* Says market volatility could present buying opportunities
in stocks, debt
* Sees markets adjusting quickly once debt deal reached
By John McCrank
CHICAGO, Nov 14 Investors should brace for
volatility over the next few months as U.S. politicians are
unlikely to agree on a budget deal by year end, though that
could lead to some good buying opportunities, Charles "Chuck"
Schwab, founder and chairman of his namesake firm, said on
There is a high probability the United States will go over
the "fiscal cliff" - a $600 billion mix of tax increases and
spending cuts set to kick in on Jan. 1 that threatens to derail
the economic recovery - though a resolution is likely by the
spring, he said at the Schwab IMPACT conference in Chicago.
"Certainly our president for the next four years has
presented his position pretty clearly, I think, through the
election process, and I think we have a very difficult time
seeing a reasonable resolution by December 31," Schwab said.
President Barack Obama said on Wednesday in his first news
conference since winning re-election last week, he was open to
working with Republicans on entitlement reform and other ways to
raise tax revenue as part of a broad-based deal to set the
nation's finances on a sustainable course.
But he said Republicans in Congress would first have to
agree to his top priority in the negotiations, of reverting to
higher tax rates that were in place in the 1990s for the
wealthiest 2 percent of Americans. Both Republicans and
Democrats want to keep low income tax rates in place for
middle-income and low-income households.
While markets will likely be volatile if a deal is not
reached in a timely manner, one of the results could be some
bargains in the equity and debt markets, said Schwab. He was
speaking on a panel with George Roberts, co-CEO of private
equity firm KKR & Co, and Scott Nuttall, head of KKR's
global capital and asset management group.
Nuttall agreed there is a possibility the U.S. could go over
the fiscal cliff. "We may go into a recession, but if you invest
in companies you know and you think can do well over the long
term, it could be a very interesting time to get quite a bit of
money to work," he said.
Nuttall said that during times of crisis, corporate
securities tend to sell off almost indiscriminately, leading to
opportunities to buy into distressed companies.
KKR recently said it would launch two new investment funds -
a high-yield credit fund and a distressed opportunities fund -
through Charles Schwab Corp, one of the largest U.S.
brokerages, aimed at private investors.
U.S. stocks slid on Wednesday, in part due to the potential
for a drawn-out fight over the fiscal cliff.
"Investors are getting away from riskier assets, which are
stocks, and they are running for fixed income, mainly
Treasuries, because of all of the uncertainties that are there
in the marketplace," said Roberts.
"Until we resolve the uncertainty, we are not going to have
much in the way of economic growth and we are not going to have
much of a rebound in the markets. We are going to be stuck in
the malaise that we are in today."
One of the issues that has some investors shedding stocks,
say some analysts, is the potential for higher taxes on capital
gains and dividends.
But Schwab, 75, said if a deal is struck to boost taxes, the
markets would adjust "in virtually one day."
"If rates go up on capital gains, people will adjust that
into what the return will be and life will go on, and a person
like me is going to have to write a bigger check," he said.