Why This Government Shutdown Won't Be The Last

As we’re all being reminded, 1996 was the last time the Federal government was forced to shut down, the result of a budgetary dispute between then House Speaker Newt Gingrich and President Bill Clinton. It didn’t last that long, was economically inconsequential and was generally believed to have worse consequences for the Republicans than the Democrats.

Politics has become generally more partisanship since then and at least according to many participants far less collegial. Disputes over the budget have become more frequent in recent years, with the last crisis over raising the debt ceiling in 2011 causing investors to contemplate the unthinkable, that the U.S. might miss a debt payment. The Federal government is currently operating under automatic sequestration, the result at the end of last year of the calculation by both parties that automatic spending cuts were preferable to a negotiated agreement.

In fact much of what the rest of us regard as dysfunction in Washington DC can be traced to the power of incumbency and the reduced turnover of elected officials. The House of Representatives in particular is increasingly unrepresentative of mainstream Americans and more reflective of the more liberal and conservative wings of each party. Gerrymandering, that process by which congressional districts are drawn as if by a blind chimpanzee, are intended to create electoral districts full of like-minded voters. While an original intention was to assure that racial minorities would be represented by one of their own, an unfortunate consequence has been to steadily reduce the number of Congressional seats that turn over. In last year’s election 90% of the House and Senate were re-elected.

While that might sound as if our legislators need not care much about what voters think given their success at retaining their seats, a great many of them are acutely tuned to the elections that really matter; the primaries through which each party selects its candidates to run in the general election. The polarized politics we watch is because of the increasingly powerful role played by primary voters. House seats that will reliably return a Congressman of a certain party are uncompetitive in the general election and therefore the primary of the dominant party becomes ever more consequential. It forces House members of both parties to be ever more sensitive to their party activists or risk being outflanked by an even more extreme candidate that better appeals to the “party faithful”. As a result, the centrist voter is increasingly marginalized. There doesn’t appear to be anything to reverse this trend, at least for now. In fact, if anything there’s some evidence that it’s further exacerbated by internal migration of Americans to districts and states that they perceive to be “red” or “blue”. I write about these developments in my book, Bonds Are Not Forever – The Crisis Facing Fixed Income Investors.

This analysis is intended to be non-partisan. For investors of either party or no party, the future is likely to include more frequent disputes that require one side to blink as the protagonists perform for their hard-core constituency. America’s challenges require compromise, and regrettably we are electing representatives for whom total victory is all that counts. It will become a more familiar landscape.


Print Friendly, PDF & Email

Important Disclosures

The information provided is for informational purposes only and investors should determine for themselves whether a particular service, security or product is suitable for their investment needs. The information contained herein is not complete, may not be current, is subject to change, and is subject to, and qualified in its entirety by, the more complete disclosures, risk factors and other terms that are contained in the disclosure, prospectus, and offering. Certain information herein has been obtained from third party sources and, although believed to be reliable, has not been independently verified and its accuracy or completeness cannot be guaranteed. No representation is made with respect to the accuracy,  completeness or timeliness of this information. Nothing provided on this site constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments.  Investments in securities entail risk and are not suitable for all investors. This site is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.

References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in an index and do not reflect the deduction of the advisor’s fees or other trading expenses. There can be no assurance that current investments will be profitable. Actual realized returns will depend on, among other factors, the value of assets and market conditions at the time of disposition, any related transaction costs, and the timing of the purchase. Indexes and benchmarks may not directly correlate or only partially relate to portfolios managed by SL Advisors as they have different underlying investments and may use different strategies or have different objectives than portfolios managed by SL Advisors (e.g. The Alerian index is a group MLP securities in the oil and gas industries. Portfolios may not include the same investments that are included in the Alerian Index. The S & P Index does not directly relate to investment strategies managed by SL Advisers.)

This site may contain forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involves a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of SL Advisors LLC or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made. r

Certain hyperlinks or referenced websites on the Site, if any, are for your convenience and forward you to third parties’ websites, which generally are recognized by their top level domain name. Any descriptions of, references to, or links to other products, publications or services does not constitute an endorsement, authorization, sponsorship by or affiliation with SL Advisors LLC with respect to any linked site or its sponsor, unless expressly stated by SL Advisors LLC. Any such information, products or sites have not necessarily been reviewed by SL Advisors LLC and are provided or maintained by third parties over whom SL Advisors LLC exercise no control. SL Advisors LLC expressly disclaim any responsibility for the content, the accuracy of the information, and/or quality of products or services provided by or advertised on these third-party sites.

All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client’s investment portfolio.

Past performance of the American Energy Independence Index is not indicative of future returns.

Print Friendly, PDF & Email
0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.