At the Market: Sequester mess likely to spur market pullback
The Blame Game
"Let's call out names, names, I hate you more
Let's call out names, names, for sure"
-- Blame Game by Kayne West
If it wasn't such a national embarrassment, the finger pointing going on among our so-called leaders would be comical. Nonetheless, it is March 1 and time is up. Bring on the sequester.
Our congressional leaders made a big show today at the White House sequestration meeting. It was their first such meeting on the subject to date. I considered it a photo op at best. This week, rather than attempt a compromise, both Democrats and Republicans spent their time blaming each other for the Sequester.
From the GOP point of view, it is "the president's sequester" while the president is blaming the cuts on the Republican's failure to act responsibly. Since it was the Budget Control Act of 2012 that first authorized the sequester, (if the bi-partisan "Super committee" couldn't come up with a compromise solution to reducing the deficit), let's look at how the final vote panned out.
A total of 174 Republicans voted for the measure but only 95 Democrats. The final tally was 269 to 161 with just about all of today's GOP leadership voting yes. These are the same characters who now claim it was Obama's fault. All of this name calling is a smokescreen to hide an even more important deadline that occurs at the end of March.
On March 27, Congress will need to pass a "continuing resolution" (read short-term spending plan) or funding for the federal government will expire. Yes, my long-suffering readers, without a deal between the two parties the government shuts down. Continuing resolutions are stop-gap measures that keep the lights on in Washington, absent a formal budget. We haven't had one of those in years because of political partisanship.
The threat of a shutdown actually will force Congress to act since, unlike the more subtle and slower paced sequester cuts, a total shutdown of the government would be highly visible and extremely disruptive. It would not be pretty. Either Congress will agree to keep the sequester cuts as is or it will have to come up with an alternative set of revenue increases and spending cuts.
In the meantime, both parties will have had almost a month of dealing with irate airline passengers, defense contractors, various agency heads, parents of Head Start children and the like. So this week's failure to compromise is simply setting the stage for a bigger cliff hanger, much more drama, and, I suspect, heightened volatility in the stock market.
Readers may have noticed that over the last two weeks volatility has escalated among the averages. We will most likely see more one percent up and down days as March unfolds. Washington seems to be providing the justification for the pullback I have been expecting. So with headwinds strengthening, one wonders just how long the markets will be able to shrug them off. But let me be clear: I don't expect a market route, simply a nice pullback that stocks sorely need in order to advance further this year.
Bill Schmick is registered as an investment advisor representative with Berkshire Money Management. Schmick's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or e-mail him at Bill@afewdollarsmore.com.
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