Market Commentary for the week of October 21st, 2013

Maze.
If you’re like most of us, the continuum of political discourse is, by now, becoming (a) boring (b) laughable (c) shameful (d) disgusting.  Let Washington worry about Washington, the markets are churning based upon rumor, innuendo, and hyperbole.  It doesn’t matter from which “side” of the circle one enters this maze, all that matters is finding an exit door.

The warning signs are dire.  Win or lose, you’ve already lost.  A stomach-turning choreography of political leaders has been parading across our television screens for weeks without making headway or any difference to our daily lives.  In spite of their “temporary” agreement last Wednesday, much remains the same.

Thinking this agreement has made a difference is quite disingenuous.  They have already made a difference, a big negative difference.

While the world watched this spectacle of incompetence, the global financial markets had been positioning for a U.S. self-destruction.  Once considered the bastion of security and solvency, the U.S. is viewed at one point as totally self-absorbed and immature, and at another point extremely dangerous and contemptible.  As the clock ticks towards and beyond these man-made cataclysmic deadlines, our leaders must surely know that they have already inflicted great harm on our financial well-being.

Our creditors worldwide are wondering if it’s time to take back their capital and go home.

Beyond any global reaction to the fracas in Washington, domestic “clients” of the economy are losing confidence in the sustainability of commerce when everything else is in a state of flux.  Nobody is really worried that they won’t ultimately get paid, or that the financial debate wont be resolved.  No, the real issue is that we’re getting messages that, and seeing reasons why, we should become distrustful of institutions which purport to have our interests at heart.  A cascade of sour emotions is washing over us and no one knows for sure which part makes us the most nervous.

Prisoners.

For the most part, most of us have long-term aspirations for our portfolio.  Whether the debate in Washington resumes for a day more, weeks more, or beyond, I am still committed to finding strategic and demographic reasons to be fully invested.  As I pointed out in last week’s piece, the laws of physics have not been repealed.  But the bigger issue, as this observer sees it, is that investing and finance have become beholden to short term ideology and the minutiae of special interests.  Whatever happened to a 5 year business plan?

Instead, many are mistakenly consumed by masterminding a short-term strategy for home-flipping, stock-trading, and corporate finance.

Because we always assumed the government would “be there”, we operated under a tacit understanding that all the mechanics of investing would be taken care of, and we were then free to execute a strategy of our choosing on a clean playing field.

Well, the government impasse has muddied our clarity about things.  Anyway you shape the argument, our security blanket has been rendered temporarily impotent.

There’s a reason to believe the shutdown won’t hasten improvement.  If rates rise, not so much because economic activity pushes money cost higher but because our credit worthiness suffers, then it will cost all of us more to engage in those transactions that have become commonplace:  home buying, car buying, tuition borrowing, and credit card using.  For all sorts of reasons, the economic damage has been done and it is too late to put Pandora back in her box.

In years past when economic calamities arose from unforeseen events, it was easy to muster the courage to “get back in the game” and make something from nothing.  Today, spooked by our own leaders, the ditch we see ahead is of our/their own making.  We’ll scrape by temporarily, but it will take much longer to restore clarity and competence to our already wounded psyche.