The Ancestral Pueblo people built elaborate housing developments in the cliffs of Mesa Verde (near Cortez, Colorado). Although, it is not definitely clear from historic accounts, one of the main reasons they lived in these precarious dwellings was fear.The housing structures embedded in these cliffs offered safety, security, and an easily defendable perch from which marauders could be expelled. They would often hoard goods and resources so they could hold out until their attackers had dispersed.What do these cliff dwellers have to do with today’s macroeconomic landscape? It is, in fact, a strange analogy on what is happening in the US.Currently the US economy and corporations are being held hostage on their own cliff. The fiscal cliff. This story, and its dire consequences, has been broadcasted repeatedly over the last few weeks post-election. In essence the “fiscal cliff” refers to the 2.9 percent gross domestic product (GDP) drag that will hit the US in 2013 due to series of automatic tax hikes and spending cuts. Briefly it entails the following aspects:1. On the revenue side, Bush-era tax cuts will expire. This will result in the highest individual tax rate going up from 35 percent to 39.6 percent and taxpayers will see a three percent tax rate increase on average. Capital gains and dividend tax rates would increase. And estate taxes will increase to 55 percent and the exemption would fall from $5 million to $1 million.2. On the spending side, an automatic budget cut of $1.2 trillion, split between defence and non-defence spending, will occur immediately in the new year.3. The Congressional Budget Office (CBO) suggests that if changes are not averted, the US economy will head back into recession resulting in a 1.3 percent GDP contraction and an unemployment rate of 9.2 percent by the end of 2013.This looming fiscal crisis has frozen capital spending and hiring plans across multiple industries. As a result, corporations, much like the Pueblo, are hiding out in their caves with a momentous level of cash until some form of resolution is reached.This uncertainty is thrashing the equity market at this stage and may continue for a little while as uncertainty constrains the commitment of capital. It’s worth noting the similarity with other periods of uncertainty. Take Greece’s predicament, for example.The whole Greek default debacle lead to a market revolt and sell off which ultimately was alleviated by a “restructuring”. Subsequent to this clarity the markets resumed their upward march. It is not the full resolution of a problem that is necessary for markets to advance. Often clarity is all that is required whether good or bad. Once the rules are clear the players can engage in the game — but without a clear set of rules it makes little sense engaging and risk premiums rise.We feel the fiscal cliff is likely to be averted as both sides know what is at stake. It is very likely that a compromise will be made in which the Democrats agree to extend certain tax cuts in exchange for Republicans agreeing to delay some spending cuts and special deductions for higher income earners.The CBO estimates the economy would grow 4.4 percent in 2013 and employees would add two million jobs if congress cancels the spending cuts and tax increases before year end. We believe that may be a bit optimistic given the wider global economic slowdown, but two percent growth seems reasonable and solid enough to make people climb out of their caves.Nathan Kowalski is the chief financial officer of Anchor Investment Management Ltd.