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.
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 2014It 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.
What to Do?The market will be heavily influenced by the news over the next two weeks, especially of a government kind. Neither fundamentals nor technicals hold the key. Stated simply, traders/investors don't control their investment destiny during this period of high drama over the next two weeks. It is probably a good time to sit on our hands. Or at least it is time for me to be less exposed. Why risk hard-earned investment capital in a market that has no memory from day to day and that is so dependent on outcomes that we can only guess and can have little conviction about? Two weeks from now, in all likelihood, there will be a resolution in Washington, D.C. And, at that time, we can again refocus on the challenges to sales and corporate profits in the upcoming quarters, which could pose a larger threat than the debates on budget and debt-ceiling issues.
This column originally appeared on Real Money Pro at 7:36 a.m. EDT on Oct. 3.