This week we will be presenting excerpts from the latest President’s Letter by Roger Hewins. Today’s post from the President’s Letter provides a concise summary of pressing economic issues concerning investors, such as the looming “Fiscal Cliff.”
It ain’t pretty, but…
Nobody said the “muddle through” scenario was going to be a bed of roses. Quite the reverse. The best that can be said is that the struggle continues, but we are OK so far. Fear continues to dominate markets worldwide, as the “risk on/risk off” two-step dance continues week after week. One day a bad bond auction in Spain sends people racing for the exits and hammers the equity markets. Then some ray of hope, a new deal in Europe for recapitalizing Spanish banks, for example, appears on the horizon and spirits soar. For the moment.
Meanwhile, back in the good old U.S. of A, the rhetoric is getting heated. It seems to be the “Socialist business hater” versus the “evil rich ravager of the poor while grinning and smoking a big cigar” guy. It would be funny if it weren’t so serious. The soft U.S. economy is generating very few jobs, leaving overall employment at lows we have not seen for decades, and leaving millions chronically unemployed. Government spending and debt continue to race out of control as we approach dangerous and uncharted levels of debt/GDP. Not quite Greece yet, but already far worse than Spain, for example.
Add to that a new threat: we face a looming “Fiscal Cliff” of large tax increases and major arbitrary cuts to government functions that kick in on January 1 unless the legislature and President agree on a different course of action. But even the seemingly simple step of postponing these changes for a year or two, kicking the old can down the road again, seems beyond their ability. It is widely believed that the impact of this would be to push the weak economy back into recession.
Stay tuned for tomorrow’s post, “So what’s the good news?”