The Shutdown Effect
By Jay Sanford, Director, Investment Strategy
As the political football of another shutdown is being thrown around, we thought we would share some anecdotal information to put some things into perspective, both for the good and not so good.
As some of you know if you have been around me, seen me present in front of a group or generally walk a certain direction while I’m outside, I have a hair issue. Which is to say, I’m losing it. My father was bald by age 32, so if you ask my mother, she will respond in her biting Midwestern nasal tone with, “Be thankful, you lasted longer than your father.” Somehow, that just doesn’t help me feel better. And although I don’t relate a great deal to President Trump on certain subjects, I do find myself in alignment with him when it comes to wind. It is not our friend when it hits the part in our hair the wrong way…
I relay this information not for sympathy or for a free Propecia ad, but to give props to my hair stylist. His nickname from me is “the Magician”, because he does magical things with very little on the top of my head. I admire, respect and listen to him as I sit and watch him work wonders on me. During my last visit we touched on the shutdown and how it was affecting things. I chimed in that both political parties were likely overblowing the reality of it. Whichever PR war machine wins the fight, one side will say things are worse than they really are, and the other side will say things are better than they really are.
He did share with me his reality with the shutdown though. People were cancelling their hair appointments because they weren’t getting paychecks. This meant that the $250 he makes on a color and cut was no longer going to be in his pocket. Yes, workers were going to get back-pay and yes, they would likely reschedule, but at the very least, time had been lost. In order for him to make this money back he would either have to work longer into the night (because his schedule is always full) or work on a day off, all to make what he would have normally made had this not happened. So, one could argue that he wouldn’t “lose” any money if he just worked longer or harder. But we all know the reality. Some people won’t reschedule and will just wait for their next appointment (lost revenue), while others will reschedule and delay the revenue. But now Remy needs to be away from his family more. It might be one less trip to a restaurant, it might be one less trip to DC to visit museums and spend money.
You see, it trickles down. The government worker doesn’t get paid, the stylist loses time or revenue, the restaurant loses a customer, the metro loses a ride, etc.
We don’t really know how this truly affects everything and that means there is general uncertainty as to how GDP numbers, earnings’ numbers, etc. will all play out. And guess what hates uncertainty? The markets hate uncertainty. So, when you see the roller coaster of the market take deeper dips or higher highs, you might understand that the shutdown and the uncertainty it brings across our economy could be a contributing factor.
The number of about a 0.25% loss of GDP per week is probably about right (again, a guess) when it comes to a government shutdown. Couple this with a very cold (weather) quarter of the year and we could see some tame GDP numbers for Q1. Things are affected more than we may understand, conversely the US economy is incredibly resilient right now with many favorable economic factors in play.
We have predicted more volatility in the markets this year (and for years to come) and Remy’s story helps explain it. Uncertainly breeds volatility in the markets.
We hope this finds you well and the wind blowing in the right direction for you.
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