8/8/11 and the big "meh"

[marvinmartian]

1.  Tomorrow, the world will NOT end.

2.  S&P rated top financial institutions as AAA before they went bankrupt in 2008 (eg., S&P has no clue what they're talking about). 

3.  S&P executives may be prosecuted for their shady roles (see above) and have likely realized that the best defense is a good offense.

4.  The market doesn't care about S&P.  The market cares about economic data (eg., unemployment).

5.  The market will likely recover sooner than most think.

6.  What's bad for the stock market and global currencies might be good for bitcoins.

[1715115847]

1715115847

[1715115847]

1715115847

[hugolp]

Everybody knows the USA government debt ratings were as valid as the mortgage ratings. The USA government debt should have lost its AAA long ago, so the real question is why is S&P downgrading it now.

An article in The Atlantic speculated that it was a mesure of presure against the Obama administration so they changed some of the regulation of Frank-Dodd Act in favor of S&P. Who knows.

What I find pathetic is that the USA politicians always pointed to the AAA rating as proof that everything was fine. Now that one agency has changed the rating they blame the agency. Well, why were they using the agency rating as proof before then? The agency ratings are only good when they say what the politicians want them to say?

[marvinmartian]

What I find pathetic is that the USA politicians always pointed to the AAA rating as proof that everything was fine. Now that one agency has changed the rating they blame the agency. Well, why were they using the agency rating as proof before then? The agency ratings are only good when they say what the politicians want them to say?

It's not just the USA that's the problem here, not by a long shot.

Also, I don't recall any predominant rhetorical meme put forth by politicians that cited S&P with any measure of assurance.  I'd assign more credibility to bond ratings given by Bozo the clown.

The main argument I've heard lately (by many, not just politicians) is that the US economy is the largest and most powerful in the world.  If its government debt is AA+ then the rest of the world is AA+ or worse.  

IOW, if the US defaults, then the entire world goes down the drain.

But the US won't default.  That's a non issue.  The world won't go down the drain.  But discussions about it are good for News TV ratings.

It's like saying the sun won't rise tomorrow.

The main issues are related economic growth and how to stimulate that, plain and simple.  Sadly, that discussion is more involved than most people have time or willingness to listen.

[lemonginger]

European default still seems much more likely in medium term.

This will spur China to start squawking a bit more about a new reserve currency. Whether or not they actually start selling dollars remains to be seen.

I think what prompted downgrade was not fundamentals (those have always been crappy) but the fact that the political process to get debt ceiling raised was so dysfunctional and default was actually floated as a legitimate possibility.

There is no safe haven at the moment, where are people going to move that much money anyway? Expect a PM pop and $2k target by fall for AU.

[GeniuSxBoY]

Didn't the new debt bill only reduce spending in the BILLIONS of $$$ over 10 YEARS... when the deficit is in the TRILLIONS?


I mean, that's pretty lousy.

[CurbsideProphet]

Didn't the new dept bill only reduce spending in the BILLIONS of $$$ over 10 YEARS... when the deficit is in the TRILLIONS?


I mean, that's pretty lousy.

The largest cuts have not been agreed upon yet and have been effectively postponed until December 23rd.  We will see more fireworks and political posturing before the year is done.  How much really gets cut remains to be seen.

[marvinmartian]

Governments, like people, operate on debt.  It's been that way since the banking system started (long before Europe even knew the world was round).

Republicans have decided to make a news item out of this because they have nothing of real substance to talk about. 

When GWB (aka "the decider") decided to start two large scale military engagements (ie., wars), they never complained where the money was going to come from.  Now, they're  complaining that we're spending too much.

Morons are like roaches.  You can step on millions of them but they always come back.

[Clark]

The reason the AAA rating means anything to the markets is that institutional investors are often limited to AAA-rated instruments. Hence, in 2008 with the mortgage market dipped, everything dropped like a brick because there were AAA stamps on something that was very risky. But the AAA rating allowed large amounts of institutional money to be placed on CDOs and the other fancy instruments that the finance world cooked up.

With a downgrade on US debt, institutions will be forced by their own policies to sell those risky assets off of their books.

