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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.

"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.

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.
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Comment Preferences

  •  One good thing (0+ / 0-)

    the money pensions and 401k's have invested are also going up.  That helps some, I suppose?

  •  so .... im confused (2+ / 0-)
    Recommended by:
    kefauver, VClib

    Stocks going up is a bad thing?

    Do we want them down?

    Красота спасет мир --F. Dostoevsky

    by Wisper on Wed Oct 02, 2013 at 12:15:56 PM PDT

    •  only good if you own stock & most Americans don't (5+ / 0-)

      Plus, all that money made off the appreciation of paper assets goes right back to buying more paper assets ... doing fuck all for the real economy.

      Domestic politics is the continuation of civil war by other means.

      by Visceral on Wed Oct 02, 2013 at 12:18:26 PM PDT

      [ Parent ]

    •  There are several economies. (2+ / 0-)
      Recommended by:
      joegoldstein, BigAlinWashSt

      The ones that most impact most Americans are not much improved.

      There's the financial market economy that primarily benefits the 1% - way, way up.

      There's the top-quintile economy, that depends upon residential house values for net worth and credit, which is doing somewhat better, so they are out splurging on new automobiles, which helps somewhat.  Those who have IRAs are as worried today as they were a year or two ago about whether there will be any money for retirement.  That makes this a good time to attack public pensions.

      There's the vast majority who depend upon wages from jobs for survival. The measured unemployment rate (U-2) which is still eighty percent above post-war norms.

      There's the living paycheck to paycheck and the P/T worker economy that the vast majority of the American people live in -- where cost of basic food items, housing, and energy continue to rise far faster than real wages -- and that is still worsening, but the media no longer says anything about inflation in those costs because they aren't measured by CPI, anymore.

      •  okay... so we would like to see it go down? (4+ / 0-)
        Recommended by:
        kefauver, Sparhawk, Aquarius40, VClib

        Would that be a good thing?

        Красота спасет мир --F. Dostoevsky

        by Wisper on Wed Oct 02, 2013 at 12:23:09 PM PDT

        [ Parent ]

        •  Not necessarily. But, a major bump in the capital (1+ / 0-)
          Recommended by:

          gains tax with the proceeds going to fund basic services wouldn't be a bad thing in your book, would it?

          Those who are able to take more out also need to put back in.  Would that be a good thing?

          •  Are you kidding? (2+ / 0-)
            Recommended by:
            kefauver, Aquarius40

            I would LOVE to see an increase in Cap Gain taxes.  We've all been pushing for that for YEARS.

            Obama raised it a little, but there is still PLENTY of room to go there.

            Im just not sure why would we be looking to see the market go down or why we would be upset in seeing it go up.

            The diary seemed a little confusing to me....

            Красота спасет мир --F. Dostoevsky

            by Wisper on Wed Oct 02, 2013 at 12:34:10 PM PDT

            [ Parent ]

            •  It's the way they make money, not the money they (1+ / 0-)
              Recommended by:

              make that's objectionable.

              I know,  Don't worry, be happy.  I like Bobby McFarrin, too.

              •  This Really Isn't Helpful: (1+ / 0-)
                Recommended by:
                I know,  Don't worry, be happy.  I like Bobby McFarrin, too.
                Wisper asks a legitimate question and you give him a snotty answer that explains nothing.

                I'm a "right-wing freak show," or at least that's what one nobody on DKOS seems to think.

                by kefauver on Wed Oct 02, 2013 at 12:54:14 PM PDT

                [ Parent ]

                •  You're asking me to stake out a philosophical (1+ / 0-)
                  Recommended by:

                  position that is akin to painting myself into a rhetorical corner.  Too many obvious blind alleys and known trapdoors there that people have debated for decades and never seem to find their way out of.

                  Forgive me, but I'd rather not.

