President Obama's reelection, which apparently came as a surprise to some despite all the data predicting it, inspired a few days of selling in the stock market. Investors, however, are also concerned about "The Fiscal Cliff" -- the media's dramatic term for the expiring tax cuts and unemployment benefits coupled with across-the-board cuts in military and domestic programs that are set to take effect after New Year's if the federal government isn't able to broker a deal beforehand that would avert it all.
I don't mean to make light of our nation's serious fiscal challenges, but forgive me for being a bit skeptical about this arbitrary deadline that has been invented out of thin air by our fearless leaders. If this Washington showdown is anything like the disgraceful debt-ceiling negotiations that took place last year, when Congressional Republicans threatened to default on America's financial obligations unless they got their way, then please wake me up when it's all over. I can't stomach another round of this foolishness.
The selloff that occurred during last year's debacle turned out to be a great buying opportunity in the stock market, and I suspect the same will be true again this year. Yes, the policy outcomes that are scheduled to take place if a deal can't be reached are real, and they could do serious damage to our already precarious economic recovery, but I think it's highly unlikely that we'll be heading off any real fiscal cliffs anytime soon.
The outlines for a deal are clear: taxes for high-income earners ought to go up, and the long-run costs of entitlement programs and the Pentagon and national security budgets ought to go down. This, in a nutshell, is the sensible, balanced approach that President Obama has been pursuing.
My approach, if we were a dictatorship and I was in charge, would be different, but this is not a dictatorship. It's a democracy with a divided electorate, and this is the deal on the table. The results of the election show that it's a reasonable compromise.
Unfortunately, our elected representatives in Washington, D.C. have displayed a proclivity for avoiding anything that is reasonable like the plague. Hopefully, the election has brought them to their senses, but I'm not holding my breath. At the very least, though, I expect some sort of deal will be reached that avoids "The Fiscal Cliff" -- at least one that pushes off any real decisions to the next arbitrary and toothless deadline.
In the meantime, how about that buying opportunity? When the stock market bottomed during last year's deficit histrionics, the S&P 500 was down around 1,100. We're now above 1,379. Shares of Apple (AAPL) were below $400. They're now trading above $547 -- even after a recent rout. Shares of Google (GOOG) went below $500. They're now trading over $663, and the Internet search giant has also struggled of late.