Magazine article Modern Trader

Global Warning

Magazine article Modern Trader

Global Warning

Article excerpt

The day after the infamous downgrade of the U.S. credit rating by Standard & Poor's, I had lunch with a longtime friend who has taught me much about the markets. I noted I was annoyed by what the agency had done and said people should dump McGraw Hill stock. She was more sanguine and said that S&P probably wanted to show some independence after the financial crisis of2008 and its part in it. My response: Helluva time to show some spine.

And bad spine at that. As I read the S&P report and its sovereign committee's reasoning behind it--in summary, Washington is broken--I admit to agreeing with some of the points. But as others have said, it should be the numbers, not the politics, that S&P is judging. Further, when a credit agency has been as much debased as S&P, its decision, to quote CME Chairman Terry Duffy, was "a joke."

Although many talking heads attributed the following week's whipsaw stock market fluctuations to the downgrade, the action didn't have much impact. After all, two other credit rating agencies kept America at AAA. Perhaps even better proof of this and a bit of irony: U.S. Treasuries rallied, showing where people put their money in volatile times. Stocks were dumped and U.S. bonds were bought despite record low yields, which as the Financial Times noted: "Take inflation into account and the yield on U.S. government bonds maturing in the next 10 years is negative."

Turns out the market swoon was due to several factors, both fundamental and technical, but a key theme was the continued instability of Europe: Riots in London, French banks under pressure and possible debt contagion spreading beyond Greece--still.

On the currency front, the Swiss franc and Japanese yen rallied, taking over the U.S. dollar's share as a safe haven, while the dollar weakened but stayed within its channel. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.