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Alternative Market Briefing

BlackRock, UBS examine fiscal cliff scenarios

Tuesday, October 09, 2012

Bailey McCann, Opalesque New York:

Global financial firms BlackRock and UBS released analyses today that look at what will happen if sequestration is allowed to kick in, in the US. According to report authors at the BlackRock Investment Institute (BII), a 'dangerous disconnect,' exists between professional investors and Washington experts. In recent BII-moderated discussions, Washington insiders predicted political dysfunction will push the nation off the cliff – if only briefly, providing politicians the necessary cover for compromise and a budget deal by fall 2013. However, this is a "dangerous disconnect," BlackRock says. "By contrast, most financial experts believe in an 11th-hour rescue that will enable the country to avoid a recession." With the S&P 500 near record highs, the markets have yet to price in the fiscal cliff "and assume QE infinity will drown out other factors," according to the report.

Report authors note that this expectations gap could create new investment opportunities in a variety of asset classes including - treasuries, munis and dividend stocks. "The country is on the wrong fiscal path. Mathematically, it is pretty easy to change the course through a combination of tax givebacks and spending cuts. Politically, this is very tough to do – unless Washington rediscovers the art of compromise......................

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