Edit ModuleShow Tags

Fiscal Cliff 101


Published:

The critical need to raise the debt ceiling will be the "catalyst for short-term measures to avoid falling off the fiscal cliff,” according to Morgan Stanley’s Government Affairs Office in Washington.

Morgan Stanley believes one likely outcome will be adoption by the lame-duck Congress of a six-month extension of the status quo (“kick the can”), to give the new Congress time to see if it can reach a “grand bargain” compromise later in 2013.

Another possibility, in the view of Morgan Stanley Wealth Management’s Global Investment Committee, is a one-year extension of existing tax rates for most taxpayers, with some compromises on the upper-income brackets.

The Global Investment Committee expects that action to mitigate the “fiscal cliff” will reduce the impact on the economy – from 5 percent of GDP (without action) to 1-2 percent.

Post-election, Morgan Stanley’s Global Investment Committee made the following strategic asset allocation recommendations:

• Increased exposure to risk assets by adding US and Europe ex-UK equities, investment grade credit and commodities. 1
• Lowered weightings in cash, short duration and high yield bonds.1

According to Morgan Stanley’s Nov. 12 weekly market commentary, “The catalyst for this change is our view that the impending U.S. fiscal cliff - fiscal drag of 5 percent of GDP that threatens another U.S. recession - will be mitigated and delayed. Progress on fiscal policy reduces uncertainty and is thus positive for risk assets.”

The most important advice I can offer investors during this time is to focus on your long-term financial plan rather than short-term market dips. Be realistic, but not fatalistic, about current market conditions and returns. Investors prepared for occasional declines will be less likely to fall prey to panic selling. And finally, don’t try to time the market, and keep your portfolio well-diversified to help cushion volatility.

Edit Module
Todd Hauer

Todd Hauer is a Financial Advisor with the Global Wealth Management Division of Morgan Stanley Smith Barney in the Denver Tech Center. He can be reached at 720-488-2406 or toll free at 1-800-347-5099, or you can email him at Todd.Hauer@morganstanleysmithbarney.com.

Get more of our current issue | Subscribe to the magazine | Get our Free e-newsletter

Edit ModuleShow Tags

Archive »Related Articles

If you believe in it, fund it!

Like Congress, if organizations devise good measures but don’t fund them appropriately, they waste their effort and add a few more pages to the company operating manual or HR policy binder, causing cynicism and wonder at “how stupid they can be.”

Mergers & acquisitions: Tips for a successful transaction

Merger and acquisition expert and attorney at law Stephen Dietrich gives practical advice every business professional should know before buying or selling a company.

Great made in Colorado stuff for the great outdoors

John Stultz started his third business, Bear Paw, a decade ago. “I’ve always been a big hiker and backpacker, so I started making tarps,” he says. He now makes a variety of tarps and tents and custom gear for hunters and thru-hikers.
Edit ModuleShow Tags

Thanks for contributing to our community-- please keep your comments in good taste and appropriate for our business professional readers.

Add your comment: