I wrote in the other post today about the fiscal cliff, which is one front-page story. The other is something that would not normally be considered front-page news—corporate audit policy. What makes this important are the systemic, as well as the geopolitical, implications.

The underlying issue is a conflict between U.S. and Chinese law. U.S. law requires foreign public accounting firms to provide the SEC with the paperwork involving U.S.-traded companies. Chinese law prohibits this.

Apparently, Obama’s demand that the Republicans come up with a plan had some effect—they did. Not surprisingly, the offer includes much less new revenue than the White House proposal and much larger spending cuts. The New York Times has a pretty good graphic today on page A16 that compares the initial offers.

A few interesting points:

For the past couple of weeks, I have been writing about how I think, ultimately, we will not go over the fiscal cliff. I have based my views on the need for both parties—for their own good and for the good of the country—to actually compromise and solve the problem.

And the need for some sort of deal is increasingly apparent, as I believe, based on the facts at hand, that the damage done to the economy may be well in excess of the 4 percent of GDP that the actual tax increases and spending cuts amount to. About two-thirds of that 4 percent is made up of tax increases; the rest is spending cuts. Economic studies have shown that the multiplier for tax increases is between 2 and 3, while that of spending cuts is between 1 and 2. Combined, using a multiplier of 2.5 for the tax increases and 1.5 for the spending cuts, we might reasonably assume a 7-percent to 8-percent hit to GDP.

Sort of. The White House has made an initial fiscal cliff proposal, which the Republicans have rejected out of hand. The headlines are portraying the Republican dismissal of the proposal as a problem, but the markets seem to be taking it in stride. I suspect the markets are right on this one.

Slowly, slowly we move forward. Economic growth for the third quarter was revised upward to 2.7 percent, well above the initial estimate of 2.0 percent, but slightly below the expected revision of 2.8 percent. This is a good result, but it probably will weaken in the next quarter, as quite a bit of it was due to inventory buildup, which will be drawn down.

This is part two of how the world ends—at least according to those who want to make a buck off of someone else’s fears. Make no mistake, I am fully supportive of worrying about things—they don’t call me Eeyore for nothing—but if you’re going to worry, you need to be sure that it’s something actually worth worrying about.

I talked yesterday about how the government has better, or at least easier, options available than to confiscate private retirement accounts. Though it could conceivably happen—Argentina has done just that—it isn’t in the cards here because we have a much more robust political and legal infrastructure, as we have just demonstrated.

Kind of an interesting day, with some good news in the U.S. and a mix of good and bad about equally balanced in Europe. Let’s take one at a time.

The U.S. economy: Housing continues to perform strongly, with house prices up for six months in a row by an average of 3 percent over the past year. Even the worst-hit cities, such as Las Vegas, Phoenix, and even Detroit, have shown price gains. The continued strength in housing hit the front page of the Financial Times (FT) and A3 in the Wall Street Journal (WSJ), and it is a key part of the front-page New York Times (NYT) article, “California Finds Economic Gloom Starting to Lift.” California is often a leading indicator of the rest of the country, so this is particularly good news.

I have been getting a number of questions recently about a number of e-mails and webpages that predict certain disaster. The scenarios include a collapse of the dollar, hyperinflation, confiscation of private retirement accounts, and many other similar things.

The fiscal cliff debate has shifted to some interesting ground. After a good start, with both sides sitting down and announcing that a deal was doable, there has been little visible action between the parties. There has, however, been quite a bit of activity within each party.

— Guest post from Peter Essele, senior investment research analyst

On November 13, I wrote about the richness of the closed-end marketplace due to strong investor demand. At the time, I mentioned that approximately 60 percent of taxable closed-end funds were trading at a premium to net asset value (premiums occur when the price paid in the open market for a particular fund is greater than the value of the underlying securities), which was the highest level ever recorded. In addition, the post stated that, based on historical relationships in this market, these aberrations often don’t persist for extended periods of time. My goal was to highlight the current dislocations that existed and to warn investors regarding a possible correction. Two days later, the number of funds trading at a premium in this particular market went from approximately 60 percent to less than 20 percent, as investors shed these securities at an aggressive pace. In some cases, investors lost more than 6 percent in a matter of days from securities that they believed to be high-yielding “bond” funds.