NEW YORK (TheStreet) -- I've been willing to buy the conventional wisdom that some deal will be done to avert the "Fiscal Cliff." I even think it's an opportunity to get some great companies cheap.
As this was written on New Year's Eve, we still had no deal. But even if Congress treats the Jan. 1 deadline like the late Douglas Adams -- he said "I love deadlines. I like the whooshing sound they make as they fly by" -- a deal can still get done later this week, even next week, with minimal harm.
Yes, there will be a lot of uncertainty, and accountants will be churning out overtime. A final deal, reached this coming Friday, would doubtless hold taxpayers harmless for the complications. And everything in it would be a tax cut, while in 2012 Republicans are being told to vote for tax raises. It makes a difference.
I've told you what bulls should do in the event of a cliff disaster. But what should bears do, other than take Bette Davis' advice of "Fasten your seat belts, it's going to be a bumpy night."
Here are my thoughts, and I'd love to hear yours:
Sell Defense Stocks: The least-mentioned provision in the 2011 deal creating the cliff is a 9% cut in the defense budget, starting tomorrow. Health care for soldiers would be cut, and Lockheed-Martin LMT is talking of an immediate layoff of 10,000 workers, according to Bloomberg.
Other big contractors like Boeing BA , Northrup Grumman NOC and General Dynamics GD also get downgraded in this case.
So would companies you don't always associate with defense, like Honeywell HD and General Electric GE . Business Insider has a list of the 25 largest military contractors, all available for shorting.
Sell Oil and Gas: If the U.S. goes into recession it's going to hurt the price of oil, since we're the largest energy user. Unfortunately that's going to hurt a lot of U.S. companies since we're becoming one of the largest producers again. This is going to be bad news for integrated oils like Exxon Mobil XOM , Chevron CVX and BP BP , but big U.S.-based oil production outfits like Anadarko APC and Devon DVN are still going to sell what they produce, albeit at lower prices.
I wouldn't be surprised if this makes Chesapeake Energy CHK worthless, as natural gas can't be exported as oil can. Gas is already selling at near its production costs.
Sell Canada: Falling oil prices benefit suppliers of lower cost reserves. So a U.S. recession is very, very bad for Canadian tar sands. I might even short the Canadian iShares ETF EWC as a speculation, given the leverage that economy has to the sands and the political turmoil that will result from falling demand for what it supplies. If we go over the cliff, and especially if oil prices decline as a result, we're taking Canada with us.
Mining.com wrote recently that tar sands producers were already getting the equivalent of just $45/barrel for their production. Britain's The Independent estimates it costs $80 to $100 a barrel to break even on tar sand production.
During the 2008 financial crisis, a lot of tar sands projects were shelved as global oil prices fell. This is starting to happen again. The profit squeeze is hitting companies like Suncor SU , Cenovus CVE and Imperial Oil IMO , and that reduction in supply is hurting the big pipeline companies, like TransCanada TRP and Kinder Morgan KMI , both of which are already facing environmental delays in getting projects approved.
Buy Dollars: The "Fiscal Cliff" deal was always about deficit reduction. There's talk about the fight moving to the debt ceiling, if no comprehensive agreement is reached here, but the Constitution is pretty clear that the debts run up by Congress must be paid. If our government's books are coming closer to balance, by any means, this is good for the U.S. currency and for assets denominated in U.S. currency.
Most analysts have assumed that interest rates are heading up this year, as economic growth accelerates. But if government austerity turns growth negative, you're also going to get the old "flight to quality." If we do go over the cliff, in other words, bondholders may be in for a pleasant surprise.
Of course, I still expect that none of these things will happen. A deal will probably get done. This column will probably go into the "April Fool" category.
But in case I'm wrong, you're wrong and we're wrong, clip it and save.
At the time of publication, the author was long GE.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.