"Fiscal Cliff" Scenario Sticking to Playbook

You would have to believe in Santa Claus or the Easter Bunny if you thought the initial flexibilities shown by both the Dems and GOP before Thanksgiving were early signs that we would see a quick agreement to avoid the fiscal cliff disaster fast approaching. We have to remember they were headed for a holiday break when some semblance of non-partisanship was shown. Like a dysfunctional couple who take separate vacations and begin to miss their significant other after a week apart, when they reunite, they quickly remember why they couldn't wait to take separate vacations. Senate Majority Leader, Harry Reid, is now trying to exercise obscure Senate rules to eliminate the filibuster rule that Senate Republicans will certainly exercise if a bill that is unpalatable to the GOP is put up before the Senate. Susan Rice’s nomination as Secretary as State seems headed for an ugly nomination process opposed by many prominent Republicans. President Obama seems dead-set on seeing her nomination through and hell-bent that the centerpiece of his budget will be higher taxes on the wealthy with no regard to cut entitlement expenses.

This rancor is following the playbook we knew our Washington friends would implement because it’s the same game plan they’ve executed during other important budgetary crises…show initial empathy…become recalcitrant placing sole blame on the other side…and come up with a patchwork, temporary fix that allows the festering wound to linger and become infected. However, we are starting to see experts like former co-chair of President Obama’s debt commission and North Carolinian, Erskine Bowles saying, “I think the possibility is we’re going over the cliff.” He went on to say while “insane”, he feels that there is only a one-third chance a deal will be accomplished.

While we feel they will stall for time coming up with a temporary arrangement taking this issue into 2013, Bowles’ bold statements are troubling because of his Washington insider status. He is either feels this way or is reaching out to the public seeking pressure to be placed on Congress by their constituents. The key question for our clients would be ‘what does this mean for my portfolio?’

Obviously, those assets still in the market would be impacted. The defensive moves we made prior to the election will have been prudent as most portfolios saw significant moves to safer positions. The cash and bond positions we fled to would not have the pressure on them that equities would have. However, we would implement the second phase of our defensive moves which would move more assets to the defensive side of the ledger.

If you are not a client of HMC Partners, please contact your advisor and ask him/her what their strategy is for the “fiscal cliff.” Again, we think they will continue to become more hardline in their game of chicken following the playbook while finally yielding until next year. However, your portfolio should be prepared for the market turmoil that will occur over the next six months. If you are a HMC Partner client, we have already made the majority of our moves to the investment bunker. Source: “Bowles pessimistic about avoiding ‘fiscal cliff’” by Susan Davis, USA Today. 11/28/2012

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