'Fiscal cliff' vs. consumers, investors

This transcript is automatically generated

-- Friday here's something new to worry about Christmas is one month from today and a week after about -- nothing gets done here in Washington.

We all go over the fiscal -- What does that mean for shoppers and investors in these final days of 2012 for answer -- We turn to Matthew -- president and CEO of The National Retail Federation.

And from Newton Massachusetts John Sweeney executive vice president of Fidelity Investments first of all mr.

-- What can you tell us about holiday shopping this long Thanksgiving holiday weekend.

Are people buying it well -- looks like people are buying the data that we've got so far looks like we had a very busy a very successful weekend.

We know number of retailers opened earlier there were open on Thanksgiving and retailers have been piloting that the last three years.

Last year 44% of holiday shoppers that went out over the entire weekend were actually out on Thanksgiving by midnight.

I think the numbers are gonna show that this year we did even better than that.

Were predicting about a 4% increase in sales over last year.

Last year we did five and a half percent actual that was very good.

-- natural hit that number this year but when we did the 4% forecast it was pre election lot of uncertainties in the economy so right now we're very bullish with -- we had a very good weekend.

Now.

Christmas shopping not just for this first weekend but for the whole season was up -- point 6% last year.

Do you think you're gonna have that strong a Christmas shopping season this year well you have thanks to.

An act of the president -- five years ago president Roosevelt now we've got a very long holiday season this is as long as a composite -- -- -- looks -- because Thanksgiving was.

Very early that's right.

It was a funny sort of support that's right and so it can't be any earlier than that based on the fact it's going to be with the fourth when he second and fourth before Thursday another forty seconds -- -- -- as many days we can have.

Gives us an extra weekend to Christmas is on a Tuesday.

So I think we're gonna have a nice long selling season we're gonna see some some real growth.

And I think we'll go back and look at the numbers in mid December and see whether we need to make an adjustment -- but right now everything we've heard from the CEOs and others we've talked to.

Looks like we had a really good weekend a great way to.

-- policies mrs.

Sweeney -- the numbers for the markets are not as strong.

The Dow Jones average is down 236.

Points or one point 8% since Election Day.

And the question in this gets us to that the main subject we wanna talk about to -- how much of that do you believe is investor concern about the fiscal -- -- we surveyed our investors after the election we found that 83% of them were concerned about the fiscal cliff.

83% I'm also concerned about the long term national debt so those are two issues that are weighing on the minds of our investors.

I think which is seen as -- expressed -- pullback in some of the equity markets.

-- we had through the third quarter of this year and equity market in the US that was up 15%.

Up almost 30% year over year and a one year basis and what you see him -- he is a significant -- that from that at that time.

So a couple things to keep in mind one when you think about making investment decisions trying to make the investing decision first.

So when you have a market is up 15% is natural to think about rebalancing.

I'm only think about constructing portfolios -- make sure that investors are focused on the long term.

And also subject to the short term about vagaries of the market rebalancing is an activity that happens constantly throughout the mark do you look for opportunities where -- equities have appreciated.

To rebalance back and a fixed income or cash for that's appropriate.

And I'm gonna come back -- about the -- left and its impact on investors in a moment let me bring in.

Mr.

-- how aware are we talked about investors how aware are consumers about the coming fiscal left.

And do you get the sense that they are factoring the uncertainty about what's gonna happen.

Into their decisions about how much to spend this Christmas -- -- consumers are very aware of this we've been in the field since about Labor Day and the number has ranged anywhere from 65%.

To 80%.

Of respondents.

So shoppers have said.

That there -- what's going on now that may not -- ought to put you know every facet on what the fiscal cliff means.

But economic uncertainty generally because it's been such a point of contention between the political parties we talk about it every day it's it's the leading headline of the day.

They're definitely thinking about it and with a negative they're scaling back.

Well I think it means that they're not spending as robustly as they would because they still don't know.

What's gonna happen and it's very clear just -- John said it about investors that CEOs of companies whether they're large or small business owners.

Are thinking about what's going on in the economy and what might happen next year before they make those capital investments so anything about the retail industry creating 42 million jobs one in four Americans 1% of GDP.

95% of them have a single unit 50% only employ five people if they don't spend and invest and grow.

Then our economy's not gonna grow and so we talk about fixing taxing fixing spending we really need to be talking about growing the economy.

At that mr.

Sweeney it obviously gets more complicated.

Then and consumers when you talk about investors.

And the decisions they have to make let's take a look at some of that.

Real world consequences for -- is if we do go over the cliff at the end of the year.

Between the expiration of the bush tax cuts and higher taxes.

For obamacare the top capital gains rate will jump from 15%.

To 23 point eight and listen to this the top rate on dividends.

Will jump from 15% to 43.

Point four.

How are mr.

-- our investors reacting to those possible very -- Tax -- Well to -- point you want some clarity and whether that clarity comes in your personal economy at home.