[CurbsideProphet]

Just closed my short positions and will sit on the sidelines for a bit.  I expect a bear rally sometime this week.  Even in the worse panics like the crash of '87 when the Dow dropped 22.6% in one day, a bear rally usually follows.  In the case of 1987, the Dow gained 5.9% and 10.1% on Oct 20th and 21st, respectively.  The bottom wasn't registered until six weeks later on December 4th.

[lemonginger]

With a downgrade on US debt, institutions will be forced by their own policies to sell those risky assets off of their books.

No they won't, not unless another rating institution also drops them. Nearly all have a 2/3 rating policy.

Also, looking at the markets, treasuries have strengthened today, just like I predicted. Even if they are supposedly "less safe" than they were last week, the look a hell of a lot better than equities at the moment

[CurbsideProphet]

Also, looking at the markets, treasuries have strengthened today, just like I predicted. Even if they are supposedly "less safe" than they were last week, the look a hell of a lot better than equities at the moment

Yup.  The Treasury was downgraded by S&P but Europe may be on the brink of sovereign default.  The US is still going to be the safe haven of choice for the fearful. 

[miscreanity]

This will spur China to start squawking a bit more about a new reserve currency. Whether or not they actually start selling dollars remains to be seen.

The US does not have time on its side. China doesn't need to sell, it can just stop buying - that's all. The rest will happen by itself. This way, China isn't viewed as a financial aggressor, yet the pressure remains and even increases on the US because it won't be able to expand its funding for debt servicing. It's a bit like watching your opponent drown while you're holding a life ring.

Yup.  The Treasury was downgraded by S&P but Europe may be on the brink of sovereign default.  The US is still going to be the safe haven of choice for the fearful. 

Can you sleep at night holding US treasuries? Fear is a tool for herding pigs and sheep toward their slaughter. Buy blood, don't chase a comet's tail.

I choose gold, silver and Bitcoin with a sprinkling of solid, dividend-paying stock in global powerhouse companies (nibbling at some juicy discounts today). Just a suggestion. I sleep very well.

[lemonginger]

I don't have enough money to do any actual investing - more like playing around.

What money I do have goes into gardening tools, well made clothes, a retrofit of my car to run on waste oil, etc.

If i had enough money to worry about where to put it, I would. But since I don't, I fuck around with BTC, PMs, and inverse ETFs and my real savings is in material things....

---

If today slides into carnage in Asia overnight, there's a good chance of some more juicy action tomorrow.

Oh, and London continues to burn. Get ready for an austerity riot near you soon.

[evoorhees]

LOL if a 600 single day drop in the Dow is a "meh" day, then you must live in a scary world!

[CurbsideProphet]

Can you sleep at night holding US treasuries? Fear is a tool for herding pigs and sheep toward their slaughter. Buy blood, don't chase a comet's tail.

I choose gold, silver and Bitcoin with a sprinkling of solid, dividend-paying stock in global powerhouse companies (nibbling at some juicy discounts today). Just a suggestion. I sleep very well.

I'm not an institutional investor so I don't own any treasuries.  Little 'ole me has the luxury of keeping dry powder in a bank account.  However, if I needed to own treasuries, yes, I would sleep like a baby.  The market has and continues to assert its confidence in treasuries.  That's not an opinion, that's a fact.  Sentiment can change of course but in its current state the amount of fear you're trying to project compared to what the market is saying is very badly askew.

Greek, Italian and Spanish bonds would probably keep me up at night right now.  US T's, not so much. 

[miscreanity]

I don't have enough money to do any actual investing - more like playing around.

What money I do have goes into gardening tools, well made clothes, a retrofit of my car to run on waste oil, etc.

If i had enough money to worry about where to put it, I would. But since I don't, I fuck around with BTC, PMs, and inverse ETFs and my real savings is in material things....

---

If today slides into carnage in Asia overnight, there's a good chance of some more juicy action tomorrow.

Oh, and London continues to burn. Get ready for an austerity riot near you soon.

All of that is highly commendable. It's probably better from a long-term economic standpoint than any other investment. Real assets and skills are the way to go.

