It is no wonder that investors are concerned about the government shutdown. Here is an excerpt from today’s press release from the U.S. Treasury Department. Keep in mind the Treasury is supposed to report the facts and not play partisan political games.
In a Press Release posted on the U.S. Treasury website today they stated:
WASHINGTON – The U.S. Department of the Treasury released a report today on the potential macroeconomic effects of debt ceiling brinksmanship. The report states that a default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, and U.S. interest rates could skyrocket, potentially resulting in a financial crisis and recession that could echo the events of 2008 or worse….. This introduction was followed by two pages of extreme doom and gloom.
Really? The word catastrophic was used twice in the press release. “Could” was used repeatedly. I have never seen anything this like this from the Treasury Office. They usually deal
with facts and do not issue press releases based on what might happen if a worst case scenario unfolds.
The market was actually up the first day the shutdown went into effect. Today, Day 3, it is surprising that the stock market did not drop harder with this type of hyperbole.
Economists are mixed on the outcome of the debt ceiling talks. Because it is politics no one really knows how this will play out. We have watched our politicians play these games regularly over the last few years. Every time they create a lot of uncertainty and fear but in the end it all seems to work out. It reminds me of the story of “The Little Boy who Cried Wolf.”
In the real world, the markets have been doing well generally. We are concerned that we have not seen a significant correction for some time. Also, we don’t like that investor sentiment is as positive as it is. In a perfect world we would see a mild pull back followed by a rally into the end of the year.
If we could see into the future that would be ideal. In the mean time we will follow our models and systems and manage your portfolios accordingly.
Written by Dave Young, President and Founder of Paragon Wealth Management.