Brinksmanship

Today, we witness the intense gridlock in the US House of Representatives. The majority party is intent upon linking the funding of the US Government to the repeal of “Obamacare”. It is interesting to note that Pres. Ronald Reagan excoriated Congress for this very action during his administration. He cited many reasons this should not be done. The reason investors should be concerned is the introduction of a great deal of uncertainty to the financial markets.

As I have stated elsewhere on this website, uncertainty is a primary element that causes instability in the financial markets. Investors, faced with not knowing the outcome of a situation; in this case, the vote to continue funding the government, tend to sell their stocks and bonds and seek the safe harbor of cash, US Treasury securities, or precious metals. I could confer with my clients at such a time and propose selling their securities in anticipation that this crisis will not be resolved and the Federal Govt. will be “shut down”. I’m pretty sure that if I took that action, most would endorse a proposal to sell. However, the quandary I face in such a situation is that, while I might be correct in my timing and avert a plunge in the prices of the securities in my portfolios, I have no idea where the “bottom” of the slide might be. Knowing the bottom allows the market timer to repurchase their securities to allow for the (price) ride “back up”. And no one has such a crystal ball.

Elsewhere in this website, I discuss market timing and this very issue. This is the reason I do not practice market timing and advise my clients to stay invested through the crisis and allow me to rebalance their portfolios systematically until the crisis is past.