Slippery slope: budget negotiations, the markets, and you
We’re sure that you’re sick and tired of hearing about the fiscal cliff at this point, and we don’t blame you. The looming tax increases and spending cuts have spawned no end of “cliffhangers” and “Cliff Notes” describing the impending doomsday if Congress and the White House can’t agree to an alternative. We think the more accurate description in all of this has been the recharacterization of the fiscal cliff as a fiscal slope. The impact of the tax increases and spending cuts will emerge gradually and won’t have much tangible effect in the beginning. The reality is that our politicians actually have more time to deal with this than the New Year’s Eve deadline would suggest. If a compromise solution is crafted in January or February, the impact on the “real economy” will be minimal. Having said that, however, we must concede that the stock market may well have a more dramatic reaction. Unlike the the real economy, the market doesn’t live day-by-day in the present but discounts the future and is extremely sensitive to this wispy thing called “sentiment”. So the markets may well swoon (since we’re talking about “cliffhangers”, let’s have a Perils of Pauline image to go with it!) if Washington takes us over the Cliff in the coming weeks. This too shall pass, so don’t allow it to spoil the good cheer that should fill the holiday season and new year celebrations.
As always, our best advice is to . . .