The Independent Market Observer

Yesterday’s News: The Sausage Factory

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Jul 19, 2012 12:23:53 PM

and tagged Politics and the Economy, Yesterday's News

Leave a comment

I went looking for the actual sausage factory quotation from Otto von Bismarck, but apparently he was not the person who originally said it, and even the misattributed versions don’t say exactly what I want to say. So let’s take a big step down from Otto to the Urban Dictionary for a definition of a sausage factory.

“An unpleasant process, especially one that is hidden from public view, that is used to produce a widely consumed product: lots of people like sausage, but few would enjoy watching leftover animal parts ground up to make it.”

This is the theme of the news today. The ultimate goal, of course, is fiscal stability and economic recovery, but getting there is proving to be tough. Government is getting hit in many ways. From the Wall Street Journal (WSJ), we have “Post Office Might Miss Retirees’ Payment” on page A2 and “House Votes to Require Detailing of Budget Cuts,” while the New York Times (NYT) has “Years of Unraveling, Then Bankruptcy for a City” on the front page, as well as “South Carolina Governor’s Budget Ax is Blunted by Legislature,” “Detroit Mayor Confirms Cuts to Workers’ Pay and Benefits,” and “Maine Debate Hints at Rift on Medicaid After Ruling.” These headlines concern all levels of government—federal, state, and municipal—and both major parties, as well as both spending increases and spending cuts. The one theme is that limitations on available resources are now hitting.

Businesses are facing the same types of constraints. Some are facing them more or less voluntarily, as in “Big Banks Prepare Another Round of Cuts” from C1 in the NYT, and some involuntarily, as in “Four Banks Targeted in Euribor Probe” from page 1 of the Financial Times (FT) and “In Its First Action, Consumer Bureau Takes Aim at Capital One” from page B1 of the WSJ. Some are starting to fight against particular problems—see “Utilities Fear Approach of Fiscal Cliff” from page 5 of the FT, which describes how utilities and other dividend-paying companies are planning to fight the pending increase in dividend taxes from 15 percent to more than 43 percent.

Finally, individuals are facing the same problems, both at high levels, as in “Economic Fears Hurting Obama, Poll Indicates” from the front page of the NYT,and at middle class levels, as in “Uncomfortable Accounting: Retirees Wrestle with a Pension Buyout from GM.”

In the absence of breaking news, the consistent story here is that choices are being made across the board about how to raise more and spend less, and it isn’t pretty. But the factory has to keep rolling, so expect to see a lot more of this going forward.

Subscribe via Email

New call-to-action
Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®