12/20/2024
The Inmates Are Running The Asylum?
Sometimes, you get the feeling that the inmates are running the asylum after the two-day fiasco in Washington sent the government into a temporary shutdown without passage of any stop-gap funding. Not that it hasn’t happened before; we’re all too familiar with and cynical of the antics of our esteemed elected officials, but the drama is causing serious damage to an already rattled market.
The S&P dropped 2% overnight after a smaller stop-gap funding bill rushed through by the GOP in the house failed to secure enough votes with a large number of Republicans opposing the bill as well. Briefly, Musk had torpedoed an already agreed bipartisan stop-gap bill, which would have kept the government funded through March 2025, because it did not include a debt ceiling increase and far too much pork. Republicans scrambled to put together a much smaller bill including a debt ceiling increase, but couldn’t get enough representatives on board, and this time a betrayed democratic side didn’t lend a hand.
As we barrel through the uncertainty, already exacerbated by a rising 10-year yield and the likelihood of only two cuts next year, the huge drop in overnight futures suggested that the S&P could break 5,872 and completely erase the post-election rally. Everybody appreciates the animal spirits, lower taxes, lesser regulation, and so on, but it comes with the price of high drama! No free lunches…
Slightly better than expected inflationary numbers with the core PCE rising 2.8% YoY against the 2.9% has stemmed the fall a bit. I had planned to buy the dip – may get some of my limit buys today, or even lower them.
Though this is a far less onerous shutdown. In a shutdown, government offices continue essential work, but tasks deemed nonessential are put on ice, paychecks stop and many workers are furloughed until Congress passes new funding. The impact of a shutdown varies, critical services continue, as would military and border-control functions. But, most federal workers, whether essential or not, won’t receive a paycheck. Under a 2019 law, workers will automatically get back pay when the shutdown ends. Private contractors who work with federal agencies and are furloughed during a shutdown aren’t guaranteed back pay.
How would this shutdown compare to previous ones?
From the Wall Street Journal
“Congress has missed its deadline to pass 12 federal funding bills and failed to extend itself more time in about two dozen instances since 1976, but those lapses have often been short, with minimal impact.”
Quite the dysfunctional record but thankfully the impact has never been severe.