The stock market is flashing yellow lights. It is dangerous to assume the market will climb forever and investors are once again bullish, a sign that caution may be thrown to the wind. Earnings have kept pace with stock prices until now but will need to hold up for stocks to move much higher. The market may have room to run, but it makes sense to show some discipline. You might pat yourself on the back today only to find you are kicking yourself tomorrow.

The press is focused on the pending “fiscal cliff” – the January 1st expiration of the Bush era tax cuts, the need to reduce Social Security, Medicare and Medicaid benefits and the pending automatic cuts in defense and healthcare spending. We are at a critical point where we need to balance reducing the country’s debt level against support of an economic growth rate that is modest and slower than normal. Higher taxes would reduce funds available for spending which is critical in our consumer- driven economy. The end result if nothing is done by year-end is a financial superstorm, which all agree should be avoided if at all possible. We need tax reform, higher revenues and reduced government spending. We need long term entitlement reform and a significant increase in government revenues. Unfortunately, what we are likely to see is a postponement again while our politicians respond to this wakeup[more…]