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Do Markets Really Believe Government Shutdown Is Good For Economy?

  • Written by Syndicated Publisher No Comments Comments
    October 3, 2013

    Okay, so we have some TV pundits saying a partial U.S. government shutdown is a good thing, and a positive for markets, or at least not a bad thing.

    After all, if we forget about the 20% plunge in 2011 on the last threat of a shutdown, most of the previous occasions were followed by a rising stock market.

    And markets seem to agree that it’s nothing to be concerned about.

    While the thought of a possible shutdown sent global markets tumbling for two days, the news of the actual shutdown at midnight last night sent markets in Asia into rally mode. European markets are positive this morning, and U.S. futures are pointing to a somewhat positive open in the U.S.

    And yesterday’s plunge only dropped the S&P 500 down to its 50-day m.a. and potential trendline support. 


    So what’s with the worry warts?

    The partial shutdown will furlough an estimated 800,000 government workers. That’s about the equivalent of all the automaker assembly plants, and all the auto parts factories in the nation, shutting down.

    And economists point out that is only the tip of the iceberg, as suppliers of product and services to those affected government agencies are also placed in limbo, the furloughed workers necessarily cut back their spending, and already nervous consumers in general become more nervous.

    The last time the government actually shut down was 18 years ago, and it lasted for 21 days.

    Brian Kessler, economist with Moody’s Analytics, says the total economic impact is likely to be at least 10 times greater than the simple calculation of lost wages of federal workers. His firm estimates that a three- to four-week shutdown would cost the economy about $55 billion.

    But investors worried? Apparently not so much – yet.

    To read my weekend newspaper column click here:   Everything Still Looks Bullish – In The Rear-View Mirror

    Subscribers to Street Smart Report: In addition to the charts and recommendations in your secure area of this blog, the new issue of the newsletter will be in your secure area ofStreet Smart Report.com tomorrow.

    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

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