I was writing a few weeks ago that it was all too easy to see a situation where the fiscal cliff was allowed to happen. The republicans could avoid agreeing to politically difficult tax rises, the democrats could blame the republicans for being too inflexible to compromise. An agreement early in the New Year could mitigate the effects with spending and tax cuts that eliminated most of the cliff and those tax cuts would henceforth be known as the Obama tax cuts.
Over the last couple of weeks it seemed that nonetheless an agreement was likely, but this wasn't the case, as it seems that Boehner couldn't muster the votes yesterday for an agreement that included any tax increases at all. It seems equally unlikely that the democrats and Obama would allow any agreement that doesn't include tax increases, so it seems likely now that the fiscal cliff will be allowed to happen, and that negotiations in early 2013 will be about what will replace the fiscal cliff agreement.
What does this mean for markets? A lot of uncertainty over the next couple of months, and it seems doubtful that the bullish looking setups here will survive that, but we'll see. (Editor's Note: I sure hope not).
