Why Moving Assets Out of Stocks and Into Treasuries Might Be the Right Move for Now
Due to the recent government shutdown, the easy money from the Federal Reserve will likely continue until at least the final Federal Open Market Committee (FOMC) meeting of the year in December.
The United States Department of Labor has said it’s no longer collecting data on the labor market as the majority of its workers have been told to go home during the shutdown. Without the non-farm payroll jobs report, I doubt the Federal Reserve will have the information it needs to make a decision regarding the tapering of its economic policy at the FOMC meeting at the end of October—and this will surely add to the stock market risk.
Having said that, while the tapering will likely not start until at least December, I doubt it means more gains by the stock market considering the slew of market uncertainties that need to be addressed.
First off, the House must resolve its differences toward the enactment of Obamacare. While there are debates on its delivery, the House simply needs to come to a conclusion. In my opinion, while the debates around Obamacare may represent some important concerns, this is just a distraction from the real issue. Once the debate on Obamacare is resolved, the country can then focus on the need to deal with the more critical and difficult topic of raising the debt ceiling.
The problem here is that there really is no other choice but to increase the debt ceiling; otherwise, the country could default on its debt, which would drive the stock market lower.
As an investor, these are tricky times, and I haven’t even talked about the start to the third-quarter earnings season, which I believe will be littered by downside surprises that could impact the stock market.
For now, President Obama will need to put together a long-term strategy that will benefit the country going forward. He will need to cut costs to cut the running deficit and additions to the debt. As I already said, failure to deal with the financial mess will only hurt the country and the stock market.
We need to deal with the debt at some point, so let’s get it done now. It’s going to hurt in the short to medium term, but the future generations will be better off.
As a country, we need to focus on growing the economy, cutting the debt, and making sure America remains the top business region in the world. This will drive jobs growth and make a lot of politicians happy.
For investors, my suggestion is to take a breather and wait to see how things develop before diving into the stock market. You may want to move some of your assets away from the stock market and into risk-free Treasury bills for the time being.
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