Another Government Shutdown Looms on January 19

Here we go again. Unless Congress passes a new federal budget or another “continuing resolution” (CR) to fund Uncle Sam, the Treasury Department says the government will effectively shut down at midnight a week from tomorrow. And this time around, all three sides – Republicans, Democrats and President Trump — are threatening to let such a shutdown happen if they don’t get their way.

In the last five years, Congress has passed 15 short-term spending measures, leading to one emergency funding bill after another. So, what’s to think this time will be any different? For one, President Trump has signaled that he might veto a new CR if he doesn’t get funding for his border wall between the US and Mexico – he wants $18 billion over 10 years.

For another, Democrats in Congress say they will withhold any votes for a new CR unless it includes provisions to prevent the deportation of some 800,000 undocumented immigrants brought to the US by their parents as children – the so-called “Dreamers.” Unlike the tax cuts passed just before Christmas, Republicans need some votes from Democrats to pass the CR.

Trump announced in September that an Obama-era program that shielded Dreamers from deportation, known as Deferred Action for Childhood Arrivals (DACA), would end in early March. He urged lawmakers to come to an agreement on how their status should be handled, yet Congress has done virtually nothing.

Trump has said he’s willing to address the Dreamers issue in exchange for money for the border wall, an end to family immigration preferences (including “chain migration”) and a visa lottery (also known as the “green card lottery”). But the standoff has been deepening.

Most Republicans, meanwhile, don’t want to see anything about immigration in the new spending bill; they prefer to take up immigration as a separate matter after the CR is passed. Some in the GOP will no doubt withhold their votes if the Dems get their way.

At this point, each of the three sides has the potential to cause a government shutdown a week from tomorrow. Normally, I don’t worry about these spending standoffs because they almost always make a deal at the last minute. The last government shutdown was in 2013. This time, however, President Trump seems dead serious about a veto if he doesn’t get money for the border wall, and Democrats may be willing to shut down the government to deny him that money.

Here’s an article from CBS News which argues that it will be a big mistake if the Democrats are the ones who shut down the government at the end of next week:

A Government Shutdown Would Be a Loser for Democrats

Normally for such a big funding request ($18 billion), the president would place it in his upcoming federal budget for fiscal 2019 which is due out by February 5. Instead, he chose to have the border wall fight now, despite the looming deadline a week from tomorrow.

It was also very unusual that the White House decided to announce the funding request late last Friday. Normally, late Friday news releases are for burying unpleasant or unflattering stories that will get limited coverage over the weekend.

Some believe the Trump administration made the decision last Friday because of the release of Michael Wolff’s controversial new book “Fire and Fury” that same day. While several of the shocking allegations about Mr. Trump in the book have already been proven false, it has nonetheless created another controversy and much frustration for the president.

I warn you about this elevated government shutdown risk today because I believe the US equity markets are ripe for a major downward correction any day now. As I will discuss at length in my E-Letter next Tuesday, there are now several underlying technical indicators that are quite troubling.

That’s why I worry that if we get a government shutdown at the end of next week, it could be the catalyst for a serious downward correction, or worse, in US equities. You can read that discussion next Tuesday and decide if you need to make any changes in your portfolio.