Money

The Federal Government Shutdown — A Question of Duration

By now we all know the federal government has shut down, and there is ample finger pointing going on in Washington, D.C. I saw this coming, and I’ve positioned subscribers of my investment newsletter PowerTrend Profits and my trading service PowerTrader accordingly. I fully expect the stock market to be choppy in the coming days until a solution is worked out, but of course, the devil is in the details. I make that statement knowing full well that if this crisis isn’t resolved soon, it will merge with the pending debt default. Should that happen, uncertainty will be back big time.

While we’re only a few days into the shutdown, we have yet to see any major fallout. I know that there has been a disruption of services, workers have been furloughed and we will see at least a modest slowdown in economic activity. I experienced all of this fiscal fallout 17 years ago when I was traveling through San Francisco and Maui as the national parks were closed. It was a pain, and it was inconvenient, but I remember quite clearly that life went on and the world did not come to a standstill — even though the federal government closed for a total of 28 days, from November 14, 1995, to January 6, 1996. That’s almost a full month, or one-twelfth of a year.

This time around, however, the economy is far less robust than it was back then. Should a federal government shutdown persist and go from a few days to a few weeks, we are likely to see a slowdown in the housing and automotive markets, as well as the overall economy. Gross domestic product (GDP) forecasts would need to be revisited, and that means a reset to earnings expectations for a number of sectors.

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