Although, to inject a factual element here, Lemmings do NOT actually leap off cliffs to their deaths at set intervals in mass suicides. That was a fake event staged by Disney for the movie White Wilderness, although it is has widely passed into nature lore among those who don't stop to think, or question, what they see and hear.
I would be curious to know who made money on the recent market decline, and if any of it involved shady selling short action. The simplest rule of thumb for making money in the stock market is buy low, sell high. There are people out there, whether individuals or institutional investors, who are cleaning up, buying the quality stocks at record lows; because for every seller, for a transaction to occur, there ARE buyers. One should look at the volume traded, not just the up and down numbers, to begin even a relatively simplistic understanding of the market activity. There were smart people buying, and largely ignorant people selling.
This would be a great story for following the money; there are some already rich people on the street - Wall Street - who are richer now than they were during the debt ceiling debate. And the fearful low information voter, er, investors? There are a lot of them who are a whole lot poorer.
Jon Stewart, as always, hit the nail on the head:
A better question to be asking than "Why is the bond market thriving if our credit rating is impugned?" would be why is S & P still in business, rating anything, after willfully and apparently criminally committing fraud in their ratings, fraud that was directly part of the worst financial crisis in this century, the worst since the market crash of October 1929 (bonus points if you know the date of the month off the top of your head). The 1929 market crash ALSO occurred in large part because of crooked dealing.
Actually, I applaud S&P for having the guts to call a spade a spade. THEY accused (rightly) Republicans of being intractible on revenue increases, and recognized (correctly) that there doesn't appear to be any change on the horizon where Republicans will be willing to work to address the nation's debt crisis in a balanced way, which means it won't be addressed meaningfully at all.
ReplyDeleteThe TEA Party apparently is proud of our impaired rating, they are proud they drove the country to the point where it could not materially resolve serious problems in a way which ALL Americans support, not just knee-jerk hate-government types. They apparently are proud they sullied the good name of the US by creating the impession we may not be able to meet our debt obligations.
S&P is wrong in down-grading the US, quite simply because there is no real likelihood today that we can't meet our obligations more than there was three months ago, so their comments weren't economically based, but in evaluating the mood and effectiveness of the legislative branch, especially the Republicans, they are dead on.
Economically, investors STILL know US Treasuries are a good, safe bet. When people move out of the market, very often they move to bonds, it's both automatic (and so bonds go up from automatic buying) and normal. The funds may go out of treasuries in the next few weeks, we'll see. I wouldn't put too much stock in rising bonds from a big sell-off, as that's the normal, systemic path. Look to see if it's still there in 6 weeks, if it is, the clearly S&P was in error if purely speaking eocnomically, but that hardly means the message was incorrect.
Both Japan and Canada had their interest rates go down for money they borrowed and their bond market did well when they were downgraded from AAA to AA+. Both are back at AAA now, average time to go back is 8-9 yrs. I was reading yesterday that this possibly was S&P threatening the gov't over the Frank-Dodd reforms. One part of the reform that the ratings agencies did not want was that if you hold some securities that go bust and can show that there were factors the ratings agencies should have known about that would have led to a lower rating then you can sue the ratings agency. This was put in because of all the AAA ratings given to bundles of mortgage securities with average credit ratings of under 700, some under 650. No one could prove any wrongdoing but the people selling the securities were the biggest customers of the ratings agencies so there might have been some overlooking of things going on. The big effect would be if we were downgraded again to AA. Lots of pension plans are restricted to AA+ and AAA bonds, to have them not investing in treasury bonds would hurt. So basically S&P is pointing a gun at the govt.
ReplyDeleteThis isn't entirely the Tea Parties fault. S&P has said for months they wanted to see 4 trillion in cuts and Congress did half that. I guarantee it wasn't the Tea Party saying we can't cut any more. Also like Pen said S&P jumped the gun. Moody's and the other agency did not downgrade us. We bring in more than enough tax revenue each month than needed to service the debt and the Constitution says the debt gets paid first. The people who should worry are govt employees, military, welfare recipients. Bondholders and Social Security will get paid.