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Investing for a Tighter Budget

American may wish to start thinking about investing for a tighter budget. The United States Congress just agreed to raise taxes on income over $400,000 a year, extend unemployment benefits and a deal with a handful of items on the country’s economic plate. A huge sigh of relief was heard as congress seemed to finally get its act together. The fiscal cliff was averted, or was it? The sad fact is that a serious budget fight has just started. In just two months the nation runs out of money, again. Unless someone wants to risk an international monetary calamity, the US congress needs to raise the debt ceiling. So, what does all of this have to do with investing for a tighter budget? The Democrats want to raise taxes in order to pay the nation’s bills and reduce the national debt. The Republicans want to cut back on government spending, leave taxes alone, and reduce the national debt. No one seems to want to cut defense spending but it may come to that as well. Investing for a tighter budget has to do with investing a world of higher taxes or reduced military spending, or cuts on a myriad of social programs. All of these things can hit the collective pocketbook, resulting in tighter budgets across the board. What sorts of fundamental analysis can an investor utilize to come up with profitable investing ideas in the coming days?

What Taxes Might Go Up?

Any further raising of personal income taxes is probably a non-starter this year. The Republicans gave as much as they cared to in recent negotiations and the Democrats carried the day with the promise not to put any more burdens on the average Joe. However, user fees can always go up. Tax deductions can always be modified. And government incentive programs could go away. In the days after the onset of the Great Recession of 2008 and forward the USA poured a huge amount of national wealth into programs to create jobs, prop up banks and other failing businesses, and even print money to buy Treasury bills to drive down interest rates. There may come the day when all of these methods of helping the economy and getting votes may be beyond the ability of the nation to pay. Picking new winners may simply have to do with finding companies that make money because they make good products and do so efficiently.

Cut Social Programs or the Military

It is unlikely that Social Security and the rest will go away but a slowdown in cost of living adjustments may well be in order. This simply puts less money back into the economy and results in a general slowdown. Cutting how much Medicare payments could hurt HMO’s and their stock prices. A cutback in military spending could hit hard at new high tech efforts to keep ahead of the Russians, Chinese, Indians, etc. and drive down stocks across the board in that sector.

Where is the Dollar Headed?

The government can always print money. They seem to be doing so as part of the Bernanke Doctrine. This may have been what kept us out of a worse fiscal mess than might have happened. It is a great way to pay off national bills. And it may simply drive the dollar lower and make offshore investments more attractive. Investing in foreign stocks may be the answer to investing for a tighter budget in the USA.

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