This past Sunday, after many weeks of contentious debate, the White House and Congressional leaders finally reached an agreement on a deal to raise the debt ceiling and reduce federal spending. The deal was subsequently approved by both houses of Congress on a bipartisan basis, and was signed into law by President Obama on Tuesday.  By raising the debt ceiling, the legislation enables the U.S. Treasury to issue additional debt securities to fund government operations.

We have been monitoring the developments in Washington very closely. The final outcome of this process is likely to have an impact on portfolios, but it is impossible to determine whether that impact will be positive, negative, or neutral. What is important is to have a well-diversified investment portfolio with a risk profile that is aligned with your particular time horizon and ability to withstand volatility. Turbulence caused by singular events, be they Y2K, the Asian flu pandemic, 9/11, or the debt ceiling debate, has little bearing on your long-term investment experience. We fully acknowledge that this long-term perspective can be difficult to maintain in today’s world of nonstop news coverage from a multitude of outlets.

Like many of you, we have been watching this debate in recent days with a mixture of apprehension, frustration, and even outright anger at the seeming lack of leadership and inability to compromise among lawmakers. While an up-close glimpse into “how the sausage is made” in Washington is rarely a pretty sight, we are very encouraged by the new emphasis on fiscal discipline that Americans have demanded of their lawmakers. Much remains to be done, and a complete solution will in all likelihood need to consider additional tax revenue and cuts to entitlement spending (Social Security and Medicare). We hope and expect that the deal under consideration by Congress is just the start of this process, and that government will return to a more fiscally responsible course in the coming months and years. Part of our job is to help our clients learn to have reasonable expectations and to live within their means. It is time to expect the same of our government.

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