Would closure of the U.S. government be a bad thing for
During the 1995 government shutdown from Nov. 14 to Nov.19, the
S&P 500 (SNP:^GSPC) gained 1.3%. And just a few weeks later,
U.S. stocks (NYSEARCA:VOO) repeated that feat. During the 1995-96
shutdown from Dec.16 to Jan.6, the S&P 500 recorded a small
gain of 0.05%.
In retrospect, the government shutdown had little negative
impact on stock prices. Six months after the first shutdown, the
SPDR S&P 500 ETF (NYSEARCA:SPY) was ahead 14.57% and after the
second shutdown it was ahead by 9.51%.
The recent history of government shutdowns, as the 1995-96
episodes illustrate, is their tendency to be short-lived.
Nevertheless, any kind of government shutdown this time around
would be disruptive and force closures to IRS call centers,
national parks, and delays for passport renewals along with
veterans' disability claims. The economic impact would be less
certain and fantastic claims of a government closure erasing 0.25%
off national GDP are wild guestimates.
A government shutdown is merely the symptom or side effect
of other profound problems.
Political instability coupled with invasive central banker monetary
stimulus has created deep structural problems that financial
markets will have to reckon with. This tops our latest mega
investment theme report among major global investment trends.
In our just released October
Profit Strategy Newsletter
, we also highlighted muted volatility as a crucial discrepancy and
opportunity. We wrote:
"As we've consistently noted, the S&P 500 has been making
new highs, yet the VIX (CBOE:^VIX) hasn't bottomed. This is
a rather large discrepancy and the previous times stocks have
made new highs without the VIX hitting new all-time lows, it
warned of a short term market top."
Earlier this year,we rode the spectacular 47% gain in the VIX
(NYSEARCA:VXX) from early May to June 24. Per our June
newsletter, we bought VIX JUL 13 call options at $370 and we sold
half that position at $680 for a one-month 84% gain. Then, via our
7/3 alert, we sold the remaining half of this position on 7/5 at
prices near $450.
The outcome of the next debt ceiling negotiation is
arguably more important to financial markets.
During the July/August 2011 debt ceiling brawl, the S&P
500 declined 16.5% in just a matter of weeks. Although stocks
later recovered, the ugly performance illustrates that bad things
can happen fast when the market loses confidence.
Profit Strategy Newsletter
uses a combination of fundamental/technical analysis, sentiment,
market history, and common sense to be on the right side of the
market. Since the beginning of the year, 78% of our time stamped
ETF picks have turned a profit and a 525% gain was our biggest
winner. (through 6/30/13)
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