what will happen Monday?

[Dawg52]

I'm going to play golf this morning. I will lose money whether I'm watching it on TV or doing something else.

 

[donheff]

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.

 

[ERD50]

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!

-ERD50

 

[eytonxav]

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.

 

[ERD50]

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:

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

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?

-ERD50

 

[chinaco]

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.

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.

 

[donheff]

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.

 

[DallasGuy]

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.

 

[Tadpole]

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

 

[donheff]

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.

 

[TromboneAl]

Down 3.5% so far, whee!

 

[eytonxav]

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.

I guess it must be a Dallas thing. I have been moving more to cash since April and am more than 50% cash. I mentioned several times that my perception of the overall economy is that it stinks and I see a recession on the horizon. That said, I would love to be wrong, but I'm not going to sit back and see a large portion of my wealth go out the window with retirement contemplated next year.

 

[ERD50]

I admit I have not researched this but I thought you might like to see it:

Matt Stoller: Standard & Poor

It's appropriate to be skeptical of the rating agencies. We should always apply a healthy skepticism to just about everything. And indeed, the S&P rating may be based on hogwash.

However, given the fiscal state of the Feds, it seems a bit to me like arguing about which model the weather forecasters used to predict a storm you find yourself in. Either way, you better take cover!

I get the sense that there is a bit of 'kill the messenger' going on here, by those who don't like the message.

-ERD50

 

[ERD50]

Down 3.5% so far, whee!

For some perspective, we are down... from recent peaks.

But we are still (as I type!) above where we were a year ago. That's not exactly cats-and-dogs-living-together-end-of-the-world stuff.


-ERD50

 

[packrat44]

Down 3.5% so far, whee!

I hate roller-coasters.

 

[Tadpole]

I get the sense that there is a bit of 'kill the messenger' going on here, by those who don't like the message.

-ERD50

Huh? Like

Look, everyone knows about the mess in Washington but they also know about the credit worthiness of the US. While everyone is watching what US companies are doing today is anyone watching what Treasuries are doing so far?

I do think it is important to examine the messenger's motives. This is about my country, d-it.

 

[braumeister]

YIPPEE!!!
Love these buying opportunities!

[um, that's the right reaction here, isn't it]

 

[easysurfer]

YIPPEE!!!
Love these buying opportunities!

[um, that's the right reaction here, isn't it]

That's one way to look at it.

Another is to repeat after me..."It's only a paper loss until you sell, It's only a paper loss untl you sell"

 

[Hobo]

YIPPEE!!!
Love these buying opportunities!

[um, that's the right reaction here, isn't it]

Absolutely! This is the buying opportunity of the century. Once the hangover wears off, reality will set in that nothing has affected company profits. Classic sell-off, hyped by the business news. Day traders will get rich on this mob mentality. By next week people will suddenly realize the sky isn't falling.

 

[braumeister]

And hey, here's another silver lining:

If your withdrawal rate is 4%, now you can sit back and relax, because Mr. Market is taking care of that for you!

Is this a great country or what?

 

[unclemick]

About one thirty local time Monday.

Full auto - Target Retirement.

Note to self - touching the trottle is a no no - let those Vanguard computers rebalance away.

heh heh heh - don't look (maybe a peak) and repeat football is coming. Football is coming.

 

[Dawg52]

Hate to see the losses, but only down 2.4% from my high just a few weeks ago and still up for the year. There, now I feel better.......now I feel better......now I feel better..........

 

[pb4uski]

60/40 AA is now 53/47. Should I rebalance to 60/40 now or wait for the dust to settle a bit?

 

[W2R]

Hate to see the losses, but only down 2.4% from my high just a few weeks ago and still up for the year. There, now I feel better.......now I feel better......now I feel better..........

See? Your new AA is really helping compared with 2008-2009. Sounds like it is working out nicely for your peace of mind. Just keep

.

 

[donheff]

60/40 AA is now 53/47. Should I rebalance to 60/40 now or wait for the dust to settle a bit?

I put a good sized transaction in just now. I suspect we will get a bounce later in the week but who knows. Maybe we are heading for S&P 700 as Europe and the US flail.