Welcome back, fellow traders. We hope you had a great weekend, though if any of you were expecting our leaders in Washington D.C. to come to their senses by yesterday and agree on a way to avoid a government shutdown, you woke up to disappointing news this morning. You know what though? The House, Senate, and President have until midnight tonight to come to some sort of agreement and sidestep a frozen budget, so it's possible things will have changed by the time you actually read this. That being said, I was thinking about this whole mess (and studying prior shutdowns) this past weekend, and having had some time to think about it, not only do I have a little less faith we'll be able to avoid the shutdown, I'm starting to think a shutdown might end up being a good thing for investors. Yes, you read that right - a government spending freeze right here could be just what the doctor ordered. I'll explain why in a second. First I want to tell you why I suspect our elected officials may actually be willing to let things get that far. Been There, Done That All of you know this isn't the first time, or even the second or third time we've been on the brink of hitting the nation's debt-ceiling and forcing a shutdown in the past few years. We've been forced to raise the debt-limit six times under President Obama so far, but before any right-wingers out there start pointing fingers, know that this debt-limit debate came to a head seven times under GW Bush. Clinton had to deal with this six times, Bush Sr. went through this process nine times, Reagan had to raise the debt ceiling a whopping eighteen times, Jimmy Carter saw it raised nine times under his watch... you get the idea. This isn't really a partisan issue, even though both parties are making it out to be just that. But why do I think it might actually get to the point where things shut down? The simple answer is... because enough of our Senators and Representatives are like children. The longer and more complete answer is, because for all this political posturing to be effective in the future, each party has to be willing to prove to the other that it's not afraid to make tough, unpopular decisions. Otherwise, the "other party" could start thinking all these threats are hollow. What's uncanny is how often both parties need to prove - or have proven to them - they're willing to proverbially "go the distance." The last time we actually let the government's non-essential programs grind to a halt was under Bill Clinton seventeen years ago (1995). [There were two shutdowns actually... one for six days, and another for 21 days, but by and large were rooted in the same debate.] Before that, the last time the Federal Government actually shut down was under Reagan in 1981, fourteen years before the Clinton shutdown. Reagan's total shutdown time only amounted to three different half-days, though, before the threat became real enough to fix it. By the way, this was when the debt-ceiling dance started to become a real political tool. Well, it's been seventeen years since a real shutdown, and it was fourteen years between the prior two actual shutdowns. The math as well as the psychology of the whole shebang says we're due. And, with a bunch of Senators and Representatives in office now that weren't around for the prior two spending freezes, they may need to see firsthand that these things can and do happen, if only because both parties want to prove a point. Stupid? Yes, it is, but there ain't no law against being stupid (unfortunately). Now, about me almost sorta hoping we do get a shutdown, even if it's just a symbolic one... Capitulate Already! During the 1995/1996 shutdown (it started in mid-December and lasted through early January), the market lost about 4% of its value. Once the stalemate ended, however, the market spent the next month doling out a 10% gain. Since none of the Reagan era shutdowns lasted more than a few hours, there's nothing meaningful there to review - the 1995/1996 three-week freeze is the only relevant comparison we've got, and it ended pretty well. I have to wonder if a shutdown now would actually do us a similar favor. See, one of my biggest gripes about the market of late has been that it's so overbought, there's no room left to rally. Oh, we see upturns here and there, but we've not seen a significant correction hit the market's "reset" button since August of 2011. A 1995/1996-like 4% pullback now tacked onto the 3% slide we've already seen from highs hit two weeks ago would be a great start on a normal bull market pullback. For the S&P 500, that would translate into a move back to the 1600-ish area, which sounds scary, but in the grand scheme of things wouldn't be that big of a deal. It would actually drive the weekly chart of the S&P 500 back to its lower Bollinger band, which as history has shown is a huge rebound catalyst. A sizeable pullback would also resolve something of a problem the market's currently got with the calendar. Though Q4 is generally a bullish one for stocks, a big chunk of the reason it's so bullish is because we usually see a pretty good dip sometime in August or September. We haven't seen any nasty selling since June, which is ancient history at this point. A good pullback in early October could still set up our usual fourth quarter strength. Until we get that sizeable pullback, however, I suspect any rally will be quelled before it gets a chance to get going. Ironically, my biggest fear here is that the shutdown will be avoided altogether and the market will make a celebratory rally for a couple of days, which will leave us right back in the same overbought situation we were in two weeks ago. Just some food for thought, and just because I want it doesn't mean we'll get it. If we do get a shutdown-driven selloff though, you can bet we'll be using it as a buying opportunity. Sorry for the rant today, but it had to be done. We know you're not getting these kinds of facts and perspective anywhere else, so we're more than happy to be the ones to say it. We'll get back to our market-intensive and stock-centric stuff tomorrow.