The Debt Ceiling Debate – Priceless!
29 Jul 2011 Leave a Comment
Recently, I had a couple of discussions about the current debt ceiling debate and the potential impact on our clients’ investment portfolios. One discussion was via email with a media person looking for an “individual investor’s” perspective and the other was a conversation with a client. Despite the discussions being with different people with very different objectives, the question was basically the same – “should there be reason for concern.”?
Okay, so I’m going to go out on a limb and share what I said to both about being “concerned” – ‘no, I don’t think so….’ It wasn’t that succinct, but it was close. Basically, I explained that our clients’ portfolios are allocated with a client’s long-term goals in mind and that if done right, we’re not reactionary when faced with a market “crisis.” Additionally, we advise our clients to avoid getting caught up in some of the noise and panic emanating out of Washington and the financial channels.
Our client asked if I thought the market would drop 5000 points come August 2nd. While her question was perhaps meant to exaggerate a potential market decline, it underscored a more serious question of whether or not she should liquidate her portfolio. My response was that I didn’t think the market would drop 5000 points come August 2nd, but I did think the decision to sell her investments should be based more upon changes in her life and not a debt crisis. I explained that if her financial goals involved using some of her money within a year or two, then my advice would be that she keep those funds in a cash (equivalent) account irrespective of the debate currently taking place in Washington. Simply put, we can’t predict short-term swings in the market, so it’s best not to take on the risk.
I have been paying some attention to the debate, and I’ve come to the conclusion, it is unclear what will happen if the U.S. defaults. Some economist might get it right and some might get it wrong as to the impact on our economy and capital, or maybe it will be resolved in the final minutes, and we’ll never find out. Early on I believed it would be resolved and there would be a collective sigh until the next crisis. I’m still cautiously optimistic.
Finally…
I have to admit watching the debate coming out of Washington is sort of like watching married couples argue about last month’s credit card spending once their statement arrives. What makes it kind of weird is that the argument is about controlling future spending (which is legitimate) but tied to their future spending argument, they’re also arguing about whether or not to pay the current bill (the debt ceiling). What do you think would happen if you called the credit card company and said, once your statement arrived, “I’m not going to pay for the charges I made last month, for I’ve decided to default on my bill.”? Priceless!
