In their never-say-die efforts to defeat Obamacare, Tea Party Republicans brought the federal government a giant step closer to shutdown last night. What they seem not to have considered is how America’s foreign creditors will react.

As a general rule, the East Asian creditor nations hate drawing attention to themselves. But they are quite effective behind the scenes in making their views known. One of the most important ways they wield influence is through major Wall Street investment banks. These latter in turn spend large amounts on political contributions, typically backing both Republicans and Democrats. Their money gives them plenty of face time to advise American elected representatives on “good economics,” a term that more and more these days amounts to economics that serves East Asia’s interests. Meanwhile American investors generally are short-term thinkers who rarely show much intestinal fortitude in riding out downturns.

It remains to be seen how markets will react tomorrow but the betting is that, in the absence of a climbdown by Republicans, we will see a significant correction. And if Tea Party stalwarts continue to stick by their guns in the weeks ahead, we could see damage particularly in techs and other high P/E stocks. For the record, major tech stocks that seem most richly valued on a forward P/E basis include CRM, LNKD, CCI, FB, and ADBE. Although future prospects may justify such valuations, the short-term action could be quite bumpy — certainly bumpy enough to frighten a lot of the Republican rank and file.

US markets can further get spooked through:

Foreign policy risk - The Syrian war could escalate.
Monetary policy risk - That taper thing.
Fiscal Policy risk - Grandstanding by the republicans. Hope this is sorted by Oct 17th.

Very volatile market going forward!
Today we may just go sub 15000 on the Dow!

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