A Worrisome Calm on Wall Street

Wall Street has predicted financial panic should the government default on its debt, but markets so far are showing few signs of fear, Nathaniel Popper reports in DealBook. “We all tell ourselves, ‘This is something that is not going to happen,’” said David Coard, the head of fixed-income trading at the Williams Capital Group.

The relative calm is worrying some investors, who fear the markets will not signal to politicians the true danger of hitting the debt ceiling until it is too late, Mr. Popper writes. The Treasury Department has said it will run out of measures to borrow more money by Oct. 17. “The markets are sending this complacent message, and I think the politicians are interpreting it incorrectly and they have no sense of urgency,” said Douglas Kass, the owner of the hedge fund firm Seabreeze Partners Management.

“Here’s the perversity of Wall Street’s psychology,” Andrew Ross Sorkin writes in the DealBook column. “The more Wall Street is convinced that Washington will act rationally and raise the debt ceiling, most likely at the 11th hour, the less pressure there will be on lawmakers to reach an agreement. That will make it more likely a deal isn’t reached.”

But the fiscal stalemate in Washington is sending nervous ripples around the globe, Steven Erlanger reports in The New York Times. “Five years after the financial crisis in the United States helped spread a deep global recession, policy makers around the world again fear collateral damage, this time with their nations becoming victims not of Wall Street’s excesses but of a political system in Washington that to many foreign eyes no longer seems to be able to function efficiently.”

At home, though, there does not seem to be as much concern about default as there was in 2011, when Republicans last refused to raise the debt ceiling unless President Obama agreed to their demands, Joe Nocera, a columnist for The Times, writes. But a failure to raise the debt ceiling has “the potential to diminish the value of one of America’s greatest assets — the backing of its debt — while throwing the world economy into chaos.”

DEBT CRISIS THREATENS PUERTO RICO  |  “While Detroit has preoccupied Americans with its record-breaking municipal bankruptcy, another public finance crisis on a potentially greater scale has been developing off most Americans’ radar screens, in Puerto Rico,” Mary Williams Walsh reports in DealBook. “Puerto Rico has been effectively shut out of the bond market and is now financing its operations with bank credit and other short-term measures that are unsustainable in the long run. The biggest concern is that the territory, which has bonds that are widely held by mutual funds, will need some sort of federal lifeline, an action for which there is no precedent.”

“In a meeting with bond analysts in New York on Monday, the president of the Puerto Rican Senate, Eduardo Bhatia, said officials in the United States Treasury and White House had been analyzing the situation carefully, ‘wondering how they can help Puerto Rico send a very strong signal of stability right now.’”

AT MICROSOFT, A QUESTION ABOUT GATES  |  What will Bill Gates do? That’s the question being whispered around Microsoft’s campus, Nick Wingfield writes in The New York Times. Interest in the question has intensified in the weeks since Steven A. Ballmer announced he would be retiring as Microsoft’s chief executive in the next year.

“Many employees and investors fondly remember the company’s heyday under Mr. Gates, a towering figure in the tech industry who built Microsoft into a dominant force,” Mr. Wingfield writes. “And some Microsoft employees say they have noticed Mr. Gates around the company’s campus in Redmond, Wash., more often since Mr. Ballmer’s announcement, leading to speculation — perhaps mixed with a dash of hope — that he might want to assume a bigger role and return the company to its past heights.”

ON THE AGENDA  |  The International Monetary Fund releases its World Economic Outlook at 9 a.m. Alcoa and Yum Brands report earnings after the market closes. John Thain, the chief of the CIT Group, is on CNBC at 4 p.m.

SUITS AND STEAKS  |  Brooks Brothers, the preppy clothing retailer, plans to open a steakhouse called Makers and Merchants around the corner from its flagship store on Madison Ave. in Manhattan, The New York Post reports.

A PRICE TARGET FOR TWITTER  |  Just four days after Twitter released its initial public offering prospectus, one analyst, Robert Peck of SunTrust Robinson Humphrey, set a high $50-a-share price target on the company’s shares — the first research analyst to set a public target on the stock. Mr. Peck’s decision was based on the sense that Twitter had room to grow, with the company spending significantly on new tools, DealBook’s Michael J. de la Merced reports. Still, skeptics have already noted that the growth of Twitter users in the United States, its biggest and wealthiest market, has slowed.

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