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MARKETS GET HIT AS WASHINGTON PLAYS TUG-OF-WAR - By WSS Research Desk

Stocks are continuing to slide as the government pushes into its fifth work day of shutdown mode, and the leaders in Washington continue failing to reach any form of agreement to put an end to this unnecessary game of tug-of-war.

As we all know by now, over the weekend the House Speaker made it clear that the House did not have the votes to pass a clean continuing resolution nor to pass a clean debt limit; however, yesterday President Barack Obama opposed this notion and said that there are enough votes in the House to pass a debt-ceiling increase and end the shutdown without further concessions from Democrats, totally rejecting John Boehner's assertion that there are no votes. And today Boehner said that President Barack Obama and Democrats need to negotiate over the U.S. debt ceiling and shutdown, but according to a Boehner spokesman, the President has reiterated that he will not negotiate over the shutdown or the debt ceiling, so the stalemate continues, and investors are becoming more and more frantic.

So while Washington goes nowhere, stocks continue to dip with the Dow Jones Industrial currently down over 90 points, after losing 137 points yesterday. As it stands, there are no indications that Washington will resolve this fiasco any time soon; more than likely nothing will happen this week, but given that the debt-limit deadline will be reached on Thursday of next week, we believe there will be a fix early next week. If the leaders in Washington fail to reach an agreement and we hit the debt limit, the U.S. will not have the necessary funds to pay its debt obligations, and this would put U.S. into default mode.

On the bright side of things, a default would certainly serve to extend the currently loose monetary policy that the Fed has in effect, keeping a positive component for stocks in place, but investors' reaction to a default would more than offset any positive bias created by the Fed, and we would surely see a very sharp pullback in equity markets. Let hope this tug-of-war game in Washington ends fast.

https://www.wstreet.com/user/register.asp?source=3