If you have some extra time, you could learn about options trading. Buying long-dated, far OTM calls and puts for <$1 easily amplifies your gains. When trading options, I find it best to pick a position and a decent entry point, then sit on it for a long time. Especially with precious metals. After that, go outside and live life or do something else to generate income.

Some brokers that don't require minimums (afaik):
Trade King - no minimum deposit or balance.
OptionsXpress - no minimum deposit or balance, but high commission for low-volume traders.
Think or Swim - merged with TD Ameritrade, may require deposit now - not sure.

Interactive Brokers - included just because it's the ideal, but requires a significant min. deposit.

Agreed on the turmoil in London. And people always think it can't happen to them...

Greek, Italian and Spanish bonds would probably keep me up at night right now.  US T's, not so much. 

I agree, that is the situation... for now

[The_JMiner]

I was expecting a meh day too, maybe a 200 point drop at most. This was absolute carnage and all the money ran straight into securities the very securities that S&P Downgraded. lol

[miscreanity]

I was expecting a meh day too, maybe a 200 point drop at most. This was absolute carnage and all the money ran straight into securities the very securities that S&P Downgraded. lol

It was a 'meh' day. At close, gold was up ~3.3%, silver rose ~1.8% and mining stocks were mostly flat (XAU -1.7%, GDX, GDXJ & HUI 0%).

Pretty dull IMO. I slept in

[The_JMiner]

I was expecting a meh day too, maybe a 200 point drop at most. This was absolute carnage and all the money ran straight into securities the very securities that S&P Downgraded. lol

It was a 'meh' day. At close, gold was up ~3.3%, silver rose ~1.8% and mining stocks were mostly flat (XAU -1.7%, GDX, GDXJ & HUI 0%).

Pretty dull IMO. I slept in

Yea I guess it depends where you are invested lol

[marvinmartian]

LOL if a 600 single day drop in the Dow is a "meh" day, then you must live in a scary world!

I never said meh couldn't move markets.  But in the end it's still meh. 

Nothing has drastically changed economically speaking.  The market is running on fear, not reality.  S&P's rating decision was based on politics.  All they did was hurt the little guy who can't retire this year now because his 401K is worth 25% less than it was a few weeks ago.

Wait ten years from now when you find out about how corrupt and left wing S&P is via some Michael Moore documentary.

[RandyFolds]

Morons are like roaches.  You can step on millions of them but they always come back.

The more you step on, the smarter the average roaches become...if only this is how it worked in irl...

European default still seems much more likely in medium term.

This will spur China to start squawking a bit more about a new reserve currency. Whether or not they actually start selling dollars remains to be seen.

I think what prompted downgrade was not fundamentals (those have always been crappy) but the fact that the political process to get debt ceiling raised was so dysfunctional and default was actually floated as a legitimate possibility.

There is no safe haven at the moment, where are people going to move that much money anyway? Expect a PM pop and $2k target by fall for AU.

A nice thought, but trying to drive the main importer of your goods out of business is not in any way, shape or form what they want to do. As others have said, when the US goes down, it's taking the whole world with it, except for lemonginger in his mountain compound fueled by hippy.

[marvinmartian]

Everything is going to be fine folks.  That was the main point of this post actually.  The markets have moved way more than they needed to in response to basically a non-event.  S&P are a bunch of idiots, we all know that.  Unfortunately, so are many members of congress.

I'm officially changing my donation tag to be 100% devoted to eliminating the tea party.

[The_JMiner]

I'm officially changing my donation tag to be 100% devoted to eliminating the tea party.

It is a bit ignorant to blame this all on one group imo. The United States has been on this downward spiral way before the Tea Party and will continue if we do not fix out mess even without the tea party. Just my .02

[marvinmartian]

I'm officially changing my donation tag to be 100% devoted to eliminating the tea party.

It is a bit ignorant to blame this all on one group imo. The United States has been on this downward spiral way before the Tea Party and will continue if we do not fix out mess even without the tea party. Just my .02

The fact remains that they were responsible for the "Grand Compromise" not going through.  That led to the panicked deadline and left us where we're at now.  The market would have continued up-and-down but now it's spooked (being something based on mass psychology). 

