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U.S. government shutdown next week? Markets are underpricing this risk - Danielle DiMartino Booth
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(Kitco News) - There is another U.S. government shutdown deadline looming over the U.S. at the end of next week, and Danielle DiMartino Booth, CEO and Chief Strategist at QI Research, says that markets are currently ignoring this risk.
As of Tuesday, the Republican majority in the U.S. House of Representatives had not reached a consensus on a strategy to maintain federal agency operations, with the November 17th deadline to avoid a government shutdown fast approaching. The Senate, with a narrow Democratic majority of 51-49, is also facing an impasse, which has amplified demands for a stopgap "continuing resolution" to prevent a shutdown.
DiMartino Booth described the U.S. Congress as dysfunctional. "There haven't been any of the concessions that those on the far right have been demanding," DiMartino Booth told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News, on the sidelines of the New Orleans Investment Conference. "All these months later, after the debt ceiling was resolved, they're still not getting what they want."
To fund the government through its fiscal year, Congress must pass 12 appropriation bills.
DiMartino Booth pointed out that despite the current environment, there is a new political development that would give her hope in this election cycle. Watch the video above for what that is.
Recession is already here and bankruptcies are piling up
Making the macro situation more dire is the bankruptcies that are already starting to pile up, DiMartino Booth pointed out.
"I don't think we have a deep enough appreciation for how damaging the current holiday shopping season can be, and that's why we're seeing bankruptcies one after another," she said.
The latest development to hit the markets was WeWork Inc. filing for bankruptcy this week. The company — which at one point had a $47 billion valuation — has listed $19 billion of liabilities and $15 billion of assets in its bankruptcy petition in New Jersey on Monday.
"It's November. This is when, seasonally speaking, we see companies closing. Companies know they won't make it through the holidays," DiMartino Booth explained.
The U.S. economy is already in a recession, according to DiMartino Booth, who sees the increase in the unemployment rate as a sign of a major economic slowdown.
"You're seeing real stress. You've got a half percentage point increase in the unemployment rate. Historically speaking, you're already in a recession," she said. "The damage has been done. You're seeing the divide between where companies originally financed their commercial real estate and the equity that they would have to put up in order to refinance it. The divide is just too big. They're walking away. And that's a 2023 story."
The jobs data from October missed expectations, showing that employment growth is slowing in the U.S., with only 150,000 jobs added last month. The unemployment rate also rose to 3.9% in October, marking the highest level since January 2022.
Next year, this narrative will bleed into corporate bonds, with the bankruptcy cycle taking off, DiMartino Booth added.
"Companies know that they're not going to be able to go from maybe having a 2% bond to a 5% bond. They know that they will have to declare bankruptcy instead," she said. "And we're seeing the lag effects since March of 2022, when this tightening campaign started, kick in."
DiMartino Booth addressed the banking sector, identifying the next "real pain point." For details on what's next for banks, watch the video above.
DiMartino Booth also gave an update on her equity exposure, revealing that she now owns one stock. For more details on this, watch the video above.
Presidential Elections 2024
DiMartino Booth is hopeful however that with the correct leadership in Washington, there could be optimism and confidence infused into the American economy and national sentiment. She gives her take on who should be the winner of the 2024 Presidential Election in the video above.
