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U.S. loses AAA credit rating, downgraded from S&P
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U.S. loses AAA credit rating, downgraded from S&P

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U.S. Credit Downgraded: S&P Reduces Rating To AA+ [UPDATE]

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Now that this has happened, expect Municipal Bonds to be downgraded as they are closely correlated to US Treasuries. This can start a large domino effect in the fixed income markets. And it's not over yet, Moody's may still cave in and down grade as well. Fitch would have to follow suit from there.

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Since S&P didn't even have the correct numbers, why should we trust them?

Since the credit rating companies have such a poor track record, why should we trust them? Do they know what the heck they are doing?

Why trust S&P over Moodys?

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ron99 View Post
Since S&P didn't even have the correct numbers, why should we trust them?

Since the credit rating companies have such a poor track record, why should we trust them? Do they know what the heck they are doing?

Why trust S&P over Moodys?

This has nothing to do with trusting them. I would never make a trade decision based on a rating from an agency.

It's a "fixed game", meaning that because of the rating, there is a domino effect of things that will happen. This will create a special set of circumstances in the market and trading opportunities.

It's not like you should sell your bonds because the USA got downgraded. It's more of the ripple effect that may cause a lot of turmoil in the markets as institutional money pushes things around, and then of course the average US consumer will have their interest rates on loans go up.

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Mike, I guess my question is why should anybody look at the S&P rating when they had wrong data to start with and Moodys says otherwise?

Will the fact that S&P is the only one dropping the rating lessen the effect compared to if all 3 agencies dropped the rating?

As the credit rating agencies said at the Congressional hearing, their rating is just their opinion. And we all know what opinions are worth.

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Now that this has happened, expect Municipal Bonds to be downgraded as they are closely correlated to US Treasuries. This can start a large domino effect in the fixed income markets. And it's not over yet, Moody's may still cave in and down grade as well. Fitch would have to follow suit from there.

They should...

I've been trying to figure out how to position myself medium-term, but as this is uncharted territory, I am honestly not sure. There should be ample opportunity to trade short-term, though.

As you say, the impact on the fixed income markets will be something to watch closely...

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Jan 27, 2011
Japan’s Debt Downgrade: Economists Wail, Markets Shrug


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S&P downgraded Japan to AA- from AA. The yen dropped against the dollar, but otherwise market reaction wasn’t terribly intense. Government bond yields edged higher and credit insurance costs also inched up.

Link

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ron99 View Post
Since S&P didn't even have the correct numbers, why should we trust them?

Since the credit rating companies have such a poor track record, why should we trust them? Do they know what the heck they are doing?

Why trust S&P over Moodys?

Trust has nothing to do with it. Ratings are an integral part of the global financial systems, and downgrades like this have impact...

That the rating agencies are either corrupt or worthless, or both, is a given. It is funny, though, that they get criticized for not downgrading the junk they had marked at AAA leading up to 08, but now that they try to their job, they still get blasted...

Regardless of ratings, the US (and several other western countries) faces structural problems over the next decades, and this downgrade could have happened years ago. A house of cards can only get propped up for so long....

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ron99 View Post
Mike, I guess my question is why should anybody look at the S&P rating when they had wrong data to start with and Moodys says otherwise?

Will the fact that S&P is the only one dropping the rating lessen the effect compared to if all 3 agencies dropped the rating?

As the credit rating agencies said at the Congressional hearing, their rating is just their opinion. And we all know what opinions are worth.

I think you are missing the point still. It doesn't matter with whether or not they are competent or incompetent. All that matters is the trading opportunity this historic event facilitates.

If the institutional money can make more money by using this downgrade to drop the market 1000 points, they will do it. We will have to see what happens next week. Retail traders don't lead the market - we take a back seat and see what the institutions do, what other countries like China do with their money in our market, and then we just try to hop on.

It matters not whether S&P is worth a lick, has the right figures, etc.

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Lornz View Post
Regardless of ratings, the US (and several other western countries) faces structural problems over the next decades, and this downgrade could have happened years ago. A house of cards can only get propped up for so long....

Right. And we aren't seeing the kind of reform, yet, that is required to really change this path of destruction. So things should continue to get worse for main street, and better for wall street. At some point it becomes more and more evident that Main St outnumbers Wall St by a big margin, and what is good for the minority is not good for the majority.

This means the country continues to deteriorate until this changes, and the majority start to see improvement in their lives.

That also means it should be all but inevitable that Moodys and Fitch should be downgrading the US as well at some point. Of course, this assumes integrity which clearly they do not have. If the White House, or Goldman Sachs, or whoever with enough clout can approach S&P and agree to some backroom deal where S&P would upgrade the USA back to AAA rating after some terms of an event, then that could prevent the others from downgrading us.

Mike

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