October 17th looms large as a critical inflection point in our economic/political discourse. On that date the U.S. Congress is supposed to “raise the debt limit”, which simply means allocating the funds to cover debts already incurred by the Federal government. The date is being held hostage by both political parties in order to relegitimize the previous election (2012) and to dial-up the rhetoric of disparate political ideology.
Thus far, the markets have
reacted with trepidation, fear, or dispassion about any ideology that inhibits
the engine of capitalism from humming.
But let’s take a look at a
wider aperture perspective about October 17th. On that date, no one suspends the laws of
physics, gravity, biomedicine or chemistry.
No one questions whether the Earth will continue to orbit the Sun. Babies will still be born, and, sadly, some
of us will also die.
No, the issue on October 17th is how the
world’s financial markets might react to a man-made catastrophe in which two political
parties hold diametrically different viewpoints about how the machinations of
government and finance should operate. Should the U.S.
Either way, and quite
simplistically, my job is to navigate my client’s financial resources through
the man-made mess so as not to take on too much water, and to emerge on the
“other side” (whichever it might be) relatively unscathed and intact. I
will do this not by “timing” the market, but through prudent asset allocation
and a healthy realization that crises are part of the exogenous debris through
which one must traverse to actualize long-term tenets of objective science and
subjective expectations.
Process.
By traditional measures, this
budget debate is a relatively new phenomenon.
The debt ceiling has not always been the rhetorical obstacle it has
become today. Paying for one’s debts,
after all, is something all households and businesses do regularly. The difference here is that the
So as the markets lurch towards
this artificial Armageddon, we must still be thankful for life’s basics: birth, death and everything in between.
There is no question that
interest rates, not just stocks, will be significantly affected if a “default”
were to occur. Mortgage rates, bond
interest, and the cost of money will become “more expensive” under a cloud of
global suspicion that the U.S.
Even if stock prices fall,
history tells us (as do current cyclic trendlines) that momentum is on our
side. Two years into a recovery, quantitative performance is far more
influential upon anticipated returns than is the political debate in
Washington, although make no mistake that this “exogenous noise” does pose some
short term debilitation to the data.
Some have suggested that the current government shutdown and the fiscal
debate could shave one percent off fourth-quarter GDP projections. This crisis, as with others, will have a resolution. When, is another matter.
Investors can hold on to the
fear of a calamity about to befall us, or they can widen their examination of
current events and global demographics to realize that their family is still
first in their priority, their health is the most important thing, and that
long-held theories of market analysis will not dissolve by attribution to one
man or political party. It might not
make sense this week, but we have the tools to get through this.
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