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After the No-Taper Rally, Is a Government Shutdown the Next Big Worry?

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The Fed is keeping a wary eye on the upcoming debt ceiling, continuing resolution, sequestration, and government shutdown debates.

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Taper? Wait for it, wait for it... and wait for it we will, as the Fed surprises the entire financial universe by holding off on reducing the pace of Treasury and mortgage-backed security purchases. The Fed also pegged the 2016 Fed funds rate at 2.0%, which certainly signals long-term accommodation. These non-moves should support bond prices as well as the rates people pay for mortgages, not to mention the Dow (INDEXDJX:.DJI), S&P 500 (INDEXSP:.INX), Nasdaq (INDEXNASDAQ:.IXIC), European markets, and emerging markets.

There is no question that the Fed is keeping a wary eye on the upcoming debt ceiling, continuing resolution, sequestration, and government shutdown debates that are about to dominate the inactivity activity in Washington, DC. Like it or not, the Federal Reserve is still the hardest working body in the government business.

The message is clear: The Federal Reserve intends to stay very supportive of big-ticket purchases like houses, cars, and furniture. It also remains focused on improving job growth and inflation growth. When will we get enough of each to start the tapering that most expected today? I don't know, and I imagine no one else does, either... but if you do, please post it in the Wall's comment section below.

Click on the image below for an interactive version of this week's Wall of Worry, or scroll down for the text-only version and an explanation of how the Wall works.





GOVERNMENT SHUTDOWN: A very early start to the 2013 vacation break might be nice for Congress, but it sure would be an economy-size lump of coal for the rest of us.

QE: "More, more, more. How do you like it? How do you like it?"

UNEMPLOYMENT: More people dropped out of the workforce. Whew!

US ECONOMY: "Wishin' and hopin' and thinkin' and prayin', plannin' and dreamin'" that it continues to stay in the +2% range.

INVESTOR SENTIMENT: Money coming into mutual funds and out of ETFs, therefore market sentiment confusion staying put.

HOUSING CRISIS: This entry is coming off the Wall soon so if anyone has any reason why this worry should be kept on the WoW, let them speak now or forever hold their fretting.

EUROPEAN ECONOMY: If it ain't getting worse, it's getting better... I hope.

VOLATILITY: Actually not so bad, considering an exchange or two shuts down once a week.

HIGH-FREQUENCY TRADING:
Lloyd: What do you think the market impact from Fed tapering will be?
HAL: Anything short of mayhem will be a disappointment.
Lloyd: That's it. You're officially off my holiday gift list.
HAL: What's a holiday?

CHINA: Considering opening up their markets to REITs, margin trading, and shorting selling. Coming close to officially declaring, "The water's fine, boys, come on in!"

GLOBAL ECONOMY: Sure would be a buzzkill if we got a oil price spike right about now.

JAPAN: Gets the 2020 Olympics. Does that mean it has to keep its economy levitated for the next six years?

CONTINUING RESOLUTION: The US needs yet another stopgap measure so it can pay its bills. Note: This is different from the debt ceiling issue, which allows it to continue to pretend that it will pay its tab in full one day.

BONDS: As we go to print, the 10-year yield is dropping steadily and all is calm. Best advice: Take a picture.

CENTRAL BANKS: Pouring more fuel on the monetary fire.

MORTGAGES: Demand for them in the US seemingly still on August break.

FRANCE: The Battle Royale With Cheese...which is worse, their political situation or their economic situation?

CONSUMER CONFIDENCE: Sheesh, if you're gonna let the threat of a new war in the Middle East derail your spending bravado...

SPAIN: Sending a big "Nah-nah nah nah-nah" to Italy as their 10-year bond yields drop below those of their EU cousin to the east.

OIL PRICES: Syria comes off the table, and then oil comes off the wall.

RETAIL SPENDING: If the non-stop shopping sprees have ended in the US, what are people doing with their weekends, weeknights, and weekdays?

DEBT CEILING: Red lines being drawn by the executive and legislative branches of the US government. Once we get the Supreme Court to chime in, we will have a trifecta.

SYRIA: I think the US just hit a giant pause button.

EMERGING MARKETS: Leaders from the EMs seem more concerned about Fed tapering than leaders in developed markets. And they should be.

GERMAN ELECTIONS: The question isn't who is going to win but rather what happens after she does.

FED CHAIR: Still Yellen vs. all comers.


What Is Lloyd's Wall of Worry?

by Lloyd Khaner

Welcome to my at-a-glance guide to the issues facing investors this week -- a unique tool for traders and money managers.

Typically the term "wall of worry" refers to the entire body of concerns influencing stock market action. When the wall is high, meaning the market is nervous, stocks tend to get cheaper.

This wall of worry is even more specific. Every week I list the exact concerns in the marketplace and use the list to help me make buying and selling decisions. As I like to say, "Buy fear, sell cheer."

In other words, once the the wall rises above 15 blocks, start looking for deals. If the worry count sinks below 10, consider selling; prices have likely peaked.
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No positions in stocks mentioned.
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