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Old 08-07-2011, 10:58 PM   #41
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What will happen Monday will be interesting but it is the long term impacts that will interest me. With the downgrade the most similar situation is obviously Japan, I find it fascinating that in August of 1989 JAPAN's stock market topped out and 11 1/2 years later their credit rating was cut after a huge drop in real estate and stock values and the ensuing problems created when Japan had to deal with in their banks. 10 years later Japan has a stock market down a further 35%.

March of 2000 the Nasdaq a.k.a. "the new economy" collapsed leading ultimately to a huge drop in real estate, ultimately led by the California real estate bubble popping around the country and stock values and 11 1/2 years later USA has their credit rating cut in dealing with not only their banks but to a large extent European banks as well. Which has curtailed the impact that might have occurred had Ben only to deal with the US.

With borrowings of 40 cents of every dollar needed to operate the government the US would need to tax every US worker over $10,000 to balance the budget for one year, without addressing a single state or municipality need, nor the collapse of the economy such a tax could obviously create.

Tho spending of this type of government with the present tax base appears to me to be unsustainable, the most recent actions have been to eliminate and it seems it will be to continue the reduction in the Social Security tax by 2% of all wages, now labeled as a "payroll tax savings". Meanwhile Social Security recipients needs continues an inexorable appetite on the funds of the US government, as like Japan its society ages . Just a sole topic of a myriad of interesting topics to be handled "in the future", of course after the economy is back in order after discussion by the leaders of the government.

This all is very interesting
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Old 08-07-2011, 11:50 PM   #42
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We will meet back here tomorrow night and see who's right and who's wrong.
Then I had best vote while there's time. I'm with Sevo. Up a bit by the end of Monday. Reason: we've made a bad investment environment here, but we'll get away with it, because elsewhere is worse.
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Old 08-07-2011, 11:54 PM   #43
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Knowing the market as I've observed it for more than two decades, I suspect there will be a "sigh of relief" that the so-called bad news is out and it will rally. Maybe not at the opening bell, as the panic sell orders have to be filled, but I suspect it will gap down quickly followed by a snapback. Just a guess, obviously.
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Old 08-08-2011, 03:49 AM   #44
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I predict up 0.3%.

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Originally Posted by TromboneAl View Post
I predict up 1%.
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Old 08-08-2011, 06:12 AM   #45
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"what will happen Monday?"

I'll tell you Tuesday ...
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Old 08-08-2011, 07:04 AM   #46
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Down 1%, too good excuse to take money out of the market and stuff it in the matress.
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Old 08-08-2011, 07:08 AM   #47
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Well given my recient entry point I decided to go to a better and more reliable method of tracking the stock market. I asked the following question?

Where will the market close, UP or Down?


Well that was helpful.
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Old 08-08-2011, 07:15 AM   #48
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My SWAG would be a very vicious drop in the first 5 -10 minutes of Monday opening, followed by wild gyrations all over the map.

I think we will end Monday with a fairly large drop, but the following days should be more stable.
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On a financial network tonight some talking heads, I think they are called experts, say the market will bounce back by the end of the year but watch out for 2012. They predict everything will take a huge hit next year. Stocks, gold, real estate, blah-blah-blah, will be way down next year. The only safe investment will be T-bills. They relate this to the failure of the stimulus package. Was there a stimulus package?
I haven't done any market timing since the dips and rises have been too fast to trigger rebalancing but I plan to grab about 10% equities if the market goes down and stays down today. I hope the financial experts are right about the stimulus (many think the effects won't actually hit the numbers until later this fall). If they are right then 2012 could be bad as the effects tail off. If we get a bump through the end of the year I plan to rebalance downward to a little lower on equities than going in. Of course, it is probably just as likely that we will just go down further and stay down for a long time and I will get a nasty reminder that market timing is for fools.
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Old 08-08-2011, 07:15 AM   #49
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Well everyone get the popcorn donuts and turn on TV for the opening bell.
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Old 08-08-2011, 07:48 AM   #50
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Going to be a rough opening.

FUTURES FUTURES FAIR VALUE (-9.39)

11444.61 11182.0 -220.00 11392.61 11182.0 -210.61
Last Updated: 08:40:00 AM

S&P 500
1month

FUTURES FUTURES FAIR VALUE (-1.82)

1199.38 1172.3 -25.50 1195.98 1172.3 -23.68
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Old 08-08-2011, 08:15 AM   #51
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Old 08-08-2011, 08:41 AM   #52
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I just read that S&P based it's initial downgrade on a $2T accounting error. When Treasury pointed out the mistake, S&P quickly moved to the political uncertainty rationale. Seems to demonstrate that they are flying blind just like when they rated trash tranches AAA.
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Old 08-08-2011, 08:49 AM   #53
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I just read that S&P based it's initial downgrade on a $2T accounting error. When Treasury pointed out the mistake, S&P quickly moved to the political uncertainty rationale. Seems to demonstrate that they are flying blind just like when they rated trash tranches AAA.
Right. Spending 1.4x our revenues is no indicator of any problem at all. Carry On!

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Old 08-08-2011, 09:01 AM   #54
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I just read that S&P based it's initial downgrade on a $2T accounting error. When Treasury pointed out the mistake, S&P quickly moved to the political uncertainty rationale. Seems to demonstrate that they are flying blind just like when they rated trash tranches AAA.
And don't forget ENRON, didn't they get that one wrong as well.
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Old 08-08-2011, 09:07 AM   #55
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I just read that S&P based it's initial downgrade on a $2T accounting error. When Treasury pointed out the mistake, S&P quickly moved to the political uncertainty rationale. Seems to demonstrate that they are flying blind just like when they rated trash tranches AAA.
A little more info - I had heard of the 'error' Friday, and had read just a little after that. The 'error' was brought up before the public announcement. It seems to me, if the S&P considered this to be something that would alter their decision, they could have modified things before the public announcement and saved face.

