The Day the Economy Stopped (Yeah, Right)

September 30, 2013

  • “Economic shutdown”… because “government shutdown” doesn’t scare anyone!
  • Why the budget dispute will be resolved by Friday
  • The biggest fund at Fidelity… and what it signals about the broad market
  • It’s on: Cyberwar’s first formal declaration
  • A new eurodrama… will the shutdown ground the blimp?… collecting congresscritters’ metadata… and more!

  “There is a climate of evident uncertainly,” said the president on Sunday, “regarding the possible developments of the political situation.”

To be precise, we’re talking about the president of Italy — where parliament will likely hold a no-confidence vote on Wednesday. Hey, why should Americans have all the fun with “a government in crisis”?

At last check, the Dow is down more than 100 points, to 15,154. The S&P is off a half percent, to 1,682. The moves are attributed to jitters over an “economic shutdown” come midnight tonight.

  That’s right, “economic shutdown.” Evidently, we’ve gone beyond “government shutdown,” which here at The 5 we’re keen to qualify as a “partial government shutdown.”

But on Friday, the president — the American one — invoked this new phrase. Because the government and the economy are the same thing, of course.

One reason for all the buzz today is the sheer novelty of it. The last shutdown came as 1995 turned into 1996. But in the 20 years before that, there were 17 total episodes, the longest being the last one, stretching for 21 days.

 “History suggests that nothing happens until at least 12 hours after our Sept. 30 midnight deadline,” writes blogger extraordinaire Barry Ritholtz.

“No one gets serious about any sort of deal before noon on Oct. 1. At that point, political pressure on the House Republicans — from constituents, from business leaders and from elder statesmen — will start in earnest.”

  And Wall Street. We’ll stick our necks out and say the taffy pull will be resolved before Friday.

Why then? Because Friday is the day the Labor Department issues the monthly jobs report. In the event of furloughs, 82% of Labor Department personnel will stay home tomorrow — including the statisticians.

Wall Street won’t stand for this. Without the nonfarm payroll numbers, what will the suits have to speculate over and to front-run?

It’s conceivable the numbers would come out even if Congress can’t come to terms; a memo from the commissioner at the Bureau of Labor Statistics points out that during the 1995 shutdown, consumer price numbers still went out because the information was ready to go and there was concern over the “risk of disclosure.”

So if the White House budget office authorizes the release of the jobs numbers, a skeleton crew will be brought in to make it happen.

  “The fiscal cliff bargain that started 2013 actually came in after the mandated deadline,” Greg Guenthner reminds us in today’s Rude Awakening. “It wouldn’t surprise me to see these clowns come in with a late save again.

“The similarities between the fiscal cliff market reaction and the current shutdown threat,” he adds, “are striking.

“The broad market fell six out of seven days immediately leading up to the fiscal cliff scare. So far this time around, the market is down six out of seven sessions heading into the debt ceiling shutdown.” Seven out of eight, assuming the S&P stays in the red today.

“Now’s not the time to get wrapped up in the implications of a shutdown and what it might affect,” says Greg. Besides, another factor is at work as we head into the fourth quarter: “Underinvested (and underperforming) fund managers and traders are looking for catch-up opportunities. It’s time for tug of war. Government lunacy versus year-end momentum chasing at its finest!”

  “Underinvested” isn’t limited to the professional class.

“Believe it or not,” says Fidelity’s David Keller, “our biggest fund right now is a cash reserves fund with around $120 billion under management.”

Mr. Keller spoke in Toronto last week during a conference of market technicians, at which both our Greg Guenthner and Jonas Elmerraji were in attendance.

“I think we can use Fidelity as a good proxy for what individual investors are doing right now,” says Jonas. “In other words, despite this stellar stock rally, most investors are still in cash, not stocks. There’s a lot of dry powder sitting on the sidelines right now” — and plenty of prime trading opportunities on the horizon.

[Ed. Note: Jonas is about to close the doors to our 100-100-100 trading challenge. For the remaining 100 days of the year, he’s looking for 100 people who want to pull in $100 a day in trading income. No previous trading experience is necessary, and participation is absolutely free.

Participants in Jonas’ previous trading challenges have written back with glowing reviews: “Thank you so much for giving me an opportunity to learn from you,” says a reader named Diane. “I [now] have so much insight into the right way to trade stocks.”

“I’ve struggled with selling stocks forever,” adds a reader named Jim, “and now have a clue what I should be doing. This alone will save my bacon. Thanks for all the work you have done on this project. I really needed it.”

Jonas helped them to measurably improve their trading know-how in only five days. And he can do the same for you. The clock’s ticking, though: New participants will be accepted only through midnight tonight.]

