If your hardware does not work, the first thing to do is to shut down. It tends to work every time – and may be the government will too.
This joke is doing the rounds in the social media, but for us it sounds too true to be funny. The weekend went by without any solution and the rhetoric from the President is as clear today as it was in the beginning of this situation. However, we believe that history tells us clearly that it is lose-lose situation for the GOP. We do not want to try our hand at political forecasting but we can only look at what happened in the past and learn our lessons. Speaker Boehner should note that Newt Gingrich’s political career temporarily ended with the last shutdown in 1995-1996, while President Clinton was easily reelected. WSA does not intend to pass any value judgments, but there are other forums to debate and stop Obamacare if the Speaker is not happy with it – but this might be a career killer. If the shutdown goes on longer, the markets and the furloughed near-million (and the country, actually) will not lose sight of his original agenda. If they reconcile soon, it will be considered a game of ‘chicken’ that the President won.
Despite market myopia the markets should wake up tomorrow to the economic realities of the shutdown. With the debt ceiling being discussed too, it will be too much for the markets and we expect a significant drop in stock prices tomorrow. Treasuries are expected to move further up while the US Dollar might even further against the Yen.
As the fear of the debt ceiling and a US default creeps in (the 17th is only ten days away) we can see an epic market route in the next few days and we urge investors to be very careful if they intend to stay long. However, this too shall pass – and the moment you receive the double good news on debt ceiling and shutdown, it will be time to buy again.
Of course, the discerning investor will remember the budget meetings coming up after these two are resolved!