I'll also note all the substance that you didn't reference in the article you linked:

Quote:

The downgrade from S&P has been brewing for months. S&P's sovereign debt team, led by company veteran David T. Beers, had grown increasingly skeptical that Washington policy makers would make significant progress in reducing the deficit, given the tortured talks over raising the debt ceiling. In recent warnings, the company said Washington should strive to reduce the deficit by $4 trillion over 10 years, suggesting anything less would be insufficient.


S&P removed for the first time the triple-A rating the U.S. has held for 70 years, saying the budget deal recently brokered in Washington didn't do enough to address the gloomy outlook for America's finances.

....

When the $4 trillion deal fell apart, some Obama administration officials immediately warned that a downgrade from S&P was a real possibility.


Now, here's one breakdown of the 'error':

US AAA Downgrade: S&P’s Not $2 Trillion Math Error - Tim Worstall - It's All Trivial Or Obvious Except - Forbes

Quote:
As a connoisseur of the interaction between economics and politics this bleating from the Obama Administration about S&P’s “$2 trillion math error” in their decision to downgrade the US’ AAA rating is something to be savoured.

As John Taylor points out:

The White House and the Treasury are accusing Standard and Poor’s of making an elementary arithmetic mistake in the recent downgrade decision. Treasury’s John Bellows writes about what he calls a “$2 trillion mistake” saying that “After Treasury pointed out this error – a basic math error of significant consequence – S&P still chose to proceed with their flawed judgment by simply changing their principal rationale for their credit rating decision from an economic one to a political one.” White House adviser Gene Sperling adds that “The magnitude of their error combined with their willingness to simply change on the spot their lead rationale in their press release once the error was pointed out was breathtaking.”


Yes, that is what they said. However, as Taylor goes on to point out, it’s not actually a math error at all. It’s really an assumption, an assumption based on whether one trusts Congress or not. Here’s that assumption spelt out by the Streetwise Professor:

The administration claims S&P should have assumed that discretionary spending would grow at the rate of inflation. You know, because all the king’s horsemen and all the king’s men have pinky sworn on it. They passed a bill and everything. In this scenario, due to real GDP growth, spending would fall as a fraction of GDP.

S&P assumed that discretionary spending would rise at 5 percent, roughly the rate of nominal GDP growth (real growth plus inflation). In this scenario, discretionary spending as a fraction of GDP would remain constant. Given the historical record, this may in fact be conservative. But under this assumption, the increase in debt over 10 years totals $2 trillion more than the administration claims.

Which prediction you believe really depends on how much you believe Congress is going to restrain itself on discretionary spending. Politicians are going to not increase the spending they control?

Seriously?
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Old 08-08-2011, 09:08 AM   #56
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I just read that S&P based it's initial downgrade on a $2T accounting error. When Treasury pointed out the mistake, S&P quickly moved to the political uncertainty rationale. Seems to demonstrate that they are flying blind just like when they rated trash tranches AAA.


Quote:
In that time frame, the error only added 2 percentage points to the debt to GDP tatio, or about $350 billion. "The primary focus remained on the current level of debt, the trajectory of debt as a share of the economy, and the lack of apparent willingness of elected officials as a group to deal with the U.S. medium term fiscal outlook," the statement said. "None of these key factors was meaningfully affected by the assumption revisions ..."

News Headlines

Well.... justified or not, it is done.

So, to be hopeful on the bright side... maybe this will encourage some bi-partisan cooperation.
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Old 08-08-2011, 09:09 AM   #57
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Right. Spending 1.4x our revenues is no indicator of any problem at all. Carry On!

-ERD50
I should have added that I think we merited a downgrade on the grounds of political uncertainty. Without the political weakness, the debt part by itself wouldn't be that alarming. I"m just still PO'd at the rating agencies for their past contributions to the common good. And S&P's flip flopping shows they still lack credibility.
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Old 08-08-2011, 09:16 AM   #58
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I'm glad I sold 60% of my stock investments 2 weeks ago and the rest last week. I would rather leave money on the table on the somewhat limited upside potential (in my opinion) rather than risk losing even more if the market keeps dropping.

Since I'm retired I'm in the business of preserving what I already have rather than trying to hit a home run on every investment. Are there any other people on this forum that take this point of view? I get the impression that I'm in the minority on this forum on that point of view.
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Old 08-08-2011, 09:17 AM   #59
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I should have added that I think we merited a downgrade on the grounds of political uncertainty. Without the political weakness, the debt part by itself wouldn't be that alarming. I"m just still PO'd at the rating agencies for their past contributions to the common good. And S&P's flip flopping shows they still lack credibility.
I admit I have not researched this but I thought you might like to see it:

Matt Stoller: Standard & Poor
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Old 08-08-2011, 09:28 AM   #60
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I admit I have not researched this but I thought you might like to see it:

Matt Stoller: Standard & Poor
Ouch, that makes me even madder. (The article explains how S&P stopped states from policing predatory lending practices by refusing to allow the states' mortgages to be placed in mortgage securities they rated.) I read a little about this in The Big Short, although more focus was given to how the agencies incompetently rated up the derivatives.
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