Sunday, October 06, 2013

Washington meltdown week 2

So last week my thinking was we'd get a 2-4 day shutdown with very little impact on the markets.  Later in the week I modified that to be up to a 1 week shutdown but still thinking the impacts would be modest.

After 1 week the S&P 500 is about 10 pts HIGHER than it was before the shutdown so obviously the markets are shrugging this off so far.  Following the Sunday talk shows it does appear as though the futures have slipped and we'll see if that gains any momentum tomorrow.

Here's my revised thoughts:

With 83% of the government still operating and the department of defense now recalling virtually everyone this shutdown is feeling very much like business as usual.  So while this means less pain for the average Jane and Joe on the street, I think that this means the likelihood of a budget deal is actually falling.  Without getting political, I'd say the Republicans have painted themselves into a corner by tying the Affordable Healthcare Act to the budget.  A politician backed into a corner may do some irrational things. The talk today was quite stark and if true, would certainly increase the odds of a US Debt default by the end of the month.

Other interesting observations -

* one bank said tonight that as long as ACA is a condition of any deal, there will be no deal.

* Goldman Sachs fired a pretty serious warning shot over the bow of those in Washington saying, in essence, that if a debt ceiling deal can not be reached by the end of the month and the Treasury department has to curtail its activities, the economy could see a sharp reduction in growth rates that would be difficult to reverse.  Now a cynic might say "how strong is our economy if it can't survive without life support from the Treasury?" but I'm trying to be Mr. Positive here tonight :)

I'm going to revise my outlook for a deal AGAIN to next weekend or early next week (the 15th has a nice sound to it).  By then we'll be close enough to have some real concern in the markets and the two sides can come to a grand bargain on the budget and the debt ceiling.

As a side note to the whole ACA debate, the actual implementation has been pretty much FUBAR since launch.  Check out this chat log from a woman who has been trying to log in for the past week over at Slate.com. 

It's clear from that chat, that someone sold the government a text version of Siri that would read the chat conversation and attempt to answer questions without involving a human.  Ugh, this is going to get ugly.

Cheers!


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