As hundreds of thousands of federal workers faced their second day of unpaid furloughs, investors and Republican lawmakers were in a jubilant, upbeat mood. Six months into the Sequester, stock markets are at new highs, the NASDAQ is up six percent during September.
If one sees the world in terms of who gains and who loses, the seeming GOP hysterics over Obamacare that forced a partial federal shutdown make complete sense. Viewed in financial terms, the political crisis over Obamacare is actually just a rational pretext to cut several weeks off federal payrolls with a like reduction in budget outlays. The ones who bear the brunt are individual workers, not big companies with ongoing, multi-year federal contracts.
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Stock markets were up Tuesday, on the first day of the federal government's shutdown.
The NASDAQ Composite was up more than 1 percent yesterday. The S&P 500 was up roughly 0.75 percent, and the Dow rose about 0.4 percent.
Each exchange is also up over the past month. The NASDAQ is up 6 percent since the beginning of September, while the Dow is up by about 2.6 percent.
Considering that corporations and businesses are exempt from the ACA for a year they should be happy. Many companies are telling their employees to sign up for ACA because the employer will no longer pay for their insurance, with a corresponding boost to the corporate bottom line, higher share values and added dividends that can be turned over to stockholders.
Austerity by Default
What else might explain the laissez-faire attitude among investors to political crisis? The lockup in Washington and the teetering of the Berlesconi government in Rome both present opportunities for those who stick with their investment plans. Since the selective shutdown of public services in the U.S. and abroad largely impacts middle-and low-income individuals rather than large businesses, it looks like a win-win to financial markets. Economic and political crises that have accompanied austerity across Europe have not resulted in an electoral turn to the left. Investment advisers aren't upset by either event, as this sampling of comment yesterday by Reuters shows:
The strategy is to get away from "trying to pretend you know what's going to happen in any one event", said Alan Wilde, currency and bond portfolio manager at Barings Asset Management, which has $58 billion of assets under management.Here's the central lesson of the current global Policy of Government Austerity by Default: what looks like political crisis on the outside is really a financial windfall.
"There's no easy way to trade unknown factors. One way is to take a view, but you're either horribly right or horribly wrong," he said.
For long-term investors to change their views, and thus spark sharp market moves, political instability would have to dent economic growth or trigger high and sustained volatility.
"The key challenge is trying to understand whether any bout of political volatility is sufficiently large to alter the path of the economy," said Mike Amey, UK portfolio manager at PIMCO, the world's largest bond fund.
"Ultimately, we doubt that this will be the case in either Washington or Rome," said Amey, who manages 8 billion pounds ($13 billion) of assets. http://www.reuters.com/...