Moving Beyond the Stalemate

While the government shutdown enters Day 10 and the debt limit deadline (October 17) fast approaches, it’s easy to get caught up in the daily news updates and posturing. Reports out of Washington this morning give some reason to hope that the standoff may end soon. House Republicans are meeting about a short-term measure to raise the debt ceiling in advance of a meeting between GOP leadership and the White House later today.

While we advocate staying with your long-term investment strategy through times of uncertainty like this, there are market participants who are able to take advantage of dislocations at such times. Because money market funds must maintain a $1/unit price, we hear the news that Fidelity, the country’s largest manager of money market funds, has sold out of all US debt due within the next month or so. It’s a prudent thing to do for a fund that can’t afford the possibility, however unlikely, of having to mark down government debt if payment is not made. Bill Gross over at PIMCO is on the other side of that trade, scooping up the debt and taking advantage of yields not seen since the financial crisis in 2008. PIMCO is not constrained like a money market fund is and sees the chances of default as 1 in a million.1

The bottom line is that the odds of a default are very low. A worst-case scenario involves more managing the timing and priority of payments than the actual ability to pay.

However, there is reason for concern that the shutdown, if it goes on for several weeks, will impact economic growth and corporate performance, which could lead to weaker stock prices in the weeks ahead. Key voices in the House and Senate are discussing the big items like entitlement and tax reform and thoughtful cuts in discretionary spending. While getting agreement on these issues will take time, the president opened up the possibility of a short-term (several weeks) end of the shutdown and a debt ceiling increase to give Congressional negotiators time to cut a deal on these big points, which could finally bring some sense of stability to the federal budget and in turn should help promote future economic stability. So out of this embarrassing morass, our policy makers may very well end up stumbling their way towards critically important long-term solutions.

It is always treacherous to try to adjust one’s investment plan based on policy fights, and we believe this time is no different. The country and the markets will get through this. Keep on plan. Stay disciplined.

 

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional. Hewins does not provide tax, accounting or legal services.
John Bussel
John Bussel

Principal, Regional Director, co-Chief Investment Officer

John Bussel is a Principal, Regional Director and the co-Chief Investment Officer for Hewins Financial Advisors, based in Miami, FL. With more than two decades of experience in investment management and planning for private and family-based foundations, John oversees every facet of Hewins' investment program and approach.

No Comments Yet

Comments are closed

Moving Beyond the Stalemate

time to read: 2 min