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Lindsay Lohan and the Fiscal Cliff
By David B. Armstrong, CFA | Dec 10, 2012 | Weekly Market Commentary
Once again all the attention was on the Fiscal Cliff last week, and as such, there was a funny joke on Leno that went something like this,
It’s 4 a.m. for our economy and Lindsay Lohan is behind the wheel.
As of the weekend, there was still no meaningful movement between the House Speaker and the President and it seems that the debate is increasingly centered on tax hikes for the wealthy rather than on spending.
However, the lack of any meaningful progress did not do much damage to the market. In fact, the Dow Jones Industrial Average (DJIA) pushed ahead, while the Standard & Poor’s 500 Index (S&P 500) barely ended up in the win column. The NASDAQ Composite, lost ground amid weakness in tech giant Apple (APPL), which shed nearly 9%.
Here’s how the markets did last week.
The Physical Cliff
In a conference last week, Chief Investment Officer for LPL Financial, Burt White, pointed out that a lot of people on Twitter are referencing the “Physical Cliff.”
WOW – Really?
Jeezzz…Anyway, over the weekend, the President stated he “won’t compromise” on his proposal to raise marginal tax rates on top earners. So with that line drawn in the sand, the
debate is centering squarely on tax rates and not spending cuts, tax reform, or entitlement reform.
While our sense remains (our hope anyway) that some deal or delay of the impacts of the Fiscal Cliff will be worked out, there is a lot of chatter about going over the cliff as an option.
In this scenario, the President would automatically get his tax increases and the Republicans get to say they did not vote for it. In 2013, Congress would quickly pass and the President would sign any bill put forth. Meanwhile, Main Street suffers a media field day along with a lot of volatility.
We believe that any major sell off on a ‘2012 no deal’ scenario would be met with an equal rally on a ‘2013 deal done,’ so for long term investors, this may not be anything that requires any action.
Last week, the government reported that employers added 146,000 jobs in November, while the unemployment rate fell from 7.9% to 7.7%. If you take a look at the chart below, you’ll see that new jobs are shown as blue bars with the scale on the left and the unemployment rate is the red line with the scale at the right.
Due to how the government views time off from weather-related disasters, Hurricane Sandy did not substantially affect the numbers. 146,000 new jobs was a better report than what was expected (+90,000), so the “beat” is certainly welcomed. However, the drop in the unemployment rate occurred alongside a decline in the labor force, which declined by 350,000.
Translation: That’s not very encouraging.
Here at Monument Wealth Management, we are still taking a ‘wait and see approach’ to everything going on with the Fiscal Cliff. As we stated above, this may not be something that needs to be traded for long-term investors. There is a lot of evidence pointing to an underlying economy that is actually playing out better than a lot of people thought it would a year ago and there is some guarded optimism.
If the Fiscal Cliff does not become a huge obstacle, I think there is more to look forward to in the economy than to be worried about.
Next week, I’ll attempt to write a blog without reference to the Fiscal Cliff. Please call or email with questions.
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Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through Monument Advisory Group, LLC, a registered investment advisor. Monument Advisory Group, LLC, and Monument Wealth Management are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries, and widely held by individuals and institutional investors. The Standard & Poor’s 500 Stock Index (S&P 500) is an unmanaged capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. The Russell 2000 Small Stock Index is an unmanaged index generally representative of the 2000 smallest companies in the Russell 3000 Index. The Russell 2000 is an unmanaged index generally comprised of companies with lower price-to-book ratios and lower forecasted growth values. The 2, 10 and 30 year Treasury is simply the yield at the close of the day.
(1) West Texas Intermediate crude spot price is as of end of week.
(2) London Bullion Market Association; gold fixing pricing at 3 p.m. London time.
David B. Armstrong, CFA
President & Co-Founder
Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....
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