Skating through the latest uncertainty
By Kyle Tetting
Here we go again. Just as we were getting into the swing of summer, I was forced to write about the inaction of Congress on the debt ceiling. I say “forced” only because our attention really should have been on the increasing role of automation, robotics and artificial intelligence or the Federal Reserve’s continued fight against inflation.
Instead, I had to write about the lack of agreement on the debt ceiling and the potential fallout from Congress’ inaction. As we put the feather in the cap of another great summer here in Wisconsin, again we have been distracted to the potential fallout from more inaction. Although last-minute maneuvering avoided a federal shutdown, Congress has kicked the can down the road, setting up another possible showdown next month.
Of course, just like the debt ceiling, we’ve been here before. Since 1981, Congress has shut down the federal government 10 times. Most shutdowns are short-lived, but for furloughed government workers, those working without pay, or those counting on government programs, concerns abound. National Parks closures are a consequence, among less obvious setbacks such as the shutdown in training of new air traffic controllers or the furloughing of EPA staff, which could slow or halt inspections of drinking water facilities and hazardous waste sites.
These are real-world repercussions that impact more than just political opponents. The debt ceiling resolution four months ago offers hope that Congress can still make a deal on the budget. But credit ratings agencies have already noted the dysfunction.
In August, Fitch cited the “erosion of governance” as it downgraded U.S. government debt from to AA from its highest AAA rating. Moody’s has registered similar concerns ahead of a potential shutdown this time around.
Amid strong returns through July, investors have finally felt weakness in the past couple of months as the looming shutdown returned uncertainty to the economic outlook. Taking a pause in the run-up is healthy, allowing investors to reassess positioning. But it also challenges investors who benefitted from heavier equity exposure earlier in the year.
So, a government shutdown weighs heavy on a market that – at least in the near term – will require more clarity to support earlier gains. But that tells us nothing of where we are headed. Even a protracted budget battle, while painful in the moment, would offer little guidance on the economy or markets beyond near-term thinking.
In comments at the 2023 Investment Outlook Seminar in September, Bob Landaas, quoted hockey legend Wayne Gretzky to suggest we look beyond the current commotion: “I skate to where the puck is going to be, not where it has been.”
Keep an eye on Landaas.com for a Money Talk Video of the 2023 Investment Outlook Seminar.
We’re in the midst of meaningful economic changes. Technological shifts are transforming where and how we work. Automation is making the workforce more productive, driving economic growth and profitability. Perhaps most importantly, the road ahead appears even more promising with the broader adoptions of artificial intelligence and robotics.
As investors, we need to think like Gretzky. We’ve come through some political and economic uncertainty and are dealing with more amid threats of another shutdown.
We can’t ignore the uncertainty. We need to prepare for the realities of such short-term thinking.
That leads us to the attractiveness of cash and bonds for a portion of our portfolio — because the puck keeps moving. The stability afforded by more preservation-oriented assets allows us to look beyond the near-term problems toward the ever-changing opportunities that lie ahead.
Government Shutdowns Q&A: Everything You Should Know, from the Committee for a Responsible Federal Budget
Brinkmanship challenges investor resolve, by Kyle Tetting
Separating politics from portfolios, by Joel Dresang
Making financial sense of “breaking news,” a Money Talk Video with Art Rothschild
Focus on fundamentals to face volatility, a Money Talk Video with Steve Giles
(initially posted Oct. 5, 2023)