I continue to hold the minority position that fears over the fiscal cliff are becoming way overblown as each day passes. If the so called fiscal cliff is triggered, yes, the stock market will probably plunge and consumers and CEOs may decide they want to curtail spending. But those occurrences don't frighten me because I've found that it's impossible to make sound investment decisions against a backdrop of "what if" scenarios. One of my investment mandates is that I do pay attention to the economy and its trends.
I am seeing a shrinking pool of attractive equity valuations, unsustainable low interest rates, a bond bubble, and an unemployment rate that we would like to see go down. But I also see an improving housing market, financial institutions that are in significantly better shape today than they were in 2007 and 2008, and healthier consumer balance sheets. Last week, I met with my banker to refinance my home and I qualify for the fast track approval for the Home Affordable Refinance Program (HARP) option. My banker tells me it will take up to 90 days to wrap this up because they are refinancing like crazy. In most cases, he's seeing monthly payments decline by 15% to 25%. In some cases, household mortgage payments are declining by more than 30%.
What I also see is that my efforts to take my wife away for a private holiday weekend before holiday family overload is proving difficult because I literally cannot find a decent hotel room in the city. For two differing sets of dates, I'm striking out finding a nice available hotel. Perhaps its the holidays, perhaps there is a big convention, I don't know. I also know the US economy is still recovering. But I also know that when it comes fear and uncertainty, human nature tends to always over react.
No one wants to pay more taxes; I certainly don't. But higher taxes won't stop me from capitalizing on a money making opportunity. Fiscal cliff fears didn't stop Starbucks (SBUX) from agreeing to buy Teavana (TEA) at a 50% premium to expand into the tea business. And CEO Howard Schultz remained committed to adding another 1,000 Starbucks locations. Chipotle (CMG) still plans to open 120 or so restaurants a year. When there is opportunity, people and business pounce regardless of economic backdrop. In the absence of opportunity, you sit still. Investors should behave similarly.
Berkshire Hathaway released its quarterly 13F yesterday disclosing a new $300 million position in Deere (DE). Buffett also continued adding to Wells Fargo (WFC) while eliminating nearly all of Berkshire's holdings in Johnson & Johnson (JNJ). Additional equity purchases and disposals were also executed. Yesterday, Warren Buffett commented in a CNN interview that the US would not enter another recession if nothing comes out of Congress by Dec. 31. Could Buffett be wrong? Absolutely. But so too can the economist be wrong who are preaching gloom and doom on January 1. I supposed I'd rather listen to a guy who owns over 70 different companies in a wide variety of industries than a person relying on charts, graphs, and his own set of opinions.
Will the stock market tank if we don't avert a fiscal cliff? Probably. I remember watching Congress casting votes a few years ago about whether or not to approve a massive injection of capital into the economy. The initial vote went negative and the Dow Jones Industrial Average dropped 600 or so points the next day. The market is higher today and many businesses have delivered enormous shareholder value. If you're investing without discipline, neither a good nor bad economic environment will help you. Most disciplined investors today are sitting on mounds of cash waiting for Mr. Market -- or even Congress -- to throw out the fat pitch.