In last week’s issue, I told you that the market appeared to be reacting well to the purported deal to raise the nation’s debt ceiling. In fact, stocks traded nicely to the upside last week, and part of the reason why was the perception that things were going to get worked out in Washington.

Well, that was then, and this is now.

Over the weekend, talks on the debt-ceiling issue between President Obama, Speaker John Boehner and other Republican leaders in the House went sour. Rep. Boehner went on the Sunday news shows to talk about the issue, as did Treasury Secretary Timothy Geithner. Then on Monday, President Obama took to the airwaves to address the nation on how important a deal was, and he discussed the disastrous consequences in store for the economy if a deal isn’t reached.

The debate got even more heated over the past several days and, finally, the markets are reacting accordingly. Stocks now are starting to price in the possibility of a deal not getting done before the Aug. 2 deadline. That’s when, at least theoretically, the nation will be unable to borrow more money to pay all of its bills.

The risk right now of a deal not getting done is too high for investors, and they are reacting to the situation with what I think is sound judgment -- and that means we’re seeing stocks fall.

So, what should you do right now with your money? Well, this is a broad question, and your decision must be based on your particular circumstances. However, what I will say is that in general, if you have a lot of exposure to equities right now, you might want to trim that exposure. 

The fact is that nobody knows how the market will react if the Washington elite fail to act in the best interest of the markets and the American people. The one thing you don’t want to do is to expose your money to such an unknown risk, and that’s why I’ve advised many of my clients and newsletter subscribers to pare down the high-beta holdings they own.

The bottom line here is there is no reason to expose your money to the uncertainty emanating from the failure of politicians to come to an agreement on this issue. Your job as an investor is to act in your own best interest, and sometimes that means playing defense in the face of an unknown, and potentially very dangerous, set of exogenous circumstances.