The "Fiscal Cliff." What to do?

[VictoriaF]

The markets have mostly recovered by the end of the trading day. Perhaps, we are now over the hill ... er cliff?

Victoria

[STC]

The markets have mostly recovered by the end of the trading day. Perhaps, we are now over the hill, er cliff?

Victoria

Perhaps. Perhaps not. Either way, won't change what I do on what I can control.

[chaz]

Don't panic - stay the course.

[Xanadu]

...I'll load up on popcorn and enjoy the show.

or maybe a clif bar instead?

[nisiprius]

Since the topic is a cliff, and since the action in "The Catcher in the Rye" takes place at Christmas time, let me offer this:

"I keep picturing all these little kids playing some game in this big field of rye and all. Thousands of little kids, and nobody's around– nobody big, I mean–-except me. And I'm standing on the edge of some crazy cliff. What I have to do, I have to catch everybody if they start to go over the cliff–-I mean if they're running and they don't look where they're going I have to come out from somewhere and catch them. That's all I'd do all day. I'd just be the catcher in the rye and all. I know it's crazy, but that's the only thing I'd really like to be. I know it's crazy."

[larryswedroe]

http://www.cbsnews.com/8301-505123_162- ... cal-cliff/

My thoughts

Just wrote another piece this morning, hopefully will be posted in next few days, it's in a queue

Best wishes
Larry

[ResNullius]

I'm a bit surprised that is an allowed topic, but since it was posted by Taylor I guess it is.

Taylor is no longer a moderator. He has the same right to break the rules as any of the rest of us.

viewtopic.php?p=1490921#p1490921

[Please read the words I wrote, not the words I didn't]

Yeah, I too thought this was a somewhat political topic. I've been barred from the Board many times for topics and comments that were much less political in nature. Taylor, more power to you. Keep on keeping on. Expect nothing, take what you can get.

[baw703916]

The markets have mostly recovered by the end of the trading day. Perhaps, we are now over the hill ... er cliff?

Victoria

Hopefully the market timers went to 100% equities at precisely 2:30 pm.

[The Wizard]

Yeah, I too thought this was a somewhat political topic. I've been barred from the Board many times for topics and comments that were much less political in nature. Taylor, more power to you. Keep on keeping on. Expect nothing, take what you can get.

I don't agree.
The underlayment of the topic is certainly political, but wisely, we've not been exploring that.
The issue has become a Media Event and we are discussing personal investment responses to that, which is allowed...

[Sidney]

Yeah, I too thought this was a somewhat political topic. I've been barred from the Board many times for topics and comments that were much less political in nature. Taylor, more power to you. Keep on keeping on. Expect nothing, take what you can get.

I don't agree.
The underlayment of the topic is certainly political, but wisely, we've not been exploring that.
The issue has become a Media Event and we are discussing personal investment responses to that, which is allowed...

Plus, the cliff is composed of existing tax and other laws.

[Beagler]

One issue I haven't seen addressed: many paychecks will be smaller in the face of expiration of current tax rates, plus new Obamacare taxes: are all investors planning to continue to fund their 401(k)/403(b) and similar plans at their current levels?

[rr2]

One issue I haven't seen addressed: many paychecks will be smaller in the face of expiration of current tax rates, plus new Obamacare taxes: are all investors planning to continue to fund their 401(k)/403(b) and similar plans at their current levels?

No, we do not plan to contribute at current levels. Instead, we are planning to increase funding our 401k and IRAs up to the new limits.

[umfundi]

I think, as much as ever, the doctrine is: Diversify and then sit tight. Whatever is known is factored in the markets, we do not have any special knowledge.

Stay the course.

Keith

[livesoft]

At least next week we will be able to ask questions about the current tax laws again.

[NYBoglehead]

Starbucks baristas are now putting "come together" on the coffee cups. Now that this has happened I can rest easy knowing it will be resolved. Thank you, Starbucks. The good news for them is this is only their second worst idea in the past few years, after soliciting donations that would be used to help the economy.

[Blue]

The market does not seem to be worried. S&P500 down 0.12% today.

[lloydbraun]

I'm 33 years old, I'm staying the course. In fact my wife and I are opening up Roth IRAs this week. The "fiscal cliff" is not a big deal unless nothing gets done within the next 3-6 months and even then it would likely have very little impact on developments 20-30 years down the road. In fact Ken Rogoff's and Carmen Rienhart's book on financial crises shows that even severe crises tend to have 5-10 year impacts (like the 2007-08 crisis) but countries often return to normal growth after that and the crises they talk about are far more severe than the current fiscal cliff.

