The Federal Government Shutdown — A Question of Duration

By now we all know the federal government has shut down, and there is ample finger pointing going on in Washington, D.C. I saw this coming, and I’ve positioned subscribers of my investment newsletter PowerTrend Profits and my trading service PowerTrader accordingly. I fully expect the stock market to be choppy in the coming days until a solution is worked out, but of course, the devil is in the details. I make that statement knowing full well that if this crisis isn’t resolved soon, it will merge with the pending debt default. Should that happen, uncertainty will be back big time.

While we’re only a few days into the shutdown, we have yet to see any major fallout. I know that there has been a disruption of services, workers have been furloughed and we will see at least a modest slowdown in economic activity. I experienced all of this fiscal fallout 17 years ago when I was traveling through San Francisco and Maui as the national parks were closed. It was a pain, and it was inconvenient, but I remember quite clearly that life went on and the world did not come to a standstill — even though the federal government closed for a total of 28 days, from November 14, 1995, to January 6, 1996. That’s almost a full month, or one-twelfth of a year.

This time around, however, the economy is far less robust than it was back then. Should a federal government shutdown persist and go from a few days to a few weeks, we are likely to see a slowdown in the housing and automotive markets, as well as the overall economy. Gross domestic product (GDP) forecasts would need to be revisited, and that means a reset to earnings expectations for a number of sectors.

I hope that situation will not be the case, but a smart investor is a prepared investor. Keeping that in mind and donning my investor cap, we have to remember that people will continue to go about their lives — but they will likely slow their spending in the near term. That’s especially true with those 800,000 federal workers who are directly affected by the shutdown. It won’t be long before investors start eyeing activities and needs that will persist regardless of the shutdown.

First, people will continue to eat. Odds are that more of that will either take place at home or at more affordable restaurants and not those like Red Robin (RRGB). Potential beneficiaries include McDonalds (MCD), Burger King (BKC), Domino’s (DPZ), Dunkin Brands (DNKN), Panera Bread (PNRA), Safeway (SWY), Kroger (KR) and McCormick (MKC). People will continue to communicate, and that will make companies such as Facebook (FB), AT&T (T) and Verizon Communications (VZ) interesting to investors. Similarly, we’ll still need to bathe, brush our teeth and so on, as well as clean the house. That situation bodes well for Colgate-Palmolive (CL), Proctor & Gamble (PG) and Clorox (CLX), as well as paper-product companies like Kimberly Clark (KMB). We’ll also need water and power, which points to utilities such as Consolidated Edison (ED), the Utilities SPDR (XLU), American Water Works (AWK) and Aqua America (WTR).

Either directly in specific stocks or indirectly through a basket of them, thanks to exchange-traded funds (ETFs), my subscribers already have exposure to these sectors. Like I said earlier, a prepared investor is a smart investor.

Trucking — the Lifeblood of the Economy with Chris Burruss, President of the Truckload Carriers Association
When most people talk about the economy, we tend to think of manufacturing, retail, restaurants and other industries that require goods, such as finished products or key parts and assemblies.

We all know we need these, but how often do you think about how products and parts get where they need to be?

No deliveries means there is nothing to sell and nothing to buy. How does our economy work in that environment?

Even before I started my investment newsletter, PowerTrend Profits, after nearly 20 years of keeping tabs on the U.S. economy as an equity research analyst on Wall Street, I kept an eye on transport activity — trucks, rails and intermodal activity. For those not familiar with intermodal, it’s when something is shipped by truck to rail or rail to truck.

Think about it: if goods are not getting shipped to and fro, it means factories are not producing and demand from the consumer or business is weak. That means trucking is a key barometer of the domestic economy. While that situation was true decades ago, it is even truer today, given the shift toward just-in-time manufacturing.

Simply put, if trucks are not rolling, the economy is not moving. That’s something to think about every time you drive down I-95, I-40, I-70, I-80, the I-5 or another interstate highway. If you don’t see many trucks, don’t be shocked if the economy isn’t that strong.

CLICK HERE to listen to my one-on-one conversation with
Chris Burrus, president of the Truckload Carriers Association

To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.