Merry Cliffmas

It never fails.

As soon as everyone is in agreement that one thing is going to happen, the story shifts. None of this has anything to do with an actual outcome, rather, what we’re talking about here is the public’s perception of that outcome’s possibility. Have I lost you? I don’t mean to speak like Lewis Carroll at a cocaine buffet table, but this is a slippery heuristic and I’m attempting to hold it in my grasp long enough to finish this post.

And so with that in mind, here’s the new chatter making the rounds (amongst bloggers, journalists, traders, chief strategist types, etc):

No fiscal cliff deal before year-end.

Which is fine, because after the new year, the Dems will come back in and pass a huge middle class tax cut, knowing full well the GOP doesn’t have the balls to vote against it even out of spite for the fact that they’ve lost the over-$250,000 income battle.  Strategically speaking, the Dems are laughing at Boehner’s public pronouncements and running out the clock. There is a congressional recess scheduled to begin at the end of next week. The nation will be furious that there is no deal, most of that anger directed toward the elephant while the donkey bides his time.

The calendar will turn over and no planes will fall from the sky, the freeways will not be reclaimed by wild nature and the bridges will hold.

And then the real negotiations will take place. Sequestration is a hell of a stick, and there is no carrot in this fight.

This is the new consensus that is starting to form, in research reports, televised squawking and digital ink being spilled across the web.

Is this what will actually happen? I don’t know. But either way the markets will adapt.

Merry Cliffmas.

Updated:

My friend John Melloy just emailed me what Bank of America’s Ethan Harris thinks of this scenario (he is not a fan):

We’ve written about this before, but it bears repeating: one of the most dangerous

ideas circulating in Washington is that it is okay to go over the cliff temporarily.

This increasingly popular view is that going over the cliff will make it possible to

strike a better deal. Here we discuss that argument and why it is so perilous. The

bottom line: threatening or actually going over the cliff will likely do serious

damage to economic and market confidence. What some people are calling a

“bungee jump” could cause an economic “heart attack.”