Will the Republicans Actually Close the Government?

At midnight on Monday we will find out if the hard-liners within the Republican party (read: the Tea Party) will follow through on their threat to close the government as they refuse to negotiate in good faith on a deal to expand the debt ceiling. Whether one agrees with ObamaCare or not, I think it’s reprehensible that the right-wing members of the Republican party led by Congressman Ted Cruz of Texas, seeks to draft policy after losing the election, rather than focus on what is important right now: ensuring that the government can pay its bills. Now is not the time for extreme partisan politics. Now is the time for statesmanship; for cool heads to find common ground and a compromise that is in the best interests of the country.

I’ve ranted countless time in my newsletter, this blog and my twitter feed about the gutless and selfish sycophants that pretend to be our leaders in Congress. I won’t bore you by repeating the same withering criticisms. Suffice it to say that these morons are once again holding America hostage as their inability to put aside partisan politics in order to draft a federal budget leaves us a scant three days shy of a partial government shutdown. I can make an argument that, in certain circumstances, it wouldn’t be a bad thing for the government to close for a while. I do believe that we’d all be better off with a much small federal government. But that’s a conversation for another day. In this case though, it would be a very bad thing for all concerned. I still hold out hope that a deal will be struck before October 1 as our Congressional leaders are concerned first and foremost with their own re-election, and to be blamed for shutting down the government won’t help any of them at the ballot box.

As I write this about 30 minutes after the market opened for trading on the last day before the weekend, the Dow Jones Industrial Average is down about 100 points thanks to all of the uncertainty regarding the fight to raise the debt ceiling and agree on a budget for fiscal 2014. The Treasury Secretary has stated that the government will run out of money no later than October 17 and will thereby begin to default on its debts. Before that there will likely be furloughs and other cost cutting measures employed to stretch the deadline out as long as possible. None of those measures are likely to be good for workers or for an already weak economy.

I don’t believe that a crisis will come to pass. I think that the moderates in the Republican party will bring the extremists to heel and that a deal will get done. I do think the Democrats will have to agree to some spending cuts to get a budget deal done. But I don’t believe that any aspect of ObamaCare will be on the table, although the inter-party fight over this legislation will likely continue for the remainder of this Presidency. Hopefully the budget will include a combination of spending cuts and tax enhancements that will make a meaningful impact on the deficit.

So what does this mean for investors? I think the market will likely close lower today, and losses could continue through the close on Monday. I think a stop-gap measure will be agreed to sometime Monday night, allowing the government to continue in business. That agreement will likely trigger a rally in the market. Therefore, I think Monday may provide a nice buying opportunity. Stay tuned.

Musings on Death and Taxes

Last night my family enjoyed our blended holiday celebration. We shared gifts, laughter and hugs and kisses just days after an entire community was devastated by the horrific act of a madman and less than two months after Superstorm Sandy cut a path of devastation through much of the New York/New Jersey area. There are 27 families in Newton, CT who will not be celebrating the holidays this year as they mourn the loss of their children or siblings or parents. And there are likely hundreds of additional families still homeless or trying to piece their shattered lives back together. It truly makes you appreciate life’s blessings and reminds you to never take them, or your loved ones, for granted.

This random act of senseless violence in the Newton massacre once again brings the issue of gun control front and center. It’s hard to understand how any logical, sane person can oppose the idea of keeping automatic and semi-automatic weapons of mass destruction out of private hands. The Founding Fathers, when they crafted the 2nd Amendment to the Constitution, never envisioned weapons such as these. There is simply no place for them in civilized society. Period. I challenge any gun advocate to reply with a cogent reason why those types of weapons should not be banned. It’s time for our politicians to stand up to the NRA, and the rest of the gun lobby, and loudly proclaim that enough is enough; that they will not be bullied any longer and that’s it’s time for a national debate on what weapons can and cannot be owned by private citizens. President Obama, if you’re reading this, since you are not up for re-election, it’s your job to take a stand and get something done.

And Mr. President, while I have your attention, it’s time to get a deal done on the Fiscal Cliff. Enough is enough. Both sides MUST stop the posturing, eliminate all the partisan BS and craft a compromise that the entire country can live with. It shouldn’t be that difficult. You all have to agree that taxes will go up on many, if not all Americans. And those tax increases will likely be tilted towards those Americans who make the most money. Republicans, just accept it and move on. And at the same time, the government must spend less. There is simply no alternative. Democrats, deal with it and move on. So lock yourselves in a room until an agreement is reached. Because if you can’t get this deal done, then as a nation we are truly screwed because the bigger debate is forthcoming.

What nobody is talking about is that the Cliff negotiations are just the first act in what will be a much more contentious debate over the big issues of what to do with Medicare and Medicaid and Social Security. Those expenditures represent about 41% of the entire federal budget. Throw in another 15% or so for the military and you see that those three programs account for a staggering 56% of the entire $3.5 trillion spent by our government. Cutting a billion here or a billion there is simply noise. We, as a nation, must accept that we have been living well beyond our means for far too long. That unless we want to leave our massive debts for our children and grandchildren to deal with, leaving them with far diminished prospects and lives to that which we’ve enjoyed for so long, we must all make sacrifices for the common good. As a society, are we ready to do that? We’ll find out. And in the meantime, let’s talk about it. Write to me and let me know what you think.

 

Post Election Traumatic Stress Disorder

This is an excerpt from my latest newsletter.

About the only good news these days is that the election is FINALLY over. In my Fearless Forecast edition back in January I said “I believe President Obama will defeat Mitt Romney in a relatively close election as a divided GOP is unable to coalesce behind Romney. The Tea Party is marginalized and the Senate remains in Republican control. Fiscal austerity, job creation and tax policy are the main debate points.” I’d say I nailed that one right on the head. Now, Obama and the lame duck Congress MUST figure out a way to avoid pushing this country over the “fiscal cliff”. Should every possible tax increase and spending cut go through, the 4-5% reduction in GDP would push the United States into a deep recession. But I believe that the self-preservation instincts of our politicians won’t allow that to actually happen. Somehow they will figure out how to avoid the cliff. It’s likely that they’ll compromise on some easy tax increase wins and entitlement cuts then push the harder decisions into next year to let the next Congress fight it out. And the sooner they do this, the better for the stock market, which hates uncertainty.

At the end of the day, I don’t think the results of the election will change things very much. We still have a left-leaning president with no real mandate and a divided Congress with a weakened Tea Party. That’s a great prescription for more of the same where there’s lots of talk and very little real action. I think the best we can hope for, in the short run, is some modest compromise and lots of procrastination. Looking longer term, I truly hope the President looks to his legacy and makes a real effort to articulate a tax and spending policy that makes sense. If he does, the Republicans will be forced to the table and maybe a plan that can save us from becoming Greece and Spain can be shaped. Or not.

What is really sad is how little confidence I, and so many people I talk to, have that our leaders will really work together to shape an intelligent policy that will hurt everyone a little in the short run but help us all in the long run. There will have to be tax increases. There will have to be spending cuts. There will have to be reductions in entitlement programs. Many good programs will have to be cut back or eliminated. People will lose their jobs, especially those in the government.

Unfortunately, standing in the way of what must be done are the special interests and the lobbyists, the ones with the real money and power. These groups have too strong a voice in what happens in this country. It really is no longer about “we the people”; it’s “we with influence”. Maybe someone in Washington will show some courage and leadership and prove me wrong and do what’s right, even if it isn’t what’s popular. I hope so, but I’m not hopeful.