Thursday, December 27, 2012

Fiscal cliff and deadline

With the recent news that the House will be reconvening on Sunday, I just find it funny that politicians believe that there's a kind of deadline to make a law by the very end of the year, when investors must make decisions in anticipation of tax rates before then.  Long-term gains or losses must be locked in by the end of trading on Monday, not by midnight.  If one is trying to move a large position, then trades must be executed over the course of several days before the end of trading Monday.  Politicians of course have no clue that they are creating this uncertainty.  As for a self-imposed mental deadline of Monday night, I'm not sure who that particular timepoint will affect.  Of course businessmen must make decisions in general depending on tax rates, and this uncertainty continues for as long as a deal is pending.  For them, no particular date is more important for a deal than another date.  So I'm not sure why the House is needed to be rushed back now; the deadline is pretty much already blown for any large investors, and there is no particular deadline for businessmen.

I have been long numerous small cap former-losers against short large caps and high-dividend stocks pretty much all month (the January effect, which, due to the fiscal cliff, has taken place in December).  This has served me somewhat well in December, at least as far as many small caps becoming strong this month.  I would like to flip this trade for an un-January-effect trade for January 2013 as long as I can be confident that any deal that will be made will keep taxes higher for many investors.  We'll see as the news progresses...