The U.S. Shutdown So Far

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Yesterday I said, essentially, that the U.S. shutdown “ain’t not big deal.”  If this shutdown is like most of the others the U.S. has experienced, it will be something similar to the effect of a major January snowstorm in the Washington DC area.

For most Americans – and most of the world, for that matter – it’s business as usual this morning.  Other than the fact that the National Parks and the Smithsonian are closed (visitors currently in National Parks will not be asked to leave for another two days).  The US Postal Service is delivering the mail, but, lest we forget, the Postal Service is no longer run by the government – something Brits might take note of.

Stocks

Despite yesterday’s decline in the major indexes, thought to be tied to the anticipation of the shutdown, the Dow is up 64 points to 15,193, the S&P is up 11 points to 1,692, and the NASDAQ is up 38 points to 3,809.  In addition, the majority of world indices are up.  The FTSE 100 was down most of the day, climbed above yesterday’s close at about 16:15, only to plunge to 6,451 by 16:45.

U.S. stocks were boosted by a positive report on on manufacturing released by the Institute for Supply Management, that indicated yet another rise in the Purchasing Manager’s Index from 55.7 in August to 56.2, the highest the index has been in 2013.  The S&P Index is 13 points higher than it was on 21 May when Ben Bernanke started to project the tapering of quantitative easing.

Bonds

Even the bond market is yet to be shaken to any degree.  The yield on U.S. Treasury bonds increased by 2.64% today.

Forex

The US dollar was general down this morning against major currencies, including the British Pound, against which it hit a nine-month low.

It’s Not the Shutdown.  It’s the Potential Default!

Ted Wieseman of Morgan Stanley observed that “At least the initial market reaction appeared to be that a short government shutdown itself is probably not that big a deal and that if the fight over a continuing resolution to fund the government at the start of fiscal year 2014 on Tuesday becomes the central fiscal policy fight, then chances of a debacle with the debt ceiling, which will have to be raised by the end of October, may be lessened.”

The shutdown is a political problem, not an economic problem.  It can only become an economic problem if investors completely misunderstand what is really happening.  What the U.S. has is a situation where a dictatorially-oriented president who has spent five years trying to stuff his agenda down the throat of Americans is being stood up to by a Congress who is trying to remind him that he is not – at least not yet – the American dictator.  This is the U.S. government working as it was designed to do.

Yesterday I blamed the media for making an entire mountain range out of a single molehill.  Britain’s Piers Morgan may bloody well have proven himself to be the single biggest jerk on national TV as he repeatedly, completely demonstrated his lack of understanding and his politically persnickety bias on CNN.

If Wall Street is only mildly concerned, the rest of the world, including ADVFN faithful, should remain calm.  The bigger issue is “What is going to happen on October 17th?”  Directors at Barclays underscored this reality today, saying that “The bigger market risk event remains a breach of the debt ceiling. We expect such an event to be more broadly risk negative. A higher risk of a US sovereign default should lead to a flight to liquidity and, ironically, a stronger dollar.

 

 

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