Last Week in Brief.

October 1, 2013

Large-cap stocks finished lower last week, while their small-cap peers posted small gains. While the week was negative, the month of September was very positive for stocks.
The Good...
September has traditionally been the worst month of the year for stock market returns. Yet, when the preceding eight months have been really positive, September has typically managed solid gains. This year was no different. Through Friday, the market was up 3.1% for the month.
Q4 begins Tuesday. This has traditionally been the best three-month period for investors. Further, when September has gone well, so goes October, historically speaking.
Is there a manufacturing renaissance transpiring in the United Sates?
Last week, the Financial Times reported on a Boston Consulting Group survey stating that 21% of a sample set of 200 U.S. executives from large manufacturers were either already relocating production to the U.S., or had plans to do so within the next two years. A piece in The New York Times provided further support, reporting that textile companies are returning to the U.S., (story).
Finally, last week was the first in a while during which U.S. politicians were not schooled in the art of diplomacy, couth and manliness by the world's most interesting covert dictator, Vladimir Putin.
The Bad...
This month saw markets become overextended, forming a "topping" pattern similar to that seen in 2007, immediately before the market began its nosedive. I am not suggesting that we expect the same to occur. Yet, it will remain a situation of which we'll be cognizant.
More worrisome, perhaps, is the timing. This 2007-like topping pattern takes shape right as an intransigent Federal government steers the country into a shutdown. This strikes me as the type of potential triggering situation upon which we may one day reminisce, darkly.
The Ugly...
The behavior of both political parties has been reminiscent of misbehaving spoiled children. More on that later in the missive.
Perhaps an overview of what I believe to be the rationale for both parties is relevant. For, as in magic, nothing in politics is what it seems.
The backdrop to the current game of shutdown roulette?
The Federal government has not passed a real budget since 2008. Instead, it has gotten by on a series of continuing resolutions that increase the Federal spending limit and keep the Federal government solvent.
Republicans are fed up with incessant increases in Federal spending. Especially when it's not their guy doing the spending. So, they want to make a statement. And by the GOP's measurement, what better represents the reckless, grandiose displays of Federal pomposity than the Patient Protection and Affordable Care Act.
Republicans know they can't kill it. But, they think, sort of, but not really, that they can buy a one-year delay in the enactment of the PPACA by integrating such a measure into the current continuing resolution.
The Republican Congress knew that the Democratic Senate would never agree to a one-year delay of the president's signature act in office. But, they wanted to send a message.
Meanwhile, regardless of the unpopularity of the PPACA, Democrats will not abandon it. They may delay specific parts for political purposes, but abandon it? Never!
Further, Senate and Congressional Democrats believe that they can pin this entire fiasco on the Republican Congress. Further, Democrats believe they may simultaneously wipe the Tea Party from existence, if the American public becomes too fed up and blames this on Senator Cruz and Company.
So, Democrats set a trap. Speaker Boehner and his colleagues walked into it. Privately, Boehner may not mind if this trap closes on the tail of the Tea Party. They have oft been a thorn in his side.
At any rate, the stage is set. All of which will serve as an appetizer, a mere opening act to the main course served up later this month: The Debt Ceiling Deadline!
Finally, the U.S. has struggled of late on the international stage. As our diplomats are struggling to regain the nation's legitimacy on the global stage, a government shutdown does nothing for us.
Why would another nation wish to negotiate, when we cannot do so among ourselves? More here...
Weekly Results...
Major markets finished mixed last week. The DJIA fell 1.25%, the S&P 500 lost 1.06%, and the Nasdaq added 0.18%. Small cap stocks climbed 0.13%. And the 10-year Treasury bond yield fell 10 basis points to 2.63%. Gold rose 0.80% per ounce.

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