[umfundi]

At least next week we will be able to ask questions about the current tax laws again.

Well, we know what the current law is. And, assuming Congress will be ineffective and do nothing is hardly speculation.

But, seriously: I can see no actionable strategies. Something will happen, we do not know what.

Keith

[kenyan]

I'm 33 years old, I'm staying the course. In fact my wife and I are opening up Roth IRAs this week. The "fiscal cliff" is not a big deal unless nothing gets done within the next 3-6 months and even then it would likely have very little impact on developments 20-30 years down the road. In fact Ken Rogoff's and Carmen Rienhart's book on financial crises shows that even severe crises tend to have 5-10 year impacts (like the 2007-08 crisis) but countries often return to normal growth after that and the crises they talk about are far more severe than the current fiscal cliff.

Sure, Lloyd. You may look all put together on the outside, but one day all those suppressed feelings of panic and rage will erupt out of you. Serenity Now!

[chaz]

Possibilities in an article:

[link removed because it contained political content]

[lloydbraun]

[quote="kenyan"][quote="lloydbraun"]I'm 33 years old, I'm staying the course. In fact my wife and I are opening up Roth IRAs this week. The "fiscal cliff" is not a big deal unless nothing gets done within the next 3-6 months and even then it would likely have very little impact on developments 20-30 years down the road. In fact Ken Rogoff's and Carmen Rienhart's book on financial crises shows that even severe crises tend to have 5-10 year impacts (like the 2007-08 crisis) but countries often return to normal growth after that and the crises they talk about are far more severe than the current fiscal cliff.[/quote]

Sure, Lloyd. You may look all put together on the outside, but one day all those suppressed feelings of panic and rage will erupt out of you. Serenity Now!

[/quote]

Never mind "Serenity Now", I'm still trying to get over the Dinkins campaign!

[VictoriaF]

I'm 33 years old, I'm staying the course. In fact my wife and I are opening up Roth IRAs this week. The "fiscal cliff" is not a big deal unless nothing gets done within the next 3-6 months and even then it would likely have very little impact on developments 20-30 years down the road. In fact Ken Rogoff's and Carmen Rienhart's book on financial crises shows that even severe crises tend to have 5-10 year impacts (like the 2007-08 crisis) but countries often return to normal growth after that and the crises they talk about are far more severe than the current fiscal cliff.

We don't know yet what the fiscal cliff will entail. Early next year most working people will receive a reduced paycheck. After paying for necessities, their discretionary spending will be significantly reduced. Here is an example:

Let's say someone brings home $3,000 net. He pays $1,500 for housing and utilities, $500 for food, and $300 for transportation, the total of $1,500 + $500 + $300 = $2,300. This leaves him $700 in discretionary spending. The fiscal cliff reduces his paycheck by 5%, which is $3,000 x 0.05 = $150. While the mandatory expenses remain at $2,300, the discretionary spending is reduced by over 30% from $700 to $550. If discretionary spending of many people is reduced by 30%, what will happen to businesses and to the economy? Who will be creating new jobs, or preserving old jobs for that matter?

Victoria

[lloydbraun]

Victoria, I can't give a detailed answer to your question out of respect for the forum's rules on political and economic policy discussions, but the congressional research service and the congressional budget office have put out reports on these issues and the consensus is that the cliff is more of a hill and that even in the worst case scenario, the long run prognosis will not be significantly altered as most middle class Americans pay less income tax than in 1980 and we know that most higher income Americans pay significantly lower rates today than in the 1990s. Neither decade was particularly terrible for investors or the economy. There's a lot of gloom and doom out there, regardless of political affiliations, but nobody is predicting that the fiscal cliff will lead to a depression. Ironically some writers who are basically modern day adherents of the Austrian school continue to predict inflation but the more probable result of the fiscal cliff is slight deflation, based on a short-term lack of aggregate demand.

[Bungo]

I don't plan any adjustments except a possible rebalance if appropriate. Asset allocation will remain unchanged.

[jvclark02]

.........and this too shall pass. I'm staying the course

[user5027]

What to Do?

Take a cruise.

[Mel Lindauer]

Time to lock. Several political links posted in this thread already and we Mods have had to spend way too much time moderating this thread.