The Weekly View: Climbing the Wall of Worry
Comment of the Day

February 13 2013

Commentary by David Fuller

The Weekly View: Climbing the Wall of Worry

My thanks to Rod Smith, Bill Ryder and Ken Liu of RiverFront for their ever-interesting letter. Here is a brief sample
Washington, DC, is probably investors' greatest worry. Everyone is aware of the record high US debt and the absence of agreement on how to rein it in. The fiscal cliff dominated the news in the fourth quarter of 2012, then came the debt ceiling, and now the sequester (mandated spending cuts). Markets are an expression of investors' collective views and feelings, so when the fiscal cliff tax issue was resolved and the outcome was 'less bad' than feared, stocks rose and bonds fell. When the Republicans decided not to make the debt ceiling an issue, the same happened. We expect the March 1st sequester to occur. However, to put the sequester in perspective, the cuts in the 2013 fiscal year will be around $85 billion whereas the recent Hurricane Sandy spending bill is $59 billion, according to the Wall Street Journal. Washington has no serious plans to cut spending, which means the Fed will have to continue to fund the deficit as long as unemployment is above 6.5%, inflation remains quiescent, and borrowing costs are low. This should worry bond and cash holders more than stockholders, in our view.

David Fuller's view The overall environment for investors has been challenging since 1999, as we all know. However, the constant refocusing on how the USA and many other developed economies got into their financial problems, or why the ongoing drama contains some significant risks, as we also all know, is not necessarily the most productive way to spend our analytical time once that message has been absorbed.

Instead, we have to cope with the global financial environment in which we find ourselves. That includes capital allocation choices in what often appear to be less than ideal circumstances. This is what RiverFront is doing, and it is also what Fullermoney aims to do on behalf of our global subscribers.

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