- Posted October 24, 2013 by
New York, New York
How Wall Street Values Venomous Political Rhetoric from Capitol Hill
I, for one, am really looking forward to another season of high-stakes drama known as Budget Negotiations on Capitol Hill. I doubt I’m the only fan of this ongoing soap opera, right? Right?!?
Well, in case you haven’t picked up a recent copy of your political entertainment magazine, let me quickly bring you up to speed. Beginning Wednesday, October 30th, twenty-nine members of Congress will meet and begin discussions to establish a long-term budget deal. And by budget, I mean set a strict amount (and rules) for spending to keep the United State open for business.
This should not be a big deal; however, the origin of next week’s meeting is a result of recent negotiations to raise the debt ceiling. Remember that brou ha ha from last week? Well, these 29 people have to agree on a budget proposal by December 13th, which will then continue to be debated on, voted on, and hopefully passed on by January 15th. And, a January 15th resolution is absolutely critical as we can expect an additional $24 billion in sequester cuts to kick-in should negotiators fail to reach an agreement.
Of course, all of these talks and deadlines are just a prelude to another lit stick of dynamite known as the debt ceiling. According to many analysts, the Federal Government will reach its debt limit (again) anytime between February 7th and mid-March. And, we all know what that means: Lots of venomous rhetoric from the braintrust working inside the beltway.
If I sound a bit cynical and agitated, it’s because I am. And, I know I’m definitely not alone with this sentiment. One side of the aisle owns all of the negotiating power; the other is simply chasing its tail.
Think about it: The only item the Republican Party received following the government re-opening and increase of the debt ceiling happened to be the lowest approval ratings in the history of the Gallup Poll. That’s it. Oh, well the GOP did happen to receive a bone about stricter income verification on the ObamaCare exchanges. Yes, that is a yawn.
Nobody should expect a budget deal before Christmas. Nobody. Every time there is a government shutdown from now until the midterm elections, expect cigar and champagne sales to spike where Democrats reside. The more polarized Washington, DC becomes, the more Democrats will win in debates and votes. It’s crazy.
But what isn’t crazy is how Wall Street responds to this kind of brinksmanship. Investors, particularly the professionals in the business, are calling Congress’ bluff. Every time a lawmaker chats about the inevitable economic implosion of the United States if negotiations aren’t agreed to, stocks barely budge.
This wasn’t the case back in 2011 when raising the debt ceiling was used as a political hot potato. Stocks were all over the place, especially in the final week of July when damaging rhetoric reached a slanderous point. The S&P 500 fell 4.3 percent in that final week, which pushed Republicans to agree to raise Uncle Sam’s credit card limit on July 31st, which culminated into the 2011 Budget Control Act.
The Wall Street bears weren’t finished, though. The day the BCA was signed into law—August 2nd—Standard & Poor’s decided to drop a bomb and lower the country’s debt rating. Albeit, they broke this news after the markets closed, but the sell-off wheels were already in motion. When the markets reopened the following Monday, the S&P plummeted 6.66 percent. Yes, Wall Street turmoil was blended in with Washington chaos.
Fast forward to 2013, and we have a completely different story. Leading up to all the nonsense in Washington, market watchers and historians would have predicted mass selling across all indices. Nope. It never happened.
As a matter of fact, markets not only increased in the week prior to the so-called end-of-the-world deadline of October 17th, most of Wall Street just ignored what was being said on Capitol Hill. The end result is 1) loss credibility and 2) devaluation of political threats.
Number one is easily explained in national political polls; but number two goes to show that politicians probably need to find another crutch if they want the country to respond to potential economic mania should their policies not be passed. Because one thing is for certain: Wall Street no longer cares about Washington’s fiscal fire drills.
ABOUT LANDCOLT CAPITAL LP & TODD M. SCHOENBERGER
LandColt Capital LP is a private investment firm catering to institutional and accredited investors. The LandColt Onshore and Offshore Fund is based on quantitative and qualitative analysis, and utilizes proprietary investment models and methods developed over decades with a discretionary macro approach, to trade market sentiment. For more information, you are invited to review the firm’s website at www.LandColtCapital.com. For more frequent updates, follow on Twitter @LandColtCapital.
Todd M. Schoenberger is the founder and Managing Partner of LandColt Capital LP, and serves as Portfolio Manager of the LandColt Onshore and Offshore Funds. He is a frequent financial commentator for several national television and radio stations, including CNN, CNBC, BNN, Bloomberg News and Radio, FOX Business and News Channels, and has been a keynote speaker at West Point, the United States Naval Academy, with additional engagements scheduled at a number of top-level financial summit conferences throughout the country and Europe. For more frequent updates, follow on Twitter @TMSchoenberger.