Jim Cramer: What Forces a Fiscal Cliff Deal?
What forces the hands of Congress and the president to make a budget deal before taxes shoot up and spending slams down? What inputs do they need in Washington?
I see three pressure points. The first is a precipitous decline in the stock market. We have two precedents for the market to matter, the TARP vote and the deal in Europe. After TARP initially failed the market took a real hammering and that was because sellers knew they had to get out before the banking system collapsed. You have heard a series of banking CEOs say their institutions wouldn't have collapsed if TARP had failed to pass. That's nonsense. Short sellers controlled the market and they could bring stocks down, which then caused ratings agencies to panic, which then stopped funding to banks and then brought collapses. The bank CEOs couldn't stop that trend. They should stop pretending they did. Congress swung into action only after the hideous selloff.
Second is Europe. There's no secret to the when the central bank got a deal to move along: when the stock markets collapsed and the bank stocks look like they would be rolled.
So, my simple take is a 1,000-2,000 point bone-crusher comes first and a deal later. Chances: 50/50.
The second? The beginning of a shoot up in employment claims as everyone from the biggest executives to the smallest of small businessmen know it is time to fire. Why not? We rewarded executives who "saw it coming first" with higher stock prices and "saw it coming" meant who fired the most the fastest. You will see that from the claims. I don't have to put odds on that. The game is already happening.