U.S Credit Rating Has Been Downgraded

[Saving Hawaii]

Hmm... So S&P has decided to issue frenzied warnings that savings invested in US treasury notes are no longer as safe as we once thought they were. Caveat emptor.

What does the market think about this? Since S&P's "downgrading", prices on treasury debt have soared (higher prices = lower yields... if you're unfamiliar with this jargon, think about it this way: if the price of your credit card debt soared, the interest rate you have to pay would plunge). This is a completely paradoxical movement. If investors were making their decisions based on the judicious opinions of Standard and Poors they would be wary of investing in treasury notes, causing prices to drop and yields to increase. The exact opposite of that is happening right now. Savvy investors are making a bet that directly goes against the advice of S&P.

This should tell you something: the media circus beating the drums of the S&P "downgrade" sounds pretty reasonable, but nobody who's got money on the line believes any of this garbage. Far from offering respect for their sober judgments, serious investors are laughing at S&P's "downgrading" stunt as a carnival of political hackery.

For those who want to buy S&P's warnings hook, line, and sinker... caveat emptor.

 

[PHenry42]

More like, they're buying those bonds not because they're good, but because the alternative (stocks and other riskier assets) is even worse.

Neither does it change the fact that we'll have to start paying higher interest on the next bonds we issue.

 

[allhart]

All liberals on this board, u where warned. Any of u willing to make a real tax reform? Stop spending and boosting up the debt!

 

[Wayte]

All liberals on this board, u where warned. Any of u willing to make a real tax reform? Stop spending and boosting up the debt!

Only if you stop trying to tell us not to increase taxes when we really need the revenue, and when the target wealth groups won't feel it.
Is only fair, we'll stop being silly when you are

 

[variant]

Except that the markets flipped out after the agreement was reached, not during the supposed 'game of chicken.'

They flipped out because of the downgrade by S&P, which cited it's reasons clearly.

 

[allhart]

Only if you stop trying to tell us not to increase taxes when we really need the revenue, and when the target wealth groups won't feel it.
Is only fair, we'll stop being silly when you are

I don't think any one will mind stepping up to the plate, but no more double dealing. I'm tired of being double crossed. Total tax revamp..... Consumption tax. Taxing the rich more to only spend more is over!

 

[Wayte]

I don't think any one will mind stepping up to the plate, but no more double dealing. I'm tired of being double crossed. Total tax revamp..... Consumption tax taxing the rich to only spend more is over!

If other government functions are anything like the military, there's an excessive amount of wasteful spending. So much money get's put into making things look nice that could be used to pay of this debt.

 

[variant]

Hmm... So S&P has decided to issue frenzied warnings that savings invested in US treasury notes are no longer as safe as we once thought they were. Caveat emptor.

What does the market think about this? Since S&P's "downgrading", prices on treasury debt have soared (higher prices = lower yields... if you're unfamiliar with this jargon, think about it this way: if the price of your credit card debt soared, the interest rate you have to pay would plunge). This is a completely paradoxical movement. If investors were making their decisions based on the judicious opinions of Standard and Poors they would be wary of investing in treasury notes, causing prices to drop and yields to increase. The exact opposite of that is happening right now. Savvy investors are making a bet that directly goes against the advice of S&P.

This should tell you something: the media circus beating the drums of the S&P "downgrade" sounds pretty reasonable, but nobody who's got money on the line believes any of this garbage. Far from offering respect for their sober judgments, serious investors are laughing at S&P's "downgrading" stunt as a carnival of political hackery.

For those who want to buy S&P's warnings hook, line, and sinker... caveat emptor.

You mean money flowed directly from stocks into bonds and gold? Yeah, that should make us all feel good about investor confidence.

 

[allhart]

If other government functions are anything like the military, there's an excessive amount of wasteful spending. So much money get's put into making things look nice that could be used to pay of this debt.

Dude 54% of our spending Is entitlements and 24% more is towards discretionary and defense spending. But I don't disagree about retracting many based across the world!

 

[lordbt]

They flipped out because of the downgrade by S&P, which cited it's reasons clearly.

You must have missed the 10+% drop in the market prior to the downgrade.

 

[allhart]

Wait until Obama-care kicks us in the stomach.

Liberals at this point are like a bunch clucking chickens at the front door.

 

[variant]

You must have missed the 10+% drop in the market prior to the downgrade.

You are right.

No one liked the deal and it proved we are politically intractable.

Thus the S&P downgrade.

The markets have spoken, and there are no adults in the government.

 

[MachZer0]

Wait until Obama-care kicks us in the stomach.

Liberals at this point are like a bunch clucking chickens at the front door.

O'reilly just announced that he believes the Supreme Court will toss Obamacare out

 

[allhart]

O'reilly just announced that he believes the Supreme Court will toss Obamacare out

We can only hope, but as bachman said as it stands now..... It's the law.

 

[lordbt]

You are right.

No one liked the deal and it proved we are politically intractable.

Politicians engaging in politics? Next thing you know, athletes will get involved in athletics. Personally, I dont expect the people responsible for the irresponsible spending to somehow gain the ability to mend their ways. So the congress coming together at the last minute to reach an agreement that does next to nothing is not something that took me by surprise.

Thus the S&P downgrade.

The markets have spoken, and there are no adults in the government.

All the more reason to have political power strictly limited.

