I remember the late winter storm in 1994 that hit the entire East Coast from Florida to Maine. It dumped more snow on Atlanta than we have seen since and was deemed the “Storm of The Century.” In the next six years I believe there were three or four more “storms of the century” or other similarly exaggerated names. Let’s face it, our popular culture has a narcissistic streak to it. Our storms are bigger, our athletes more dominant and our political crises are more critical.
If only any of that were true. Today we are surrounded with talk about this “unprecedented political standoff.” It has been said that it would be unprecedented for the debt ceiling increase to be used as political leverage, even though that is exactly what has happened since the 1970’s with even our own President voting against an increase when he was in the Senate. I have read that it is unprecedented for one party to shut down the government when they only control one house of Congress. The list goes on and on.
The old saying goes that one can pick one’s point of view, but one cannot pick his own facts. Standard and Poor’s (S&P) sent us some interesting data on government shutdowns last week that I think is worth sharing: Since 1976 the government has been shut down 18 times; several times for just one day, but the longest was for 21 days during the Clinton administration. Seven times, all during the Reagan administration, the government was shut down when the opposition party controlled only the House of Representatives, as is the case today. Interestingly the government was shut down five times during the single four-year term of the Carter administration when one party controlled all of Washington. Not only was it shut down under one-party control, but the shutdowns lasted longer. Carter owns the second longest shutdown of 18 days, the third longest at 12 days and the fourth longest at 11 days. The S&P data went back to only 1976, but I would assume the longest absence of our federal government, as we now know it, would be the eight years between the final victory at Yorktown in 1781 and the final ratification of the Constitution in 1789. Those were political disagreements of an actual historic nature. To my knowledge no one has yet threatened a duel on the Common as a possible solution to our current stalemate.
Why has the market largely ignored this Washington side show? I like to think it is because a lot of us understand that there is nothing historical or even unique about the current level of political tension. Whether the shutdown continues or not, the probability of a debt ceiling extension not happening seems slim. So, not much has really changed.
In other news and random thoughts, the Nobel Prize in economics was split between three U.S. economists: Eugene Fama, Lars Peter Hansen and Robert Shiller. Fama is famous for espousing the so-called efficient market hypothesis, which is the backbone of Modern Portfolio Theory. Hanson works with Fama. Shiller, using some of Hansen’s work, is famous for proving Fama wrong. This has nothing to do with your portfolio, but it is good news for us because it shows that not even the Nobel Prize committee understands what economists are saying. Now that is what I call job security.
Chuck Osborne, CFA
Managing Director
