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By Josh Peters, CFA and Jeremy Glaser | 10-10-2013 02:00 PM

Peters: Stay Defensive

As we're likely to see political squabbles and slow growth continue, investors will be well-served by sticking with defensive firms that have solid dividend-payout records and competitive advantages, says Morningstar's Josh Peters.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. How important are the battles over the budget in Washington to dividends investors? Here for his take is Josh Peters. He's the editor of Morningstar DividendInvestor and also the director of equity income strategy.

Josh, thanks for joining me today.

Josh Peters: Good to be here, Jeremy.

Glaser: It seems like we've been talking a lot over the last couple of weeks about, first, the government shutdown, and the debt ceiling, and then deals potentially to move the debt ceiling by couple of weeks or kind of these short-term fixes. What's your take on all of this rancor in Washington? Do you think that this is something that's here to stay?

Peters: I think we're going to have to put up with this for a while longer. I'm encouraged by the idea that maybe we'll have some short-term fixes, not because I want a short-term fix; I'd like long-term solutions. But obviously, we just can't be put in a position where the Treasury is not going to be able to pay its bills. I'm glad to see some of the news that we've had looking at some shorter-term measures to keep things afloat.

But this is just not going to go away. Our politics and our government are polarized because the country is polarized on all sorts of a different measures. I like reading about politics. I don't ever want to let parties and opinions slip into what I'm writing; that's obviously not my job. But it's also not a political point of view to observe that when you look at the results of elections, the way politics and party results, election results, have involved in different states, the country is more polarized than it used to be. And that's going to continue to hamper the ability of the government to come to a consensus and make policies so that for the rest of the country that actually generates the economic activity needed to pay the bills for the country, that activity can go on.

Glaser: What are the implications of this polarization then for investors? It's nothing you can control, so what can you do about it?

Peters: A problem that doesn't have a solution is not a problem. That's a line I used back in 2011 when we were staring down at debt-ceiling crisis back then. I think it's still true today. A problem that doesn't have a solution is not a problem; it's a condition. It's just something that you have to adapt to.

When I look at this situation, it means that we're probably going to have a recurrence on a fairly regular basis; hopefully, not more than every couple of months, but certainly every year or two of wrangling and brinkmanship over the budget, over taxes, over spending, and over the deficit and the debt. When we have these events, then we're going to see market volatility increase and people are going to become nervous. And then even in the intermittent periods, I think you have to worry that this takes a toll on economic growth because we're not actually solving any of our problems. We're still just kicking cans down the road and lurching from one crisis to the next.

I love to think, if we had actually had that grand bargain back in 2011, and businessmen and consumers, everyone was able to have a longer-term picture with some clarity to it of what the government policy was going to look like, how much faster would the economy be growing now? That would be a plus even for conservative investors. Instead, I think you just have to get used to an environment where you have low economic growth and these periodic bouts of uncertainty.

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