 

[variant]

Politicians engaging in politics? Next thing you know, athletes will get involved in athletics. Personally, I dont expect the people responsible for the irresponsible spending to somehow gain the ability to mend their ways. So the congress coming together at the last minute to reach an agreement that does next to nothing is not something that took me by surprise.

All the more reason to have political power strictly limited.

The sucker will really crash if they can't find a reasonable solution, and I wouldn’t put odds on the instiution of a libertarian utopia afterwards.

 

[allhart]

Glenn Beck stated today that even in the great depression we didn't lose our AAA rating, but Obama lost it in three yrs.
What a girly man!

 

[Gawron]

Confidence in the market seems to be at a real low, perhaps because of a perceived lack of leadership at the highest levels of our government. From the WSJ online.

UPDATE: US Stocks Plunge As Recession Fears Drive Worst Loss Since Financial Crisis

Quote:

--Dow plunges over 500 points, major indexes slump into correction territory on recession, debt worries

--Stocks hit progressively lower lows throughout the session; all sectors post steep losses

--Bank of New York Mellon prepares to charge large depositors to hold cash; stocks, central-bank interventions fail to assuage investors

NEW YORK (Dow Jones)--Stocks plunged, driving the Dow Jones Industrial Average to close down more than 500 points, as investors appeared to lose faith in the ability of the world's policy makers to revive the global economy and stave off a rolling debt crisis ...

"This is a fear-driven market," said Christian Thwaites, president and chief executive at Sentinel Investments. "It's not a Black Monday, or Black Thursday, but it's in pretty bad shape - all the big stocks are being liquidated."

On the floor of the New York Stock Exchange, the mood was somber and tense. "There is no reason to buy U.S. cash equities," said Doreen Mogavero, president of Mogavero Lee & Co. "[Investors have] come to the point where we find out we could be looking at ten more years of austerity."

Source: http://online.wsj.com/article/BT-CO-20110804-724522.html

And it isn’t just us.

Analysis - World poorly placed to meet new economic crisis

Quote:

By displaying solidarity among world leaders and promising $1.1 trillion (670.4 billion pounds) for global lending institutions and trade financing, the London summit succeeded in reassuring investors enough to support a recovery in markets and economic growth.

Now, however, it may be harder for governments to show such solidarity.

President Barack Obama has been weakened politically, and his economic policy options narrowed, by his battle to push up the U.S. debt ceiling.
Some big countries are further along in their election cycles, complicating decisions. Important elections are due in the United States, Germany and France over the next couple of years, as well as a leadership change in China.

"The manoeuvrability of governments is much less than it was in the last crisis. A lot of people want to be seen not to be caving in to pressure," Jakobsen said.

Source: http://uk.reuters.com/article/2011/08/03/uk-world-crisis-idUKTRE7724RW20110803

Keep raising the debt limit and the market may crash all the way to the bottom.

Fidelity Small Cap Biggest Loser as Market Erases $2 Trillion

Quote:

Fidelity Investments’ largest mutual fund that invests in small-company stocks was the biggest loser in the U.S. as the past week’s market plunge wiped out about $2 trillion in global equity value.

As world markets sold off on concern that the U.S. economy may be sliding back into recession, the $3.8 billion Fidelity Small Cap Stock Fund fell 11 percent from July 25 to Aug. 2, the most of 1,131 domestic stock funds with assets of at least $500 million, according to data compiled by Bloomberg. The $3.1 billion Aston/Fairpointe Mid Cap Fund and the $2 billion Ariel Fund were the next-worst performers, losing 10.4 percent.

The political tussle over the U.S. debt ceiling combined with lower-than-expected factory orders, declining consumer confidence and weaker household spending triggered a 6.8 percent slide in the Standard & Poor’s 500 Index over seven sessions before part of the U.S. benchmark’s loss was recouped yesterday with a 0.5 percent gain. All 10 of the worst-performing funds in the sell off specialize in small or mid-sized stocks.

Source: http://www.fa-mag.com/fa-news/8136--fidelity-small-cap-biggest-loser-as-market-erases-2-trillion.html?tmpl=component&print=1&page=

Two Trillion. Pretty soon we will be talking about real money.

 

[variant]

Glenn Beck stated today that even in the great depression we didn't lose our AAA rating, but Obama lost it in three yrs.
What a girly man!

You saying Obama should be more like FDR?

 

[Saving Hawaii]

More like, they're buying those bonds not because they're good, but because the alternative (stocks and other riskier assets) is even worse.

Neither does it change the fact that we'll have to start paying higher interest on the next bonds we issue.

I do not contest the first part of what you said at all. Nobody at all said "S&P are idiots, therefore I'll take a risk on US treasury notes that I would not have taken yesterday". As a matter of fact, that last statement is ridiculous in itself because investors were one month ago treating US treasuries as a +++ platinum security... you literally can't improve on that. The reason that the price on US treasuries has risen is definitely because investors have lost confidence in the recovery. This does not change the fact that real investors have completely ignored the dire warnings of S&P.

As to your second statement, we've already issued treasury notes since S&P's "downgrading". As I illustrated earlier, nobody is taking them seriously. It's wonderful that S&P can create a tremendous media circus with their pronouncements, but the reality is that nobody really cares. Talk is cheap but the money is increasingly with the safety of US treasuries... who cares what the hacks at S&P think?