This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Kass: Shutdown Showdown

NEW YORK ( Real Money) --

  • High theatre lies ahead.
  • The continuing-resolution and budget issues have merged into one.
  • A twelfth-hour compromise on Oct. 16-Oct. 17 seems likely.
  • Given data-release issues, a taper is not probable until March 2014.

It is clear that the government shutdown, continuing-resolution and debt-ceiling issues have now merged into one problem that will require one solution.

My Washington, D.C., contacts suggest that there is currently a stalemate, as neither side is yet talking to the other side.

With the debt-ceiling limit not in place until Oct. 17, it seems almost inevitable that the government shutdown could last another 13 to 14 days until an on-the-brink decision is made on the debt ceiling (see outcome No. 4 below).

Thus far, the stock market has meandered, and investors are complacent. While the DJIA and S&P 500 are slightly off their highs, the Nasdaq and Russell 2000 are basically at all-time highs. In other words, to date, the stock market is not placing pressure or forcing action in Washington.

My explanation for the lack of market movement to the downside is that the broad "Bernanke put" seems to have (thus far) protected the markets from much downside.

At this point, President Obama is leaving for a trip on Sunday, and he plans to return about four days later. So, nothing will likely happen during next week.

There are several possible outcomes to break the logjam in Washington, D.C. between now and Oct. 17:

1. A crack in the U.S. stock market could force action. (This is always a possibility.)
2. Boehner blinks. (A small possibility.)
3. A partial solution is offered if the debt ceiling is breached in which either Treasury payments would be prioritized or the president issues an executive order to lift the debt ceiling. (A low probability.)
4. A late-hour compromise on Oct. 16. (The highest probability and likely outcome.)

The consequences of breaching the debt limit would result in a dire outcome. It seems likely that debate will go down to the wire, but a compromise will be made at the last minute.

No Taper Until March 2014

It is important to recognize that the current shutdown will bring a halt to the release of government economic data.

If I am correct that the decision comes close to Oct. 17, the economic data vacuum will make it difficult for the Fed to properly assess the economic condition on a timely basis.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free


Chart of I:DJI
DOW 16,014.38 -12.67 -0.08%
S&P 500 1,852.21 -1.23 -0.07%
NASDAQ 4,268.7630 -14.99 -0.35%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs