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VOL. 128 | NO. 193 | Thursday, October 3, 2013

Memphis Financial Experts ‘Not Worried’ About Shutdown

By Andy Meek

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David Waddell, president and CEO of Memphis-based Waddell & Associates, had a two-word response when asked what financial and economic impact there might be from the current dysfunction in the nation’s capital.


“Not worried.”

The federal government went into a partial shutdown Oct. 1 when the U.S. House and Senate didn’t reach an agreement on funding the government’s everyday operations. And another spat looms: in mid-October, the government will need to raise its borrowing capacity – the so-called debt ceiling – to keep funding itself.

There are simple political dynamics at play. Democrats control the White House and the Senate, but the Republican-controlled House is trying to use the need to agree on a funding plan to end the shutdown and then the need for a debt ceiling vote as an opportunity to extract political concessions from Democrats.

“As far as the markets go, we have seen this movie before,” said Waddell, who also writes a weekly column for The Daily News. “There may be short-term disruption this time around, but (those disruptions have) been shorter and shorter lived each time we bump our heads into the debt ceiling.”

Mark Ruleman, a wealth adviser with United Capital, agreed. The economy is growing, and he thinks it would take a lot more than a temporary government shutdown to dislodge that growth.

Temporary, of course, being the operative word. Because there’s still the unknown result of how the political dynamics will look once it’s time for the debt ceiling vote.

The government shutdown this week marked the first day of the final quarter of the year. Past shutdowns have tended to be short-lived, and according to some estimates a weeklong shutdown would barely move the needle at all on U.S. GDP.

“Dysfunction in Congress is real, and it creates an uncertainty that scares the public,” said Marty Kelman, chairman and co-founder of Kelman-Lazarov Inc. “I believe the professionals have already discounted the uncertainty and expect that Congress, along with some drama, will fund the U.S. budget and not default on our debt. Along with an economy that continues to slowly improve and a continued infusion of bond purchases from the Fed – albeit less in the future – our expectation for the stock market is still positive.”

He adds the caveat, though, that there are always potential outside events beyond anyone’s predictive abilities that could quickly reverse that attitude.

Robert Trimm, chief investment officer for Legacy Wealth Management in Memphis, said national lawmakers have tended to overstate any potential downside to political squabbling over things like the debt ceiling, “sequestration” and other outcomes related to government spending cuts.

“Even the Congressional Budget Office overestimated sequestration’s impact on both GDP and employment this year, predicting that GDP would expand by 1.4 percent and unemployment would still be at 8 percent by the fourth quarter,” Trimm said. “But a funny thing happened. The economy did not fall back into recession even though government spending as a percentage of GDP has fallen, and while growth has not been near its historic average, equity prices in the U.S. have increased over 20 percent year-to-date. GDP has grown faster and the unemployment rate is lower so far than the CBO predicted.

“So, once again, we go through what has become an annual ritual of negotiating both a continuing resolution and an increase in the debt ceiling, which from an investing standpoint ultimately comes down to what happens to (government spending).”

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