The Fiscal Cliff will be a hot topic in the coming weeks, as Congress will be charged with making decisions that will vastly affect our nation’s future. If Congress does not take action to stop them, approximately $600 billion in tax increases and spending cuts will be implemented in January 2013, which could drive the U.S. into a recession. However, CLS believes the probability that the full $600 billion in austerity measures will take place is still low.

How is CLS addressing the potential fiscal cliff?

  • We are monitoring Congressional actions very closely. So far, there have been fairly positive signs coming out of Washington, as House Speaker John Boehner (R., Ohio) stated that they would be open to limiting tax breaks as part of an agreement with Democrats. President Obama stated that he would be willing to make changes to Medicare and Medicaid in order to address some of the Republicans’ main concerns regarding these costly programs. These are good signs that Congress could come to an agreement at this point.
  • CLS has been tilting allocations to higher quality equities and bonds. There has been a shift into larger cap, more stable companies. On the fixed income side, we’ve been shifting to higher-quality credit products, as these tend to perform better in slower growth environments.
  • CLS will be utilizing commodities as well as other alternative assets, such as minimum volatility ETFs, in order to lower correlations and reduce risk, as the coming weeks could get very volatile.

Content provided by CLS guest writer Paula Wieck, Manager of Investment Research