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By: Brian Price
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Many investors believe that once we are through the shutdown and the debt ceiling debate, all will be well with the market. I don't see it that way.
Over the last couple of months, we have seen some disappointing numbers that I believe will create strong headwinds as we get deeper into the fourth quarter.
First, job creation has not been good. ADP reported on Wednesday that it looks like 166,000 jobs were added last month. That number is below most expectations, and the number of jobs created in the previous month was revised down.
(Read more: Private jobs come in light for September: ADP)
Second, housing has suffered because of the rise in interest rates. New home sales for August came in at 421,000, below estimates of about 450,000. The projected number of sales is now about 450,000 units. To put this in perspective, that number was over 1.3 million at its peak in 2005.
The government shutdown means the Federal Reserve won't taper its quantitative easing program until 2014, several Fed experts contend.
"The longer the political showdown in Washington continues, the greater the chance that the Fed will defer tapering until 2014," Kathy Lien of BK Asset Management wrote in a Thursday note.
She provides two explanations for this: economic damage, and information loss.
First of all, the shutdown is having a direct impact on the economy. As Deutsche Bank economist Joseph LaVorgna writes in a recent note, "Our estimate is that each week of the shutdown reduces quarterly GDP growth by approximately one-tenth in the initial phase, but this drag intensifies toward two-tenths if the shutdown lingers into a third or fourth week."
Since the Fed only wants to taper if it feels the economy can withstand it, anything that weakens the economic recovery reduces the chances of tapering.
Second, because of the shutdown, the government is no longer producing economic data. Most damagingly, the Bureau of Labor Statistics will not release a jobs report on Friday.
And for Eric Rosengren, president of the Federal Reserve Bank of Boston and a voting member of the FOMC, this lack of information is a major concern. The shutdown "does put out further into the future the time when we can get a real assessment of where the economy is," he said on Wednesday, according to Reuters. "It would make me less willing to remove accommodation until we had good data."
For these two reasons, "If the shutdown extends beyond next week, it may be very difficult for the Fed to justify reducing asset purchases in December, and at this stage, we should forget about a move in October," Lien writes.
Jim Rogers has a two-word message for U.S. investors: "Be careful."
"The U.S. is the largest debtor nation in the history of the world," Rogers told CNBC.com Wednesday night by phone from Singapore. "We may well have a big, big rally in the U.S. stock market, but it's not based on reality. I would encourage investors to know you're in a fool's paradise, be careful, and when people start singing praises, say, 'I've been to this party before, and I know know it's time to leave.'"
For Rogers, the author of "Street Smarts: Adventures on the Road and in the Markets," it is only a matter of time until the U.S. stock market runs into devastating problems due to the Fed's quantitative easing program and the prevalence of similar stimulative programs around the world.
"First of all, throughout American history, we've always had slowdowns every four to six years. That means that sometime in the next couple of years—three years, maximum—we are going to have problems again, caused by whatever reason," Rogers said. "For instance, there was 2001 and 2002, and then 2007 and 2009 was much worse. Well, the next time it's going to be worse still, because the level of debt is so, so, so much higher. Every country is increasing its debt at the same time."
Stimulative measures by central banks, such as the purchasing of assets with created money, boost asset prices in the short term. But Rogers said that central banks can only do so much.
What a difference two weeks makes.
In mid-September, the markets were certain that the Federal Reserve was about to start tapering its quantitative easing program. But the Fed surprised investors on Sept. 18 by maintaining the pace of asset purchases, and quite a bit has changed since.
Both the government shutdown and the weaker-than-expected ADP jobs number have given the Fed solid reasons to be concerned about the recovery. And before you say that the jobs number was only the ADP number rather than the official Non-Farm Payrolls measure, remember that the shutdown means we won't get the official government number Friday, so the ADP number is all we have to go on.
Ron Paul says his fellow Republicans aren't as committed to cutting government spending as it may seem.
The Republicans "are putting the money back in the budget in the continuing resolution for the military expenditures. So you know they're not serious," the former congressman said on Tuesday's "Futures Now." "Neither side is serious about cutting back. They're just trying to bamboozle the American people into believing that you have to keep spending forever."
Paul says that the Republican Party's lack of focus has sapped the power of their anti-Obamacare arguments.
Forget the U.S. government shutdown, markets are most concerned about raising the debt ceiling and avoiding another U.S. debt downgrade, professor Jeremy Siegel of the Wharton School at the University of Pennsylvania told CNBC on Tuesday.
"The biggest fear is another downgrade of the debt such as S&P did two years ago," he said. The longer the U.S. government shutdown wears on, the greater the fear that when the debt ceiling needs to be raised, that it will be delayed. If that happens, the Treasury won't be able to pay its bills, and it could trigger another downgrade, he explained.
(Read more: Here comes the DC shutdown: What you need to know)
"The probability is very, very low but if there is any default or begin to default on U.S. Treasury bonds, there will be chaos in the market," he warned.
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