We at The Wall And Broad Report have been posting about the benefits of GRIDLOCK since the middle of 2010, well before the November 2010 elections. We were very fortunate in receiving tremendous comments and explanations on the positives of Gridlock, and the positive effects on the markets from Fred and Rob Lange, of Lange Financial Services. They taught us the potential ramifications as well as went through the historical events where GRIDLOCK was extremely positive, and how the markets acted as a result. We can honestly say they were dead on accurate and we achieved some tremendous results as a result of their teaching us in detail.
Below you will see and read Jim Cramer from CNBC last night explain the positive benefits of a possible Government shutdown which is ONLY possible as a result of Gridlock! He is right in line with our thinking, and with what we so fortunately learned from Lange Financial at the July/August lows in 2010.
Cramer: Bring On the Government Shutdown
Published: Wednesday, 6 Apr 2011 | 6:02 PM
By: Drew Sandholm
Unless the White House and Congress can reach agreement on a federal spending-cut bill by Friday, the U.S. government will partially shut down the next day. Cramer said investors shouldn’t be concerned, though. He thinks a government shutdown could actually give stocks a boost.
“Governmental paralysis means no government intervention. Governmental paralysis means that politicians can’t spend their time ruining the stocks of entire industries with new regulations,” Cramer explained. “It’s terrific for stock owners since rather than neutering business, the government’s neutering itself.”
A paralyzed government has been great for stocks in the past, Cramer noted. During the William J. Clinton administration, for example, Democrats lost their majority in the 1994 elections. The nation saw a divided government with a Democratic president and a Republican-controlled Congress. Amidst the political divide, stocks produced healthy gains. In 1995, the S&P 500 surged 34 percent for the largest gain in 37 years. As 1995 came to a close, the government shut down â€” the last time the government shutdown, by the way. In turn, the S&P gained another 23 percent.
“Stocks work great when the government isn’t working at all,” Cramer said. “Bring on the shutdown!”
When the government is working, Cramer said stocks don’t tend to do as well. Take health care reform, for example. On March 23, 2010, Democratic President Barack Obama signed the Democratic-passed health care reform into law. Shortly thereafter, Cramer said most all health care stocks took a hit, including and especially health maintenance organizations. Now that health care reform is a distant memory for many on Wall Street, Cramer said the industry is finally bouncing back. In the last seven months, the HMO exchange-traded fund is up 36 percent. Health care cost containment plays are also doing well.
Government intervention also hurt the stock market when the White House worked with the Democratic-controlled Congress to pass financial regulatory reform, Cramer argued. With FinReg now law, Cramer thinks U.S. banks aren’t able to compete against international players that can offer a greater range of products and services. JPMorgan Chase’s Jamie Dimon was the first CEO of a major U.S. bank to make similar comments when he went on the record Tuesday. He said the restrictions on derivatives in particular are making things very difficult for U.S. banks.
“If I can’t offer you a foreign exchange swap or a credit derivative at a price you like, you will do it elsewhere and that could be Singapore,” Dimon reportedly remarked.
Contrary to what many in Congress seem to believe, Cramer said swaps didn’t cause Lehman Brothers, Bear Sterns, Wachovia or other major banks to melt down. Those and other banks faltered due to sloppy underwriting of bad mortgages, careless lending to hedge funds or by purchasing crummy assets with high yields to produce great returns, Cramer said. He thinks regulating swaps might have been a mistake and is yet another example of how government intervention isn’t great for the market.
“When Congress acts against a sector, it takes a long time for the stocks to heal,” Cramer said. “But when Congress is distracted and fighting among itself, we can focus on what should matter to stocks: earnings unimpeded by government regulation and fortunately, those earnings should be darned good.
Now if only the shutdown could last through all of earnings report season.