The Fiscal Cliff: "Comical If It Wasn't So Tragic"


Rob Arnott, CEO of Research Affiliates, is a pioneer investor. He's changed the way people think about indexes, dividends, buybacks, and valuations more than perhaps anyone else in the past decade.

I sat down with him in his Newport Beach, Calif., office last week for a wide-ranging interview. The first topic: the fiscal cliff (of course).

He brought up an important point. Those worried about the fiscal cliff are hoping for a deal between parties. But what will a deal look like? A compromise of tax increases and spending cuts -- a smaller fiscal cliff, in other words, but still a cliff.

Here's what else Arnott had to say about the cliff and our fiscal problems. (Transcript follows.)

Robert Arnott: Fiscal cliff, I think it's kind of comical. Rephrase that;= -- comical if it wasn't so tragic. All this negotiation about the fiscal cliff, A, let's assume that it bears fruit and there's a compromise. What's that compromise going to look like? Higher taxes and lower spending, a fiscal cliff. So we have a fiscal cliff. No matter what happens, the seeds for the fiscal cliff were sown in the consequence of the financial crisis and its aftermath in a binge of overspending, and that created the conditions for a fiscal cliff, no matter what happens. So I look on that as much ado about nothing in terms of the negotiations, but the fiscal cliff itself is a big deal.

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