NEW YORK ( TheStreet) -- Don't get lulled into thinking that sequestration isn't grinding away against the economy with potential peril for your savings and investments.
Remember, we're talking about the federal government here. Nothing happens quickly. Think in terms of a glacier. It moves slowly, but it changes the landscape. Forever.
To understand how sequestration can affect the rest of us, I had Bloomberg's Pentagon reporter Tony Capaccio on my radio show last Saturday to discuss the impact on contractors and the economy at large.
There's good news and, I think, some bad news.The good news is this: forced belt tightening is causing the kind of discipline that warms every taxpayers heart. According to Capaccio, "There's all kinds of fat in the military budget. And now with across the board cuts, contractors are first working to cut it out. At this stage of the game, you are not seeing any knee-jerk reactions, at least not among the top-tier contractors." For instance he says the Pentagon's largest weapons program, the joint strike fighter, may see a cut in the number of planes purchased in 2013. "I am hearing that of the 19 planes the Pentagon says they want to buy in 2013, the worst case scenario is that five will be cut." Score one for the capitalists! I think this validates my belief that that fiscal discipline, regardless of form, produces positive results. I think we all hoped this discipline would not come to something as imprecise as sequestration, but now that it's here, Capaccio reports, contractors are making smart moves. "They've seen this coming for months, and they have been ready for it, and planning ways to avoid furloughs." I guess the Nirvana I am hoping for is a form of fiscal discipline that is less blunt and more precise. But in terms of predicting when the impacts of sequestration are serious, and likely to have a serious impact on the economy and the markets, Carpaccio suggests keeping a close eye on mega contractors Boeing (BA - Get Report) and Lockheed Martin (LMT - Get Report). "By federal law, they are required to issue warning notices 90 days in advance of any furloughs or layoffs. Once Lockheed and Boeing does it, I think you will get more interest from lawmakers over the ripple effect and rethinking whether sequestration should continue into 2014."
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts