Runaway government spending and extreme partisan fighting are producing a significant drag on economic growth, but that doesn't mean investors should be sitting on the sidelines, according to George Schwartz, president of Schwartz Investment Counsel Inc. and Ave Maria Mutual Funds.
Mr. Schwartz, who places much of the blame for government overspending on Democrats, also favors an increase in the debt ceiling to avoid a “major market disruption.”
InvestmentNews: What is the biggest risk facing the U.S. economy right now?
Mr. Schwartz: Excessive government spending is a major risk to this country's economic well-being because it is sapping confidence and hurting job creation.
InvestmentNews: What are the chances that the United States will default on its upcoming debt payments?
Mr. Schwartz: Very low; practically nonexistent, that is, unless the president chooses to do so. The reason I say that is because the tax receipts easily cover the interest and principal payments on the debt.
But that doesn't mean that without a debt ceiling increase the government will have enough money to cover all of its bills.
InvestmentNews: Do you support raising the debt ceiling?
Mr. Schwartz: Yes, I do, but even if it isn't raised, it would be President [Barack] Obama's decision to not pay the debt obligations. I would hate to see the debt limit not increased at this point, but I don't believe it would be the end of the world. It could even have some positive residual affects. For starters, it would immediately create a balanced budget. That's not a bad thing, but for it to happen all at once, overnight, would be disruptive.
InvestmentNews: How do you think the partial government shutdown should or could be resolved?
Mr. Schwartz: The same way it has always been resolved over the last 17 shutdowns, through compromise.
I think the thing that should be given in on by Democrats is a willingness to not keep spending the country into oblivion. The spending is the problem, and the Democrats are responsible for that spending. Lowering the spending and attempting to reduce the size of government should be done.
InvestmentNews: What are the best investment strategies for periods of extreme government turmoil?
Mr. Schwartz: The best strategy for long-term investors is to stay focused on the long term and not get caught up in short-term headlines, turmoil and price swings.
Right now, the long-term outlook for stocks is very good. If they got cheaper because of the shutdown or loss of confidence, stocks would be more attractive. Selling into that would be a big mistake. The country has suffered because of poor leadership, particularly in the White House, and that will continue. But that doesn't mean investors still can't make good returns by investing in good companies that are growing and are profitable.