We have now witnessed the effects of dysfunctional politics on the stock markets as well as the bond markets and the credit markets. Readers may ponder the appellation: “the Gaetz market."
Here’s a sample of the media discussion around the House Member who brought down Speaker McCarthy:
“House Republicans Finally Realize That Matt Gaetz Is a Raging Jerk” (https://news.yahoo.com/house-republicans-finally-realize-matt-160154926.html)
“House Republicans are planning a motion to expel Matt Gaetz from the chamber… The House GOP will move to expel Gaetz if the Ethics Committee finds him guilty, Fox News reported Sunday. Earlier this year, committee investigators reopened a probe into the Florida Republican for allegations of sexual misconduct, illegal drug use, and other wrongdoings.”
What Karl Rove (WSJ column) described as the "Chaos Caucus" has Gaetz as its leader. Market reaction to the political dysfunction in Washington has resulted in shrinkage of every 401k in America. And the Gaetz Chaos Caucus impact on long-term interest rates, credit default swaps (US-govt.), bond market credit spreads, and related financial instruments has put the new 30-year home mortgage rate in the 8% region.
Not a single email, comment, or other message received by me from any client, consultant, colleague, or reader supports Gaetz or the others aligned with him. That derogation now includes the eleven House Republicans (including Gaetz) who derailed McCarthy on the procedural vote that preceded his ultimate ouster.
Last Sunday I published the following blog about the shutdown fiasco and how markets have reacted. Here's the link: “Shutdown Averted: Political Dysfunction Confirmed,” https://www.cumber.com/market-commentary/shutdown-averted-political-dysfunction-confirmed.
Bloomberg Opinion columnist John Authers was kind enough to quote me among those he cited in his Oct. 2 column “Shutdown Is Shut Down, But Not the Dysfunction,” https://www.bloomberg.com/opinion/articles/2023-10-02/shutdown-stopped-but-us-congress-dysfunction-isn-t. I thank John for the shoutout.
John's column outlines the risks now sourced in political dysfunction and in the behavior of the Chaos Caucus. We concur and point to the fact that the extension of our US government operation's funding runs to the week before Thanksgiving. Will we replay the Gaetz incident again? What’s the outcome for the new House Speaker once that’s resolved? This is the first time in American history that an interim Speaker pro tempore has held the gavel. Stay tuned.
Meanwhile, markets are not waiting. The market response to the Gaetz affair and the Chaos Caucus appeared on your screen and in your portfolio.
We continue to hold a cash reserve (about 20%) in the US Equity ETF strategy. Note that the cash equivalents we use are earning about 5% or higher.
David R. Kotok
Co-Founder & Chief Investment Officer
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