Government shutdown watch: Dow dives Monday, S&P follows


WASHINGTON, September 30, 2013 – Wall Street took a predictable dive Monday morning as both political parties on Capitol Hill played parlor tricks with one another, ignoring the national interest in pursuit of political gains in next year’s crucial off-year elections. The Dow Jones Industrials powered south at the opening bell, with the average down close to 150 points within minutes. Likewise, the broader S&P 500 average was down nearly a whopping 13 points during the opening bloodbath.

As of this writing (10:30 a.m. EDT), both averages have recovered somewhat with the Dow approximately 100 points to the negative while the S&P is registering 8.5 points of red ink. Selling continues to be across the boards, and in early trading all 30 current Dow component companies took a dive.

This is a market that has become a virtual paradise for Wall Street’s nefarious and likely illegal cadre of high-frequency traders and trading firms, aka HFTs. Caring little if anything for traditional stock valuation metrics, these computer-driven entities trade almost exclusively on headlines and insider gossip, latching onto and trading on the basis of data that their computing systems always grab at least nanoseconds before anyone else can.

In other words, still thinly traded due to the exodus of traditional and small traders—who realize this game is almost totally rigged—market soar, slip and slide in seconds based on the rapid receipt of real news, insider tips, and outright fabrications that neither average investors nor many firms can follow at speed.

This video game scenario’s riskiness has increased by an order of magnitude, however, even for the HFTs and algos as Congress and the White House—at least when the latter Chicago gang isn’t out on the links—play games with their constituents’ very lives and welfare to indulge in petty partisan politics.

In this, both parties are tending to run true to form, at least in terms of traditional political caricatures.

On one hand, the Democrats—run in the Senate by its increasingly despicable majority leader Harry Reid (D-NV) and his not-so-comical sidekick, wealthy New York socialist Senator Chuck Schumer (D-NY); and in the White House by committed Chicago Gang armchair Marxists under the nominal direction of Nobel Peace Prize-winning President Barack Obama—are carrying out their usual game plan which involves the annihilation of the Republican Party in order to replace it with a one-party state, á la the Vladimir Putin model. It’s not for nothing that many refer to the Democrats as “the evil party.”

In the opposite corner are the hapless Republicans, condemned forever, it seems, to the role of patsies in a political race in which they never seem able to win, place, or show.

Still run, as they always have been, by a cadre of so-called “Country Club Republicans” who generally desire to go along to get along, the Republicans’ ranks are split by some fire-breathing conservative and libertarian true-believers largely derived from the anti-Obamacare Class of 2010.

Youthful, either politically or age-wise or both, somewhat politically inexperienced at least on a national scale, and still oddly fired up by the kind of genuine idealism we thought had exited the game circa 1992, these newer House congresspeople, along with their rare Senate Republican counterparts like Ted Cruz (R-TX), Mike Lee (R-UT) and Rand Paul (R-KY) still hold to their apparently naïve belief that their constituents actually elected them to cut down on the size of the Federal bureaucracy and kill Obamacare, or at least clip its wings for the time being.

Since neither the Republicans’ Country Club wing nor their libertarian-conservative wing has much respect for one another, they’ve become the gang that can’t shoot straight whose leadership greatly resembles the old Bob Michel Republicans.

As perpetual House Minority Leader from 1981-1995, Michel was accustomed to getting the Democrats’ majority leadership to give the Republicans an occasional sliver of government pie in exchange for not squawking too much or giving them much of a partisan hard time. The Democrats always liked this kind of pushover Republican leadership, and never much cottoned to power sharing or the loss of power anyway.

They still don’t.

But the current crop of Republicans, who continually ignore Ronaldus Magnus’ prime directive—never speak ill of another Republican—shoot at each other far more frequently than they do at Reid, the still-malevolent former House Speaker Nancy Pelosi, or, for that matter, Comrade-in-Chief Obama. Which self-defeating activity still earns them the sobriquet “The Stupid Party.”

If you don’ think any of this partisan nonsense has anything to do with your IRA, 401(k), or overall investment portfolio, think again. For it’s this juvenile nonsense that has puffed up and then executed the real estate market, not to mention any chance the dwindling middle-class has ever had for a decent, well-supplemented retirement.

And it’s all on display on Capitol Hill today to the detriment of any direct and indirect investments you might hold. Small wonder that most polls rank this Congress and, increasingly, the White House, lower on the trust totem pole than used-car salesmen.

Making matters worse, the major media is flogging the conflict endlessly, allowing little chance for the few remaining quiet arbiters on either side to exercise any moderating influence on Obamacare, the looming government shutdown, or the equally looming debt ceiling debate.

The media will pin the blame for all this on the hapless Republicans, of course. That is fair only insofar as the Party of Elephants is merely guilty of practicing lethally inept politics.

In the main, however, the Republicans represent the last bulwark in this country between the average citizen and the ruinous kind of state-sponsored socialism that even its European originators are quietly trying to back themselves out of. Although the media–which long ago sold its collective soul to Karl Marx–remains too self-centered and ignorant to face this obvious paradox.

Today’s trading tips:

We have precisely zero trading tips today, unless investors still want to exit profitable positions at least temporarily until the ship of state rights itself, more or less.

That said, according to a consensus AP report this morning, “investors have said they expected volatility over the next few weeks because of the shutdown and upcoming debate over the debt ceiling.”

So if you want to be aggressive and short term, there’s always that slow-moving short S&P 500 ETF, symbol SH. You have to watch a trade like this, though, lest it get away from you, although this particular ETF tends to move behind the market somewhat, whether up or down.

For a little more action, you could also take a look at the S&P 500 double-short ETF, known somewhat ominously as SDS, which tends to remind the Maven of those bad old Weathermen days. At any rate, this creature move at double the speed of the S&P 500, up and down, more or less.

If you put this one on in any quantity, either as a trade or to hedge your portfolio of conservative stocks, you have to keep an eye on it. If you trade on your own, that’s relatively easy to do. But if you do this sort of thing in any quantity (along, perhaps, with options) and have a day job, you may really wish to trade with an old-fashioned full service broker with strict instructions to keep an eye on the trade. Not watching stuff like this with an eagle eye is the recipe for disaster.

You can, of course, put in good-‘til-canceled “stop” orders which will trigger an automatic sale of a position at a given price point or thereabouts. But in a market as volatile as this one, HFT computers can and do often slip in phony buy and sell orders to trigger stops before reversing a stock’s or an option’s direction, leaving you to hold the bag.

It’s a horrible thing when you can’t even protect yourselves with a “stop” order. Which is why standing aside in mostly cash is likely your best alternative until things calm down again.


Column note: For a variety of reasons, we’ve tried to reduce the frequency of this column to one time per week. However, until the Washington chaos has died down, we will likely post more frequent, randomly timed columns to keep you informed of any dramatic turns that could make—or lose—money. So stay tuned.


Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. He currently owns short term positions in SH, SDS, and TMF. Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.

Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.

Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.

Follow Terry on Twitter @terryp17


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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17