These two articles describe some of the possible outcomes if congress should fail to agree on a new debt ceiling. Default is evidently a real possibility.
"Shutting down the government is like a really bad stomach ache. The debt limit is like a heart attack," said Norm Ornstein, a congressional analyst at the conservative American Enterprise Institute.
Reuters Article 1: Lawmakers on Debt VoteReuters Article 2: Politics and Ideology Overshadow Debt Limit Talks
I'm thinking that given the current potential for governmental instability it might be prudent to take a large chunk of our investment and go to cash. We are currently 36% cash, 33% Bond Funds, and 31% Equity Funds; I'm contemplating something like going to 75 or 80% cash.
I'd really appreciate your investment thoughts on this... we'd better not even mention the political aspects.
Comments
Watching a broad sectors of futures, I don't find that the traders really give a rip one way or the other. I still find it difficult to find that U.S. equities are at the prices found today from 3 years ago....at least based on fundamentals.
The FED will use and/or find whatever method is needed to keep money flowing; as I feel Mr. Bernanke is not satisfied with the still weak numbers in the economy. His peers on the board may not agree in total, but Mr. B has the "ink pen".
Will this action continue to push equities? I suspect so, and not for the proper reasons.
For the last 12 months I kept watching and waiting for the bond traders to slap the snot out of many bond types......they have not YET !!! Currently they have other fun places to play....as in Europe. I am sure those who view the FUNDS BOAT holdings have also expected to find the portfolio deep in the mud.
I am not very comfortable with adding to equity; but I sure yell out the window when the equity market does its big runs. I continue to wonder if there will be another run in the opposite direction. DON'T know, of course.
I sure as heck didn't offer any help; but this house is preserving captial, so our pure and patient choices are limited by our risk tolerance.
We are up the creek, but we have our paddles and attempt to stay mid stream after from either shoreline and avoiding the rock and rapids.
I don't know that a budget outcome is expected until just before the 2012 elections; so the "old" markets may just cruise along as everyone watchs the left and right have their verbal street fights.
'Course none of this means much at times with all the baby "swans" being born each day and we don't yet know what their true color will be until they mature a bit more.
FINAL: Your portfolio is likely well balanced in light of the unknowns in so many areas.
Our house is 15% cash and we have not held straight cash for years and years. The worse part is the MM holding the cash has a .4% fee. So, we're holding negative money. I suspect the monies will move into broad multi sector bond funds, convertible securities and/or real estate income funds. If the equity side of the last two don't blow up, we'll get a little money from NAV increases or at least 4-6% in yield. We'll let the managers decide about EM or HY or IG bond holdings.
Take care out your way,
Catch
1) I think there will be some brinksmanship and a scare or two but that the worst wont happen. In other words, the debt limit will be raised in time.
2) My record predicting market moves was so dismal, stopped trying years ago.
3) Thanks for the reminder to X-Ray. Here's the result: Stocks 42%, Bonds 31%, Cash 12%, Not-Classified 15%. That last one probably relates to holdings in HSGFX, TRREX, and QRAAX (commodities). We were near 50% stocks start of year, so does reflect a little pulling back as the markets been surging.
I've had a nice profit there, and don't want to lose all of it should the dollar strengthen as a result of the Fed decisions. Also want to use the proceeds to better diversify there and take advantage of other ways to hedge either outcome (deflation/inflation).
In IRA, letting it ride; but have been thinking over the past several weeks as to whether or not I have too much aggressive stock exposure there. Recent interview with McGregor of Oakmark funds suggests that fixed income is riskier right now than stocks (i.e., Oakmark expecting inflation no matter what). FPA seems more agnostics and thinks inflation can be played numerous ways (i.e., via property insurers, etc.).
How if the economic growth were something similar to that of China, Brazil etc. that would definitely call for higher interest rates but raising interest rates too soon will choke of sub-3% growth in US.
The more dangerous inflation is when it is seen in wages. With the employment situation improving this needs to be watched. But at this time, the capacity utilization is still low and wages are not going up anytime soon.
I expect 2012 might be the year Fed starts its exit. This year is difficult for states and there is still some government layoffs occurring. With increasing tax revenues that states are seeing next year, this situation is slowly reverse.
Problem is that people look at EM inflation where wage inflation is actually seen and think that US Fed should increase interest rates. US interest rates are appropriate to US (and US only). If other emerging markets foolishly insist on importing US monetary policy (via controlled currency pegs) despite drastically different economic situation, the are the ones making the mistake.
I think China is now starting to see that mistake. I read on WSJ, Marketwatch that they will let the yuan rise further as their inflation can no longer be controlled by boosting reserve ratios to insane levels. Yes, it will make their exports more expensive and hope that their internal consumer spending picks up. At the same time, in short, intermediate term Walmart goods will not be as cheap but that may create opportunities for US based companies and local manufacturers.
regards
83301 zip code
"LIP" alerts other readers/posters that there is a "link in the post" (LIP) which may be followed to some other information source. I think that about covers it... at least that's all that comes to mind right now. Hope that you are enjoying this new site and finding it useful. So far it's been a bit quieter than the FundAlarm site, mostly due to the differences in format for the posts.
Regards-
If the new ceiling doesn't pass on time and there's a strong immediate reaction in the markets, I'd bet the congress critters would very swiftly rethink their votes. As far as the willingness of foreign investors to buy U.S. gov't bonds, none of the developed markets are looking too good these days, so I kinda doubt we'd get left out in the cold.