The U.S. “fiscal cliff” clock is ticking loudly, and so far U.S. politicians haven’t been able to cooperatively silence it. A sweeping roster of automatic spending cuts and tax hikes remain set to go into effect at year-end with what could be detrimental economic consequences.
This week, our Templeton Global Equity Group (TGEG) provides a collective perspective of potential events as we count down toward the fiscal cliff deadline, and possible implications for the savvy investor. Key aspects from the TGEG point of view:
In its entirety, the fiscal cliff is estimated to reduce the U.S. federal budget deficit by 4%-5% of gross domestic product (GDP) in FY 2013 ($670 billion), a severe tightening of fiscal policy which, if no deal is struck, would involve sweeping tax increases and mandated spending cuts across all budget items.
In our opinion, it is doubtful that the fiscal cliff will fully come to pass as a number of the provisions within the cliff enjoy bipartisan support for extension or renewal.
The larger the fiscal drag, the worse for equities in the near term. The more cyclically leveraged regions and sectors would be most impacted by the fiscal cliff.
Risk assets do not like uncertainty, creating selective investment opportunities for disciplined bargain hunters.
Longer term, the U.S. government must proactively address its fiscal position or rising interest rates will become a secular headwind for equity markets.
When faced with adversity, it’s easy to focus on the challenges ahead of us and see nothing but clouds on the horizon. The late Sir John Templeton was someone who chose to focus on the silver lining. These words from him were true in his day, and are still true today.
“People focus too little on the opportunities and too much on their problems. We are blessed by the most remarkable achievements. We have 10 blessings for every problem. The next 50 years will also offer great hope and glorious promise, maybe another golden age of opportunity.”
Sir John, born in the small town of Winchester, Tennessee on November 29, 1912, had a profound impact on the world of investing—and certainly on those who knew him. Sir John’s revolutionary approach to investing won the loyalty and admiration of millions of investors around the world, both large and small. Sir John passed away at the age of 95 on July 8, 2008.
Today marks the anniversary of what would have been Sir John Templeton’s 100th birthday. The brief video below is in appreciation of Sir John’s life and the influence he still has on Franklin Templeton Investments’ perspective and on our employees. Enjoy!
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In the “normal” course of a U.S. election, investors typically breathe a sigh of relief when the results come in, with at least one layer of market uncertainty removed. This time around, the political squabbling hasn’t ended with the close of the polls on November 6. The debate about the “fiscal cliff,” a combination of spending cuts and tax hikes set to go into effect on January 1, 2013, has heightened. Market volatility since the election seems to have heightened, too.
Will an 11th hour deal be reached to stop some or all of these measures from taking effect? And if they do come to fruition, what would be the economic consequences? Christopher Molumphy, Executive Vice President and CIO of the Franklin Templeton Fixed Income Group®, expects politicians will probably reach some sort of fiscal-cliff compromise deal, but it may not solve the bigger issue: fixing the debt. Read more…
In a perfect world, a nation’s leaders could easily conjure the ideal combination of fiscal and/or monetary policies to achieve a specific economic objective. The reality is that policy tools don’t always work in harmony, and when used at the wrong time, can even be counterproductive. In the past few years, many global central banks have enacted various measures to stimulate their respective economies—in some cases without the support of fiscal measures—and sometimes to little effect. John Remmert, senior vice president and senior portfolio manager for Franklin Equity Group®, shares his insights on why central banks have acted in some cases where politicians seemed fearful to tread. Read more…
You’d be hard-pressed to find someone who argues that balance is a bad thing, but in this time of austerity versus growth and political us-versus-them, you’d be equally hard-pressed to find agreement on how to achieve balance. Right now the U.S. economy is teetering on the edge of the much-publicized so-called “fiscal cliff,” a one-two punch of automatic spending cuts and tax increases set to go into effect in 2013, and which threaten to tip the nation into recession. Will the country face a “Thelma & Louise” moment, speeding off the cliff and into the abyss? Or will politicians pull together to prevent this economic Weeble from wobbling? Read more…
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