S&P , US - Go!

[Joy Pathak]

The markets are definitely getting hit pretty hard today. EUR/USD is low, treasuries are lower, all the indexes are taking a hit, gold spiked up along with silver.

So anyone have any thoughts on the negative outlook for US credit rating? It's competitors have positive outlooks. Is S&P just looking for attention? Will US really get downgraded? If you downgrade the benchmark will they have to downgrade everything else?

 

[Tsotne]

The markets are definitely getting hit pretty hard today. EUR/USD is low, treasuries are lower, all the indexes are taking a hit, gold spiked up along with silver.

So anyone have any thoughts on the negative outlook for US credit rating? It's competitors have positive outlooks. Is S&P just looking for attention? Will US really get downgraded? If you downgrade the benchmark will they have to downgrade everything else?

US and competitors' credit ratings are very correlated so whatever happens to US that is expected to happen to them too. If European countries get insolvent US is expected to get hit too. Since all sides have enormous amount of debt taken from each other, there is a boomerang effect on credit rating when any of them gets harmed. Japan is playing a role in US indexes also.

 

[Mr Doe]

I think this might be a good thing, theres going to be plenty of trading opportunities and I hope to get a piece of the action. Just to name a few; USD/JPY is tipping close to preintervention level - watch out for another intervention; same with CHF; silver is approaching all time highs, gold is leading/following the action - newbies better stay clear of that, not to start trading at inflection points.

Dont think you have to worry too much about US credit, if you take a closer look at whos actually buying US debth, you'll notice that PM flip it back to FED week or two later; the issue might arrise if foreigners (read China) wake up and start dumping US bonds - after all didnt PIMCO dump them? Not sure if thats going to happen...but again there are plenty of black swans lately.
Again, if you dont like S&P outlook, you can be assured that Moodys still has positive outlook.

I would appreciate more comments.

 

[Tsotne]

Interesting point @Mr Doe. But, as for trading opportunities, are you expecting any arbitrage or you think you can predict the market well. That is, are you sure you won't start trading at inflection point and why?

 

[startover]

I found this interesting and relevant
http://en.wikipedia.org/wiki/List_of_countries_by_external_debt

 

[alain]

I found this interesting and relevant
http://en.wikipedia.org/wiki/List_of_countries_by_external_debt

How so?

 

[Joy Pathak]

Treasuries have rallied now... lol market basically telling S&P to f*** off.

 

[Mr Doe]

For arbitrage, you can play the AUD/JPY - ES pairs trade, not sure if it broke in the meantime - I dont follow that too much.
There needs to be a strict separation between prediction and common sense; e.g. following Fukushima event, trading JPY was a no-brainer, BOJ announce they will have a meeting, they have a meeting, you click the button to buy USD/JPY (or whatever is you favorite cross-JPY rate) and enjoy the ride. You dont need HFT to do that.
Trading silver and gold, and probably everything else, is gambling (or predicting as you say) since Forex is the worlds largest casino, and you have to take it like that. That means, leverage as much as you can, and cross your fingers not to get wipped out - and yes, each down tick is going to feel like a smack in the face. That being said, I cannot claim I didnt start trading at inflection point .

 

[TBeas]

I found this interesting and relevant
http://en.wikipedia.org/wiki/List_of_countries_by_external_debt

I also found that interesting. Thanks for sharing.

It shows that our situation has room to get much, much worse.

 

[darth]

when the news came out around 14:00 GMT , I was in a spot, had so many positions running and before I could calculate the impact on my different posns,i realized by the price action that markets are unperturbed... all dips in US treasuries were being bought into...Dollar after spiking 50 ticks against euro actly started getting stronger....Equities market could not come back, though a major reason was greek restructuring which was dampening the sentiments since the morning...every 10 minutes there was someone from europe saying greece can't see through summer if they don't restructure and within minutes there was a denial by greece that they have askd for restructuring... One of my analyst sent me this article......
http://dawnwires.com/investment-new...us-rating-imminent-collapse-round-the-corner/
saying around the end of february SnP had placed US sovereign rating on "unsolicited" due to lack of data provided by the US govt. and this may have a role in today's downgrade...

 

[bob]

Treasuries have rallied now... lol market basically telling S&P to f*** off.

As the saying goes, "Don't fight the Fed." S&P is basically saying what everyone has known for a long time, but don't underestimate the significance of the fact that it is being said at all this way. The effect may not have been reflected in today's price action, but Helicopter Ben won't always be on station to put a bid under every Treasury ever issued.

They're now monetizing about half of the PD takedown a week after every auction...with the PD's flipping them at a profit, of course. That is a staggering amount of debt. For comparison's sake, consider that the "$38 billion" in Federal budget cuts that recently got so many headlines (which in the end turns out to be more like $350 million, and is actually -$3.3 billion if you count "emergency spending," but let's at least keep the Kool Aid in our mouths for a moment) is about what the Fed POMO'ed in the last two weeks alone.

The current "There Be Dragons" is still what happens once QE ends--or if it does. As June approaches, and Congress does nothing (except raise the debt ceiling, of course--we're within about $50 billion of hitting it right now), yields could get pretty interesting.

As for the "unsolicited" thing...ECB stopped supplying data shortly before the US did, so EUR sovereign issue ratings are unsolicited as well. Frankly, I've never known what to make of this, and it caused barely a ripple, so if there's something to read into it, I don't know what it might be.

 

[darth]

I also found that interesting. Thanks for sharing.

It shows that our situation has room to get much, much worse.

I don't think this table has much relevance to credit ratings of a sovereign as it is gross debt...not the net debt.... Luxembourg too has a AAA/A-1+ sovereign credit ratings (one of the best sovereign ratings) while having the gross external debt of 4636%.....