Wednesday, January 2, 2013

Dudes we have to cut spending...

Last weekend I posted an article titled Safe to expect a messy market if no deal. Yet, not an event for the long-term investor. Well, a (tax) deal was had, and the Dow spiked 300+ points on the first trading day of 2013. In retrospect, I could have just as easily titled last weekend's article "Safe to expect a rally if there is a deal. Yet, not an event for the long-term investor."

There's no question that had today delivered a 300 point decline for the Dow, you'd have received one audio commentary, and at least one written, where I would have entirely dismissed today's drubbing as a long-term non-event. Ah but what about today's 300 point rally? Well, as much as I'd love to tell you that 2013 is off to the races, that today's rally is indeed an event, and that you'd be wise to race on in with that hoard of cash you've stuffed under your mattress, I can't. For if the dealmakers were, as the consensus suggested, destined to deal regardless---whether it be today or a month from today---a game-changer this ain't. That said, while I can't have you feeling good about the market because of yesterday's deal, I can, however, have you liking the market for reasons I spelled out in Our View Going Forward.

As for the ongoing raise-taxes-versus-cut-spending-to-tackle-the-deficit-debate, here's a little commonsense from an essay featured in my forthcoming daily devotional Leaving Liberty? (I know, shameless self-promotion):
DAY 7: Dude, We Need to Put You on a Diet (November 2011)

Dudes we have to cut spending.

There’s this raging debate, with regard to the federal budget deficit, shaking the walls of our nation’s capitol—one side argues for spending cuts, the other for tax increases. Let’s see how the arguments stack up against a little everyday commonsense.

So the nurse invites you back and asks you to slip off your four-inch-heel boots. You step on the scale, she rests the sliding bar on 261 pounds, you cheat a tiptoe to 59 inches.

Ninety minutes later (you’re starving), the doc says, “Dude, we need to put you on a diet!” (He's a young, hip doc.) You ask, “How about diet pills?” Doc says, “No, I don’t like the side effects, and your heart’s not sounding so good. Let’s see how you do with just cutting calories for a while.” You say, “No way, Doc! That’s not fair! If you don’t give me the pills I’m not cutting back on what I eat!” “What’re you nuts?” cries Doc. “Whether or not you get the pills, assuming you wanna live, you still gotta go on a diet!”

So our nation’s frame currently supports $2.2 trillion (revenue) per year. We step on the scale and we’re at $3.7 trillion (spending). One side says, “Dudes we have to cut spending!” while the other says, “How about we raise taxes?” The one side says, “Let’s see how we do with just spending cuts first (being that the economy’s been so erratic).” The other says, “That’s not fair! If you don’t give us tax increases, we’re not cutting a dime!” Crazy!

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