"Don't worry about a thing,
'Cause every little thing gonna be all right."
For the past couple of weeks the birds outside my bedroom window have taken the place of my alarm clock. The sunrise, and their chirping, coincide with my normal rising. It puts a smile on my face each and every morning. Some days that smile lasts all the way to 8:00 or 8:30. For a change of pace I thought it might be fun to see if maybe I could extend that positive vibration all the way to lunch.
We're all aware of the many negatives impacting our economy and markets; Europe's debt woes & untenable political structure, our debt woes & untenable political structure, China and India's slowing growth, our zero interest rate policy and currency devaluation that is robbing every saver, and persistently high levels of unemployment. But enough about that, this note is about positives, not negatives.
Seriously, without belittling the magnitude of these issues, many of them are solvable with a little action, and finally we have some signs that a little action is beginning to happen. The American people seem to realize that "austerity" isn't some dirty nine letter word, it simply means living within your means. Last week we saw American's send a strong message to their elected officials, that its time to start living within your means. First, we saw the overwhelming defeat of Wisconsin Governor Walker's recall. But more importantly, in one of the nations most liberal states, we saw both San Diego and San Jose vote for serious public pension reforms.
The dirty word is not "austerity", it is "entitlement". Americans know that the only "entitlement" any American should have is a fair shot at getting ahead...not a check from Uncle Sam. No crony capitalism, no "too big to fail", no government picking winners and losers, just a fair and level playing field where the smart and hard working move ahead. This is the message being sent to Washington, live within your means, and get out of our way.
It can be done. Ronald Reagan came to power with an economy in shambles and inflation running wild. He had an air of confidence about him. He believed that all we needed was a clear and coherent fiscal plan, a plan for tax reform that would encourage capital to be put to work. It worked, and it can work again. Investors (we're all investors, we invest our mental or financial capital to get ahead) want some clarity as to what the rules are. What's our tax code going to look like for the next decade? Can our governments show a credible plan to lower our deficits and live within its means? Can we get some clarity on long-term "entitlement" reform? Each of these questions can be answered positively, all it takes is political will and resolve. Of course, with our current deep political divide we'll need one party in power to make anything happen. American's know this, and I think they'll vote with this in mind. Until recently I really didn't think Romney had much of a chance, it's very hard to unseat a popular sitting President (especially one who is constantly fundraising), but it feels like the tide is shifting.
We may also get some clarity on healthcare reform in the next week or two. Again, whether its upheld or repealed isn't the biggest issue, just knowing what it is will allow us to move forward.
A coherent fiscal policy may also allow the Fed to stop manipulating interest rates and the market. The market may be allowed to function like free capital markets are supposed to act. Savers may even be rewarded for saving. Who knows, with one party in charge we may actually give some serious thought to backing our currency with something real, other than just promises.
I used to love gridlock in Washington because neither party could do anything too stupid, but unfortunately gridlock is no longer a viable option. We need one party in charge so serious decisions can be made. Fortunately it appears to me that the American public realizes this and is ready to act. It will still be a very close race, but there appear to be some nice rays of sunshine.
None of this means the markets or the economy will be off to the races. In fact, all of this means the economy will probably slip into a recession in 2013, but we'll be making progress, progress to a new future where entitlement means opportunity, not handout. Cutting government and their promises means that initially economic growth will slow. We don't have to do this overnight, we just need to make clear and steady progress. Hopefully over the next several years we'll be on the way to real growth, not some government manipulated semblance of growth.
We've got a long tough road ahead of us, but I think I'll keep signing, "don't worry, every little thing gonna be all right." At least until noon.
In the meantime, stay defensive and liquid, there will be opportunities to put money to work in the coming months. We're currently near 40% in cash, with another 20% or so in fixed income, and less than 40% in risk assets.
Be careful out there, and keep the lights on,
Chris Wiles, CFA
412-260-7917
For prior Rockhaven Views visit:
This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management. The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
No comments:
Post a Comment