And so it begins…

As the clock struck midnight Monday, Congress failed to reach an agreement on a short-term budget resolution. As a result, for the first time in 17 years, the United States has entered a shutdown, and thousands of government employees have been furloughed.

Depending on how long the shutdown lasts, this could have varying effects on the health of the U.S. economy. At best, congressional leaders will reach a resolution quickly, leaving furloughed employees with nothing worse than a few days off without pay. At worst, it could take weeks for the boys and girls in Washington to work out a deal; in that scenario, economic growth could shrink by as much as 1.4% in the fourth quarter.#-ad_banner-#

But a government shutdown is by definition temporary. The United States can’t stay closed forever. So while stocks may fluctuate as Republicans and Democrats go back and forth on the Affordable Care Act (aka Obamacare), the shutdown should have little to no long-term impact on the stock market.

But that doesn’t mean there isn’t cause for concern. The shutdown sets the stage for an even bigger event that’s scheduled to come later this month: the debt ceiling debate, round 2. 

The debt ceiling is the maximum amount of money (as set by Congress) the United States is allowed to borrow. If the government reaches that threshold, it is not allowed to take out any more loans to pay for its operation. 

The last time we heard about the debt ceiling was in August 2011, when members of Congress waited until midnight the day before the deadline to pass a continuing resolution bill that would stop the U.S. from defaulting on its Treasury obligations and keep the government funded through October of this year.

The Debt Ceiling, Round 2
That resolution is set to expire this month, setting up what is now the same battle… just two years later. It’s predicted that if Congress doesn’t increase the debt ceiling soon, the U.S. could default on its interest payments as early as Oct. 17.

As investors, we should be much more concerned about the debt ceiling than the shutdown. If Congress fails to raise the debt ceiling, the U.S. could default on its obligations, and U.S. Treasury debt would lose its title as one of the few “risk-free” assets in the world. The effects would send ripples through financial markets across the globe… 

All this uncertainty has stalled markets lately. Just last Friday the S&P 500 Index posted its biggest weekly loss since August. The S&P 500 was down another 0.8% yesterday, as Congress was still no closer to reaching a consensus that it was when the debate started in early September.

If history is any indicator, stock prices could continue to suffer if the government drags this debate out for too long. During the 2011 debt ceiling debacle, the market plunged 18% as politicians scrambled to pass a budget bill before the U.S. defaulted on its Treasury payments.

But while the market experienced a pullback during that period, shortly after Congress reached a resolution and the fear subsided, the S&P 500 went on to have one of its biggest years on record.

A similar pattern has played out in other government near-catastrophes we’ve seen lately. The “fiscal cliff”… the “sequester”… Syria… fears over “tapering” by the Federal Reserve… through all of these would-be apocalypses, the markets — after pulling back briefly — continued to plow higher.

The next round of budget talks shouldn’t be any different. Since 2001, Congress has raised the debt ceiling 13 times — I doubt lawmakers will fail to reach an agreement on the 14th. 

While the market may fluctuate as politicians work out the logistics, come Oct. 17, Congress will likely work out at a deal and things will go back to normal — they have to. Congressional lawmakers may be politicians, but they aren’t stupid. They’re not going to risk the U.S. Treasury bond losing its “risk-free” status — regardless of how vehement their political concerns are. 

That means any price weakness we experience due to government uncertainty in the next month or so should be seen as a buying opportunity, not a reason to panic. As Amy Calistri, the expert behind StreetAuthority’s Stock of the Month advisory, told me, “If problems in Congress continue to weigh on stock prices this week, I’ll use the pullback to buy stocks that have been on my radar.”

One of Our Favorite ‘Guru Stocks’ Just Hit a New 52-week High
In the most recent issue of Insider, we told you about Michael J. Carr’s new trading system designed to leverage the financial genius of “guru” investors like Warren Buffett, George Soros and Carl Icahn. 

You can read the full issue here, but if you missed it, Michael’s system is simple: He uses a blend of fundamental and technical analysis to weed through the stock holdings of 20 of the market’s most prominent investors and picks the best stocks from each of their individual portfolios. 

This system has two profound benefits. For one, each of these “guru” investors has teams of analysts, money managers and traders to help do their bidding. So when one of them picks a stock, you know it has been vetted by some of the greatest financial minds in the industry.

But this “Guru Investing” system also has the added advantage of reducing risk. By selecting just a handful of stocks from these investors’ holdings — Michael recommends only the best 10 stocks he finds — you’re ensuring you own only the best picks in their portfolios that, after being vetted by Michael’s system, have the brightest fundamental and technical outlook. 

So far, his system has worked well. On Friday, one of Michael’s favorite “guru” stocks — Micron Technology (NYSE: MU) — touched a new 52-week high of $17.95.

Michael first brought this stock to the attention of his readers back in May, when the stock was trading around $11.23 a share. At the time, his system was signaling “buy.” Since his recommendation, the $18 billion computer chip manufacturer has surged 57%.

What first attracted Michael to the stock was its ownership profile. Not only is this stock owned by billionaire investor George Soros, you can also find it in the portfolios of lesser-known gurus Seth Klarman (money manager of Baupost Group) and Steve Cohen (founder of SAC Capital Advisors). 

But “guru” ownership is just one of the many criteria Michael looks for when he’s screening stocks. In order to get a “buy” signal from Michael’s system, a stock also needs to show high relative strength and strong cash flow growth. 

Relative strength measures the price trend of a stock compared to all the other stocks in the market. Among the hundreds of “guru” stocks Michael identifies, he only considers those with a relative strength over 70 (that is, they have risen faster than 70% of the market during the past six months). Michael started eyeing Micron very closely since its RS broke above 70 earlier this year. Since that time, Micron’s RS rating has increased to 99.

The other variable in Michael’s equation is cash flow. Cash flow measures the amount of money coming into a business — it’s the lifeblood of any company. They use this cash to build new factories… pay dividends… develop new products… anything that can grow the business or reward shareholders. 

Few companies are better at generating cash flow than Micron Technology. In the past 12 months alone, the company increased its cash flow 240%. Over that same time, only 1% of publicly traded companies were able to grow their cash flow faster. 

Combine the company’s strong cash flow with its high relative strength, and Micron has been one of the market’s best-performing stocks this year. Anyone who bought on Michael’s recommendation in May would already be up close to 60%.

P.S. To learn more about Mike’s system, I encourage you to read StreetAuthority’s latest report… “The Billionaires’ Roundtable.” The new presentation outlines 3 simple steps to tap into the picks of Buffett, Soros, Icahn and others to capture gains of 42%… 60%… even 750% in just weeks or months — instead of years or decades. To access it, click here.