Robert Stein 1924-2014

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Thursday, July 28, 2011

When Will Wall Street Weigh In?

A Dow drop of almost 200 points yesterday could be the first tremor of panicky bears preparing to escape an economic conflagration that Congress seems intent on setting off. Will the markets be full of investors with their hair on fire today, tomorrow or Monday as the debt-ceiling deadline looms?

While the House and Senate continue to play chicken, Wall Street (Heaven help us all) looks like the last hope for sanity, as it was in September 2008 when the biggest single-day market crash ever spurred approval of the Paulson bank bailout for unfreezing credit after the House failed to pass it. A loss of $1.2 trillion in market value got their attention.

Now, as the Washington game goes on to avoid default, with the stakes even higher, will the “Greed is good” gang react any differently?

“Investors,” says a New York Times report cautiously, “are seeking alternatives to United States Treasury bonds as worries escalate that lawmakers will fail to reach an agreement...Some have shifted funds into corporate bonds, others are forgetting about yields entirely and parking their money in cash, and more are looking to those classic safe havens of yore, gold and the Swiss franc.

“Investors are getting leery of stocks...”

No one wants to talk openly about a market panic, for fear of being accused of helping to set one off, but the signs are there.

If Boehner and Reid can’t get a deal done and the President is helpless, will the Gordon Gekkos of the financial world step up and twist their arms to get something done?

Friday Update: The stock market's fear factor--the CBOE Market Volatility Index (VIX)-- is up 5% to 25.03 by midday, still below 30, which denotes high fear in the marketplace, but the index has gone up more than 42% in the past five days.

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