Friday, April 8, 2011

Ahead of Government Failure, Markets Shaky, Silver Sizzles

As the clock wends its way toward midnight and a shutdown of non-essential government functions, stock players were still hedging their bets, generally showing a preference for playing the waiting game until Monday when word will be official.

That's probably a pretty stupid position, given that Republicans and Democrats are ideologically miles apart and the best time to avert a crisis would have been weeks, if not months, ago. While there still remains a slight chance that the federal government will go into full-blown shutdown, as of this writing - shortly after 4:00 pm EDT - the odds are heavily in favor of the morons in Washington putting politics ahead of principles and allowing the government to shut down.

This they do at their own peril, though the geniuses who call themselves senators and representatives would be hard-pressed to believe that the American people will have lost all faith in their ability to lead and/or govern and/or legislate. By and large, with the notable exception of Tea Partiers and anarchists everywhere, are stridently against the government closing down, be it for a week, a month, or longer.

And, strangely enough, the things most people would like to see halted, will continue. Our troops will still be fighting worthless, nothing-to-gain wars in various countries, TSA agents will continue pat-downs on ordinary citizens, and the worst of it, elected officials will continue to be paid, while some 800,000 regular federal employees will have to fend for themselves without the benefit of a regular paycheck. In fact, even our fighting men and women, half a world away, will not receive their paychecks.

Naturally, the IRS will continue to process electronic returns, though refunds will more than likely be delayed. Social Security checks will still go out on time - for now. An extended absence of the federal government might turn out to be just what the country needs, though judging by the average intelligence of the hands-out American sheeple, there will be plenty of hand-wringing, despair and repercussions not as yet unveiled to either the politicians or the general populace.

As for the markets, they will continue in denial until it becomes evident that shuttering various branches of government and putting almost a million people out of work without pay (when do these federal employees become eligible for unemployment compensation?) indefinitely is going to cause the wheels of commerce to slow to a crawl.

We are under eight hours and counting down...

Dow 12,380.05, -29.44 (0.24%)
NASDAQ 2,780.41, -15.73 (0.56%)
S&P 500 1,328.17, -5.34 (0.40%)
NYSE Composite 8,483.94, -5.39 (0.06%)

Stocks held up pretty well considering the overhanging circumstances. The Dow was down more than 80 points at its afternoon lows, but the markets spent much of the session merely marking time. Declining issues overwhelmed advancers, 4205-2275, nearly a 2:1 ratio. The NASDAQ produced only 66 new highs and 29 new lows, while on the NYSE, there were 164 new highs and only 11 new lows. Obviously, there is less appetite for high beta NASDAQ stocks for the moment, though it should also be noted that volume was dismal once again.

NASDAQ Volume 1,632,480,125
NYSE Volume 3,950,118,750

The big winners on the day were commodities, the losers anybody who eats or drives. West Texas Intermediate crude oil futures hit another 32-month high, gaining $2.49, to close out the week at $112.79. By Sunday, gas prices in the US will average close to $3.80 per gallon, though this number could be a high, if federal employees are furloughed, not having to drive to work.

The real stars were the precious metals. At 4:30 pm EDT, gold was sitting at a new all-time high of $1474.50, up $16.10 on the day. Silver continued its very own moon shot, gaining $1.27, to $40.91, another 31-year high mark, with no stopping in sight. Gold and silver will continue to rise against all currencies until structural changes in central bank policy occur, which, with the Fed continuing to print money at a non-stop clip, appears to be roughly, never.

What the real impact of a federal government shutdown will be is still residing in the realm of the unknown, though one should expect the unexpected. As black swans go, this one could be darker and larger than most.

Money Daily will update as events warrant.

No comments: