Risk premium

Even though our government is a week closer to default, the market risk premium appears to be edging lower.  This is one of those times that maybe the stock market doesn't behave terribly rationally.  Then again, maybe it is perfectly rational.  After all, can't we be relatively certain that Congress won't allow a default?  I'm not so sure.

Anyway, the market risk premium is sitting right about the same as last week, about 7.5%, perhaps a bit low considering the risks.  That said, I wouldn't exactly be loading up the truck right now, unless you've got the inside scoop on a great investment that no one else knows about, which is unlikely.  Also, about the same as last week, it looks like low beta stocks are still undervalued relative to high beta stocks.

As of right now, it looks like we'll be off to a rocky start on the week, with S&P futures in Sydney currently down 0.9%.  As we approach actual default, I would expect increasing volatility.  If we actually do default... well, maybe the Fed will just buy ALL the outstanding Treasuries and be done with it.  After all, it wouldn't much matter if the government defaulted then since the interest payments made to the Fed are basically just refunded back to the government anyway.  Clearly, there's nothing to worry about here.