The markets have spent most of this year focusing on concrete things like the economy, jobs, the Fed’s stimulus program and corporate earnings. However, we are entering that time of year when our dysfunctional political parties may once again roil the markets in an attempt to justify their miserable existence.
It is no accident that President Barack Obama took to the road this week with proposals for additional federal spending to boost the economy. After heaping all the blame on the Republican House for blocking his middle-class economic agenda, he introduced what appears to be a re-hash of old proposals that have been shot down repeatedly by the Republicans. What’s the point?
The Democrats are hoping that playing the blame game, just prior to the legislative summer recess, will hurt Republicans returning to their districts, who (they hope) will be greeted by an outcry of anger and disgust by voters. I believe they are misreading the situation.
While it is true almost everyone is down on politicians, what most observers fail to realize is that both conservatives and liberals won’t allow their representatives to compromise in order to advance a new economic or social agenda for the nation. "Moderate" has become a dirty word among this increasingly polarized society. Positions have hardened, rather than softened, and legislators who appear to have "caved-in" risk a short shelf life in Washington.
This year’s budget battle has begun. Both Houses have approved their own version of a budget based on party lines that is $91 billion apart in terms of spending. If we don’t have a budget by the end of September, the politicians will most likely do what they have done every year since Obama was elected, pass a temporary measure (or not) before the government shuts down on Oct. 1. Does any of this sound familiar?
Then there is the debt ceiling, where once again the U.S Treasury will run out of funding between October and mid-November. The Obama administration says there will be no deals cut in order to get Congress’ approval to raise the ceiling. On the other hand, thanks to the sequester spending cuts that will automatically take effect again next year, the Republican-controlled Congress will be looking for even further cuts in entitlements programs such as Social Security and Medicare.
About the most anyone can hope for is that the markets have become so inured to this useless posturing that they tune it out entirely. There is an old saying in the stock market that an event can only be discounted once. Anything more becomes a buying opportunity. In the past five years, the "Double D’s" of deficit and debt have been discounted several times and all of those sell-offs have turned out to be wonderful buying opportunities. I suspect it may happen again.
In the meantime, the markets are performing handsomely. Each spurt higher has been followed by a healthy consolidation, which is exactly what you want in a bull market. Ignore the noise. Minor pullbacks should be expected. Investors are still way too cautious to spell an end to the upside.
Bill Schmick is registered as an investment advisor representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or e-mail him at Bill@afewdollarsmore.com.