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The "Fiscal Cliff" Story You're Not Hearing from the Mainstream PressBy
Monday, November 26, 2012
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:
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.
Good investing,
Dan Ferris
Further Reading:
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.
Market NotesNEW HIGHS OF NOTE LAST WEEK
The housing sector continues to impress...
Lowe's (LOW)... home improvement retailer
Stewart Information Services (STC)... title insurance
Sherwin-Williams (SHW)... paint
Valspar Corp. (VAL)... paint
Redwood Trust (RWT)... residential mortgages
Whirlpool (WHR)... home appliances
Eagle Materials (EXP)... construction materials
Gilead Sciences (GILD)... biotechnology
Krispy Kreme (KKD)... doughnuts
Yahoo (YHOO)... search engine & online media
McCormick & Company (MKC)... spices
Shaw Group (SHAW)... infrastructure builder
CNH Global (CNH)... agricultural equipment
NEW LOWS OF NOTE LAST WEEK
Apollo Group (APOL)... secondary education
ITT Educational Services (ESI)... secondary education
Best Buy (BBY)... electronics
RadioShack (RSH)... electronics
Exelon (EXC)... utility
Southern Company (SO)... utility
Intel (INTC)... semiconductors
Hewlett-Packard (HPQ)... computers and tech services
Trina Solar (TSL)... solar energy
Martha Stewart Living (MSO)... media
John Wiley & Sons (JW-B)... financial publishing
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