29. Doomsday

It could be funnier if it wasn't my own life savings: while many analysts say that it's likely that the debt ceiling will be raised at the last minute, and that even if it doesn't, the impact will be small and temporary, Credit Suisse says that stocks may fall 30% if the US defaults.

Is it time to panic?

I don't think so, and here's why:

• Market timing is a futile exercise. Stocks reflect the current expectations of all players - you can't assume you're smarter than everyone else and can predict the future better.
• Even if the debt ceiling is not increased, a default is unlikely. It's more likely that the effect will be something similar to a government shutdown (no money to pay teachers and soldiers) than a default (no money to pay interest and principal on debts.)
• Even if the stock market falls, will you know when to get back in?
• A last minute deal might push stocks up - when you're out. 

In short, like always, the best course of action is to stop reading the papers, stay the course, and check your portfolio again when it's time to rebalance. My rebalance anniversary is in 6 months. But I'd lie if I said that I can stop following the drama and the market. 

Personally, I gave in and sold 20% of my US holdings, but I had a good reason - a change in the way I calculate my holdings that was long due, and this week looked like a good time to implement it. 

For now, my advice is to take a deep breath, think long, and remember that this is all self-induced political drama, not any real economic development. See you all on the other side of Aug 2^nd.