The debt ceiling charade debate has been making headlines lately, and understandably so. The prospect of defaulting on our debt is a frightening one, with potentially disastrous consequences. Bonds and stocks would decline, and even Social Security checks could be halted. The chaos would be so severe that Congress would be forced to intervene, and if they didn't, the interest rate market would be thrown into such disarray that the Fed would have to step in to stabilize it.
But amidst all this fear and uncertainty, it's important to keep a long-term perspective. We are owners of some of the best businesses in the world, and the outcome of this debt ceiling debate isn't likely to change that. People will continue to buy diapers, drink Coke, eat at their favorite restaurants, buy cars, and take vacations. The desire to spend isn't likely to be derailed by what happens in Washington over the next few weeks.
And if people keep spending, the earnings of great companies will continue to grow. And since stock prices generally follow earnings, it seems likely that prices will rise over the long term as well.
It's easy to get caught up in the media frenzy surrounding this crisis, but it's important to remember that they want you to watch this soap opera as much as possible so that they can sell more advertising. They'll go on telling you exactly what this means for the market despite nobody having any earthly idea.
The real risk to us as smart, long-term investors is not the debt ceiling itself, but making a decision to alter your portfolio out of worry, fear, or uncertainty. This is, and always has been, a recipe for disaster. Knowing this to be true and that earnings are historically likely to rise in the decades ahead, it's easy to see that as frustrating as Washington is, it's mostly a distraction from what will ultimately matter over the long term. My advice is to turn off the TV for the next couple of weeks and take a few more walks outside. It's nice this time of year. 😊