Tickers in this Article: TLT, SHY, GLD, DB, UBS, MS, GS
Those who believe that the best government is unobtrusive and nearly invisible have probably ground their teeth to dust by now, but as markets open again on Monday it looks like governments on each side of the Atlantic continue to call the tune in the markets. While Europe tries every trick in the book to keep Greece afloat, politicians in the U.S. seem committed to elbowing each other aside in a rush to drill more holes in the bottom of their boat.

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A Government Shutdown?
If the politicians in Washington continue to court a government shutdown and play a massive game of chicken with each other, the general public may stop caring and the markets may just decide to install a semi-permanent "knucklehead premium" on U.S. government securities. In the meantime, though, investors should expect another spate of debate, controversy and wall-to-wall talk about whether Congress can come together and agree on another short-term funding measure to keep the government working.

This time the dispute seems to center around whether money given to FEMA should be offset with other spending cuts. Frankly, the details don't matter. If Congress can't come to an agreement, the markets will see a familiar refrain - treasury yields will rise (perhaps most troubling to holders of Treasury bonds and ETFs like iShares Barclays 20 Year Treasury Bond Fund (NYSE:TLT) and iShares Barclays 1-3 Year Treasury Bond Fund (NYSE:SHY)), gold may rebound (good for those holders of SPDR Gold Shares (NYSE:GLD)), and stocks could sell off even further - particularly those in industries like health care and travel. (For related reading, see Get Acquainted With Bond Price/Yield Duo.)

Europe Keeps Hoping
At this point it seems pretty clear that the European Central Bank (ECB) is going to pull every rabbit out of its hat in order to keep Greece afloat. Now the rumor du jour is that the ECB will consider another rate cut in the hopes of somehow making it easier for troubled banks and other financial entities to refinance obligations. This follows in the wake of an announcement that numerous central banks (including the Fed, the Swiss National Bank, the ECB and the Bank of Japan) will cooperate to provide more dollars to European borrowers. (For related reading, see The European Central Bank's Bond Buying Program.)

This should be good news once again for the multinational financials. Deutsche Bank (NYSE:DB) and Credit Suisse (NYSE:CS) don't have large commercial bank operations, but they will nevertheless benefit from a lower cost of funds. Likewise for major global financial companies like Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS). What's more, there's another benefit to this ongoing ECB bailing operation - none of these banks can rest completely easy when it comes to counterparty risk, and if these lower rates delay the day of reckoning for those banks with large amounts of troubled sovereign debt stinking up their balance sheets, so much the better for them.

The Bottom Line
While markets will move in anticipation of events like another ECB rate cut, it increasingly seems like the market is discounting a lot of worst-case scenarios already. The summer doldrums in the S&P seem to predicate if not a double-dip recession, at least a major slowdown. Looking at the price of French bank shares, it looks as though Greece has already defaulted and the markets have moved on to the next problem. Still, there is room for some optimism here. Maybe Europe will avert catastrophe and companies like Caterpillar (NYSE:CAT), IBM (NYSE:IBM) and General Electric (NYSE:GE) can enjoy a more balanced global growth profile. In the meantime, though, it looks like the markets will continue to swing on the moods and fears of the politicians in Washington, London and Brussels.

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