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Marketplace Morning Report

Debt impasse keeps investors, economy on hold

Bob Moon Jul 25, 2011
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Kai Ryssdal: This was a day of anticipation. Of thinking that surely — after the events of late Friday afternoon — now the markets would speak. What we got instead was — not to exaggerate at all — a massive collective yawn. Nothing. Not even after Senate Majority Leader Harry Reid and House Speaker John Boehner held installment 5,348 of the regular Washington series we’ve come to know and love as dueling press conferences this afternoon.

Traders are either cautious or confused, because nobody can figure out which way to turn. Our senior business correspondent Bob Moon reports.


Bob Moon: One analyst I spoke to today compared the financial world to a deer in the headlights, not sure which way to turn. At California-based Pacific Wealth Management, investment adviser Robert Pagliarini says all this uncertainty has many Americans in a holding pattern.

Robert Pagliarini: I don’t think people, investors, really know what to do with this.

Pagliarini says he’s been preparing for months, moving into more defensive positions in gold and commodities, reducing exposure to government bonds, and increasing positions in cash. But he says for now, sitting tight is the prudent thing to do.

Pagliarini: There’s all of this uncertainty, and I just don’t think anyone can predict what’s going to happen. And so therefore, I cannot recommend that someone make some dramatic change to their portfolio now.

New Jersey-based investment adviser Jeffrey Sica says he’s been getting worried calls from clients, reacting to the scare talk coming out of Washington.

Jeffrey Sica: That fear is present from people who rely on their Social Security check, all the way up to the people who are small business owners who are facing the potential higher taxes. I find it hard to believe that the market has done as well as it’s done during all this uncertainty.

Wall Street was still indicating today it believes a deal will be struck. But there are signs of less money flowing in the stock market, reflected in weak volume. And Oppenheimer Treasuries analyst Alan De Rose says the worries are spreading to the general economy.

Alan De Rose: It does give people pause in terms of making investment decisions. Possible outcomes are very diverse. People just are not involved at the same level they would be if this issue were behind us.

Economist Ed Yardeni says the overall economy could end up taking a hit, no matter what Washington does now.

Ed Yardeni: Clearly, if consumers are going to reduce some of their spending over the next few weeks because of concerns about how this drama plays out in Washington, then that will depress sales, which then might cause businesses to hold back.

Yardeni says that might lead to a holdoff on hiring. And he blames it all on what he calls “political theater.”

I’m Bob Moon for Marketplace.

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