Possible U.S. Government Shutdown
This was on the Financial Post on Wednesday.
According to the paper, there's two scenarios, one with limited impact and another could be devastating.
So what can this mean to an investment portfolio? If we look at the worst case scenario. It talks of debt default which could hurt your bond holdings. Not only that, stocks would probably plummet as well.
You can look at this as the sky is falling or an unprecedented opportunity to buy cheap assets again.
U.S. companies are currently awash with cash. You can see how investors are buying up U.S. stocks now by just looking at the S&P500 chart.
Aside from a small dip in late March, probably due to the reaction in what happened to Japan. The S&P500 continues to go up. I has been going up since March 9, 2009.
You've heard of bad news during this time like the double dip in the U.S. housing market and unemployment. But why does the market still go up? It's because while the general U.S. economy looks bad, the companies in the S&P500 are making money again. After cutting cost and laying off thousands of workers, they are now making the same or more money with less expenses. That's one of the reasons productivity is up. When it used to take 3 people to do 3 jobs, now it only takes 1 person to do 3 jobs. And U.S. companies right now are very slow to hire new people for fear of another economic meltdown.
So, would the market continue to go up? There's several factors you have to look at before you can answer that. One is what will happen by tomorrow when the deadline for the budget ends? The second one is, what will happen on June 30, 2011 when QE (Quantitative Easing) 2 ends. Was the bull market due to the QE1 and QE2? What happens when it ends?
Those are the factors one has to consider to determine the best move with this market.
According to the paper, there's two scenarios, one with limited impact and another could be devastating.
So what can this mean to an investment portfolio? If we look at the worst case scenario. It talks of debt default which could hurt your bond holdings. Not only that, stocks would probably plummet as well.
You can look at this as the sky is falling or an unprecedented opportunity to buy cheap assets again.
U.S. companies are currently awash with cash. You can see how investors are buying up U.S. stocks now by just looking at the S&P500 chart.
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| S&P 500 - 6 months ending April 7, 2011 |
You've heard of bad news during this time like the double dip in the U.S. housing market and unemployment. But why does the market still go up? It's because while the general U.S. economy looks bad, the companies in the S&P500 are making money again. After cutting cost and laying off thousands of workers, they are now making the same or more money with less expenses. That's one of the reasons productivity is up. When it used to take 3 people to do 3 jobs, now it only takes 1 person to do 3 jobs. And U.S. companies right now are very slow to hire new people for fear of another economic meltdown.
So, would the market continue to go up? There's several factors you have to look at before you can answer that. One is what will happen by tomorrow when the deadline for the budget ends? The second one is, what will happen on June 30, 2011 when QE (Quantitative Easing) 2 ends. Was the bull market due to the QE1 and QE2? What happens when it ends?
Those are the factors one has to consider to determine the best move with this market.
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