Instead of a countdown to New Year's Day, we now have a countdown on CNBC giving the days, hours, and minutes until the U.S. goes over the so-called fiscal cliff. News sources report that the White House and Congress are deadlocked. I say bring on the fiscal cliff.
Now, I don't advocate for widespread tax increases nor do I wish to see some people losing benefits. However, if Congress is going to continue playing a game of chicken, then by all means let's get to Dec. 31, so we can all take the plunge together. Indeed, my sentiment reflects what Adam Smith affectionately referred to as self-interest. I won't sell any stock out of fear of the fiscal cliff; I only sell when my price target is met, the underlying business suffers a permanent weakening in earnings power, or I discover I've made an error in analysis.
But I love to buy when declining stock prices are attached to solid business. So I secretly don't mind if we all take the plunge. I will be waiting trying to catch names like Potash (POT), Deere (DE), Tecumseh (TECUA), and many others as I feel attractively priced equities are best store of value in today's over stimulated economy.
More importantly, I'm really not worried if no solution is reached by Jan. 1, because in the end we will have a solution and it will occur in short order after Jan. 1. Remember the TARP bill, the $700 billion infusion by the U.S. Treasury? It vehemently opposed and when it was put to its first vote, it failed to pass the House of Representatives. The next day, Sept. 29, 2008, the Dow Jones fell by 777 in response. The Dow would proceed to drop below 10,000 in following days. Remember the debt ceiling debate and Congressional stalemate that led to breaching the debt ceiling in August 2011? The Dow dropped by over 1,000 past in a few short days and fell below 11,000. Today the Dow sits at just above 13,000.
We've seen deadlocks before and we will see them again. Perhaps the participants will resolve the fiscal year; perhaps they won't and the market will take a nose dive. Those who view the fiscal cliff threat as a catalyst to sell should remember the saying: "Fool me once, shame on you; fool me twice, shame on me." It has never been a productive exercise to predict the direction of the stock market. And as we've seen over past several years, it's even more foolish to try and predict political policy. Valuable time wasted spent on trying to decipher what's going to happen by Dec. 31 is time that could be spent on fine tuning your list of investment ideas and preparing to take advantage of any opportunities that may arise.
If it's not the fiscal cliff it will be something else -- for example, the debt ceiling issue again. In fact, one can chart out a list of potential cliffs that the U.S. will deal with over the next few years: fiscal cliff, debt ceiling cliff, interest rate cliff, quantitative easing (QE) cliff -- you name it, we will deal with it. But the U.S. has dealt with all of this before and we have always picked up the pieces and moved higher. Capitalism has hiccups. Some are more painful and longer that others, but in the end it works. Look at the U.S. today vs. Europe or China. Our free market system is what sets us apart.
I hope rational minds prevail and they do resolve this fiscal mess tomorrow. A sense of credibility is lost when politics turns into a struggle for the playground sandbox. But if we don't, it's business as usual over here: Buy when prices are attractive, buy more if prices get better, and sell when the calm returns.
