Sunday, August 07, 2011

Well, here we go...

To recap:

* S&P downgrades the US credit rating to AA+ and says there is a 1/3rd chance of further downgrades next year.

* Germany balks at bailout a country the size of Italy.

* BUT, the G7 has publicly said they will act to stabilize markets.

In case you've forgotten the G7 include - France, Germany, Italy, Japan, UK, US and Canada.

Boy, that's some list.
France is next up to lose their AAA rating

Italy is the current cause of the Euro crisis

Japan is struggling post earthquake/tsunami/fukushima

the UK makes the US look like a picture of financial health

the US was just downgraded and Canada is well....Canada :)

So, to stabilize the global markets that the G7 are rattling with their debt ladden economies, the G7 are pledging to borrow more so they can buy bonds in the open market. Sheesh, it would be funny if it wasn't our futures they are toying with.

Right now the futures market has opened and the initial trades indicate a 2-3% dip for the US markets but I'm going to offer up a crazy possibility here - there will be buyers and maybe big buyers in the market tomorrow. Why? Well, many of the algorithms trading the market are not concerned with fundamentals but rather what is happening elsewhere in the global markets. The US dollar has hit new lows over the past 3 hours and one of the most popular models in the market is "buy stocks when the dollar falls". While this seems counter intuitive, there is real chance of this happening tomorrow.

If it does, you'll hear commentators on the TV cheering "YOU SEE, THIS DOWNGRADE WAS ALREADY IN THE MARKET. REJOICE AND GET THEE TO THE MALL!!!". But, you my good friend will be smart enough to realize that it has nothing to do with fundamentals, but rather the falling dollar that drives the computers into a buying frenzy.

However, it's worth noting that if the market does gain some steam heading south this has the potential to get really ugly. I'm not a chart reader and I don't play one on TV, but technical analysis rules the day in the markets right now. We have about an 8% buffer in the S&P 500 and the Dow right now (the NASDAQ is on really thin ice here). If we were to fall another 8% or so then things get really interesting because we could retest the 2010 lows (1020 for the S&P). IF (and it's a big if) but if we broke those levels the charts say we're heading back toward 2008 levels. This isn't investment advice but it's information that you should have at the ready in case things get sketchy this week.

The White House/Geithner/Buffett S&P bashing is getting a little silly. Yes, S&P has made some errors in the past, but to imply that S&P is off their rocker because they downgraded the US a notch after the comedy of errors in Washington over the past month is either disingenuous, ignorant or both.

Mr. Buffett has been (and will be all over the TV tomorrow) preaching how Moody's got it right leaving the US rating at AAA while "S&P's downgrade doesn't make sense". I'm sure that's his completely unbiased opinion, right? I'm sure that the fact that Mr. Buffett (through Berkshire) owns roughly 30 million shares of Moody's has not colored his viewpoint at all....

Keep checking in and I'll try to update as markets open around the world.

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