            •  yes... (0+ / 0-)

              it would be good for them to lose a shit ton of money. I hope they lose it all. I hope Wall Street goes broke and because of all the bullshit in DC the politicians can't get it together to bail them out and Wall Street is left to go broke because the scumbags don't invest they gamble and they fix the outcomes as much as they possibly can. They are scumbags that don't deserve our respect. There should be all sorts of taxes on transactions on Wall Street.

              So mark me down as person who cannot stand anything about Wall Street put me down as someone who thinks they do way more harm then good. It is time to destroy them and start again.

              I sing praises in the church of nonsense, but in my heart I'm still an atheist, demanding sense of all things.

              by jbou on Wed Oct 02, 2013 at 02:08:46 PM PDT

              [ Parent ]

              •  It would lead to a cataclysmic destruction (0+ / 0-)

                of the US economy that would make the real Recession of the 1930's look like a boom. The people who would come out on top are those who have cash and access to cash. Those aren't the poor folks.

                "let's talk about that"

                by VClib on Wed Oct 02, 2013 at 02:19:44 PM PDT

                [ Parent ]

                •  fuck it (0+ / 0-)

                  We need to bottom out in order to rebuild. If not we are going to be stuck in  rut we are never going to get out of.

                  I'm getting too old to wait around for incremental change. The rich folks just keep getting richer at every increment and we keep getting screwed. I don't see how it gets much worse.

                  I sing praises in the church of nonsense, but in my heart I'm still an atheist, demanding sense of all things.

                  by jbou on Wed Oct 02, 2013 at 02:30:40 PM PDT

                  [ Parent ]

        •  If it going down means that the shutdown ends (0+ / 0-)

          sooner then yes.  Or would you rather keep the shutdown going so it keeps going up?

          You have watched Faux News, now lose 2d10 SAN.

          by Throw The Bums Out on Wed Oct 02, 2013 at 01:49:18 PM PDT

          [ Parent ]

    •  If They Went Down (But Not Crashed) There (4+ / 0-)
      Recommended by:
      DRo, leveymg, billlaurelMD, jbsoul

      could be pressure from the donor and Citizens United class to pass a clean CR and also raise the debt ceiling.

      We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

      by Gooserock on Wed Oct 02, 2013 at 12:25:19 PM PDT

      [ Parent ]

      •  Why would Wall St. go against its own interest? (1+ / 0-)
        Recommended by:

        It seems obvious that the Sequester and the (partial) Shutdown are what they've been after all along.  

        Honey, we shrunk the U.S. Government - open a bottle of wine.  The good stuff.

        •  levey - there is no Wall St support for the (0+ / 0-)

          shutdown or the failure to raise the debt ceiling.

          "let's talk about that"

          by VClib on Wed Oct 02, 2013 at 02:22:20 PM PDT

          [ Parent ]

          •  There is and there isn't. There's support for the (1+ / 0-)
            Recommended by:

            shutdown all over the place on Wall St. -- the attitude is bemusement at the hapless pols -- but they would be appalled if that extended to a real failure to pay the federal gov't bills by any delay in raising the debt ceiling.   That would get their white shoes scuffed and ruffle their $600 haircuts.

  •  What is it they say, never let a good crisis go to (1+ / 0-)
    Recommended by:


  •  Stock Markets Have Been Down Since Shutdown. (0+ / 0-)

    I'm a "right-wing freak show," or at least that's what one nobody on DKOS seems to think.

    by kefauver on Wed Oct 02, 2013 at 01:00:28 PM PDT

  •  Sorry, you're making too far a stretch... (2+ / 0-)
    Recommended by:
    Aquarius40, VClib

    On Monday, the Market dropped 100 points when it became apparent the shutdown was going to occur.  Yesterday it went back up.  Today it's going back down (currently down 63).  

    To paraphrase Bill O'Reilly: "The market goes up, the market goes down.  How do you explain that?

    •  This is just a snap shot. Look at the longer term (0+ / 0-)

      and larger trends at work here.

