How many times have you heard that the so-called "fiscal cliff" is responsible for all of corporate America's current woes? Following the dismal third-quarter earnings season, I'd say I've heard it hundreds of times. But is it really what's causing all of these problems?
Financial stocks are among the Dow's (DJINDICES:^DJI) biggest decliners today, with Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM) down 2% and 1.1%, respectively, as of 2:55 p.m. EST. In today's Wall Street Journal, Lloyd Blankfein -- the CEO of Goldman Sachs (NYSE:GS), one of the nation's most important financial companies -- opined about the relationship between the current administration and the business community:
Relations between the Obama administration and large segments of the business community have been strained and unproductive. But the election offers an important opportunity to forge a more productive relationship. By electing a divided government, Americans didn't choose two years of squabbling and inaction until the next election -- and the country cannot afford that. Both parties will have to compromise to make progress.
He then went on to list four priorities: removing the risk of a double-dip recession and giving the economy a "stimulative jolt," restoring confidence in public finances, keeping marginal tax rates low, and "[acting] like we need to compete and win."
While one could argue in particular about whether the first two priorities are mutually exclusive, Blankfein's attempt at political objectivity nevertheless makes an important point. Throughout the third-quarter earnings season, executives said political uncertainty over public finances and the fiscal cliff were causing a slackening of demand.
This same tune has been sung by others in the industry as well. As I noted yesterday, at a recent investors conference in New York City, Bank of America CEO Brian Moynihan said: "The impacts of the fiscal cliff are already being felt. Simply put, our clients tell us they need more clarity before they can invest." And Jamie Dimon, the CEO of JPMorgan Chase, echoed Moynihan's comments by saying: "I've spoken to CEOs who say, you know, absolutely, we are making decisions to protect ourselves from the 'fiscal cliff' and those are like investment decisions and hiring decisions."
There seems to be little doubt on Wall Street that at least a resolution regarding the fiscal cliff could have a stimulative impact on the economy.
Yet it's only fair to note here that many were predicting that the presidential election would have a similar effect. Here's a quote I cited from Michael Farr, president of investment manager Farr, Miller and Washington, on the day of the election: "I think that you see a surge no matter who gets elected. Markets will likely go up because there's been so much uncertainty, any clear direction is probably good."
Meanwhile, on the same day, my colleague Morgan Housel pointed out that there is little to no correlation between presidential elections and stock returns. As Morgan said, "People hate to think of the economy as that unpredictable, but it's the reality. ... The odds are quite good that the most important business stories of the next five or 10 years will have nothing to do with who wins the election."
And, of course, we all know what happened the day after the election: The markets got slammed. While people can make predictions about the fiscal cliff and blame it for all of our corporate woes, there's an argument that doing so is simply a rejection of responsibility.