Without certainty on how America is going to pay its bills in the coming months, the investment markets are becoming increasingly volatile with a downward bias.  As the August deadline approaches to resolving the debt ceiling and all the potential policy changes regarding taxing and spending investor and business confidence is waning.  Once there is an agreement on such issues,  the predictability of what the markets will do when details of the agreement are known, will present their own set of issues and opportunities.

Why is this important to you:  Investors, savers, retirees, and endowments?  Funding known, future cash flow obligations becomes a tricky business in extremely volatile markets. 

Rosy Scenario:  Markets loves the solution, brings certainty to tax levels, regulations, and streamlines interaction with government entities.  Government budget is passed with substantial reductions, debt ceiling raised, tax loop holes are closed increasing revenue and everyone feels they are part of the solution.

Black Dahlia Scenario:  Markets hates resolution/default of US Debt chaos ensues and the markets tumble, interests rates sky-rocket, riots in the streets and unemployment reaches epidemic proportions.

Wildcard:  Who knows the un-intended consequences on this one. 

The usual outcomes of national political activities can have a marginal impact on markets in the long and short run, rarely are the potential outcomes so divergent with the potential for extreme consequences. 

Pre-funding future cash flows is a good example and the choice made is NOT to invest in volatile markets knowing that those funds will need to be expended in less than twelve months.  Potential outcomes, account out/under performance relative to its benchmark is better or worse off.  If the investment markets rally substantially from here, accounts will have missed out on additional income to its detriment.  If the markets fall or remain flat then the account will have avoided potential losses and benefited from the decision.

Funding known cash flows in the next twelve months requires thoughtful policies that address the potential risks of selling in volatile markets.