The world is watching and the clock is ticking and still no debt deal. Our fearless leaders in Washington have the spotlight on them and most observers don’t like what they are seeing coming of DC. The markets on the other hand have not really seemed to care much, that is until recently. Many folks in the media could not understand why the markets were so complacent. The answer is simple: the markets are assuming a bailout. This time not a bailout with cash but a bailout with a “deal”. Why wouldn’t the market think this way? After all, it has come to rely on bailouts for the past three years and celebrates every bailout with a rip-roaring, short busting rally.

But a funny thing has happened this time. It seems that the folks in Washington forgot to include many of the newest elected Republican congressmen in their plans. These newbies are balking at a back room deal and are actually trying do what they said they would do when they got elected last year. They have thrown a monkey wrench in the assumed last minute deal that the market was counting on. We have no idea how this saga will play out but the plan is not going according to script now and the markets are starting to get nervous.

This political theater in Washington reminds us of a favorite quote from Sun Tzu: “Every battle is won before it is ever fought.” Our leaders in DC seem to have not read Sun Tzu and have now gotten themselves into quite a pickle.

A similar scenario is also shaping up with the new Limit Up/Limit Down proposal that the SEC has issued. The proposal was actually written by FINRA and a group of exchanges. They recommended their version of the rule to the SEC and were hoping for a quick rubberstamp. But a funny thing happened on the way to approval – objections to the rule started to be voiced. We shared with you earlier in the week our comment letter on the LULD proposal and why we think the rule has major flaws in it.

But the exchanges seem to have forgotten one very large player when drafting their rule proposal: the CME. The CME has recently come out with their own letter on why they think the stock exchange LULD rule is poorly designed. According to Traders Magazine Read article here , the CME said in a comment letter:

“The self-regulatory organizations’ proposal “sets forth an overly complicated and insufficiently coordinated structure,” CME chief executive Craig Donohue told the SEC. “In a macro-liquidity event, [it] will have the unintended consequence of undermining rather than promoting liquidity.”

The stock exchange officials apparently also have never read Sun Tzu.