I hate to get all biblical when posting, especially in the same post where I mention politics and Washington D.C. It seems profane and sacrilegious, but it does make for an eye-catching title.
To continue, since September 17 (No-Taper Day), a day marking the all-time high on the S&P 500, the index has lost a mere 4.3%. This ho-hum market attitude about the antics in D.C. says – been there, done that. We have become complacent about this quagmire and complacency is usually a precursor of tougher times in the market. Interestingly we got back almost half the drop since 9/17 in today’s trading.
The media is loving this.
The continued posturing, rhetoric and the forecasts of dire consequences are red meat for these guys. They will work to build the fear and play it for all it is worth, as they covet butts in the seats more than anything else. If the current stalemate goes on for another week or two, the constant drum beat of fear and negativity will put those butts in the seats and help undermine confidence. This would be a great set-up for a more severe downturn. Just remember if fear builds, we have come a long way from the lows, up 160% since March 2009 and 21% since last November.
A significant decline is actually in order, normal and not something to become overwrought about. So, be prepared for it. Embrace it even though it will probably feel terrible going through it. It may provide a much needed opportunity to put some cash to work. Also, the sharper and more severe the decline, the more likely a positive response from Washington. As they did at the height of the financial crisis, they will panic and do the right thing. Maybe that is happening today. But remember the golden advice of Y0gi Berra: “It ain’t over till its over.”
Regardless of what happens with today’s negotiations (or lack thereof) and the volatility any news might bring to the markets, I believe strongly that we should stick with owning assets!
The real boogie man is inflation
In the long run I believe (as articulated in session 7 -My Biases..) inflation is the biggest issue confronting investors. Profligate spending, money printing and huge new demand from nearly one third of the world’s population living in China and India – these will be the triggers. The only way you protect yourself is to own assets. Common stocks happen to be one class I know and am comfortable with. But, you are free to pick your own poison (natural resources, commercial or residential real estate, collectibles, etc.). These should offer strong protection against the declining value of the dollar.
One last item: This is not a good time to be a lender!
What do you think?
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