Thursday, September 1, 2011

The Partisan Bickering Continues

I have written several times over the last few weeks that I believe the big risk to the markets is not economic but political.

After the fiasco over the debt ceiling, I was naive enough to believe that perhaps our political leaders would have returned home and heard from their constituents that enough was enough: just try to get along, from cripsakes.

Moreover, with Congress sporting an approval rating of 18% (which makes President Obama's 40% approval look positively Olympian) surely, I thought, we would have at least a moderate change in tone in the political debate in Washington.

Then I picked up the paper this morning only to find out that the partisan bickering only seems to have gotten worse.

I'm sure you saw the story: the President wanted to make a speech to Congress on September 7 on jobs, but this is the same night as a Republican debate, so Speaker Boehner disinvited the President. After some wrangling, the President's talk is now scheduled for September 8.

As it turns out, September 8 is also the beginning of the regular NFL season.

Here's how Ezra Klein of the Washington Post in the blog Wonkbook expressed it:

To paraphrase economist Brad DeLong, last night was one of those nights when you remember that even taking into account the fact that our political system is performing worse than you could possibly imagine, it's performing worse than you can possibly imagine. Washington has made many more consequential missteps than this one. But few of them have been so thoroughly depressing, so insistent on showing us us, with brutal clarity, what the greatest nation in the world has come to.

Little wonder that global investors have continued to pull back on stocks, despite the improved tone in the market over the last few weeks, as Reuters reported:

Global investors slashed their holdings of equities below 50 percent this month and piled into cash, reflecting what was lining up to be the worst August for world stocks since 1998.

They also lifted exposure to bonds in North America, Britain and, to a lesser extent, the euro zone, where Germany is considered a safe haven.

Reuters polls of 57 leading investment houses in the United States, Europe ex-UK, Japan and Britain showed the average stock holding in a balanced or model portfolio falling to 49.2 percent.

It was the lowest since at least February 2009, when the current questionnaire was introduced. July's reading was 52.2 percent, the second month in a row that it had risen.