      The following data from the World Federation of [stock] Exchanges Key Market Indicators (August):

      Cash Markets
      Share trading value EOB
      Aug. 2013 vs Aug. 2012

      Jan.-Aug 2013 vs
      Jan.-Aug 2012

      Market capitalization

      Aug. 2013 vs
      End-Dec. 2012

      Aug. 2013 vs.
      Aug. 2012

      Derivatives Markets
      # of contracts traded

      Aug. 2013 vs Aug. 2012

      Jan.-Aug. 2013 vs
      Jan.-Aug. 2012

      Now, anyone want to tell us what the source of this is, if not of windfall transfer of incomes upward and from the public to the private sector?

  •  I can't read too much into one day: (1+ / 0-)
    Recommended by:

    particularly for an event that was widely anticipated in a prior down week.

    What SHOULD the market worry about?  The shutdown will shave percentage points off the real economy's GDP in a few weeks.

    "One faction of one party in one House of Congress in one branch of government doesn't get to shut down the entire government just to refight the results of an election."

    by Inland on Wed Oct 02, 2013 at 02:13:07 PM PDT

    •  The stock markets aren't tied to a "real economy" (0+ / 0-)

      They exist according to their own rules. One of them is that what's bad for the public sector in terms of lost federal jobs and money not spent on "non-essentials" -- WIC, Head Start, Meals on Wheels, salaries for most federal workers -- is good for assets markets.  

      The reason for that thinking is pure Trickle-Down economics and Laffer Curve supply-side, which people on the Floor of the NYSE never abandoned.  I know, I used to work there.  

      The US House of Representatives and Parliamentary governments of many European countries have also embraced Austerity.   If one looks at the dramatic rise in assets valuations in the last year or so, those who run financial markets appear to agree.

      When I hear that each day the federal gov't is "shut down" costs $300 million, I have to put that into perspective of the rise in stock prices.  According to WFE, the notional market valuation in the market cap of the domestic markets is $57.4 trillion. A one percent rise there is almost half a trillion, ($500 billion).  Which number do you think the banks and assets fund managers look at?

      The real economy feeds people, and the Wall St economy feeds the global bottom-line.  They are two separate economies, separate and unequal.  Unfortunately, when you really look beneath the veneer of the two-party system, mainstream politicians tend to side with one over the other, and Wall Street having polished off Main Street is now feeding directly upon the federal government.  There's a reason why that is happening - while market indexes and trading volumes are  up from a couple years ago, total market cap and value of trades are still only about half below where they were before the 2008 meltdown.  

      Despite all of the pump priming and stimulation, the world economy has not recovered nearly enough to ensure that this thing won't come crashing down again.

  •  What's missing in this analysis is... (0+ / 0-)

    any proof of a cause effect relationship between the market going up and the shutdown.  Correlation isn't causation.

    As for wishing for the market to go down and collapse, what about all the hard working Americans who saved all their lives, invested in stocks in their 401Ks?   Should they suffer as well?   Wishing for financial collapse is lunacy.

    •  Fortunately, Martin Wolf has done that (0+ / 0-)

      See his work on Sectoral Financial Balances referenced at his Wiki page, the "austerity" page, and here:

      Basically, he shows historically that during periods when the business isn't investing, government deficit finances or borrows from abroad.  Nothing startling there.  But, the implication is that to shrink the deficit (as the overall pool of available funds are finite, because foreign lending to the US is drying up) to avoid inflation, Wall Street has to be goaded into investing.  That means the public sector essentially has to bribe investors into abandoning savings (liquidity preference in Keynesian terms) in order to pull the economy out of long-term recession and slowdown, such as the one we're in.  

      Since the currently preferred method of stimulus is quantitative easing (flooding the markets with funds at negative real interest rates), to keep things in some sort of equilibrium, there has to be a draw down in public spending, which requires austerity. Because the U.S. political system won't do austerity openly, the pols have to resort to partial shutdowns veiled as spectacular political showdowns to carry out this.

      So, now do you grasp what's going on here?  Do you see the macroeconomic relationship between the shutdown/sequester (austerity more generally) and the stock markets going up dramatically in the last year or two?

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