Part of our conversation yesterday revolved around the tax increases we saw early this year and the spending cuts that took effect yesterday. As I mentioned, these are both positive developments, but they’re only the first steps on a long road. What remains to be done is a multiple of what’s been done so far.

Politically, both moves are problematic. But, in my opinion, the tax increases are by far the more difficult. Everyone seems to be in favor of both tax increases and spending cuts—they just can’t agree on whom to tax or what to cut! Taxes, however, are more challenging in that they require taking something away from people that they already have. In many cases, spending is more nebulous, and defense spending cuts won’t mean I have fewer dollars in my paycheck.

Despite the dire warnings, the sun rose today and people went to work. Planning shifted, if it hadn’t already, from avoiding the sequester’s spending cuts to implementing them. Entrepreneurs launched t-shirts and tchotchkes based the sequester and furlough.

Politicians, who had been warning of the disastrous consequences of the spending cuts, haven’t exactly backed off. Instead, they’ve adjusted the time frame—much like the doctor who had given his patient six months to live but then granted him an extension when he couldn’t pay off the bill during that time.

I was thinking about market valuations this morning in light of some of the volatility we saw last month and some discussions we’ve had internally.

For illustrative purposes Apple is a good stock to look at for this kind of discussion. By some metrics Apple could still be considered inexpensive, but it’s uncertain whether it can continue to grow sales as fast as it has. How much of the valuation is based on the assumption of continued sales growth, and how will the stock price be affected if sales growth slows?

The interesting story today is the stock market, as it manages to shrug off the worries from Europe, the sequester, and a power higher. The Dow Jones Industrial Average is closing in on its all-time high, set in October 2007. The S&P 500 Index is not quite—but almost—as close to the high that was set around the same time. Are happy days here again?

The numbers I mention above are a bit misleading, in ways both positive and negative. For both indices, if you include dividends paid over the time since the previous highs, we have already passed them. This would be positive. If you look at the indices adjusted for inflation, however, we are further away, which is negative. The key is that, surpassing the previous levels would just be numbers, with more psychological than economic significance.

“Those who can’t remember the past are condemned to repeat it.” — George Santayana

The quote above is often used to describe one of Ben Bernanke’s prime qualifications for his position as chairman of the Federal Reserve. As a student of the Depression, it is said, he has a unique perspective on what happened then and knows what has to happen now to avoid a repeat. Put another way, he understands the mistakes that were made last time so we can avoid them this time.

I was sitting on a plane home last night, watching SpongeBob with Jackson, and as I flipped through the channels, I saw that the stock market had cratered since we got on the plane. What?

The headlines today seem to imply that the sequester will hit, as the Republicans have very little incentive to back down.

In the spirit of several previous posts, I’m taking a couple days off to take my son, Jackson, down to visit his grandparents in Florida. Among the many things I’m grateful for are that both my parents and my wife’s are healthy and active, and that Jackson has a chance to spend time with them and get to know them.

I would also like to mention the support and many thoughtful remarks, both in-person and written, I received in response to my family’s loss. One of the wonderful things about what I do—and particularly where I work, Commonwealth Financial Network—is the truly thoughtful, considerate, and wise colleagues and friends I have. These are very smart people who also really care about others and who take the time to show it. I can’t tell you how honored and grateful I am to have people like this as colleagues and friends.

The markets have had a good run for the past six weeks, with a return through Tuesday of more than 7 percent for the S&P 500 Index. The run seemed to have been predicated on the fiscal cliff deal at the end of last year, the impression that the Federal Reserve (Fed) would continue to support the economy with low interest rates, the resolution of the European debt crisis, growing corporate earnings and profits, and a real economy in steady recovery. Retail investors had started pouring money back into equities, and there was talk of a “Great Rotation” out of fixed income and back into stocks.

Well, the real economy is still in recovery, but the other pieces of the puzzle are looking ragged. Yesterday, the Fed published minutes from the most recent meeting of the Federal Open Market Committee, showing that the committee is not unified in its decision to maintain purchases of Treasury and mortgage securities. This raises the possibility that rates might increase much sooner than the market had thought. Sequestration has also moved back to the front pages of the major papers, suggesting that the political risk from Washington is rising. In addition, Europe looks to be very much in play again, as Silvio Berlusconi has a shot at the Italian elections— which could blow up the current austerity-driven political consensus—and the economy of the eurozone as a whole continues to weaken, driven primarily by France.

In the last round of the Washington budget debates—the fiscal cliff—a compromise was finally reached, whereby the Bush administration tax cuts were extended for the vast majority of the population, while taxes went up on people with incomes over $400,000 (or $450,000 for joint filers). In addition, the expiration of the payroll tax waiver raised taxes on everyone with wage income.

You probably remember this. It was only a couple of weeks ago.