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Health & Fitness

Super Committee Failure: Now What?

Is the failure of the super-committee something investors should worry about? Yes. And no.

Anyone with any sense has long since given up predicting how the stock market will react in any given situation.  Is the failure of the super-committee something investors should worry about?  Yes.  And no.

The fact that our elected officials lack the wherewithal (I am putting it politely) to come up with a compromise so that the U.S. can start working its way out of debt should make everyone inside and outside the U.S. worry. Uncertainty continues to rise - and increasing investor uncertainty generally has a negative impact on the stock market.

And what of the uncertainty of the countries and individuals that, until now, have continued to purchase U.S. debt?  The super-committee's failure to launch anything at all is certainly a confidence killer.  At some point, these investors may demand a higher interest rate to compensate them for their worries.  Higher interest rates generally have a negative impact on the stock market.

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We could also see many of the 'economic stimulus' initiatives, like extended unemployment benefits and the payroll tax cut, expire.  Although this sounds good in terms of the out-of-pocket cost to the government, in the long-term we would likely see a hit to GDP.  Lower GDP numbers generally have a negative impact on the stock market.

I could go on, but by now you have likely spotted the pattern.  There is no silver lining in this particular cloud.  It is just one of the many clouds in the economic gloom that surrounds us.  The gloom will eventually lift.  It always does.  But when? 

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For younger individuals who have not been scared away by the performance of the market, buying while prices are low is an integral part of the 'buy low, sell high' philosophy.  Younger investors can also benefit from the lesson of the last ten plus years:  stock market investments are long-term investments.

For older individuals already in the stock market, there are no easy answers.  In the best case scenario, one would liquidate as little as possible while the market is down, have enough in safer investments to take care of basic needs in the event of a 'second dip', and concentrate on happier things.  Worrying will not make the gloom go away any faster.

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