The "Fiscal Cliff" Story You're Not Hearing from the Mainstream PressStock-Markets / Financial Markets 2012 Nov 26, 2012 - 08:16 AM GMT
Dan Ferris writes: Investors are scared...
In fact, they're even more scared today than they were in late 2008.
That's hard to believe... In 2008, the market was down close to 50% from its late-2007 highs. The housing market was crushed. Bear Stearns, Merrill Lynch, Lehman Brothers, and AIG had all gone out of business in one way or another. Officials from the Federal Reserve and U.S. Treasury were running around like chickens with their heads cut off... bailing out losers in the financial industry.
It felt like the end of the world.
For many investors, it feels like the end of the world... again. And that gives investors who can remember just one important idea about the market a tremendous advantage...
The media has whipped investors into a frenzy over the "fiscal cliff." The "fiscal cliff" is a shorthand term for the government spending cuts, tax increases, and a reduction to the U.S. federal budget deficit that – unless Congress does something to stop it – will automatically go into effect at midnight, December 31.
Of course, fear sells, so I'm not surprised the media is playing it up so much. But you'd be insane to pay much attention to it. It's a smokescreen.
Instead, pay attention to the trend I told you about last year. My managing editor once told me it might be the most important concept our readers will ever learn:
To succeed in the stock market, you must believe that shopping trumps politics...
That's the simplest (and maybe the crudest) way to say that what happens in the business world is more important to your daily life and the daily lives of everyone in America than what happens in the White House or the Capitol.
The amount of shopping for hamburgers at McDonald's is more important than the debt ceiling debate. The amount of shopping for beer at the local convenience store is more important than any contest for the Republican presidential nomination. And the number of shoppers occupying the aisles of Target and Wal-Mart is more important than the number of protestors occupying Wall Street.
Don't believe it? Think of all the horrible things that happened in the 20th century: the Great Depression, two World Wars, and the end of gold-backed U.S. dollars. Despite all that and more, U.S. stocks – as tracked by Dimson, Marsh, and Staunton in their excellent book, Triumph of the Optimists – appreciated about 1.5 million percent.
Last year, the big bogeyman wasn't the fiscal cliff... it was the debt ceiling. President Obama called the debt ceiling issue "financial Armageddon." Treasury Secretary Tim Geithner called it a "catastrophe." Federal Reserve Chairman Ben Bernanke said it was "calamitous."
But I told you it was just "The Great Debt Ceiling Hoax."
And what happened? Well, investors got scared... Stocks bottomed out in early October 2011... And the market is now about 26% higher than it was then.
To put an end to the phony drama of the debt ceiling hoax, President Obama signed the Budget Control Act of 2011 into law on August 2, 2011. That law created what's now being sold to us as the "fiscal cliff."
So guess what they'll do this time? The most likely outcome is that our government will create another law to prevent the so-called fiscal cliff from ever arriving. But even if it does... it will never be as important as the idea of buying great companies at good prices... and then holding them for years, while collecting ever-increasing dividends.
No matter what happens with the "fiscal cliff," people will continue to drink Coke. They'll continue to use computers powered by Microsoft software. They'll continue to eat burgers from McDonald's. They'll continue to use IT services from IBM.
If you want an idea that'll help you cut through the noise and make great, winning bets when everybody else is panicked, this is it.
Business trumps politics. It's been true for at least a century now... and it will continue for at least a few more.
Last year, Dan explained why the debt ceiling was a government hoax... and showed why the government's credit rating was a phony issue. Learn the simple steps Dan says you can take to protect yourself here: Don't Be Distracted by the Next Great Government Hoax.
The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.
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