better solution due to the ever so common political gridlock.

The Financial field is left paralyzed. Without a clue as to what the tax rate will be in 2013, financing decisions cannot be made. Companies are forced to set their investment projects aside until congress makes up their mind. Hugh Regan, the CFO at Intest states,"In our business, we usually have three months clear visibility and another three months of foggy visibility. Now, I joke that I can’t see to the end of the parking lot."According to CFO.com, "If the automatic cuts and increases kick in, 67% of CFOs say they will reduce capital spending for 2013, and 70% say they will reduce hiring." These undesirable decision plan's CFO's are having to draw up if the "Fiscal Cliff" takes place is going to impact the stock market. 

See link below to watch this video

 Currently, stock market analyst's along with CFO's are praying for a "Fiscal cliff" resolution. According to Jim Cramer, the stock market needs Washington to come up with a new deal for 2013. However, in his Mad Money show on Monday, Cramer mentioned he is skeptical Washington is going to make a deal by the new year. So what does this mean for the Market. Basically, analyst's realize tax's are going to rise whether a deal is made or not. When tax's rise businesses and consumer's will spend less. Therefore, this is going to hurt companies capital gains, which may or may not affect it's stock price. My prediction is that since the stock market is based on current and expected news, if Washington can work out a new deal before 2013 that is perceived to have lower tax hikes than expected, the market will rise. With that being said, if Washington cannot resolve a new deal or the deal resembles similar tax hikes, the market will fall.


 
Video:

http://video.cnbc.com/gallery/?play=1&video=3000134360
References:
http://bonds.about.com/od/Issues-in-the-News/a/What-Is-The-Fiscal-Cliff.htm
 
http://www3.cfo.com/article/2012/12/forecasting_duke-cfo-outlook-survey-fuqua-intest-simpson-bowles-deficit-reduction-ciaramella-lasco

http://www.intest.com/aboutus/index.htm

Finding The Right Time To Invest

    My financial professors at San Francisco State are always preaching to buy stocks low and sell them high. The million dollar question is when exactly is the stock at it's lowest point. We simply do not want to buy a stock at a low price if its going to drop even lower in the future. Timing is truly everything when it comes to investing. Ideally, finding out when a stock hits it's lowest point and investing at that time is what's going to make you fast easy money. However, as long as your invested stock's price increases, you've made a profit.





   So is today the time to buy? The first place to find this answer would be to check out the U.S markets. The two largest U.S stock markets are the NASDAQ and New York Stock Exchange. These markets have indexes such as the S&P 500 and the Dow Jones Industrial Average that represent a group of stocks to indicate the current status of the overall markets. Keep in mind that the DJIA is composed of 30 large capital companies and the S&P 500 is composed of 500. Therefore, If you're deciding to invest you're money in large capital companies then the S&P 500 is a better indicator because of it's larger distribution of companies. There are also index's made up of small and medium capital companies. The S&P 400 is made up of mid cap companies and the S&P 600 is made up of small cap companies. Observing the historic ups and downs of each index can help you understand the current status of the market and perhaps help you decide what type of company you should invest in. As a general rule large cap companies tend to be less volatile, so if you are looking for less risky investments these would be the right selection. Keep in mind however, the less risky the stock the smaller the return. Mid cap companies will offer higher risk premiums than large cap companies. Therefore, small cap companies will offer higher risk premiums than mid cap companies.. 

  

Understanding the index fluctuations of the past will help you predict the fluctuations of the future. Drawing conclusions as to why the market decreased or increased at certain times(see graph above) will help you understand what might influence the index in the future. Therefore, when listening to current news you may be able to correlate what will effect the market, which will help you decide when it is a good time to buy or sell. Financial analysts preach all day long about their views on the current market, which can help you make smart investment decisions. Check out the video on financial analyst Jim Cramer who explains his animated  perspective on what to invest in today.