Investors tend to listen to Washington D.C more now than focusing on individual economics and corporate fundamentals emanating from different financial offices around the world. People fretted over whether or not the FED would start tapering or not, and now everyone is shocked by the decision Ben Bernanke did; no tapering.
Finally, the decision of no tapering is over, so now people can start to buy stock again. Or…… What is the problem now? What do we have to fear? Now, people are panicked by the possibility of a government shutdwon, because of the partisan impasse on the budget and debt ceiling limit.
Stocks went down last week on a light volume. VIX rise and we are near the 50-day moving average in the index. It seems like investors are waiting for a rally. Which means; no fear. We have been in this situation before, and this will hopefulle be no different.
Do you remember the fiscal cliff in desember last year? Well, nothing happend. It will be a deal, and then we will move on again. Government shutdown sounds like a scary thing, but it isn`t. Since 1975, we have had 17 of them.
History tells us that the politicans will discuss and compromise very quickly, and the average shutdown duration is 6,4 days. Remember what Ben Bernanke said when he was not tapering: “Upcoming fiscal debates may involve additional risks to financial markets and to the broader economy.”
Credit default swap (CDS) prices for U.S. Treasury notes aren’t giving us any warning signs. CDS are trading at 23 basis points compared to 41 for the last three years. History tells us that during the last two shutdowns, the stock market didn`t move. The biggest threat to this bull market is not the government.
Today is the last day of september, october has always been a challenging month in the stock market. Smart money will probably look for this to change. I will follow the index when it touch the 50 day moving averange.
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Ket Garden
Shiny bull 