Nevermind the fact that combined they have an IQ of a potato.

[RandyFolds]

I'm officially changing my donation tag to be 100% devoted to eliminating the tea party.

It is a bit ignorant to blame this all on one group imo. The United States has been on this downward spiral way before the Tea Party and will continue if we do not fix out mess even without the tea party. Just my .02

The fact remains that they were responsible for the "Grand Compromise" not going through.  That led to the panicked deadline and left us where we're at now.  The market would have continued up-and-down but now it's spooked (being something based on mass psychology). 

Nevermind the fact that combined they have an IQ of a potato.

http://thinkprogress.org/romm/2011/08/08/290508/michele-bachmann-pledges-to-have-the-epa%e2%80%99s-%e2%80%9cdoors-locked-and-lights-turned-off%e2%80%9d/

Potato indeed.

[evoorhees]

I'm officially changing my donation tag to be 100% devoted to eliminating the tea party.

It is a bit ignorant to blame this all on one group imo. The United States has been on this downward spiral way before the Tea Party and will continue if we do not fix out mess even without the tea party. Just my .02

The fact remains that they were responsible for the "Grand Compromise" not going through.  That led to the panicked deadline and left us where we're at now.  The market would have continued up-and-down but now it's spooked (being something based on mass psychology). 

Nevermind the fact that combined they have an IQ of a potato.

So you're saying that the US credit rating got downgraded due to the one political faction in America that is actually the most vocal about debt reduction? And then you compare the entire faction to a potato - ignoring the probably reality that such a large group is necessarily composed of people from a wide range of intelligence, background, and character?

The US credit rating got downgraded because the US is not credit worthy. It's pretty simple. The downgrade should have happened long ago, actually. The amount of debt carried by the US Federal Government cannot mathematically be paid back without printing the money to do so (which they've already started doing via "quantitative easing").

You seem to suggest that the creditworthiness of the country would be improved if the group advocating for "smaller government, less spending" was gone, thereby leaving more people who support higher spending levels? Perhaps you want to rethink your opinion on this.

[miscreanity]

So you're saying that the US credit rating got downgraded due to the one political faction in America that is actually the most vocal about debt reduction? And then you compare the entire faction to a potato - ignoring the probably reality that such a large group is necessarily composed of people from a wide range of intelligence, background, and character?

The US credit rating got downgraded because the US is not credit worthy. It's pretty simple. The downgrade should have happened long ago, actually. The amount of debt carried by the US Federal Government cannot mathematically be paid back without printing the money to do so (which they've already started doing via "quantitative easing").

You seem to suggest that the creditworthiness of the country would be improved if the group advocating for "smaller government, less spending" was gone, thereby leaving more people who support higher spending levels? Perhaps you want to rethink your opinion on this.

I think the political element is irrelevant as well - the dog and pony show that entertains and distracts while reckoning is delayed.

A major aspect of the downgrade by S&P could also be that the rating agencies have been in the spotlight recently and in danger of being declared pointless for having waited so long after the obvious to take action. This could have been an effort to regain some semblance of validity in the eyes of the financial community despite being too little, too late.

In doing so, S&P has pissed off government and I have to wonder whether further downgrades of the US among the rating agencies will run the risk of nationalization in some form. As absurd as it sounds, I wouldn't put anything past a desperate politician.

[HappyFunnyFoo]

The downgrade theoretically would have caused selling pressure on treasuries.  Instead, there was a ton of U.S. treasury buying!  Record low interest rates, instead of increasing rates.  Who could've predicted that? Last week was a great time to buy undervalued banks and mezzazine debt companies due to the illogical nature of selling pressure.

Since it's unconstitutional to question U.S. debt, and the U.S. has unlimited printing power (the treasury can mint $5t platinum coins even if Congress has a stick up its ass thanks to LibertarianDumbDumbs), I'd agree with Warren Buffett's assessment of U.S. debt as "AAAA".

