I would agree with your thoughts on money market funds. There is the potential for a breaking of the buck. But Bond Funds are only a slice of the US treasury ownership pie that this downgrade affects. There are huge pension funds, endowment funds, sovereign funds, bank holdings for collateral that has potentially created an adverse/material event that can have a knee-jerk scramble to rebalance their positions to other AAA rated securities. As mentioned before, the question is which agencies will these institutions lean more on? From being in the investment management business my entire career, I can assure you that I've seen a majority of these entities place a high emphasis on the S&P's ratings. That is why this is huge.

I think everyone cares about what the S&P has to say. Doesn't mean everyone needs to comment on it though. As for what the market opens at, who cares. Just trade what you see on your screen...

Just purely for fun, I would say we might see a 1,000 point sell off next week on the dow, and then a short term bottom formed over the next few weeks, leading to new highs. Say it with me, "dow 15,000 here we come". And "I love QE42!"

Mike

don't be surprised if not even qe3 shows up. inflation might be a problem here.

they need to come up with another brilliant idea to save the economy.

one thing they might do if bonds get under pressure from the downgrade, is to swap some of their holdings in shorter bonds for a longer maturity. of course this alone will not help much.

lets just hope china will be modest with their decision. what I read so far, they are not very happy.

I think you guys are missing the wood for the trees.

The short term implications, such as what bond funds required to hold AAA paper will do, is done and dusted. For too long has the possibility of a downgrade been on the table for long enough for institutions and regulators to either prepare for adapting / exempting AAA mandates. And, in all honestly, it isn't the bond funds that are the immediate problem - it's the money market funds that pose the nearest threat. Still, come Monday morning I don't think the wheels are going to fall off the SP500 (if anything, corporates become more attractive), and the US bond market is the deepest in the world - all $700 trillion of it - and so, frankly, there isn't anywhere else to put your money anyway.

The importance of the downgrade is how it will be played out in the 2012 election; in their report, S&P make it plain that the deficit problems that are blossoming now were planted many years ago, and that the shambles of the past month has cemented the rating as confidence in bipartisan relationships has crumbled...

"The political brinksmanship of recent months highlights what we see as
America's governance and policymaking becoming less stable, less effective,
and less predictable than what we previously believed. The statutory debt
ceiling and the threat of default have become political bargaining chips in
the debate over fiscal policy."

I posted the actual report in the elite section, but so far no-one seems to give a shit what S&P actually say, just make guesses on where the spoos will open...

I would agree with your thoughts on money market funds. There is the potential for a breaking of the buck. But Bond Funds are only a slice of the US treasury ownership pie that this downgrade affects. There are ... bank holdings for collateral that has potentially created an adverse/material event that can have a knee-jerk scramble to rebalance their positions to other AAA rated securities.

don't be surprised if not even qe3 shows up. inflation might be a problem here.

they need to come up with another brilliant idea to save the economy.

one thing they might do if bonds get under pressure from the downgrade, is to swap some of their holdings in shorter bonds for a longer maturity. of course this alone will not help much.

lets just hope china will be modest with their decision. what I read so far, they are not very happy.

thank you nexusfi.com (formerly BMT).