The Economy: The election is already ancient news. We now look forward to a new era of political consensus in the U.S. The domestic economic issues facing us can be addressed within the following framework: Democrats have the White House, the Senate, the Fed and now the Supreme Court. The Republicans have the House. We expect the economic policies of the past 4-years to be maintained. This means low interest rates, more pump priming by The Fed and continued implementation of financial regulation through Dodd-Frank. Obamacare is also here to stay. The unintended consequences of both these game-changing pieces of legislation have yet to be felt. American business will make the necessary adjustments to survive. We are optimistic that the Fiscal Cliff will be addressed with the proviso that taxes will go up in 2013 regardless. As we have stated before, we believe that after years of low taxes, the US has entered a period where taxes will consistently be raised in order to deal with local, state and national debt. The last time the U.S. faced these debt levels was after WWII. Taxes were raised for years; ultimately reaching more than 90% for upper income tax brackets. The long-term implications of increasing taxes will impact all economic activity. Plan accordingly. Remember, it’s not what you make; it’s what you keep.
Food for Thought: Risk management requires planning and timely action. We are staunch advocates of taking profits. The recent market sell-off has caused alarm bells to ring. Though U.S. equity markets typically rally into year-end, their dramatic appreciation since June might make this year the exception. Apple (AAPL), which has lent outsized support to the S&P 500, is now down 20% from its high and has entered a bear market. With a weakening global economy and higher taxes on the horizon, we are moving to the sidelines and becoming more defensive.