Your investments and the debt ceiling

For the past several weeks, there has been much hand-wringing going on over the continuing "debt ceiling deadline."

Yet the excessive amount of political rhetoric can't conceal two obvious conclusions:

1)  It is highly likely that our politicians will renew their own license to print money.  Whether or not they do it by the August 2nd "deadline" is immaterial.

When push comes to shove (ie, when Social Security checks become threatened), they will act to raise the debt limit.  If interest rates rise or if a ratings downgrade happens, it can be attributed to the sorry state of the country's finances, not to the lawmakers' failure to raise the debt ceiling.

2)  The current and future fiscal expectations in the U.S. are what drive the financial markets, not the debt ceiling squabble nor the "debt rating" handed down by the ratings agencies.

The financial markets and the American people are clearly unhappy with our deficit spending and investors "vote" every day based on their actions in the financial markets.

With all of the political posturing going on in D.C., you might be tempted to make changes to your investment portfolio.

My advice is to fight that urge, stay the course, and do nothing.
(assuming you have a sound, diversified portfolio in place that reflects your goals, timeframe, and risk tolerance)

It is most assuredly a losing proposition to attempt to "outsmart" the consensus of the market with knee-jerk reactionary investment changes. As always, the market consensus is constantly processing new information and acting accordingly.

Any "common knowledge" has long since been reflected in security prices and has no hope of being exploited.

The good news is that the debt ceiling is forcing the politicians to confront the ballooning government spending problem sooner rather than later and we can only hope that meaningful progress will be made.

In the meantime, expect high volatility in the markets during the short-term-- markets hate uncertainty and that seems to be what we will have for the foreseeable future.

Here is a recent commentary on this debate that gives a very thoughtful perspective:

 Hysteria and the debt debate