December 9, 2012
The number of documents filed by companies with the SEC which include the phrase “fiscal cliff” and mention that it has had or could have some adverse impact business has been growing on average 125% a month. Over the first three business days of December, 39 separate filings cited the cliff, more than the 37 for the months of May, June, and July combined.
It all started in May with four separate mentions of the cliff for the first time in four years (the length of time the SEC provides online filings), according to Minyanville research. Three mentions were in filings by investment funds and one by a bank. Credit for the first SEC filing to mention the "fiscal cliff" goes to Fiduciary Management, Inc, (MUTF:FMIMX) the Milwaukee-based mutual fund company. On May 3, 2012, FMI company used the term in its Report to Shareholders which was otherwise written in a typically direct and friendly Midwestern style and breezily ticked through the highlights of the previous quarter (which had ended March 31) with mentions of the mild winter, jobs, oil prices, and elections.
Then, with its own subhead “Fiscal Cliff in 2013?” the company's tone became sober as it laid out the potential for huge tax increases in January 2013, including the capital gains and dividend income, which would raise federal government revenue by some $500 billion to 600 billion next year, the equivalent of 3-3.5% of GDP “before multipliers or knock on effects” which would cause another recession, in FMI's estimation. The company tried hard to project absolute dispassion regarding the outcome of the presidential elections, but it clearly displayed little faith in politicians in general.
“Remember the Not-So-Super Committee? They couldn’t agree on tax cuts, so the $1.2 trillion in automatic spending cuts across the board, the sequestration process starts to kick in January 2013. To say the least, we will watch how events unfold very carefully and stand ready to alter our investment stance to a considerably more conservative and defensive stance if circumstances warrant," FMI wrote.
Struggling to end on a cheerful note, the company concluded, "Having laid out the list of concerns, serious though they are, we remain optimistic....The markets are dynamic and ever changing, giving rise to many opportunities..."
In June the only filers mentioning the cliff remained financial firms. However, by late July manufacturers including Emerson Electric (NYSE:EMR), Noranda Aluminum (NYSE:NOR), and IDEX Corporation (NUSE:IEX) had all filed documents with the phrase.
Metaphorically, the fiscal dam broke in August when filings citing the fiscal cliff increased 305% over July. So far, the all-time high came on December 6 when 49 separate documents were filed citing the cliff, an 810% increase of the average daily filings going back to the first one in May.
By November, FMI Funds was understandably tired of discussing the topic but couldn't resist diving into it again. “Fiscal challenges have been addressed repeatedly in recent letters and will be put aside here, save this one statement….” The "one statement" was a doozy, going on to detail the potential effects on the markets, bonds, commodity prices, and various other items. In addition to mentioning it in the parent company filings, the cliff debuted in a filing tied to its flagship fund, FMI Large Cap (MUTF:FMIHX).
Clearly it had not put the subject aside at all.
If December filings continue at the same pace, more than 400 documents citing the cliff will be filed.
This article by Bristol Voss first appeared on Minyanville.
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