Don't hit the snooze button: US debt debate is a market risk

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Just as it looks like there might be a shot at ending the continuing resolution crisis, the debt ceiling looms. We might be able to get a continuing resolution to avoid a government shutdown by Monday, but it may only be until November 15th, when the process will start all over again.

Now, Treasury Secretary Jack Lew tells us that October 17 is the deadline for a debt ceiling bill.

Greg Valliere at Potomac Research, normally the most level-headed of Washington analysts, seemed alarmed by the prospects that this could turn into a genuine crisis. This is likely since the House Republicans will add a long list of provisions to the debt ceiling, including approval of the Keystone XL pipeline, and of course de-funding of Obamacare, or demanding a one-year delay in its implementation.

Yet, the market continues to believe in what Art Cashin called the "rationality put": that we will avoid a shutdown, or--even worse--a default. They believe this because we've avoided disaster this year from a number of places: no blowups in Europe, China turned around, Syria seems manageable, and Larry Summers became a non-issue. Now, the thinking goes, we'll sail through this Congressional mess without a problem.

In other words, everything will be fine. Until it's not.

Here's the problem I have with this: the markets are not pricing in any problems. Volatility is low. Put prices are low. Complacency is everywhere when warning signs should be flashing.


1) IPOs continue, with cloud computing still hot. Covisint (COVS) priced 6.4 million shares on the NASDAQ at $10 each, the middle of the $9-$11 price range. They allow clients to set up cloud computing services.

Applied Optoelectronics (AAOI), a fiber-optic product manufacturer, prices 3.6 million shares at $10 apiece, below the $13 to $15 price talk.

Chinese chipmaker Montage Technology (MONT) prices 7.1 million shares at $10 each, below the upwardly revised range of $12 to $14. The initial price talk was $10 to $11.

Tonight, RingCentral is expected price--they provide software as a service (SaaS) through the cloud. I love SaaS--it sounds so, well, modern--but it just means you're paying for software on a monthly or quarterly basis rather than a one-time licensing fee.

2) Nikkei at a two-month high. I saw Prime Minister Shinzo Abe deliver a speech yesterday at the NYSE, where he touted his reforms and noted that growth had improved since he came to office. He said that the first thing he would do when he returned to Japan was to begin plans to lower the corporate tax rate. Maybe, but he didn't mention that he will also be seeking to raise the consumption tax.

3) U.S.-listed European banks fall after Barclays announced it will stop providing wealth management services in roughly 130 countries by 2016 and cut jobs in the department in attempt to lower costs and boost earnings. BCS will remain in 70 markets, which cover about 86 percent of the global wealth market.

4) Car-rental company Hertz Global slides double digits after lowering its full-year forecast due to worse-than-expected volumes at its airport rental business. Huh? Everyone is long HTZ. This was supposed to be a beat and raise every quarter.

HTZ sees 2013 EPS between $1.68 and $1.78, below its previous $1.82 to $1.92 view and weaker than analysts' $1.89 estimate. The company anticipates 2013 revenue between $10.8 billion and 10.9 billion, versus its earlier outlook of $10.85 billion to $10.95 billion. The Street expects 2013 revenue of $10.91 billion.

5) Drug company Eli Lilly tumbles after its widely-talked-about breast cancer drug ramucirumab failed to improve patients' survival. The same drug is also being tested in late-stage trials for treating colon, lung, and liver cancers.

6) The Muscular Dystrophy Association is hosting its annual "Wings Over Wall Street" event tonight to raise money for Amyotrophic Lateral Sclerosis (ALS) research. If you're interested in donating, here's the site.

By CNBC's Bob Pisani