With the fiscal cliff looking more like a fiscal bump, the big debate is coming.
The DEBT CEILING.Up until the last few years, the United States ability to borrow was rubber stamped by Congress. That it failed to do so a few years ago led to the USA's downgrade of debt largely because of the fact that the US govt looked disfunctional.Well, in March 2013, the USA will need to increase the debt ceiling or it could be deja vu.I believe any President should have the ability to raise the debt ceiling, he or she shouldn't be held hostage by congress in times of distress, war, etc.I think the fiscal bump will be reactively worked in february/march with a grand bargain to include the debt ceiling. Call me an optimist but that's the way I see it.
Until then, the stock market will surely go down and sideways at best. I think caution is the word of the day and boomers especially should be careful. Nothing wrong with being in cash during times of uncertainty!
"Unquestionably, some people have become very rich through the use of borrowed money. However, that’s also been a way to get very poor. When leverage works, it magnifies your gains. Your spouse thinks you’re clever, and your neighbors get envious. But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade – and some relearned in 2008 – any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people."
-- Warren Buffett, 2010 Berkshire Hathaway Annual Report
The preceding from Warren Buffett is undeniably true and recently the amount loaned by brokerages to clients is at an all time high except three weeks before the financial meltdown in 2008.
Boomers are rarely in a position to make back large losses so while tempting, I would stay away from any kind of leverage especially margin debt.