  Stocks aside, other asset classes are reacting little to the shutdown noise…

  • Bonds are slipping, but not as much as stocks; the yield on a 10-year Treasury has ticked up to 2.63%
  • Gold is off about five bucks, to $1,330, while silver is up a dime, to $21.87
  • Crude — reacting more to an easing of Middle East issues — is below $102 for the first time in nearly three months.

  Currencies, meanwhile, can barely rouse themselves to react to a revival of the eurodrama.

In fact, the euro is up a bit as we write, to $1,353 — sending the dollar index down a skootch, to 80.2.

Over the weekend, five ministers in the Italian government resigned, supposedly because the government wasn’t acting to stop an increase in the value-added tax (VAT) to 22%. Thus, the aforementioned no-confidence vote Wednesday.

Most of the European stock indexes closed down about 1%.

  Cyberwar: It’s out in the open now. Britain is the first nation to declare it has the capacity to carry out offensive cyberstrikes.

The U.K is “developing a full-spectrum military cyber capability, including a strike capability,” says defense secretary Philip Hammond.

“In recent years,” reports today’s Financial Times, “defense officials and experts across the globe have assumed that a number of advanced military powers — most notably the U.S., Israel, Russia, China and the U.K. — have developed the ability to destroy or sabotage other nations’ Internet infrastructure as part of military planning and covert operations.”

But until now, no one has actually come out and said so. Even the Stuxnet attack on Iran’s nuclear centrifuges is officially a mystery, wink-wink, nudge-nudge.

The more that cyberwar is in the public eye, the more it becomes an attractive investment theme. There are still early-stage companies that can deliver massive, even life-changing, gains… but the longer you wait, the smaller the window of opportunity. So check out the story behind the companies Byron King has vetted on your behalf.

  And now a question that weighs heavily on the minds of the crew who bring you these daily 5 Mins.: Will the shutdown ground the damn blimp?

A U.S. Navy airship began floating above the Baltimore-Washington region on Sept. 21. Last Thursday, we spotted it directly above Agora Financial headquarters.

According to The Associated Press, the blimp “is testing mapping equipment in restricted airspace around Washington.” Yeah, that’s specific.

In the absence of anything more specific, message boards are crackling with speculation — everything from enforcement of a new gun law that takes effect in Maryland tomorrow to that catchall explanation for any unexplained federal phenomena: FEMA camps.


Even if the shutdown doesn’t ground the blimp, the “mapping project” is supposed to be done by this Saturday.

  “I keep hearing NSA folks and politicians saying that the government is ‘only’ collecting metadata,” a reader writes, “and this is not a violation of citizens’ privacy.

“OK, fine. I propose that all congressional metadata should be made public since it’s really not private information. I would really, REALLY like to know who my congressman and his staffers talk to and for how long. I don’t need to know the ‘contents’ of the calls and emails. Just tell me who they are talking to… after all, it’s public information.

“Can we get a petition started to release congressional metadata? (Perhaps there is one already?) I have never signed a petition in my life, but I would sign that one.”

  “In retirement,” writes a reader with an anecdotal economic indicator, “I spend lots of time traveling to see family and friends, and for a little business.

“I spent over two decades traveling for a living, and the availability of seats and seat upgrades over a 20-year period has been an excellent indicator of the state of the economy. My proprietary seat indicator suggests that the economy is actually doing well at present. Even if we hold that the situation is such that eventually there will be a crash, it definitely is not here yet, and like some of your writers suggest, we should stay invested for the time being.”

  “Here’s a good story about the criminality of Obamacare,” a reader checks in from Idaho. “Our health care exchange is putting a limit of $23,000 in yearly earnings to join.

“Earn $23,001 and the government will pay the $14,000 (family of four) in premiums. Earn $23,000 and the government pays nothing… zilch. They throw you over to Medicaid.

“Let me premise the next statement with I have no earnings, since I lost my job soon after the financial crash. Now Medicaid will accept you only if you have under $23,000 in income AND no more than $2,000 in assets.

“Here’s the rub… I have no income, so I don’t qualify for premium assistance from the government through the exchanges. I have more than $2,000 in the bank, so I don’t qualify for Medicaid. The end result? I have to cough up, BY LAW, the $14,000 per year to cover my family with medical insurance; with no money (it would be gone quickly) or job income. Otherwise, I am fined by the government.

“Is this screwed up or what ? Didn’t we fight the British in the Revolution to protest the idea of debtors’ prisons? What’s the difference now? Don’t pay and the government comes after you.”

The 5: For now, the $95 fine is more tolerable than the premiums. How long that remains the case, we shall see.


Dave Gonigam
The 5 Min. Forecast

P.S. As we noted last week, even the “partial government shutdown” won’t prevent the opening of the Obamacare “exchanges” tomorrow — however dysfunctional they might turn out to be.

Still, an even bigger Obamacare deadline looms only three months from now. There’s still time to get ready… but not much.


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