Riholtz with some great commentary, or the fiscal cliff, much ado about nothing, it is an earnings cliff

As a note to the below commentary, I increased the short exposure in my portfolios via a purchase of the Grizzly Short Fund (ticker GRZZX).
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Ritholtz was out with some great commetary this morning on high blog....
Time to Reduce Equity Exposure . . .

By Barry Ritholtz - October 26th, 2012, 7:00AM

All this week, I have been discussing why I thought we may be coming to an end of the cyclical bull market that began in March 2009: Listen to Ritholtz Sees “Major Cyclical Correction” from Tuesday morning, and watch this and this from Thursday.

I have cut back on some major holdings, and raised our cash levels to 25% in the asset allocation model I manage. I removed half of our energy positions, eliminated our emerging markets exposure. The biggest move was cutting S&P500 exposure by 50%. A handful of clients who had outsized Apple exposure saw those positions reduced by a third. We maintain a heavy bias in long portfolios in health care and in consumer staples. I have no desire to reduce treasuries or munis, which will become a safe harbor if and when things get choppy. (I have NOT added inverse ETFs, but that is something I may consider in the future).

Note that these portfolio moves have nothing to do with the upcoming elections or the fiscal cliff. I agree with what Michael Belkin said at the Big Picture conference: “People should forget the Fiscal Cliff, this market is all about the Earnings cliff.”

In terms of future recession probabilities, I now place us at 60% over the next 18 months. In other words, we are more likely to see a normal cyclical recession before Spring 2014 than not.

I don’t imagine we go straight down from here; There will be sell offs and rallies, pre and post elections. There will be some data points that suggest things aren’t so bad, and then some that are awful. It is not a black and white situation. I do believe the low volatility we have seen may very well become a thing of the past, and the VIX is becoming a definitive Buy.

One last point: This is NOT a batten down the hatches, go-to-100%-cash, looking for a 50-60% crash type of expectation. (We, um, already had that one). Instead, this is looking like a regular earnings and revenue shortfall driven recession, with equity markets at risk for a 20-30% correction.
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 In my opinion, too much is being made about the fiscal cliff and its potential effects on the economy. I believe it is far more likely that the economy remains stuck in slow-growth mode due to the lingering affects of balance sheet recession of 2008/2009. I also think that the negative effects of Obamacare on jobs, corporate costs and spending, and the economy, and the economy is being downplayed if not completely. ignored. As evidence, I refer you to the analysis over at Political Calculations (which by the way is one some of the best analysis on web). I won't repost the entire piece, although it is well worth the read, here is an excerpt.

Via Political Calculations.

And since President Obama hasn't done anything for the thousands of businesses that will be stuck with a higher cost of doing business without the additional revenue to pay for it, that means employers are going to have to consider one of the following options:

1. Reduce the size of their business to employ fewer than 50 workers to avoid the tax.
2. Cut the hours of their full time employees with lower incomes to make them part time employees to avoid the tax.
3. Stop providing health insurance coverage for their employees.
4. Keep providing health insurance coverage for their employees and take the hit to their bottom line, risking their ability to stay in business.
5. Provide employees with "cut-rate" health insurance coverage that is inferior to their current health insurance coverage.
6. All or some of the above.

One way or another, ObamaCare will negatively affect your job or your health insurance.