[miscreanity]

The downgrade theoretically would have caused selling pressure on treasuries.  Instead, there was a ton of U.S. treasury buying!  Record low interest rates, instead of increasing rates.  Who could've predicted that? Last week was a great time to buy undervalued banks and mezzazine debt companies due to the illogical nature of selling pressure.

Yes, the assumption would've been that there'd be pressure on treasuries. The reality is that algorithmic trading moves funds around and will park them in treasuries by default when other asset classes are declining. Automated trading technologies are not so sophisticated yet as to make much better than well-defined conditional decisions based on economists' assumptions.

As the dollar and equities were falling off a cliff, the money thus moved into treasuries. Once a technical breach occurs, the cascade is triggered. The banks and PPT use this fact to great effect in order to sustain the illusion of success.

Since it's unconstitutional to question U.S. debt, and the U.S. has unlimited printing power (the treasury can mint $5t platinum coins even if Congress has a stick up its ass thanks to LibertarianDumbDumbs), I'd agree with Warren Buffett's assessment of U.S. debt as "AAAA".

That's a very centric perspective. It might be a sin for those in the US to go against the grain, but that does nothing for the rest of the world. An egotist may view himself as hot shit while everyone around him sees right through the boasting and is laughing at his idiocy. America has become a laughing stock, but still carries enough weight to cause damage - a demented madman with an arsenal.

[marvinmartian]

So you're saying that the US credit rating got downgraded due to the one political faction in America that is actually the most vocal about debt reduction? And then you compare the entire faction to a potato - ignoring the probably reality that such a large group is necessarily composed of people from a wide range of intelligence, background, and character?

No, that's not what I'm saying.  I'm saying the histrionics and media news cycle grabbing that the Tea Party cultivated as part of the "debt ceiling discussion" damaged the market by spooking traders and pushing price levels below their normal trend.  That was the real damage, NOT the S&P rating.  Nobody cares about S&P.  If they did, they wouldn't have bought so many of those downgraded bonds.

NOTE:  we're already back to "pre S&P downgrade" levels.  That's proof of it's "meh" ness.

The debt ceiling has been raised regularly since 1919.  

     http://usgovinfo.about.com/od/federalbudgetprocess/a/US-Debt-Ceiling-History.htm

The Tea Party chose to make it an unreasonable debate.  The "Grand Compromise (GC)" that Obama and Boehner were set to sign would have lowered the debt without SINKING the market.  They (TP) stopped it.  They (TP) are to blame.  The bill that eventually got passed is WORSE than the GC that was slated to pass.

     http://thehill.com/blogs/blog-briefing-room/news/170551-boehner-backing-away-from-grand-compromise-on-debt

What the TP and the media who give them air time fail to recognize is that this really isn't a TV reality show.  It's the economy.  It's government that should be FOR the people.  It's about people's lives.

The US credit rating got downgraded because the US is not credit worthy. It's pretty simple. The downgrade should have happened long ago, actually. The amount of debt carried by the US Federal Government cannot mathematically be paid back without printing the money to do so (which they've already started doing via "quantitative easing").

We're more credit worthy than anyone else.  Scary, but true.

You seem to suggest that the creditworthiness of the country would be improved if the group advocating for "smaller government, less spending" was gone, thereby leaving more people who support higher spending levels? Perhaps you want to rethink your opinion on this.

The logic behind that statement is severely flawed:

if (A)
then (B)
does not imply
if (!B)
then (@^$@#%&)

The Tea Party doesn't really advocate anything concrete.  They're like infants babbling nonsense.  They think Evolution is a "theory" and that dinosaurs roamed the earth six thousand years ago.  They are a media branch of the Republican Party, which stands for huge corporate profits.  Smaller government means that corporations (like Enron, Exxon, British Petroleum, Lehman Brothers, etc...) and the like would be free to do whatever they want.  

Are you willing to put your children to work at age 7?  Have you even heard of child labor laws?  How about the EPA?

You may want to re-read your history of Capitalism ... or more likely ... just read it for the first time.  While I wouldn't consider this the best history lesson, it does have the virtue of being free:

     http://en.wikipedia.org/wiki/History_of_capitalism

Hope you enjoy.