Gartman: Money flows will now bypass the US
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."
The compromise signed by President Barack Obama early Thursday extended the debt ceiling until Feb. 7 and reopened the government by approving funding until Jan. 15. That means the country could be brought to another budget crisis in a few months.
Furloughed workers went back to work after over two weeks of a government shutdown. The deal also releases the government from a hostage crisis that began with demands from House Republicans aimed at "defunding" the administration's health care law, President Barack Obama's signature domestic program, which began enrolling uninsured Americans on October 1.
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Gartman, a proud Republican, told CNBC, that "his team on the right" had done an extraordinarily bad job of representing itself.
"Let's hope the adults have come back to the room. Let's hope we banished the children to the smaller table," he said. "This was really quite embarrassing to all of us."
— CNBC.com's Matt Clinch. Follow him on Twitter @mattclinch81