Sunday, August 07, 2011

S&P downgrades USA

After Friday's close the credit raters at the S&P downgraded their ratings of US government debt securities from AAA to AA+.

I think the S&P rating folks are imbeciles and don't deserve to be taken seriously by adults. Why?

1. Their understanding of real estate economics led them to rate the vast majority of mortgage backed securities AAA back in 2005-07. This alone should be sufficient to destroy their credibility among thinking people.

2. Their downgrade of the US is based purely on predictions of what the politicians will or won't do. I find it hard to believe their political forecasts are better than their real estate forecasts.

3. As I have often pointed out it is impossible for the US to default on debt servicing and repayments. We borrow in our own currency which we can print at will.

4. RE 3. - If the world was worrying about US failure to repay why have treasury securities been rallying the past week as investors flee to quality?

12 comments:

Bri238 said...

Thanks again Carl for your insights, my question for the contra guy, is what happens Monday am so as when to buy, besides pure tape watching is there a key level at which you are watching for a bottom, hard question I know, but any thoughts, thanks again Brian

pimaCanyon said...

Carl,

"I think the S&P rating folks are imbeciles and don't deserve to be taken seriously by adults."

I could not agree more.

This agency is a dinosaur. They didn't know which end was up in 2004 - 2007 when they continued to give AAA ratings to junk mortgages, and now we're all supposed to stand up and take notice??

These guys are seriously late to the party and they bring only yesterday's news.

If they are really concerned about default, why didn't they downgrade US debt when Obamacare was passed? Or when Bush started two wars AND lowered taxes AND expanded the Medicare drug payment program AND sent everyone in America a tax "rebate" check?

This is all much ado about nothing.

darelll said...

Hi Carl, i am skeptical about the contraian method at this point in time. But i made a chart of economist covers spanning many years just to see who a contrarian trader would have seen the market, heres the chart, it maps spx monthly closes and replaces candles with covers:

http://darell.posterous.com/economist

Kishore said...

Carl, you argument that printing means that we cannot default is not sound. Printing means debasing and that is equivalent to default as far as the lender is concerned.

The history of S&P in 2005-2007 is totally irrelevant. The issue today is whether a debtor can continue to borrow when the ability to repay is questionable. Of course not!

No bank would lend to a corporation with an utterly lousy balance sheet and an utterly incompetent top management, as the US government!

If QE's continue, we are asking for worse outcomes. Credibility of financial institutions has already been destroyed. Are you ignoring the fact that only reason for bull run from March 2009 has been the manipulation of the market by the Fed through the primary dealers, through the QEs. This has been equivalent to an outright theft from the taxpayers.

Carl, bullheads like you sure live in a dream world of your own imagination! The PhDs economists are burying the whole world in their Pile High Deep BS. Are you one of them?

Political subjectivity is destroying this country!

http://www.marketspath.com/ said...

Kish-Carl is correct. If the US defaults, it is by choice. It is a currency issuer so it can print money at will. The FX/commodity markets are the police officers of us printing money.

If we print too much, USD goes down hard and commodities will go up causing inflation and we have to ease up on the printing. The downgrade shows us how little S&P knows about our monitary system-but unfortunately, none of our peeps on the hill understand it either.

Which makes things very dangerous. Banks will all HAVE to get downgraded by S&P as well by the way. This may snowball out of control, real soon if it is NOT fixed right now.

pimaCanyon said...

Kishore,

For the past 100 years, our government has continually debased our currency. During these 100 years if you owned a 30 year bond and held it to maturity, the dollars you get when you cash in the bond at 30 years buy a lot less than the dollars you spent when you bought the bond. This is not news--investors know this and have know this for many decades. Nothing has changed in that regard, so why the downgrade now and not 50 years ago? The same phenomenon was occurring then as now.

pimaCanyon said...

Kishore,

Just read your comments on Carl's last post, and to that I would say, "Kishore, be objective!"

Have you gone thru every one of Car's daily posts over the last 3 years and compared his daily range forecasts for each day to what the market actually did that day?

Until you do that, you cannot say anything objective about the accuracy of Carl's posts, can you?

smcneill said...

The selling has now taken the S&P futures to 1170. Way below the climax selling on Aug 3.

The Head & Shoulders top, Linsday's 3 Peaks Domed House now look like were past point 25, not pt 20 - 23.

Way below 200 DMA.

When do we call this bull trend dead? I sure got sucker punched believing we were heading to 1400 this summer.

MK said...

I agree with Carl but unfortunately the ratings of these agencies do matter since there are contracts where a change in rating to a low enough level constitutes a default. Kishore, Carl is correct in everything he wrote but additionally, the US dollar the reserve currency of the world which makes things a bit different than it is for other currencies. Watch for when the markets sell US stocks, US bonds and the US dollar to signal your downfal of the US. MK

Adsense said...

Hi Carl
do you pay much attention to longer term moving averages on the dow ??
take a look at a simple 500 dma using a OHLC/4.
the range between the 500 and 600 tend to mark initial lows and the 700 dma tends to be an extreme .
the crash of 1987 poked below the 700 dma ( all of these OHLC/4)
the lows in may 1998 oct 1990 and jan 1991 also poked below the 700 dma.the crashes in 1998 landed between the 500 and 600dma
the lows in march 2000 was another test of the 500 dma
feb 2010 was a test of the 500 dma
july 2010 was another test
it sits today at 10990.54 and is rising 4 pts per day .
a 33 % retracement of the entire up move from the 2009 lows sits at 10762 a 66 % retracement from the lows in 2010 to this years highs sits at 10723 , the head and shoulders target is 10677 finally the 600 dma ) OHLC/4) SITS AT 10563
and is rising 6 points per day .
this market is now eversold by extremes and these extremes are testing the march 2009 lows based on a 20 day occillator .the 14 day rsi closed at 23.2 thursday and 25.98 on friday both readings below 27 which is oversold .
the readings based on the advance decline line which i have created in a spread sheet are testing lows not seen since march 2009 . bottom line as bearish as i am i have to take a bullish stance at this juncture .i would prefer to take that stance near 11000 on the dow and 1136 on the spx cash index.
as for time i would think this week produces a swing low .
gold on the other hand looks to be extreme . its high was 873 in jan 1980 a 100 percent increase from that high would be 1746 .
so far the futures are not near as bad as the news would make it out to be they poked below fridays low yet are above that level this morning. i think this is near the end of what im calling point 8 expecting a point 9 bounce .
and i do understand the potential bigger bullish picture based on the above
joe

extrader said...

I am shocked that the futures are only down -30pts with this downgrade. What this means is we did not undercut Fridays lows on such bad news that many believe is, and for the futures not to be down like -50pts to me, means this market has accepted the bad news and will bouce! I think we are do for a short term bounce.

Adsense said...

Carl
along with my moving average thoughts ill add this looking at daily emini futures . feb 18 high
plus 40 trading days april 18 low
plus 40 trading days june 15 low plus 40 trading days is thursday of this week .