Things are tough and will stay tough for a while.

So says Richard W. Fisher, president and chief executive officer of the Federal Reserve Bank of Dallas, with whom I had breakfast on Thursday, July 22.

Mr. Fisher says that the problem is not a monetary one that can be addressed by the Fed. Rather, he believes that while there is plenty of money in the economy, it is not being deployed because decision makers are uncertain about the future.

Mr. Fisher says there is over $1.5 trillion in cash sitting in companies throughout the United States that isn’t needed for cash-flow purposes. However, these companies are not utilizing this cash because they are uncertain what the landscape will look like in a wide variety of areas, including costs associated with the health care legislation, the financial reform legislation (costs of capital) and other areas upon which Congress is legislating or considering legislation.

Further, he says that banks have over $1 trillion in unneeded reserves at the Fed, where these funds are earning very little. Yet the banks are not lending out because of future uncertainty over issues ranging from regulation to taxes to loan defaults.

He believes that we are a strong country, with resilient people, but that legislation like the 2,000-plus page health reform bill and the 2,000-plus page financial reform bill create so much uncertainty that decision makers in the private sector are reluctant to commit capital to their businesses until some of the fog of doubt lifts.

This translates into slow (1% to 2% GDP, in his view) to no growth in the United States economy, and in much of the world outside the United States, for some period of time.

As Starmont has said, this is a time when investors have to be patient while things work themselves out. Investors must also be vigilant to opportunities and be prepared to act upon them, while understanding that we live in “unusually uncertain” times (Fed Chief Ben Bernanke in Congressional testimony). This is Starmont’s current posture.

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