Investment Time Horizons
Investment Time Horizons While it appears the economy and real estate will improve over the next several years, subject to various geopolitical events which could disrupt everything, such as Israel attacking Iran which is a strong possibility in late fall 2010, or another major terror attack which is predicted by all of the intelligence agencies. These black swan events need to be closely watched as there are many in the world these days. Leaving aside those unpredictable events, the real issue is what is a reasonable investment time horizon to work to. Given the direction of things in Washington under Obama and Pelosi, shorter is better than longer. The healthcare law is going to prove to be a fiscal disaster in about 7-10 years. We will have to have higher taxes at all levels of government. Unions are getting their payoff for pouring hundreds of millions into Democratic coffers. The general approach of this administration has been well stated to redistribute the wealth of all of us who created it and who create jobs. It is my contention that in seven years it is time to be out of most major investments. By that time taxes will have risen, but the deficit will have risen even more. By 2017 the deficit will be on a track to eat the ability of the country to grow the economy. By 2020 we will be at a point where the deficit will be approaching 85% of GDP and that is simply not sustainable nor consistent with a strong economy or strong dollar. Inflation will be higher, interest rates will of necessity be higher to try to sustain the dollar and to try to control inflation. The government expenditures for pensions to government workers, which are already crushing state and local governments, will cause services to be curtailed. The baby boomers will be in full retirement mode eating up social security and Medicare. Higher tax rates on the most productive people who are the high earners, will disincentivize people from making the extra effort or risk required to move the economy forward as fast as it otherwise might. Many top economists are screaming about this coming crisis, but the administration and Pelosi seem deaf to it. As opposed to fixing the Medicare problem, they just made false accounting entries to make it look like they saved $500 billion. Social security will not get touched until it is too late so payroll taxes will rise even more than the new Medicare tax on capital investment income. As a result of all of these trends, it is best to get in now and get out in 2015 or soon thereafter with the substantial profits I believe can be achieved over the next several years,and then take a look at where we are to decide to buy gold, invest in Brazil and China, or to reinvest in more traditional US based assets. Maybe things will change in time, but I have serious doubts. Washington has become so dysfunctional it is starting to look a lot like Albany and Sacramento. Just be very careful when investing to make sure your exit is realistically achievable in a timely manner, and don't count on the long run to make it all OK. This time may really be different. It is very hard to know what the world will be in seven years, which is why investment horizons beyond then are too risky.