On Wall St, the Shutdown and Sequester prompt rally. Austerity brings cheers and a buying mood.

[leveymg]

Last edited Wed Oct 2, 2013, 11:23 AM - Edit history (2)

As hundreds of thousands of federal workers faced the first 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 government in Rome both present opportunities for global investors with a plan. Since the selective shutdown of federal services largely impacts middle-and low-income individuals rather than large businesses, it looks like a win-win to financial markets. Economic and political crisis accompanying austerity across Europe have not resulted in an electoral turn to the left. Not surprisingly, therefore, 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. http://www.reuters.com/article/2013/10/02/markets-politics-idUSL6N0HR2T720131002

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 and another government bail-out of global banks.

[Javaman]

1. meh, it will only last so long. nt

[leveymg]

7. Until the next bail-out and upwards income transfer - which this really is.

[Javaman]

8. yup. limping wall street along with welfare for the corporations. nt

[JoePhilly]

2. And yet ... stocks are down today.

The article seems to be a day early on making its predictions.

[leveymg]

5. This is just a snap shot. Look at the longer term and larger trends at work here.

[JoePhilly]

9. So the economy is improving and the DOW is up.

Its come down a little during this debate.

[leveymg]

11. There are several economies. The ones that most impact us 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.

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.

[sabrina 1]

3. While everyone is focusing on the ACA as the reason for the shutdown, maybe they

should be watching closely to see what else is on the agenda. Such as the Chained CPI, something that could become part of a 'bargain' to 'end the shutdown'.

I am confident this administration will not back down on the ACA but will they agree to other demands which they were 'considering', before this??

Not backing down means not backing down on ANY Republican demands.

I do agree with that article that this is not a problem for those who actually run things in this country.

In many ways, we get the government we deserve, sadly.

[leveymg]

6. By and large, big business embraces the ACA which was passed to cut their costs

and as a vast rescue plan for the private health care insurance industry and its associated money markets.

Let's not forget who sets policy in both parties.

[sabrina 1]

10. Yes, I do remember who sets policy for both parties. And that that ACA Bailed out

failing HC Insurance Corps. So I KNOW it is safe. I am far more worried about all the other 'items' that were on the agenda for 'cuts' and am amazed that no one is talking about it.

This is working out now to be the usual 'red team v blue team' battle, keeping the focus on the battle while no one knows what they are all up to behind the scenes.

We'll have to wait and see, but I watched something similar to this a couple of years ago when a 'crisis' was created and then a 'bargain' was made giving away two more years of Bush tax cuts using a Dem popular issue to do it with.

[JoePhilly]

12. I notice folks aren't making the ...

"Obama is going to cave and agree to cut social security" prediction quite so loud this time around.

Usually by this point, DU is awash in endless threads screaming such predictions.

And yet, so far all I've seen are rather soft references to it, like those you made.

What gives?

[sabrina 1]

13. The focus is on the stated cause of the shutdown. And we know there will be no

backdown on that.

But that is not the only demand made by the Republicans. They have a list of demands. Which do you think should be bargained with in order to end the shutdown?

[JoePhilly]

14. Why not make a prediction of which one will be bargained away?

The idea that Social Security cuts would be used to make a deal is silly, and you know it.

This situation is so ripe for making that prediction, perhaps even more so than at anytime up until now. And yet, you and so many others who usually jump right to that position, won't make that prediction.

Its interesting.

[sabrina 1]

15. I never make predictions. I ask questions. Republicans can either back down with

nothing to take away from this other than political suicide, or they can try to bargain for some of their other favorite issues and then claim they succeeded in helping to bring down the deficit.

What would you do if you were a Republican and more importantly, if you were a Democrat? Help them save face or take the opportunity to refuse ALL their demands up to now?

I know what I would do.

If this goes on for any length of time people will blame everyone. So, my question remains, if they make other demands in an attempt to save face since we know there will be no backdown on the ACA, what should Democrats do?

[JoePhilly]

16. Nothing.

Boehner has nothing to offer, and he's taking all the blame.

Let him spin.

The President has already said he's not going to negotiate.

[sabrina 1]

17. Sen. Reid has offered to negotiate with Boehner,

in his letter he promises to address some of the issues re the budget, cuts etc if Boehner agrees to end the shut down. We know what cuts Republicans want. The President said he won't negotiate on the ACA. He has not said anything about other issues. But Reid has. That is what they do, isn't it, create a crisis, then move in to get what they want. I sure hope 'no negotiating' means more than the ACA.

[JoePhilly]

20. Did you read Reid's letter?

Reid offers to TALK if Boehner votes on a clean CR ... that's it TALK.

Nowhere does he agree to do really anything more than that.

Talk.

And ... before any of that talking starts, Boehner needs to CAVE completely on this Shutdown and pass a clean CR.

[sabrina 1]

22. We will be watching those talks. No negotiations with these

political terrorists on ANYTHING that adversely affects the people, such as the Chained CPI are acceptable. All the compromising with them has led them to believe that they will get what they want if they do stuff like this. And for all we know, since there was no chance of reversing the ACA that was not the real reason at all.

I did read Reid's letter and it reminded me of how angry Dems were back then when he chose to cave to Republicans on Bush's policies. He says in the letter that he hated Bush's Iraq policies, yet he continued to vote for the funding. That makes me even more angry. I would prefer if he has actually agreed.

That letter demonstrates that the Left/Democrats were right after all but our elected officials chose not to fight for THEY themselves believed and allowed the rest of us to take the attacks and the claims made to many of us that we were on the 'fringes' by Right Wingers 'because EVEN YOUR OWN PARTY' is voting with Bush.

Which is why we are now much more vigilant about watching what they DO, not what they SAY.

Reid's letter was clear. He was attempting to appeal to an sense of ethics that isn't there by pointing out how HE had compromised on an issue as important as the Iraq War, and is willing to do so again.

We will see. But we are all older and wiser now than we used to be. If you think something is so wrong, as the Iraq War was, then you should never compromise on it. It cost over one million lives. I can't imagine myself compromising on that. That is something so important it is worth giving up if necessary, one's political career over. A few people did back then. I have the utmost respect for them.

[leftstreet]

4. An 'electoral turn to the left' needs actual Left parties

DURec

[Blue_Tires]

18. kick for truth

[Yo_Mama_Been_Loggin]

19. Yesterday's news

The Dow dropped 58.6 today.

[leveymg]

21. Daily returns are meaningless. Look at the trend in market cap for a year.

larger trends at work here.

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

http://www.world-exchanges.org/...

Cash Markets

Share trading value EOB
+17%
Aug. 2013 vs Aug. 2012

+8%
Jan.-Aug 2013 vs
Jan.-Aug 2012

Market capitalization

+5.4%
Aug. 2013 vs
End-Dec. 2012

+13%
Aug. 2013 vs.
Aug. 2012

Derivatives Markets
# of contracts traded

+1.6%
Aug. 2013 vs Aug. 2012

+1.3%
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?

[Octafish]

23. No Government = No Regulation

That makes Wall Street happy.

Nationalizing Wall Street is what would make America happy.

[leveymg]

24. Exactly. Part of the solution or part of the problem.