Sometimes we forget how much wisdom there is in the classic children’s stories. Consider Aesop’s Fable “The Boy Who Cried Wolf.” The first time he cries wolf everyone comes running, worried about the wolf attacking the sheep. The second time much the same and so on, until people finally get tired of all the false alarms. When the wolf actually comes, no one believes it.
We are having a governing crisis! Yep, it works in real life too. The government has shut down and we, like the villagers in Aesop’s fable, seem to be letting out a collective, “whatever.” To be clear, the government is not actually shutting down. Services deemed essential will remain in operation. That means the vast majority of us will not notice; which leads one to wonder why the government has “non-essential” departments in the first place?
While that is an interesting question our concern here is investing not politics, so the more important question is: What impact, if any, will this shutdown have on your portfolio? Most likely the impact will be in line with that of the Bush tax cut expiration, the sequester, the Cyprus banking crisis, etc. I think we have all had our fill of the government-created crisis. It just doesn’t scare us anymore.
In the meantime, the world outside of the Washington beltway is looking pretty stable. The economy continues to just slug along, which isn’t great but isn’t horrible either. Valuations on the equity market as a whole are reasonable, and international markets are becoming more attractive. Interest rates seemed to have peaked at 3 percent on the ten-year Treasury and are now slowly and quietly working their way back down towards 2.5 percent, maybe even lower. All of that bodes well for equity investors.
So, it is pretty quiet out here in the real world, which brings us back to our fable. Eventually the wolf actually did attack the sheep, and that is the real danger we face today. Having become numb to the drummed-up crisis of the day, will we actually underestimate a real crisis when it comes? That keeps us ever mindful that these political games, as painful as they are to watch, cannot be ignored. So we at Iron Capital will continue to watch and guard against the numbness.
Chuck Osborne, CFA
Managing Director
