Really?

Really?
Weekly CEO Commentary 12-24-12
Tim Phillips, CEO—Phillips & Company

While I was traveling through India in April I snapped the photo you see on the header of this blog. I've looked at it several times over the course of this year and I finally figured out what his expression suggests: Really?!

I can only imagine that same look on his face if he considered what the political class is incapable of doing in our country: Solving our fiscal issues.

Consider the following numbers. The difference between the President and the Speaker on spending and revenue is only $200 billion. That's $200 billion over 10 years, or $20 billion a year.

Now consider that last week, we saw a spike in the Volatility Index—a measure of fear in the market—and we also saw consumer confidence fall to a five-month low. On the other hand, we also saw GDP growth revised up to 3.1 percent—not bad at all—and we saw a better than expected report on durable goods orders. There may be fear in the market, but the economy is showing signs of resilience.

If the political class cannot come to terms on a solution, we will face significant uncertainty, and that's not good for our economy. Let’s not ruin things over $20 billion per year.

If you consider a 1% drop in equity markets, as measured by the S&P Composite 1500 broad market index, that would be equal to $145.2 billion in equity stripped out of our asset base and economy.

A 5% drop would be $707.98 billion in equity. When we are only talking about $20 billion in revenue and spending per year, the only thing one can say is, really?

Now consider how much we spent on stimulus ($819 billion) and how much Federal Reserve intervention was taken (over $2 trillion) to save our economy from ruins. Again, reflect on the small difference that separates the two Parties and what their indifference can do to our economy. Really?

This type of decision making process is what makes a third-world country risky to invest in. Political risk should be left for others—not America. Really?

I'm still hopeful we will see a resolution and continue to see our economy work its way back to a more prosperous growth footing. Perhaps that's just hope.

After all, this is the season of hope.

Wishing you a very Merry Christmas and the Happiest of Holidays.

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Tim Phillips, CEO – Phillips & Company

Research supported by:
Alex Cook, Associate – Phillips & Company