Debt Ceiling 2011 and the S&P 500

The past two days have had some interesting financial news as Congress finally made a Federal debt ceiling deal.

Today marks another time this year that the S&P 500 is down for the year.  Now, it is up 85% since its low in March 2009, so avoiding the stock market because of the recession would have been a poor choice.  But families (like mine) that sold some investments in December 2010 for tax reasons and have been waiting, uncertain how to wisely reinvest, should not feel guilty for their indecision.

Yesterday had quite historic news: not only did several companies then have more cash reserves than the Federal government, but the amount of Federal operating cash was then less than the estimated net worth of Bill Gates.  Neither comparison is meaningful, but both are clever.  The first comparison focused on the size of Apple's cash reserves when the better questions are how Apple manages so well to have free cash and why Apple has been hoarding cash since January when other companies, such as Berkshire Hathaway, have been shrinking their cash reserves.  The second comparison neglects to mention that all of us without trillions of dollars of debt are "richer" than the Federal government (although the average American is in debt 107% of his or her income, compared to the Federal government's 94%).

The debate about the debt ceiling is not over.  I think one analyst was correct in writing that Wall Street cares most about whether Congress is able to make the kind of bipartisan compromises that will eventually be needed to fix the entitlement crisis.  This week's deal proved that Congress is definitely not yet ready.