• The US deal to avert the fiscal cliff combination of tax hikes and spending cuts is not the long term “grand bargain” that could have been hoped for to address America’s long term budget and debt problems.
• Such issues will come up again in February in negotiations to raise America’s debt ceiling, possibly resulting in another bout of market volatility around then.
• However, by scaling back the bulk of the huge recession threatening fiscal cutbacks that would otherwise have occurred this year, the fiscal cliff deal means that the US economy will likely be able to pick up speed to around 2.5% helped in particular by a housing recovery.
• This is great news for the global economy and growth assets such as shares. By year end I continue to see the Australian share market rising to around 5000, resulting in a total return for investors of around 12%. This wouldn’t be too bad given that Australian shares returned 20.3% in 2012.

To read this edition of Oliver’s Insights, click here.

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