Despite the very public agreement to extend middle class tax cuts and increase taxes on the very rich, the fiscal cliff fight continues. Our concern in this investment column is fiscal cliff fight investment losses. One bright spot for those who believe in the right for parents to pass their wealth on to their heirs is that the $5 million inheritance tax exemption, plus COLA adjustments, passed along with the other tax bills. However, the issue of economic uncertainty continues and here is where we believe fiscal cliff fight investment losses are likely to occur. Supporters of low taxes commonly say that high taxes drives investment offshore. That may be true but our belief is that uncertainty is a greater deterrent to long term investment. Thus we believe that fiscal cliff fight investment losses will be related to the fact that many with money are not sufficiently sure of the future to engage in long term investing. Fundamental analysis becomes a joke when congress repeatedly threatens not to pay the bills that it has caused the country to accumulate. A joke going the rounds is that the US Treasury should mint a $1 Trillion platinum coin and use it to pay for a large chunk of US debt. What is a little frightening is that no one seems to understand that we are already printing money to keep the economy going.
Where Will Fiscal Cliff Investment Losses Occur?
The stock market will likely suffer if Congress and the White House cannot come to an agreement limiting US spending and agreeing to pay necessary debts. Last time around the perfect US government credit rating took a hit. To the extent that those in charge cannot get a handle on spending, the dollar will continue to fall over time and everyone with money in the bank or a paycheck will see the value of their holdings and earnings decrease with inflation. The dollar may not fall versus the Euro but it may suffer when traded against the currencies of the BRICS nations or even countries like Colombia whose currency did the best of all against the dollar in 2012. When Americans start investing in foreign stocks or engage in foreign real estate investments as a result of the politicking in Washington, it means fiscal cliff fight investment losses at home.
Can We All Just Learn to Agree?
The United States is badly in need of consensus. Better put, the nation is badly in need of leaders who govern by consensus. This gets back to our assertion that fiscal cliff fight investment losses will come from uncertainty instead of from a specific set of policies that may be enacted. The nation has come through a large number of economic and political scrapes, global wars and a civil war. It all works out over time if individuals, families, and investors have a sense of a fair playing field and a sense that what the rules are today will be the rules tomorrow. In the meantime, look at consumer stocks as an anchor during tough times, dividend stocks like power companies for steady return, and do not let fiscal cliff stock worries give you and ulcer as it may just work out in the end. And, always do your own fundamental analysis.