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Here's How the Fiscal Cliff Magnifies Specific Market Risks


Our special edition of Lloyd's Wall of Worry measures how much dropping off the fiscal cliff would impact other issues already keeping investors on edge.

MINYANVILLE ORIGINAL How do thee worry me, fiscal cliff? Let me count the ways...

Shakespeare sure did miss out on some very ripe and bountiful pickings as he did not have many stock exchanges to write about in his days (first one opened in Antwerp, 1531). The so-called fiscal cliff worries, they are many and the magnitude of the impact, it is much. We have listed our usual worry hit list below along with our estimation of how each would be negatively magnified (5x-20x) if we actually swan-dive off this thing.

For now, the markets -- the Dow (INDEXDJX:.DJI), S&P 500 (INDEXSP:.INX), and Nasdaq (INDEXNASDAQ:.IXIC) -- are taking it in stride and holding on to nice annual gains as American optimism reigns…until it doesn't. The current sentiment is that the cliff will have some kind of quasi-resolution by Christmas and maybe even a week or so before that. Fingers crossed.

There are plenty of non-fiscal cliff worries out there in financial Zeitgeistland, but for now they will have to take a backseat. And what a noisy, rambunctious free-for-all that backseat will be.

Click on the image below for a quick comment about each of the 27 worries facing investors right now, or scroll down for a text-only version of this column.

Wall of Worry (Text Version)

Fiscal Cliff Risk Factor: 20x. Gonna need to max out the credit card.

US ECONOMY: Fiscal Cliff Risk Factor: 20x. Wouldn't flooding and sinking the entire country be less painful?

UNEMPLOYMENT: Fiscal Cliff Risk Factor: 10x. From bad to worse in a heartbeat.

INVESTOR SENTIMENT: Fiscal Cliff Risk Factor: 20x. Just when you think it just can't get any worse…

HOUSING CRISIS: Fiscal Cliff Risk Factor: 5x. Still need a place to live.

EUROPEAN ECONOMY: Fiscal Cliff Risk Factor: 10x. They look to us for guidance. Ugh.

THE EUROPEAN UNION: Fiscal Cliff Risk Factor: 5x. If we can't get our act together, why should they?

SOVEREIGN DEBT: Fiscal Cliff Risk Factor: 15x. The US's will join the rest of the bad houses in the bad neighborhood.

SPAIN: Fiscal Cliff Risk Factor: 5x. Perversely, might actually make them feel better about their own horrific situation.

VOLATILITY: Fiscal Cliff Risk Factor: 20x. This would be a gift from the volatility gods to traders.

Lloyd: Fiscal Cliff?
HAL: Classic Mayan Calendar 12/21/2012 stuff.
Lloyd: Believe it?
HAL: One can hope.

CHINA: Fiscal Cliff Risk Factor: 10x. The US buys a lot of stuff from them.

STOCK MARKET TECHNICALS: Fiscal Cliff Risk Factor: 20x. Will be the only sign posts to follow and will all be pointing downhill.

GLOBAL ECONOMY: Fiscal Cliff Risk Factor: 10x. Just what the doctor ordered right now. Not.

RETAIL SALES: Fiscal Cliff Risk Factor: 10x. Would hurt, but shopping will continue to be America's national pastime.

JAPAN: Fiscal Cliff Risk Factor: 10x. Their currency will strengthen, yet another bummer for them.

THE CLIFF: See above and below.

GREECE: Fiscal Cliff Risk Factor: 10x. Don't go asking the US for any bailout money.

DRAGHI: Fiscal Cliff Risk Factor: 10x. Counting on us to lead the way; he may need a new calculator and role model.

ITALY: Fiscal Cliff Risk Factor: 5x. Banks more at risk, but the rest of the country will take it with a grain of salt, pasta, olives, and espresso.

FRANCE: Fiscal Cliff Risk Factor: 15x. Something's gonna push them over the edge during the next few years. This could be it.

GOLD: Fiscal Cliff Risk Factor: 10x. May be a positive safe haven…after a massive, hellish liquidation, that is.

GERMANY: Fiscal Cliff Risk Factor: 10x. Economy slowing already, so this would add a double-foot brake jam.

VOLUME: Fiscal Cliff Risk Factor: 10x. Very high for the first five days, then very low for the next five years.

MIDDLE EAST: Fiscal Cliff Risk Factor: 10x. This distraction may open the floodgates to full-on, region-wide mayhem.

US CONGRESS: Fiscal Cliff Risk Factor: 20x. I would have made the magnitude higher, but there is no infinity symbol on my keyboard.

US PRESIDENT: Fiscal Cliff Risk Factor: 20x. No deal, no chance at Mount Rushmore.

What Is Lloyd's Wall of Worry?
by Lloyd Khaner

Welcome to my at-a-glance guide to the issues facing investors this week -- a unique tool for traders and money managers.

Typically the term "wall of worry" refers to the entire body of concerns influencing stock market action. When the wall is high, meaning the market is nervous, stocks tend to get cheaper.

This wall of worry is even more specific. Every week I list the exact concerns in the marketplace and use the list to help me make buying and selling decisions. As I like to say, "Buy fear, sell cheer."

In other words, once the the wall rises above 15 blocks, start looking for deals. If the worry count sinks below 10, consider selling; prices have likely peaked.
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