Category: Markets
US Downgrade Shines A Light On Other Weak AAA Credits
With the US downgrade now out of the way, we think market attention will swing back to other Developed Markets countries that are facing downward pressure on ratings too. Here is a summary of our most recent ratings outlooks for Developed Markets.
Holders of US Treasury Debt
Below is a pie chart representing the percentage of marketable U.S. treasury securities held by various investor classes as delineated in the latest Federal Reserve flow of funds report
Implication of S&P Downgrade and Possible Policy Response
Standard and Poor’s downgraded U.S. creditworthiness to AA+, becoming the first to remove the triple-A status from the world’s largest economy and largest debtor. Moreover, a negative outlook has been retained. The element of surprise lays in the timing more the in substance of the decision. Many, like us had expected a decision to be made after the special bipartisan fiscal commission had made its report later in the year. The other two main rating agencies, Moody’s and Fitch have not joined S&P. Last week, Moody’s reaffirmed the US triple-A rating but adopted a negative outlook. Fitch has not formally reaffirmed its AAA rating, and is expected to announce the outcome of its rating review late August or early September. We will first look a bit closer at the S&P decision, discuss some of the market implications and then turn our attention to the possible policy responses
The Strong Case for Global Investing
If we have learned anything from the current financial mess, it’s that building wealth is dependent on rational analysis, careful decision making, and risk management. That’s why sticking close to home at a time when our markets are more uncertain than ever is a recipe for disaster and absolutely the wrong thing to do. Not only will you miss out on the world’s fastest-growing markets, but the odds are exceptionally high that you will miss as much as 50% or more in potential returns over the next decade
Change We Can Believe In
We repeat: the “debt problem” is a currency problem and the currency must and will collapse. The global monetary system exists at the pleasure of the Fed, which legally exists at the pleasure of Congress, which as we have learned only has the political will to control the Fed at the pleasure of the Fed’s shareholder banks. It is the Fed and nothing else that determines the solvency of Treasury. Analogously, it is the Fed that ensures the ultimate solvency of the fractionally-reserved banking system – the system that shorts dollars via perceived “lending” today and covers those dollars once devalued as the Fed creates them tomorrow. Ultimately, Congress, the Fed and Wall Street will have to answer to the masses that buy milk and pay and staff its military.
Suddenly It All Matters
A few weeks ago (July 7th) we wrote a comment entitled “Nothing Matters Until It Does”. Now it suddenly does all matter, although all of the problems every one is talking about today have been pretty obvious for some time. These include the economic slowdown, the coming fiscal tightening, the lack of any more powerful Fed tools and the turmoil in Europe
Barton Biggs: “I was wrong yesterday in the thinking we were in the process of making a bottom”
I received the following blurb from Bloomberg Television about Barton Biggs, who yesterday had indicated we were in the process of bottoming
Crash!
In case you did not notice it, the much discussed “range” on the SP500 broke in spectacular fashion today as the short rollers bypassed the 1250 mark in the same style as the Germany panzer passed the Maginot line back in the early stages of
Brazil: capital control distortions upon distortions
It is very clear that Brazil is moving further and further away from the orthodox model due to its obsession with the strong real. While the IMF said today in its Article IV discussions with Brazil that capital controls are an “appropriate” tool, the agency also warned that they can be “distortionary.” We think that with so many regulatory measures seen over the past year, there are now distortions upon distortions. We are detecting increasing exasperation on the part of investors and banks with the arbitrary nature of these controls, along with the Law of Unintended Consequences
BOJ Joins SNB To Intervene Aggressively
The BOJ intervenes aggressively to weaken yen; we do not see any major G7 initiative. The euro zone periphery remains under pressure as ECB meets; Spain borrowing costs rise. Global equity markets are lower as growth risks, sovereign risks persist; EM FX softer too
All back to square one
The S&P 500 completes its worst run in a long time returning to levels not last seen since March, when we thought we had to write off the entire Japanese economy as a nuclear wasteland. So, is it all back to square one for the already weak recovery
Dow Transport Dive to Take Down Crude
The Dow Transportation Index was down almost 4 percent today and if there is any silver lining in the current market turmoil is that Trannies usually lead crude down, which will drop gas prices. The chart below shows the 12.2 percent swan dive in the Dow Transports since July 7th with crude oil barely moving. We’re expecting a catch-up trade to the downside for crude oil in the next few days