Sell And Go To Cash?

The Cliff is another stunning example of failed leadership in Washington.

A few thoughts:

It will happen.
It didn’t have to happen.

It is not all bad because reduced spending and increased revenues are necessary to remedy the enormous fiscal imbalance.

The bad part is that a more delicate near-term approach, combined with a larger, more comprehensive long-term solution, is necessary. Think Simpson Bowles.

The worst part is that lawmakers will likely cut taxes after the Cliff takes them higher and provide additional relief so as to destroy any real effect on repairing the Fiscal imbalance. It’s all just SO stupid!

Most of the above doesn’t do anything more than extend this debate well into 2013. As the can gets kicked yet again, investors will likely find not a great deal of difference. The CBO say GDP will go to -0.5% if we go over the Cliff and will be +2.4% if nothing changes. Recessions are painful, and the next one is getting a lot closer!

The last debt limit debate proved me dead wrong. I didn’t believe that Congress would fail to meet the deadline. If they did, I thought rates would go up and share prices would go down. Wrong, wrong, and wrong!

Seeing how reasonable, logical, and wrong I was is hugely important right now. Even if you could predict the political outcome and economic effects, you have no idea as to how markets may react. SO! How do you invest if you honestly accept that you honestly don’t have a clue? Cash? Bonds? Stocks? Real estate? Currencies? Commodities?

My best answer is that the world will either end or it won’t. If it ends, our investment plan won’t matter. If it doesn’t, then I want to keep a little cash and stay invested in companies that have limited debt, strong earnings, healthy cash flow, and business models that can weather weaker economic periods. I think the Cal Ripken approach to investing makes most sense: show up for every game, make all the plays you can, and hit as many singles and doubles as possible. This is a time when those striving for heroism could well end up as martyrs!

Like a really big kidney stone, this too shall painfully pass.

Hang in there!