Happy Times Are About To Come Crashing To A Halt
You thought the fiscal cliff was terrible, and the dysfunction is over. Now we can all get back to doing deals. You thought taxes went up and the yahoos in Washington will work out the sequester on March 1. Forget it. Your world is about to go upside down. Today on the Sunday shows and a couple of days ago, Obama actually said he wants more spending for his favorite contributors, harry Reid continues to say we need higher taxes and no entitlement reform, and today Nancy said taxes need to be raised to the Buffet 30% minimum and on top of that we need to end all deductions to oil companies and that the taxes were not fair yet. When Chris Wallace pointed out that the top 5% pay around 58% of all taxes, she thought that was not fair enough. She then began the usual song about how Republicans want to protect oil companies to the detriment of Pell Grants etc. Obama and the Democrats are saying loudly –there is no spending problem- it is a revenue problem and if we just have higher taxes and more stimulus then the revenue will be there and there is no need to reform any entitlement program. One would wonder what planet they are on.
We are pretty clearly headed for a major disaster to the capital markets and the economy. The Patty Murray budget has higher taxes and essentially no deficit reduction. The Republicans say-we gave you $580 billion of new taxes and that is it. You said give us rate increases and then we can talk about deficit reduction. Now they say there is no need for any reduction,, only higher taxes. We are really going over the cliff this time and it is much uglier than in December. There is little chance the Republicans are giving in a second time. Every poll- despite Nancy denying it, says the voters want major deficit reduction-just not their goodies. A leading neurosurgeon who grew up in the projects of Detroit and made it on his own, and with Obama sitting right next to him, launched into a wonderful speech about how the entitlement society that is being created must end if America is to succeed. He is spot on, but he might as well talk to the wall.
The Pentagon has already shut down new projects. There will be a huge whack to the economy come March 1. What is interesting this time is there are some very liberal Democrats and some very conservative Republicans who say let’s go there for very different reasons. But go there we are. Whatever dream you have been living the past few weeks is about to get blown to bits. Come March 1 there will not likely be a resolution this time. Not when Obama says there is no spending problem.
The capital markets will suffer volatility. The stock market will decline. Deals will probably go on hold. GDP will go negative. And in the midst of all of this Iran will see an opportunity to move in Syria, and other places in a more aggressive way. Now that they know Obama did not even pay much attention beyond a single phone call, to what was happening in Benghazi as it unfolded, according to Panetta and the chairman of the joint chiefs, Iran will figure they have no fear of retribution. Almost every country in the Middle East is on the verge of collapse, and wee it not for the French, the terrorists would be in control of the African desert.
What does all this have to do with you. Whatever you believed would be a steady recovery, now is very possibly going to be a stall at best, and a recession at worst. I am well aware most think this too will just get resolved in Washington and we will just move on. Maybe, but don’t bet the ranch on it right now. The whole bet was there would be deficit reduction of some type as of March 1, but clearly that is out the window. Obama, Harry and Nancy have said no way- we don’t have a spending problem. The whole premise of –we will be OK and we can ignore Washington is out the window.
Standby, and wait to see where this goes. If it goes bad and you have capital, you will have grand new opportunities. Best case, the economy is sure to continue the slow grind with hiccups along the way. I do not think the best, or even better case is where this is going. This is not the time to be crawling out on that limb or making nice assumptions that the economy will be fine.
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