This shutdown would be different
History may not be of use in predicting the effects of the impending shut down.
Not all government shutdowns are created equal. If you go back to the 1995-96 shutdown, you see a rather remarkable development: It had almost no impact on the stock market.
Remember, there were two shutdowns back then -- one from Nov. 14 to Nov. 19 and one from Dec. 15 to Jan. 6.
During the first shutdown, the Dow ($INDU) actually gained 2%. It then proceeded to rally 3% between the shutdowns. It then it was unchanged during the second shutdown.
After that, it embarked on a remarkable 40% run over the next year.
So you could argue that the government shutdown actually had a positive impact on the stock market. Looking back, you could certainly draw that conclusion.
But it wasn't like this back then. We had a lot of confusion in Washington, D.C., but we really didn't bother to think much about it. We were very earnings-centric back then and totally separated the two. What went on in Washington was a total sideshow.
Now, on the 10-year U.S. Treasury, interest rates did go from 7.78% in January 1995 to 5.65% in January 1996, which is a significant and positive move. The Dow jumped about 30% in the same period. One could argue that rates went down because Congress grew disciplined in spending and therefore the showdown had a positive impact on the budget, which resulted in lower rates.
But rates then went back to 6.58% a year later, so I am even suspicious of that linkage.
I know this sounds naive in retrospect, but we really didn't think back then the way we do now. We were embarrassed by our government, for certain. We knew that we looked bad to the rest of the world. But it didn't change the economic landscape all that much. We were in the midst of an economic expansion, we were riding the wave of new technologies, and jobs were fairly plentiful, with the unemployment rate having fallen from 5.6% to 5.4% from 1995 through 1996.
What mattered were the actual pieces of paper we traded. Not the S&P 500 ($INX) and not the ETFs -- just individual stocks -- and stocks of all shapes and sizes were having a very good run.
When you consider this period we are in now, you recognize something. The companies themselves -- except when they are taken over or do something dramatic or are selling into emerging markets that are turning -- they are almost all hostage to the dynamic in Washington. Everything from banks to healthcare to defense to oil and gas to utilities to autos to retailers can be traced back to Washington in some form, either through legislation or because of the Federal Reserve. It's not so much "intrusion" as it is total immersion.
So my takeaway from looking back is that history teaches us nothing and we are stuck with the current day, which is distinctly a "government gridlock, sell the futures and buy them back later" era. It's pretty much the opposite, frankly, of what we had back then. The Clinton-Gingrich fracas, in this light, seems almost quaint -- a political power struggle, not a fight to the death about government vs. no government. It wasn't existential back then, though it sure is now. Which is why it is so darned hard to figure out when this will all end.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the securities mentioned.
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Media HYPE....To keep us glued to what a bunch of School Yard bullies are doing..
Nothing more nothing less...
Term limits for all....They waste Government monies, and the time of all Americans..
Lets think about Shutting down all the politicians pay checks, bank account, credit cards & special interest income generating projects, call all there personal home, car and business loans due immediately, I believe the DEFASATE would be paid of quickly. Think about closing the private schools and special interest education that their kids are in since so many of them do not believe in the PUBLIC school system that they have created.
I would then lay odds that all the game playing would STOP. Democrat, Republican, Tea Party or any other special interest what about AMERICAN, until we change the process of special interests politics ME AGAINST THEM the out come will remain the same.
The enology if it aint broke don't fix it ! NEWS FLASH WASHINGTON D.C. ITS BROKE!!!!! LET US THE AMERICAN PEOPLE FIX IT GET OUT OF OUR WAY!!!!!!!!!!!!!!!!!!! MEDEA STAY OUT OF IT AS WELL!
Just say it Cramer, Government (collective) owns it all through investment!
They are the economy!
This shutdown would work if someone on the outside could tell the government which sections would be shutdown -- Obamacare, IRS, NSA, TSA, Congress, Washington DC and which sections would remain open -- S.S., Medicare,Medicaid,Parks,FBI
sure we could save enough money this way to have the US in a surplus easy.
This leads one to watching less national news and more football.
The local television station has a "countdown to shutdown" clock. Igits.
I'm sure Standard & Poor is loading their guns for a U.S. credit downgrade along with Moodys.
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