BUZ LIVINGSTON: Fiscal cliff conundrum solved

Buz Livingston

Far different from Walton County’s white sandy beaches, San Onofre State Park features spectacular sandstone bluffs rising hundreds of feet above the Pacific. Venture too close and like Wily Coyote, off the cliff you go. Merell hiking boots, courtesy of Silver Sands, allow a more prudent way to reconnoiter the trail. Cautious investors can safely navigate the much-ballyhooed fiscal cliff, too. 

When I find myself in times of trouble, I look to Mother Mary and Warren Buffett. His framework for solving the “fiscal cliff” should be a blueprint that gets our spending to around 21 percent of GDP and our revenues to 18.5 percent contrasted respectively with 24 percent and 15 percent in 2012. Sure, we would run a small deficit; with America’s growing economy, it is sustainable. If we have a plan and a commitment to the goals (21 percent and 18.5 percent), then we could gradually reach them.

This is an intelligent approach to our problem rather than the draconian spending cuts and sharp increases in tax rates scheduled for Jan. 1, 2013.  Anyone who thinks the aforementioned combination is a good idea should take a glance across the pond and look at the self-induced European recession. 

Buffett reminds us America has a “resilient” economy that even our esteemed politicians cannot torpedo. The longer we wait to solve our problem, the more foolish we look to the rest of the world.  Investors should follow Buffett’s lead, “I hope something gets worked out before January 1st, but if it goes a little bit beyond that ... I will not be selling stocks.”

In the aftermath of Lehman Brothers’ 2008 failure, Buffett wrote a “Buy American” New York Times op-ed piece. Since Buffett wrote his column, the S&P 500 earned 58 percent cumulatively or roughly 12 percent annualized, aka not too shabby. Portfolios diversified with small U.S. companies garnered even greater returns while those who went to cash missed the first great bull market of 21st century.  Adding insult to injury, they either locked in losses or generated tax liabilities in taxable accounts.

Commentators spanning the media pantheon from liberal Lawrence O’Donnell to conservative Charles Krauthammer see little harm in going over the cliff. Their collective caveat being an agreement would be forthcoming sometime in January and the other side takes the blame.  Ignore pundits on television. Drop the notion the two sides avoid talking to each other. Their staffs communicate constantly even when Congress is out of session. 

Currently the American greenback is the world’s reserve currency; most Americans don’t realize the power that it gives us.

In the 1980s, to stymie Panama’s Manuel Noriega, we froze Panamanian assets. Since Panama used the U.S. dollar, we did more economic damage since the famous pirate Henry Morgan sacked Panama City in 1671 and fired nary a shot.  If the world looks at our fiscal debt debate and sees an “Animal House” toga party, maybe the dollar loses prestige. Nothing happens immediately but we look foolish.

Both sides should listen to the “Oracle of Omaha,” put aside partisan differences, place the country first and end this debate — the sooner, the better.

Buz Livingston, CFP offers hourly financial planning and fee-only investment management to clients along Florida’s Emerald Coast.  He can be reached at 267-1068, Buz@LivingstonFinancial.netor www.LivingstonFinancial.net.