Doubtful about fisc cliff deal; mkt to be volatile: Solaris

As the markets heads towards a solution to the US fiscal cliff in the next five days, Tim Ghriskey, CIO of Solaris Asset Management has doubts about reaching an agreement on the issue. According to him, if the politicians agree on a patchwork agreement, it would be disappointing development for the market.

Ghriskey further elaborated that a majority of people do not expect a real solution to the fiscal cliff. In fact, markets could face some volatility if the economy goes over the cliff, he feels. However, a patchwork solution would certainly boost the economy and the positive surprises from various economic data indicate towards a slight correction in the market, he opined.
"Given valuations, given an improving economy the market downside is probably limited and it maybe something like 5 percent. We will be surprised to see a real correction of 10 percent or so in this environment," he explained. Here is the edited transcript of the interview on CNBC-TV18. Q: Do you think a solution will be reached between now and December 31?
A: I doubt it. We have doubted it all along because we think the politicians would rather be able to say that they reduce taxes and that means a deal in the New Year. There maybe some type of statements saying that they are closer to agreement, closer to working something out. The real downside here is simply a patchwork agreement, something that pushes out the real decisions that has to be made here.
If they try to come up with something too quickly, which is the most likely outcome and we think the markets could very much be disappointed by that type of patchwork solution. Q: What do you expect the markets will be disappointed by more, a patchwork solution or the lack of a solution altogether and to some extent, the cliff in a sense kicks in, the spending cuts kick in, the tax hikes kick in and the solution has to be found then in the next Q1?
A: Technically or legally, I guess the spending cuts and tax hikes kick in on first of the year but there are lots of things that the government can do to delay the implementation of any of those changes.
As long as there is the prospect here for some type of solution and we do think that it is just a question of when, not if there is some type of solution to these debt issues in the US, we cannot go on with the debt issues and I think clearly Congress understands that and the White House does as well.
But, we think the real risk probably is in that type of patchwork solution which simply pushes out the bar, meaning there is no real resolution to any of these issues. We think that is probably the biggest disappointment here because I think very few people expect a real solution by year-end. Although, there certainly can be some volatility in the market if indeed we could go over the cliff and the headlines will be out there. Q: So you are expecting a patchwork solution and you say markets will be disappointed. How substantial a knock could markets take in and what will the flight to safety be like if we do end up with a patchwork solution?
A: Certainly a patchwork solution means a healthier economy and we have been seeing some economic strength here in some of the data recently, some real positive surprises on the manufacturing side. So given valuations, given an improving economy the market downside is probably limited and it maybe something like 5 percent. We will be surprised to see a real correction of 10 percent or so in this environment.