Whether your CEO or CFO of the corporation you want some clarity on how to spend that caps -- accumulated on your balance sheet.

I'm -- -- of the government you wanna figure out how to do impact down the spending in that you have at that that the federal level as well.

-- Americans are looking for clarity so that they can make the decisions and that's referenced in terms of I'm purchasing short term Christmas gifts for the next selling season or whether it again if you're CEO and -- -- think about investing in -- plans are hiring new.

New people at it but if I may -- -- it if I may have -- just specifically.

If you're -- how about a stock and you see that your capital gains if you sell that stock could go from 15% to 24%.

At the on January 1.

Our -- some people cashing out now.

Well.

So what we've seen over the last year is that people in the search for yield have sought out dividend producing equities.

I'm with the treasury ten year treasury -- about one half percent and the S&P 500 dividend yield about 2.3 percent.

People have flocked to dividend producing equities but -- you referenced earlier the pullback in the market has often come from -- very high dividend producing equities that have appreciated significantly over last year.

I'm telecoms particularly in utilities have been the hardest hit in the most recent weeks.

They have been stocks that have been attractive to investors looking for higher dividend yields but we've seen some contraction because their price to earnings ratios are.

Outline perhaps with the with the rest of what we're seeing in the rest -- -- -- and diversified industries.

Now for investors are definitely the let me let me just if I may mr.

-- fidelity did a survey of your investors and you found -- three quarters of them.

Don't think we're gonna go over the -- think that there's going to be a deal but but if our leaders come back tomorrow and you know we go a couple of more weeks and suddenly the -- that the deal is looking less and less possible and the -- is getting closer and closer.

What kind of impact does not gonna have on the markets.

I think I think you've seen that so you know what as we mentioned between the end of the third quarter and -- this past week.

You've had some volatility in the markets -- had some pullback in the equities people who started to takes an equity risk off the table.

I would hope that people are doing that from her balancing standpoint when it had appreciation and equities you -- -- rebalance back -- fixed income in the nation here.

Sticking with your target asset mix and not making a reactionary move -- Don't get through Seattle does get too technical on us here is there but I guess the question -- bombs could you begin to see the markets really drop as we get closer to the fiscal -- I think you've seen some -- that are ready so so what we what we worry about as we worry about this shift that we saw the last couple of years were people.

Abandoned -- post a Lleyton on nine and they shifted a trillion dollars into bonds.

And what they've missed out on is the equity rally that's occurred since the march's -- and on nine.

And -- a lot of folks to do is really focus less on the short term more on the longer term and understand the role -- equities playing your portfolio.

And make sure that you continue to have a an appropriate asset allocation for the time horizon and the risk tolerance that you need for your portfolio.

Let me we've got a couple minutes off I just want to ask you because there are some big decisions that are going to be made over this next month we all.

-- -- looking at the various options that have been mentioned for a possible compromise.

Are there are some things that are better for the retail industry -- some things that are worse but that the best thing I think -- to get us into 2013.

So we can have a conversation in a comprehensive way about the entire tax code.

Looking at the entitlement spending thinking about the things that the John's point the long term issues what really drives the the deficit here obviously is the spending on entitlements Medicare Medicaid and Social Security.

And we can't fix this by just attacking discretionary spending that's the easy thing it's convenient no one argues as much.

But when we talk about political leadership we really needed and we need specificity so.

What we ought to do in the next few weeks is get some sort of a down payment that gets us into next year and then have a thoughtful discussion.

About how we make the tax -- more competitive lower the corporate rate from 35 point 5%.

Broaden the base and do the things are gonna put us on a trajectory of growing and consumer start to pull back now we're talking about 70% of the economy is consumption.

If they pull back and they start to save that we're talking the paradox of thrift that people are spending at a time we need to dispense so.

Going over the falls in a barrel -- the fiscal cliff without a barrel it would be a disaster I think people talk about well we can do it we'll have more leverage politically it won't be such a bad idea.

-- be terrible idea it'll be devastating we'd be back in recession consumers wouldn't spend.

Big mistake.

-- -- -- Finally we have less than a minute -- If we get ideal and it's a solid deal.

How much of of those would -- -- to the markets.

How much pent up demand how much.

Would there would you capital has been sitting on the sidelines lead in I guess I basking what's the upside here.

Yeah I think that there is cash sitting on the sideline we see an increase in close until our money market funds over the last -- -- two months.

So leave you assume that there's some cash waiting to be deployed.

What we want to make sure those as we league asked consumers corporations and the government to think about don't make sure that your burn doesn't exceed your earned.

So when you're thinking about spending obviously -- to ensure that whatever you're earning at your portfolio or or -- paycheck.

Doesn't -- your your capacity to -- We're gonna have to leave it there and mr.

Sweeney mr.

shape thank you both thanks for talking -- -- this holiday weekend may be our leaders will.

Give us a Christmas present and pull us back for the fiscal Clinton can -- Cyber -- is tomorrow so we're not done yet -- I always felt like I.

Up next -- --

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