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What's Your Scenario

Nick Kalivas

Today’s RTI was supposed to be on the employment report, but with the government shutdown the release has been delayed.   After studying the stock market’s reaction to employment report surprises, the report is probably an overrated indicator of market direction anyway, but employment is a key factor driving monetary policy and labor trends are a marker of economic health.

Watching stock price action over the past few days, it seems like the stock market is more concerned about the lifting of the debt ceiling and the payment of interest to debt holders than the shutdown of government operations.

The lack of government activity is a headwind to economic growth, but the dooms day scenarios projected by those inside the beltway are probably overstated.  The shutdown won’t last forever.

Default is more meaningful as it would permanently change the landscape of government spending (require almost immediate budget balance) and cast a cloud over the collateral value of treasuries. Talk about a way to downsize government quickly.  Some reports suggest banks are raising cash to prepare for default which underscores the impact on collateral value.

Part of trading and investing is being wrong.  Nobody is right on their stock picks 100% of the time. Trying to figure out the events in Washington may be even harder than finding a good stock.   In this spirit, I thought it would be interesting to get your view on the outcome of the current stalemate in Washington.

Don’t be bashful. Let me know how you think the saga will play out.  I’m tired of listening to the talking heads on TV and want to hear from real people who are passionate about investing and have money on the line.  Here are some choices:

1) The Republicans in Congress “cave” with the government funded and the debt ceiling increased with clean bills (no attachments) by October 17.  It was all a political statement.

2) The Democrats provide a concession or two (not on ObamaCare), and the government is funded and the debt ceiling is raised by the October 17. The two sides eventually negotiate a deal.

3) The debt ceiling is raised cleaning, but the government continues in shutdown mode. The sides agree that default is bad, but on nothing else.

4) The debt ceiling is raised cleanly, and the government sees targeted funding.  The House continues to pass funding that is targeted by program or operation i.e. Social Security, military, Medicare, etc.  The Senate tires and goes along.   The media and conventional wisdom favor the Democrat position, but for how long? One could objectively argue that Senator Reid is an obstructionist and no better than a Tea Party member – its perspective and linked to political ideology.  

5) Other, name your scenario. I’m interested.

Let me know your thoughts below:Read the analyst report on SPYRead the analyst report on DIARead the analyst report on TLTRead the analyst report on IEFZacks Investment Research