Investors Less Anxious on Macro Risks: Marshall

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Oct. 15 (Bloomberg) -- Robin Marshall, director of fixed income at Smith & Williamson, discusses market reaction to the U.S. government shutdown and potential of breaching the debt ceiling and looks at whether investors have become desensitized to market risks. He speaks on Bloomberg Television’s “The Pulse.”

Extension does not resolve anything.

At least it may get us out of the immediate case that we are in.

I think we are seeing a bit of a relief rally in advance of a deal.

The difficulty is how much we resolve as far as ongoing fiscal gridlock in the new year.

The outline to this deal suggests we will be back to square one fairly quickly.

In 2011, they set up a commission which could not -- which could not agree on anything and we ended up with the sequester's, the automatic spending cuts.

It may well be that is where we wind up with this.

The panic about a default on midnight on the 17th, that looks like not more than a tail risk.

There is not any panic.

What will it take for the markets to panic?

There are hints that the white house would like the markets to panic.

Absolutely.

That has been obama's tactic.

They talked about making wall street uighur.

The fact is we have been to the brink twice and for that.

The presumption is that is what will happen again this year.

If there is nothing by thursday morning, the game may change.

Do you think clients have become desensitized?

Since lehman brothers, we have been through a whole series of almost at a clinic events.

What is happening in washington, lehman's, the financial crisis, particularly what is happening in europe.

Never generated the kind of end of the world, end of the financial system that people have referred to.

Do clients feel this?

With lehman, when we got close to the brink and a complete collapse of the financial system and saw a huge policy response from the fed and central banks harley because of that, we now know the g7 does not do inflation.

I think that has generally made people feel less anxious about these huge macro risks.

That is not to say they are not there.

Of course, we can get close to the brink when politicians do not behave themselves and the system becomes dysfunctional.

Because we have seen enormous policy response from central banks, that has helped a lot of the margin since 2008. when lehman hit, we did not know what the reaction functions of central banks will be.

Now we have a better feel for that and we realize that there will be lifeboats put into place.

That has helped a great deal in desensitizing markets.

How many of your clients are ringing you up and sounding nervous?

What are they saying?

How many of them are positioning for a problem and how many are sitting back and going, we have seen it all before?

There is a split.

People who worry about a technical default, if they are holding t-bills, we have seen some nervousness about that, which is understandable.

October 24, october 31 maturities, you could see it being a problem with those.

Clients who hold other treasuries, real money investors who are holding treasury papers, which do not have coupon dates for a few months, you see very little anxiety with those.

On the presumption of a technical default, they still have the ability to pay.

It is a timing issue, even if it is short-term, they cannot pay because a funding crisis is caused by dysfunctionality in washington.

There is some nervousness, mainly in the t-bill market, which is strongly inverted in those october, november dates because of the worry about where those securities would be left.

It is more a timing issue than a fundamental collapse issue.

We will leave it there.

Thank you for -- thank you very

This text has been automatically generated. It may not be 100% accurate.

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