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The Economy and the Fiscal Cliff

November 9, 2012 – 6:00 pm

This week despite a weakening market the economic news was fairly robust. The ISM numbers remained well above 50%, the trade deficit fell to a two year low, and unemployment claims fell by 8,000 continuing a downward trend. This morning consumer sentiment numbers unexpectedly rose to a level not seen since 2007 and U.S. wholesale inventories rose a stronger than expected 1.1%, and revising last month’s up to .8%, while at the same time sales for wholesalers rose 2%. That means the time it takes to sell their products fell to 1.18 months from 1.2. This tells us that there is no buildup of inventory thus throughput demand is healthy.

No one really is paying much attention to this and maybe rightly so as we face the ‘Fiscal Cliff’ which by the way is not a cliff at all. It’s automatic tax increases for everyone and automatic government spending cuts that begin next year. The impact on the economy will be spread out but the result will likely be another recession.

Government spending needs to be cut, something that almost everyone agrees on. It is how and when. Taxes are likely to go up. Though many disagree, I believe the battle is on; the question is who and how much.

The longer the Fiscal Cliff issue remains, the more volatile the stock market. Once it is past us the market will have a major issue not to worry about.

Good Trading
Steve Peasley

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