This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Merrill Lynch Skeptical Congress Will Avoid 'Fiscal Cliff'

NEW YORK ( TheStreet) -- Bank of America Merrill Lynch (BAC) expressed little confidence in Congress Wednesday, voicing doubts about the legislative branch's ability to reach a bipartisan compromise and avoid the so-called "fiscal cliff."

Merrill Lynch estimates the potential fiscal drag from going over the cliff, which refers to the end of the Bush tax cuts, payroll tax, the Alternative Minimum Tax, spending cuts from the first part of the debt ceiling agreement and much more, would be roughly $720 billion, or 4.6% of GDP.

"By risking a recession-sized fiscal contraction and then offering no guidance to how it will be resolved, politicians are creating a major uncertainty shock," the firm wrote in research published Wednesday. "Hence, as the cliff approaches, we expect first firms and then households to start postponing decisions, weakening the economy in advance of the cliff."

Merrill added pending tax increases (Bush tax cuts $180 billion, AMT $120 billion, payroll tax $120 billion, tax extenders $20 billion, Obamacare $20 billion and business expensing $10 billion) to pending expiring programs (extended unemployment insurance $40 billion, cuts in Medicare pay to doctors $20 billion, and various other programs $40) to pending spending cuts of about $150 billion to arrive at its $720 billion estimate.

The firm believes election year politics would make compromise more difficult and that the uncertainty is only likely to grow as November approaches.

"We are skeptical that this shock can largely be avoided: neither a last-minute grand bargain nor kicking of a gigantic can down the road seems likely to us," Merrill wrote.

Stocks could be in for a big shock as well as the firm argues the markets likely haven't priced in either the size and timing of the fiscal cliff.

For instance, the consensus expects GDP growth to improve throughout 2012 then dip in the first quarter of 2013, but Merrill thinks doubts arising from the approach of the cliff could move the timetable for a slowdown up to later this year.

-- Written by Joe Deaux in New York.

>Contact by Email.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
SPY $206.45 -0.73%
AAPL $95.37 1.80%
FB $117.67 -0.76%
GOOG $695.47 -0.39%
TSLA $234.37 -3.10%


Chart of I:DJI
DOW 17,782.48 -108.68 -0.61%
S&P 500 2,063.17 -18.26 -0.88%
NASDAQ 4,771.4650 -46.1290 -0.96%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs