The government shutdown and the last minute deal to avoid default have damaged the credibility of the U.S. as a haven for investment, according to Dennis Gartman, the founder of The Gartman Letter, who predicts that money is now more likely to flow to foreign investment.
Investors pulled $43 billion out of U.S.-based money market funds in the week ending Thursday, according to research firm Lipper. The funds invest in short-term securities such as short-dated U.S. Treasury bills and the flows marked their largest one-week decline since August 2011. It marks a complete reversal from the $40.7 billion of inflows into these low-risk funds in the month of September.
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"Money went to the sidelines, money went to cash and now it's going back to where it was," Gartman told CNBC Friday. "The leaching away of confidence likely has stopped."
But questions have been raised as to whether the money is flowing back into U.S. assets. Data from the Investment Company Institute shows that stock mutual funds that hold U.S. stocks had outflows of $5.2 billion in the same week, marking their biggest withdrawals since the start of the year. Meanwhile, the same data highlighted that funds that hold stocks of companies outside the United States attracted inflows of about $2.1 billion, marking the strongest demand for the funds in three weeks.
Gartman now predicts that dicing with default has led some U.S investors to move their money into foreign assets. In addition, he believes foreign investors will definitely look to take their money away from the U.S.
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"Will foreign investors continue to move money to foreign investment? The answer to that is resoundingly yes," he said. "I suspect the damage had been severe and probably permanent."