Pop Quiz
Does Friday’s downgrade of U.S. Treasuries signal something new?
It does not.
Does it mean that the U.S. has been recognized as the rotten apple in the global economic barrel?
Nope.
Does this mark a major change in the relative value of U.S. Dollar to other major currencies, and will there be a run on the dollar, a mass sell-off of U.S. Treasury securities?
No and no.
Well then, what is all this palaver about? How come this is plastered all over the newspapers, and why is it the subject of every radio talk show and television news broadcast?
You say you can’t stand any more of this and you are sick to death of the self-serving rantings of politicians, be they to the right or to the left or in that muddle in the middle that keeps squeaking “Can’t we all just get along…”?
Hey — Welcome to the Party!
Well, good for you, and guess what: you haven’t cracked up. You’ve just had the good sense to come in out of the rain to settle down to a good book or re-runs of “Friends.” Keep your mortgage payments up, pay your credit cards down as well as you can (and stop using them.)
Here’s a little teaching tool (we’re never too old to learn new things); The next time you go to the grocery store (or the bookstore or Home Depot — wherever you go most often and spend money) pay cash for your purchases. Put coins in first, then flatten out your bills and stick them into that little slot that sucks them in.
What this will tell you is that the cash that comes out of your wallet is worth quite a bit more than the charges you rack up on your credit card. It will also make you aware of how much you are spending. (Think of all the times you were chatting with someone and didn’t even know how much you spent; you just handed the cashier your credit card and scribbled your name on the little screen, then pressed the “okay” button — the green one.)
Do you suppose that we could make those guys in that holler called D.C. do the same? Dream on.
Meanwhile, Back at the Ranch….
Getting back to our opening quiz and the “surprise” answers, none of this stuff is new. This game’s been going on for years, the players a string of politicians and administrations. It’s just that this time the Big Guy in the Big House on Pennsylvania Avenue said he quit and stomped home, taking the ball with him. This was not considered good form. Standard and Poor’s, one of the umpires in this dumb game, called the foul and removed one of the A’s from the playing field. So the press, in its varied garb and with nothing else to talk about, is treating this story like some of the brawls that broke out on the ice in the 70’s when the Bruins and the Rangers played (if you could call it that).
We keep our occasional musings short and simple, so we will close with this story. It is a true story, which makes it all the more interesting.
An Honest to God True Story
There once was a Senator, a Democrat, who ran for President right about the time the Rangers and Bruins were duking it out on the ice. The Senator lost that race to a gentleman who himself had to quit a few seasons later, worn down by a booing contingency who kept throwing rubber chickens on the already cracked ice.
The Democratic Senator kept on being a Senator until he, too, was deemed less than satisfactory and voted out of office in 1980. Always one to find a bright side of things, the former Senator and his wife decided to start a B&B, a Bread and Breakfast in New England. Lovely idea, great way to spend your retirement years, live happily ever after, etc.
Oops. Seemed it wasn’t quite as simple as it sounded. The former senator and his wife kept running into stumbling blocks, a.k.a. laws, principally tax laws, that made their B&B dream into something that more closely resembled the Bruins/Rangers melees on the ice.
The clearly frustrated couple finally realized that they could not win this battle. Congress, in its infinite wisdom and its desire to protect the great American Public from evil tax evaders, had effectively made it impossible to set up a modest B&B in a lovely old farmhouse in Connecticut. And the great irony here is that the Senator himself had backed and voted for those laws.
As the light dawned, or the sun set, pick your metaphor, the absolutely stunned Senator said to his accountant “We didn’t know what the hell we were doing” (the “we” being the collective body of people who make up the U.S. Congress — and make up those laws).
Absolutely true story.
Yawn….
So some things never change. Politicians come in a variety of styles, but they have one universal quality; they don’t know what the hell they’re doing.
Don’t worry about it. China isn’t going to dump their holdings of U.S. Treasuries. Nor will any other country. Nor will your mutual funds or your money managers. With what would they replace them? Euro Bonds? Uhm…. no.
Having told you all kinds of things that won’t happen, let us assure you of one thing that will happen (or more appropriately said, will continue to happen). The global economy (which is really the only economy) will continue to turn like a wagon wheel in Vermont’s Spring thaw, when every road turns into ankle deep mud and the best way to get anywhere is just to put one muddy foot in front of the other muddy foot. Get yourself a good book and stop griping. Just accept the fact that that mud’s going to be around for a very, very long time. Plan accordingly.
This information is not intended to be used as the only basis for investment decisions, nor should it be construed as advice designed to meet your particular needs. You are advised to seek the advice of your financial adviser, legal or tax professional, prior to making any investment decision based on any specific information contained herein.
