Insights & Advice

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The federal shutdown and the debt ceiling will be lifted.

As the first week of the government shutdown comes to a close, the panic level is rising on Wall Street and throughout the nation. Do not get sucked into this emotional maelstrom. None of these dire predictions will come true.

It is no accident that the politicians on both sides are predicting Armageddon if some kind of deal is not struck before the middle of the month. Both sides are deliberately fueling the fire over the debt ceiling while the media dutifully reports and embellishes every word.   So, as a money manager and market strategist, it is not hard to understand why my phone is ringing with worried clients and readers.

Headlines like “Chaos at the Capital” don’t help while the predictions of learned economists and past U.S. Treasury officials are not to be taken lightly. When you hear that a default on our nation’s debt will cause the mother of all recessions and be felt by generations to come, well, that stuff makes one wonder if it isn’t time to bail out of the market? Am I right?

Okay, so let’s step back a bit and look at this situation from a more objective view. In many ways, we have an almost identical situation to the one we endured in 2011, at least on the subject of raising the debt ceiling. You may recall that at the eleventh hour the politicians came together and agreed to raise the nation’s federal debt level.

Why, because both parties understand fully the consequences of allowing the nation to enter default. Ask yourself if anything has changed in the last two years that might make politicians believe that a different outcome would occur if they allowed a U.S. default? The answer is no.

So what we have here is a game of chicken, one that we have seen again and again in our nation’s capital. As we get closer to the deadline, one side or the other will offer a deal, the other will reject or accept it with reservations, the tension will continue to build, the media will sell lots of newspapers and advertisements and you, my dear reader, will suffer all this unnecessary angst for several more days.

We are, in my opinion, in a secular bull market which has much longer to run than anyone believes. The present rally is not over by any means and we could easily continue to run well into next year. That could mean as much as another 30% or so in stock market gains. As it is, the politicians have already done their best to slow the economy (through Sequestration) and by shutting down the government. Don’t let these clowns in Washington rob you of these potential market gains and the chance to save toward your retirement.

As I mentioned last week, focus on price. Two years ago the market dropped 16.5% during the debt ceiling crisis. Today, the S&P 500 Index is down barely 2.6% from its all-time historical high.  Does that smack of real panic to you?  I say this event is like one of those winter storm warnings where forecasters and the media predict it “could” be the storm of the century. Everyone rushes out to buy generators, flash lights and canned food only to discover that the storm veered off into the Atlantic.

Two years ago I predicted that the debt ceiling would be raised. It was. I am predicting the same thing today. It is up to you whether you want to sell with the herd or take advantage of this drama and buy stocks. You know what I’m doing.

Posted in A Few Dollars More