ARBOR OUTLOOK: Shutdown: Markets crave stability and certainty
"Houston, we have a problem." — Astronaut Jim Lovell (Tom Hanks) speaking to Flight Director Gene Kranz (Ed Harris) in the movie "Apollo 13."
While rewatching this Ron Howard classic recently, I was reminded of the bold initiatives that characterized our space program and inspired Americans everywhere. As most know who followed the flight of the Odyssey in 1970 or watched the movie, our engineers, scientists and astronauts brought the damaged spacecraft home utilizing less amperage than is used by a small kitchen coffee maker. That Lovell, Haise and Swigert returned to splashdown safely is a miracle, a true milestone in the annals of American ingenuity.
China has now successfully landed a "rover" on the far side of the moon. So while we are still ahead of China in space exploration, it's obvious that they're making headway.
Knowing these historic American capabilities, then, we are befuddled and confused when we can't even reach a compromise that allows our federal government to operate. At this writing, the shutdown is in a record 34th day. One government economic advisor warns that first quarter growth could stall at zero as a direct result of this logjam. By the time you read this, hopefully the shutdown will be in our rear view. But perhaps not.
Either way, we have seen the short term effects of political turbulence, including massive swings in stock prices. Not all market volatility can be attributed to politics, of course. Global growth rates, interest rates, jobs reports, and so many other factors influence market movements. But all economic experts agree that markets crave certainty, and our current political climate is anything but certain.
Long term, our investments will suffer from constant political unrest. Imagine how wildly markets would be gyrating if unemployment was still at 9 percent and large financial institutions were crumbling, as occurred in 2008. With low unemployment and relatively sanguine economic conditions, we need to address and correct our known problems before the unknown ones arise.
When elected officials fail to compromise for the common good, they create an environment which magnifies market risk. Enough problems will impact markets negatively without us creating these issues of our own volition. Stock prices spiraling downward and fluctuating wildly due to political turmoil is certainly not good for investors. Markets function most effectively when elected officials compromise and reach accords. At one time, that's how our government operated.
Traditionally, we define market risk as the chance that one's investments will be impacted by the like of recessions, natural disasters and political upheaval. And some market risk is unavoidable. Like 9/11 for example. Or the Great Recession. Truthfully, global and domestic politics are often intertwined with these occurrences as well.
But meanwhile, I'm with Apollo Flight Director Gene Kranz. Let's get this thing fixed.
Margaret R. McDowell, ChFC, AIF, author of the syndicated economic column "Arbor Outlook," is the founder of Arbor Wealth Management LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin.