|
|
MAKING CENTS OUT OF THE NEWS
Blog #24
(August 4th, 2011)
Not Just Yet!
By Tom McAllister, CFP®
All the dire talk of a U.S. default, endlessly repeated in the mainstream press, turned out to be (as I knew it would) just “storm and fury, signifying nothing, as, over the past weekend our Congressional leaders and the president compromised, agreeing to raise the debt limit and prevent the U.S. government from going into default.
No president would dare forego making principal and interest payments on U.S. obligations. To suspend debt payments is unthinkable, despite the scare tactics. Suspending Social Security, Medicare and Medicaid payments would invite immediate revolt on the part of the public.
This whole uproar represents an inevitable clash between the far left, a clash in which neither side won. As I observed the rhetoric and the skirmishing, I realized that, over the past thirty or forty years, there has been a takeover of the “marginal” votes in both our political parties.
In my father’s day, both parties would normally do what they considered the right thing for the country. During the 1970s, my Dad was city clerk treasurer and the Democrat city chairman in Vincennes, IN. As such, he did his duty and acted in what he believed to be in the best interests of the citizens to which he was responsible. In those days, when his opponents took office, offering different solutions to the city’s problems, they too would act in the best interests of their constituents. Both parties cooperated when the public good was in question. Reelection might be a concern, but was not the overriding factor for either party.
On a national level today, both parties are handicapped by, and to a large extent, controlled by their political ideologues. This is in sad contrast to past generations of politicians, going back to our founding fathers, who disagreed heartily on many matters (even to the point of duels!), but closed ranks when the good of the country was at risk.
So far as the down-grading of our debt by the rating agencies, I think it is inevitable and probably overdue, given the runaway spending of the last decade, which has been sharply accelerated by the current administration.
What is an investor to do, given the current political situation? My advice: Don’t do anything, not just yet. Sit tight, hold on to your U.S. government obligations, high dividend stocks and quality value stocks. Above all, avoid panicked portfolio shifts. Avoid massive shifts into gold, or silver, or holes in the back yard.
If you sell your U.S. Treasury bonds and bills, where are you going to put the money? The only option I see out there are general obligation municipal bonds, where yields are tax free and even higher than similar maturity U.S. debt. Our local governments are not going out of business after all.
I do not expect the battle between the far left and the far right to be decided soon. There will be quite a few tussles to come. The president is in trouble with the public, but the Republicans have not so far produced an exciting opponent for 2012.
So, for now, my advice is to sit tight and let the economy recover. This will happen, more likely later than sooner. It should be an interesting year to come. This is a time to be the cool-headed. Remember the Rudyard Kipling lines to a young man..
“If you can keep your head when all about you are losing theirs….“If you can wait and not be tired by waiting…“Yours is the Earth and everything that’s in it….
|
| |
| |
Click To Print This BLOG
