Wall Street (and Main Street) give sequester a big yawn

Mark Koba , CNBC ? ? ? 6 hrs.

While politicians in Washington fan the flames of economic doom from the billions in automatic spending cuts scheduled to begin going into effect Friday, they've apparently failed to light a fire under many Americans.

Investors seem to be indifferent, according to analysts, with the markets having priced the sequester into equities, as stocks and bonds remain unfazed.

Stock were higher at midday Friday as President Barack Obama met with congressional leaders at the White House in a gathering that lasted less than a hour. After the meeting, Obama warned that the effects of the budget cuts would ripple through the economy.

Share prices have been rising for the past four months to hover just under five-year highs on the strength of corporate earnings and the Federal Reserve policy of near-zero interest rates.

So why Wall Street's couldn't-care-less attitude? Reasons for the "sequester blahs" vary? from the expectation that just another political squabble will eventually end in a deal, to media hype, to even a sense of bring it on.

One of the biggest reasons, however, is that investors don't think the budget cuts would stifle the recovery, which has been gathering steam lately.

"There is no immediate and visible impact to the economy so markets are not seeing it as a tail risk," Ayako Sera, a market economist at Sumitomo Mitsui Trust Bank in Tokyo, told Reuters.

As for Main Street, a hardly scientific and certainly not complete look at recent comments on CNBC.com shows how some people seem to be taking the sequester in stride, if not wanting it to just plain happen. (Some editing to posts for reasons of spelling and punctuation.)

From Beeboo: "Washington is doing it again, wait to the last minute, I keep saying, get rid of all of them all 535 . Let's start all over, and let's limit their terms to ONE."

From Wicked_Smart: "This is right up there with the Mayan apocalypse ... $85 billion in cuts still leaves $915 billion of an annual deficit. This will come, pass, and nobody will notice."

From NewDay12: Shut everything down...who cares.....people should know how to fend for themselves anyways ... if you rely that heavily on the government you have bigger issues in your life."

From 2B: "The pathetically too small sequester doesn't even reduce the growth of spending but somehow only things that truly affect the most Americans will be cut. We could get rid of 90% of the Departments of Education (in effective, counter productive) and Energy (totally focused on the wrong issues) and nobody would notice outside of the employees themselves."

"I think people can't get their minds about what the effects of sequestration will be," said Mark Zandi, chief economist with Moody's.

"It's not like a tax increase that hits everyone at the same time. These furloughs and layoffs and budget cuts are abstract right now. It's not real to people yet," Zandi said.

There's proof to Zandi's statement. A recent survey showed that fewer than one in five of those polled said they understand very well what would happen if the sequester went into effect.

Zandi also said that the Washington blame game is confusing the issue.

"People are very suspicious about the politics of it all and who's right and who's not," said Zandi. "They don't know who to believe and don't really understand the seriousness of it all."

One analyst said people might be too busy to even notice what's going on.

"So many people are working long hours, trying to feed the family, and just keep their heads together. I don't think they even have time to focus on sequestration," said Timothy Nash, an economics professor at Northwood University.

Nash said the past battles over taxes and budget cuts has left many with a boring sense of 'here we go again.'

"We had the recent 'fiscal cliff' scuffle, and the debt ceiling fight before that last year, and we'll have that battle again this year. It just seems to go on and on for people," Nash said. "They're getting immune."

"Also, people are somewhat apathetic about the economic recovery," he added. "They're frustrated. But I'm still amazed at how they don't take the sequester seriously. They need to."

Even if many are ignoring the sequester, an NBC News/Wall Street Journal poll released earlier this week found that majorities of Americans believe the sequester is not a good idea and that the contentious budget negotiations make them less confident about the U.S. economy.

By 52 percent to 21 percent, the public calls the sequester a "bad idea" rather than a good one, the poll found. Nor do Americans feel good about the way Obama and Congress are dealing with each other on the issue; by 51 percent to 16 percent, they say budget negotiations so far make them less confident about the economy.

Barring a deal between Congress and the White House, the $85 billion in automatic, government-wide spending cuts this year begin to go into effect on Friday. Most government agencies have funds available after Friday, but the clock would be ticking on how long they can keep operating.

One of the biggest problems from the cuts is the number of government workers placed on furloughs or laid off. Those worker notices would go out on Monday.

Among the agencies expected to be hit hard first is the Transportation Security Administration. It would be forced to reduce its workforce, including a seven-day furlough for airport screeners, which would increase passenger wait times at most of the nation's airports by more than an hour. Fewer air traffic controllers would also be on the job, increasing wait times even more.

"That's when people will really start to feel the impact of sequestration and probably be upset very fast," said Zandi. "Long wait lines at airports, national parks closed, job losses and fewer government offices open will wake a lot of people up."

Until then, it's just theater of the absurd, said Mark Zupan, the Dean of the University of Rochester's Simon School of Business.

"Its like a Kabuki dance that politicians make over these budget issues," Zupan said. "People are getting tired of it and that's why they don't have much interest in it."

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Source: http://www.nbcnews.com/business/economywatch/wall-street-main-street-gives-sequester-big-yawn-1C8638598

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