While congress has a December 15th deadline to act on the Bush Tax Cuts, which come to end in 25 days, the Obama administration has a tough decision to make are they willing to compromise to help the economy? Ed Butowsky, managing partner of Chapwood Investment Management, joins Stuart Varney live on Varney & Company to discuss the reality behind the rumored December 15th market selloff that could occur.
Since back from elections, Republicans have been working on a deal to extend the Bush Tax Cuts that are set to expire at the end of the month. This deal essentially is authorizing the spending of billions to extend these cuts. In addition, this effort has an imposed deadline of December 15th. It is thought that if this deadline is reached without a solution or signed deal on the table that a massive market sell-off could occur. Ed Butowsky further explains that this sell-off would come from private individual investors, but ultimately Ed does not believe this will occur. Ed explains that the majority of the market movement is not induced by individual market investors, but rather the majority of the volume (90%) in the market comes from institutional investors from all over the world.
With a deadline in place, could congress along with this administration come to a compromise? Ed believes a compromise is eminent from both sides of the isle. Furthermore, Ed points out that if a compromise is not reached Ben Bernanke will have to exercise his QE2 (“quantitative easing”) strategy which would not be a good thing for this economy.
Interestingly enough, while the news and country have concentrated on the tax cut extensions for income taxes nothing has been discussed too much about the estate tax. On January 1st, the estate tax is set to return with a “vengeance” as Stuart mentioned. Ed agrees that the overall discussions have been surrounding the capital gains tax that is set to jump 5% to 20% and other income tax taxes. Ed explains that his clients, high-net-worth clients, are not happy with this uncertainty about the outcome. Had Ed along with his clients been able to see beyond the cloud of the last year they could have dealt with this 18 months ago. In addition, Ed confirms that because the economy has been held hostage by politics and the sloth like movement nothing has been done. The economy could have been well on its way to recovery 18 months ago.