You have to assume that the markets expect some kind of debt deal to happen. The mild reaction to the dysfunctional government can only be interpreted as frustration about the timing and method of a debt ceiling deal, not the actual certainty of one being reached. We will find a way not to default although it may take an enormous drop in the market to wake up the public against the dug-in intransigence of the Tea Party. After all it wasn’t the Democrats that voted down the TARP precipitating the biggest one day slide in the Dow’s history but rather the divided Republican party. People forget that it was Hank Paulsen, the uber Republican that engineered the bailout. The Republican party is on the verge of splintering into two flavors of tea, tea with honey, the other, cyanide.
Tonight Obama crashed the Senate and House servers. You have to assume it was his call to duty, to contact your congressman/woman and let them know that you are in favor of compromise not ideology that brought the Congressional Internet to its knees. It was Boehner that pleaded his case to the American people. After all he was on five minutes to the President’s fifteen. Few can match Obama’s oratory powers and tonight wasn’t the Speaker’s best game. Tomorrow new polls will come out and show a definite shift in public sentiment. Fairness trumps corporate greed, hedge funds and private jets. The same old spiel; Oil companies are bad, bad, bad.
It’s a shame. After the market factors in a brief bounce on the end of the debt ceiling farce, market participants will use the rally to sell into it. Beware. There is no chance that the Tea Party heard the message. If Obama’s oratory was coupled with smart policy and decisive action, there could be a generous rally. But there’s little chance of that. One thing for sure is that there will be less government spending and that will weigh on the economy in the short-term. As always our commentary is not political but financial and short-term we would sell any rally or certainly beef up your hedges.