Investment responses if the Gang of Six gets most of their deficit plan approved (please note, I have no inside info about the plan. All I have is the rumor that it will be $1 of tax increases for each $3 of spending cuts and subsidy reductions):
1. The return of sanity in govt. spending and more reasonable tax collections from the economy's winners and manipulators would not be good for gold or other precious metals. For investors who hold a 5-10% gold position as an insurance policy for the main body of their investments, this makes no difference. For those who focus on gold, or hold upwards of 25% or more (I be one of them as of right now) this is dangerous. I think it also holds true for other commodities, but gold is the magic one. It would also not bode well for my Russian holdings.
2. It would be a killer for China's economy. Without all of the cash flooding in from the States, China is just a big economy overinvested in mid-20th Century manufacturing. India is a bit more tech oriented, but still over invested in supplying services that will be in glut.
3. Truly innovative high tech cos. with successful products and biotech cos. with cures that work will be high flyers. They always are. But the average tech stock in a tech fund could be way overpriced for this downsized economy. In other words, I see an innovative co. like Analog Devices continuing to print money while the merged Texas Instruments/National Semi could be pounding sand. And there will be more sand pounders than flyers. Even one of my dividend favorites, ADP, could have a rough spell.
4. Oddly enough, junk bonds and munis may do well if the world is really round and we aren't falling off the edge.
5. Countries where America is the driver will be hurt. Latin America and much of Asia and Europe could be hurting puppies. But look at where the blood is in the street. The Middle East risings will need the trade help of the grownup countries in the region, most notably Turkey. Egypt will eventually rejoin the grownup club.
6. Some people will be starving due to benefit cuts and that is bad for the food complex.
7. Look for more states to implement Arizona style death panels, which will hurt hospital care and old line drug cos.
8. My view on luxury items is probably the most controversial. Despite taking a few shekels more from the super wealthy, most have the ability to simply vote themselves pay raises. And they will covet choicer luxury items to differentiate the billionaires from the slimy millionaires. I was going to be the first guy on my block to get that 76 mpg Porsche Spyder, but when they told me it took 12 hours to recharge, I decided the $845,000 could be better speat elsewhere. The truly banal will buy a couple of them so one's always charged.
I will add to these musings over time, if it looks like the guys in the white hats are winning in this bipartisan effort. |
