August 1, 2011

The Deficit Deal- Kicking the Can into the Ocean or 'New Things are Messy'
(Our brief opinion and summary)

The 'deal' announced last night is clearly a cobbled together compromise and does little to foster confidence in our system or its outcomes. Perhaps this is how momentous sea-changes look while viewed from the swirling middle but the uncertainty created by a United States leadership vacuum is not lost on the markets, here or abroad. As I write, the rally in markets across the globe has faded, reflecting that the reality is sinking in.

- First, 'the deal' has to pass a vote by Congress today.
- If it passes:
- President Obama could raise the debt ceiling in three steps. Congress could block the debt ceiling increases only by a two-thirds vote of both houses.
- This deal, would avert the United States defaulting on its debt. This would be a relief.
- $917 billion in spending would be cut right away (spread over 10 years).
- The remaining cuts of approximately $1.5 trillion (spread over 10 years) are to be negotiated by a 12 member bi-partisan committee (like the one which labored previously and whose suggestions were not followed?) by November 23, 2011 and voted on by Congress by December 23, 2011.
- Should Congress not pass the suggested cuts, automatic cuts totaling $1.2 trillion would take effect.

The process is very messy and uninspiring. Yet no one can argue that the conversation has changed dramatically. We all understand that the government must tighten its belt. We just cannot agree on how to accomplish this and over what time period. We hope that United States voters will begin to insist that those we elect start acting like concerned Americans and stop acting like partisans because the markets and economy do not do well with this kind of uncertainty.

Not much has changed as we view the longer term. Volatility will continue to present opportunity yet we need to also hedge against events here and abroad. Fortunately, many of the 'diversifiers' purchased after rigorous analysis can, and have been, quite profitable in their own right over the years. We expect this to continue. We continue to favor a broad approach, with our United States stock portfolios exposed to various styles and market capitalizations and our bond portfolios featuring safe cores of pre refunded or escrowed to maturity municipals, high quality corporates and U.S. TIPS , further augmented by exposure to other currencies, precious metals, small variable hedges and exposure to international and emerging stock and bond markets. We have also begun to purchase direct debt of foreign sovereign nations as it is obvious that the United States is on track to lose its AAA bond rating.

Diana Joseph
Managing Member, Chief Investment Officer
Barrington Strategic Wealth Management Group, LLC
190 South LaSalle Street
Suite 2160
Chicago, IL 60603
Direct 312.870.1902
Main  312.870.1900
Fax    312.870.1901
Email djoseph@bswmg.com