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Focus on the ‘Fiscal Cliff’: A Possible Explanation for the Post-Election Selloff

Nov. 19, 2012 9:30pm

In the days immediately following President Barack Obama’s victory over former Massachusetts Gov. Mitt Romney, U.S. stocks experienced a sharp and sudden downturn.

Why?

Some believe the selloff was caused by the so-called “fiscal cliff,” a combination of tax increases and across-the-board spending cuts that will go into effect next year unless Congress comes up with a budget plan. But Wharton finance professor Jeremy Siegel has a more specific explanation: Investors are dumping their holdings in preparation for next year’s scheduled capital gains tax hike.

And it makes sense. Sell now while the rates are low.

“I think a lot of people with capital gains have been locked in saying ‘I’m going to take them under 15 percent instead of 23.8 percent,’” said Siegel during an interview on CNBC’s “Squawk Box.”

Capital gains tax rates are scheduled to go up to 20 percent next year, up from its current rate of 15 percent.

“I actually think that the issue of taxes and locking in lower rates right now is more reason for why the market went down than the cliff itself,” the noted economist explained.

Siegel is also confident the U.S. economy will see an acceleration in economic growth next year. The cliff, he argues, will cause a sharp and short-lived recession but that it won’t lead to long-term downturn.

“I think even if a tax deal is delayed, it will be retroactive to January 1 and sequestration isn’t going to happen to anywhere near the degree” people fear, Siegel said. “I think there will be a short term compromise on the rates, and then a reconvening of Simpson-Bowles to get the long term solutions right for this country.”

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Comments (5)

  • James
    Posted on November 20, 2012 at 2:20pm

    Expect Boehner will cave in to obama and then call it a success.

    Report this comment

    James  
  • FaiththruHearing
    Posted on November 20, 2012 at 10:11am

    Where does he get the thought or the evidence that the economy will accelerate? There will be less personal cash available, businesses need to curtail their expenditures and less people will be working full time. There is a great disconnect between what is explained in the media and what is found in the work force. If it is individuals taking out their money prior to the tax increase, does it mean that they will put their money back into the market next year.
    Plan for the worst and be thankful for what comes. The Lord is in control.

    Report this comment

    FaiththruHearing  
  • phillycornerboy
    Posted on November 20, 2012 at 2:38am

    this is all meaningless as compared to geitners statement and his theory of “infinite debt”. what the professor has failed to add to his economic equation is the progressives desire to collapse our economy. most people cannot believe in such a thing and don’t take it into account. the fact remains however. watch closely the upcoming political battle over the fiscal cliff. you will see the dems distort the facts and the repubs fold like an origami crane. smoke and mirrors. the economic collapse of our country continues according to plan and will not be stopped.

    Report this comment

    phillycornerboy  
  • calmandcents
    Posted on November 20, 2012 at 2:32am

    Mark Twain:

    “It could probably be shown by facts and figures that there is no distinctly native American criminal class except Congress.”

    Report this comment

    calmandcents  

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