Market Minute 020913
Beware the Ides of March
SEQUESTRATION - defined as, the action of making a general cut in government spending.
2013 appears to have started off in such a rosy manner. Hip hip hooray! Let's review a few
notables - stocks are up with the DJIA less than 2% away from all time highs; home prices are
rebounding; inflation is subdued; oil prices remain tame; U.S. trade deficit shrank; and
consumer credit is expanding. Is the great recession finally behind us? Are gray skies turning
blue? Is this the time to start making money and raise expectations, or is this time to hunker
down and wait patiently for next pitch?
Sequestration is set to take place March 1st. What does it mean in simple layman's terms? Last
year congress passed and the president signed into law the debt ceiling. As of March 1st,
during the next 10 years, a $1.2 trillion dollar series of across the board reductions in
government spending (50% defense and 50% discretionary) will take place. This is not an
insubstantial amount.
Those esteemed elected officials of ours, the Hatfields and McCoys will deliberate (fight) this
upcoming event (sequestration) as any kindhearted pugilist would, bare knuckled. One side
purports that cutbacks in government spending are foolish and short sided; that many are still
unemployed and that austerity measures will push the country back into recession. The other
takes exception to our nation's enlarged deficit and the expansion of our national debt; they
believe that our nation is spending wealth today at the expense of our children tomorrow.
From my humble view, both sides make valid points - but I prefer to stay out of the middle of
this fisticuff.
The final arbitrators in the world of money are the markets themselves. What will the market's
final ruling be? Will the outcome be civil and just or will it there be a turn for the worst?
We shall soon learn in a minute.