OctoberSubmitted by Retire Source Wealth Management on October 15th, 2015
The Federal Budget Plan
I find the recent standoff in Washington on the budget process fascinating on several levels. Let me count the ways.
Like a kids’ soccer game every player thinks they are a winner and deserve a trophy for their efforts. But unlike soccer running the country is not a game of competition; it’s an exercise in compromise. Without it not much gets done. So Washington, take a note and cancel that trophy order. Nobody is going to reward you for losing our confidence.
On the other hand, if the objective is to save money maybe we will need those trophies after all. Because while the players in Washington were all arguing which way to kick the ball, guess what happened. Everyone became a winner. You see the fastest way to save money in Washington is to do nothing, as in shut things down. Well mission accomplished. Money is being saved every day, so every player is a winner. And yet I find it funny that nobody is counting the money the shutdown has saved.
Now our political leaders are all busy telling us how urgent the budget process is. Maybe they forgot the 28 day government shutdown in 1995. The world kept turning. Maybe they forgot the 2011 fiscal cliff we were all going to plunge over. The world kept turning. Which brings us to today’s fiscal crisis. It seems we’ve heard this story so many times that it now has a diminished impact. Perhaps we’ve learned a lesson along the way. It’s a sad (but not unwarranted) commentary that we no longer panic when Washington tells us the world is about to end.
So where does that leave investors? Well, I believe this too will pass. Perhaps it will already be resolved by the time you read this letter. Sure, in the short run things may be messy, especially if both sides refuse to raise the debt ceiling. But what happens over the course of the next few days or weeks should not be the basis for changing a long term investment plan. Unless and until I have reason to believe the resulting new budget will have a significant impact on the economy, my recommendation is to stay the course. Right now my guess is the budget changes will be relatively minimal. Too much of the long term budget problems stem from entitlements, and there remains little resolve to change those for fear of committing political suicide. I don’t believe either side will let the debt ceiling be breached. Perhaps they will kick that can further down the road for a few more months. Aside from the short term psychological impact of this early Halloween fright fest, things probably won’t change all that much. Enjoy the show.
This commentary represents the personal views of Frank Rizzo and should not be construed as specific investment advice. Quotes and data are from third party sources and believed to be reliable, but there is no guarantee of their accuracy.