Well, the fiscal cliff came…and went…and in typical Washingtonian fashion, remains still ahead of us for the most part.
Yup – true to form and as was largely expected, the leaders in DC kicked the can down the road a bit. Not far, mind you – just a couple months.
As unbelievable as it would seem, and it surely defies logic, the “entire” den of thieves (aka POTUS and Congress) managed to pick the pockets of their constituents via new taxes (including an increase in the payroll tax that most directly hits the middle class – the very peeps the POLS are working hard to serve…supposedly), throw their largest corporate contributors some juicy bones, spit in the eye of small biz (yet again), place full blame on the “other side”…and most impressive of all – avoid imposing spending cuts…or for that matter, limits of any sort on themselves. In fact, while a raise for VP Biden and members of Congress was discussed, the only thing they failed to address at all was the issue of spending. But they are gonna get back to the issue….soon! Riiiiiggggghhhhtttttt.
Wow, can’t really make this stuff up…
Given that backdrop, you’d think we’d remain stuck in the mire and very much still held hostage to the machinations out of the beltway…for some time to come.
Well, YES…and… NO! Twisted, I know…but give me a moment and I’ll make the case.
Yes, we are still stuck, and the situation is bad and sure to get worse. The media will continue to feed on this and the POLS will continue to fling arrows and grandstand on the entire situation. And we will become even more fatigued with the process. Get ready for Debt Ceiling Borrowing Limit Part Deux…
More importantly, we’ll continue to see real damage done to our fiscal situation, including the wholesale debasement of our currency. And a lot of smart peeps will continue to warn and say we’re gonna pay a steep price for all of this at some point…and they are right!
From that standpoint, we are in serious trouble, no doubt! And the truth is we are theoretically in decline and on a path from which we can’t diverge. Our days as The Lone Superpower are numbered.
Pretty dire stuff, huh? YES, indeed!
But………there’s a silver lining here. We actually have something working in our favor – the very nature of POLS…and the relative nature of how the market views things. As such, we have to keep things in perceptive and remember all is not gloom and doom.
First up, the nature of POLS. True to form, the POLS did exactly what was expected of them all along – they were guided by their own sense of self-preservation and found a way to make things work…just enough…at the very last minute. Sleight of hand parlor tricks designed to fool and buy time…but not fix
Now lots of peeps are gonna be predicting this is gonna backfire immediately…resulting in a serious slowdown that will see us stumble into recession in the coming couple months. And it’s hard to argue with their logic. In my view, we are already slowing and the coming earnings season could be a tough one given the year-over-year comparisons that companies are gonna be facing. But you have to temper that with the fact that the bar has been lowered so much already that many will actually beat expectations – the typical Wall Street earnings charade. Whatever the outcome, this is a “relative” matter and not something catastrophic. I’ll come back to “relative” shortly.
Which brings me back to the nature of our POLS. It never pays to underestimate the power of a politician seeking to save their own skin… In fact, we’ve seen this very script play out in the recent past over in Europe with the sovereign-debt situation. They have been kickin the can down the road and seemingly tip-toeing on the edge of disaster for the past several years now. The situation remains dire still, yet they’ve avoided collapse and at this point have somewhat miraculously managed to create a perception that they’ve come up with the proper prescription to the whole mess and are now putting their house in order. Mind you, I said perception…
So how does that help us? I said this was gonna be twisted…but no less true. Should we expect anything less out of our elected leaders than those in Europe? Certainly not! They’ve always obliged and will do so this time around and at every point necessary in the future.
Trust me, they will muddle and mess things up, but this isn’t about what they are capable or incapable of – it’s all about understanding the simple fact that we can count on them to act in their best interest to save their hides and cushy positions. Translated, that means do nothing most of the time and kick the can down the road when absolutely forced to do something.
The fiscal cliff is proof positive of this. They created it themselves…a self-imposed diet of draconian austerity that was supposedly so unpalatable to all parties that resolution was an absolute surety – much like our policy of mutually assured destruction throughout the Cold War era.
Yet in the end they simply passed measures (after the deadline, no less) extending the deadline by a couple months. Laughable. Even more so is their feigned argument that this is about the American people. This has never been about ideology or a higher purpose or serving their constituents and certainly not about putting our fiscal house in order. And the whole “we don’t want to leave this mess for the next generation” rhetoric that gets bandied about by all sides…. Pllleeeeaaaaasssssseeeeeeeeeeee.
Granted, that probably sounds a bit jaded…
But in fact I’m actually an optimist and I view their recent actions as proof I can count on them to act in a certain manner. When the “stuff” hits the fan, our leaders (throwing the Fed in there as well) will absolutely wait till the 11th hour and then find a way to kick the can down the road. Whether you believe it or not, there is comfort in that. Very much like the wild horse that will run you right up to the abyss but stop at the edge due to an inherent instinct for self preservation. We aren’t going off a cliff any time soon…fiscal or of any other sort.
Which brings me to the relative nature of how the market views things. While our house is a mess in many regards, the fact is we just came back from the brink of financial meltdown – that’s not rhetoric or an overstatement of any sort. And the picture hasn’t improved much in the intervening years since the near implosion. Make no mistake, our debt and spending problem is a serious issue that is not going to get solved…EVER – especially by the very peeps responsible for the problem to begin with!
But the market understands this and factors the reality that our decline will come in measured tones and over a long period of time. Simply put, we aren’t going away any time soon. And we remain the best game in town from a relative standpoint…for now and a fair amount of time going forward.
Like I said, twisted….but no less true!
Now you can bet there will be peeps out there who interpret this to be a prediction of some sort of pollyannaish scenario – trust me, I ain’t been hittin the Cool Aide…at least not that flavor.
What I am talking about is getting back to normal market activity. Corrections and rallies and the occasional crash and some irrational exuberance mixed in.
Bottom line, while there are many issues to be dealt with still and we are far from being divorced from the actions of the POLs, both here and abroad, we do seem to be heading away from the constant barrage of catastrophe-driven distress in the markets that has most definitely prevailed over the past five years. Sure, that could change in a heartbeat, but there’s no denying the growing sense that we have entered more-normal market conditions – familiar territory where we worry most about the Fed, inflation, earnings, innovation and the types of things the market and it’s participants are used to dealing with on a daily basis.
Don’t know about you, but I’m ready for Wall Street to start leading once again as opposed to being shaken by the POLS…scuse me – I meant the tail.