How America Could Benefit from the Government Shutdown

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By Investment Contrarians 

A fiasco is brewing out there. Unable to reach a compromise on Obamacare, the House failed to reach a resolution. Now the government has begun to shut down some of its non-essential services due to the lack of funds and the approaching debt ceiling deadline on October 17. 

I know the stock market recently traded at record-highs, but in my view, so what? Over the past decades, I have seen multiple tops and bottoms, and I still feel the stock market could be at a multiyear top. As I discussed in my last commentary regarding the fragility of the S&P 500 chart, I see downside vulnerability. I do not feel the stock market is deserving of these levels. 

With the shutdown of some services, the reporting of some key official economic data including the non-farm payrolls on Friday could be delayed. This would translate into immense stock market uncertainties regarding the U.S. economy, especially in light of the next Federal Reserve and what it plans to do with its bond purchases when it meets next on October 29–30. 

Could you imagine trying to trade or invest in the stock market without any indication or certainty of how the economy is doing? 

It would simply be stressful and would test the patience of the stock market. 

Yet at the same time, the government shutdown could also be just what the doctor ordered for the long-term health of America. The reality is that the government is broke and merely spinning its wheel, printing money. This strategy, as I have said on numerous occasions, cannot stay in place: it needs to change. It will inevitably place a massive debt burden on the next generation of Americans if the current quantitative easing is allowed to continue. 

In Europe, the countries of Greece, Portugal, and Italy are undergoing austerity programs. That’s because the governments are broke there. It’s what you need to do in the short to medium term here in order to improve the prospects for the longer term. 

If the Obama administration, House, and Senate cannot come to any agreement with the long-term health of the country in mind, then America may be doomed to years—if not decades—of potential financial misery. The country’s decision makers should take the high road and deal with the looming problems now. It will be difficult and many sacrifices will have to be made, but it needs to be done. And this is how a government shutdown can benefit America—by stopping government spending, and pressuring the country’s policymakers to come to a decision regarding America’s economic future. 

For investors, I would be guarded at this time, given what I feel could be a stock market correction on the horizon; consider taking some money off the table and buying some put options to protect against any stock market weakness.

by George Leong, B.Comm.

This article was originally published at Investment Contrarians

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