Tuesday, 8 October 2013

Damn! No one seems to be over-reacting to the US Government Shut Down

About a week ago now the US government went into shut down after Democrats and Republicans could not pass a budget.  There are many causes of this - all political and I do not have a good enough understanding about US politics to understand how it is going to end or how long it is going to take.

Similarly, most people know that the likely economic effect will be bad if the shut down goes on for long enough but people do not know how bad or what the impact will be on confidence or markets generally.  There is much speculation and reporting out there on this very fact and it is not something I have a great deal of insight into so won't post about.

Why do I want people to over-react to the government shut down?

You may be wondering why then I am posting about it and why I seem disappointed (from the title of this article) that people are not over-reacting to the news.  The fact is that I am looking for a (personal) silver lining in the shut down.  Markets typically over-react to all news (good and bad alike) and this creates opportunities to buy or sell depending on which way the market goes.

I have posted recently on how the market had run so strongly and I was actually finding it hard to find places to invest.  I am not a short term investor nor am I in need of my invested money in the short term so I would be quite happy for the share market to tank temporarily (or even for a few months) which would give me the chance to invest some of the cash I have been building up.

Interest rates are so low at the moment that having this cash has been really inefficient however I have not found any value in the share market (other than some of my current holdings) so I have been sitting waiting for buying opportunities.

I want people to over-react.  Panic is good if you (as a rational individual) can control your own feelings and invest when others are panicking.

Unfortunately...people seem quite sensible about it this time around

I think one of the reasons that the markets are not over-reacting is that it very much seems like ground hog
day.  Virtually the same thing happened last year and the markets reacted much more then - however it seems to be the same set of events

  • Politicians can't agree on a budget
  • The debt ceiling is close to being hit
  • The possibility of shut down and US default becomes more and more real
The markets panicked much more last time.  This time however they seem to be assuming that once again there will be a muddle through compromise and so people are not selling out any time soon.  This seems rather sensible based on historical experience (and probably means my buying opportunity is not going to present itself..

However an opportunity may arise if this goes on long enough

If the impasse goes on long enough there is a chance that people will start to get spooked.  That there will start to be real damage to the US economy and as a rational investor who is looking at the long term you could view this as an opportunity to buy into the market - I am certainly viewing it that way.

The market is only down slightly since the start of the shut down however there is a chance that it will fall more.  In the event that it does I am going to buy in at the lower prices and then wait for the situation to sort itself out.

If this extends for long enough I'll write about what I will invest in under different scenarios and outcomes (although I am thinking about this already).

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1 comment:

  1. Hey 90 Mill,

    Interesting post, I have a work colleague who trades the market with speculative mining services (on the ASX) stocks and he similarly enjoys a downturn in the market to pick up undervaulued companies...

    I feel that as the debt celing/govt shutdown in the states gets closer there will be loses followed by a bounce once there is a resolution (I feel there has to be).. This isn't guaranteed though and it will be interesting to watch the US/Dow over the next few weeks..

    On a side note any suggestions on how to get into business analyst roles, am considering the switch myself.. I appreciate you've mostly done IB work :)