A few important Thoughts
Unfortunately, the debt deal is not where this story ends. In some ways, it's where it begins. The US has lost its vaunted AAA rating. The venomous political process, coupled with the structural debt dilemma, warrants such a move and the very negative ramifications of this action will soon manifest for mainstream America.
How? Two words: higher rates. The consumer, many of whom are over-extended on their credit or underwater on their homes, will be forced to pay more interest on their credit cards, car loans, gas prices, and mortgages. It won't be a sudden spike -- it will be a gradual bleed -- but those can be just as debilitating. WHAT'S COMING IS EXACTLY WHAT EVERY SMART ASS BROKER AND WALL STREET TYPE SAID COULDN'T HAPPEN!
As long as Europe holds together -- we can avoid a depression, enjoy it for what it's worth and remember not to overstay your welcome. You always want to leave a party while everyone else is having a good time.
- If the market opens in the hole (read: gaps lower Monday morning), the first fade higher will likely be the easy trade.
- I would have more confidence that the rally would have legs if I wasn't hearing similar views from every direction.
- The rating-agencies missed the first phase of the financial crisis. Now, they're picking a fight with the biggest guys on the block.
- That's a different conversation than whether the U.S.A. should have been downgraded. The answer is "yes," and it should have been done long ago.
- Heck, if an Emmy Award winning financial media platform saw the financial crisis coming, the folks in Washington (and Wall Street) should have as well.
- That too is a different conversation than whether or not this is the second side of the financial storm.
- The Federal Reserve has been quick to assure investors, saying "Move along folks, there's nothing to see here" as a matter of course. They've already assured banks that they would not have to increase capital that was backed by government obligations.
- Indeed, my biggest concern wasn't the downgrade itself, it was how the White House reacted.
- The other variable is the investment charters that prohibit funds from investing in anything other than AAA-rated securities.
- We've already heard widespread rumblings indicating said funds won't be forced to sell those securities (which would trigger higher rates in the near-term), given Fitch and Moody's have yet to punt..
- I do sense that we'll retest the lows of March 2009 but A) at this point the qurstion is not if but when and B) there will be pockets of false hope and empty promises littered along the way... and one of those may arrive soon.
- It's called a process of price discovery, not a point of price discovery. Don't try to a Hero. This will take time to sort itself out.