Salient to Investors:

The Dow looks primed to finish the week less than 100 points below where it opened Monday, just before the government shutdown started. David Ader at CRT Capital said we are all surprised the markets have not sent more of a signal.

On the day Congress initially failed to pass TARP in September 2008, the Dow dropped more than 7 percent – 4 days later later the legislation passed and markets rallied. When Congress fought over the fiscal cliff last December, the Dow lost 400 points before a deal was finally reached.

Yields on US debt that matures on October 17—the same day the Treasury Department runs out of cash—have gone vertical in the past week, along with the prices of CDSs on US debt, having more than doubled since September 19. Ader said those early warning signs are concerning, along with the potential risk that if the market decides to start selling, there won’t be enough broker-dealers to stand on the other side of those trades, as the real brazen traders have all moved to hedge funds.

John Fath at BTG Pactual said the idea that if the US nears debt default again, the world will simply flee back into US Treasuries is very dangerous because the availability of quality assets is larger – money will not necessarily flow back into Treasuries this time.

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