Firstly, collateral. I've seen a couple of people ask if the downgrade means Banks will be required to up their capital ratios, and IMO this has practically 0% chance of happening. To up capital requirements now would be the work of someone deliberately trying to screw the whole american economy.
Secondly, specific ratings: Sure, S&P are the biggest fish in the pond, but what Moody's does matters too. an S&P downgrade alone isn't enough to pull the plug.
And, going on from a point I made earlier, there isn't actually anywhere else to put the money anyway. The only market that compares in size to the US is Japan, who of course are not AAA either. That means you have Germany, Italy, France, China, Brazil(?), and the UK left (all of which would have to double their issuance to accomodate the funds leaving US paper, and anyway, don't you think we have our own problems?!?!)
Another thing... if it does look like fire sale conditions are emerginf, then funds (all of em) are likely just to overide the mandate bacause of the severe price penalty incurred fr trading in such cirmumstances - OK, there's a downgrade, but that doesn't mean it's OK to accept 70 cents on the dollar just bacause everyone is trying to squeeze through the same door at the same time!
(and one last thing, I heard that US investors are often constrained to >AA, not necessarily AAA)
So, in conclusion, the downgrade sure makes good headlines and political ammunition (which will become important next year), but in terms of market operations, it is largely academic.
The following user says Thank You to cpi65 for this post:
First of all, this a trading forum, so you can't blame people for being more interested in tomorrow's events than next year's.
Secondly, this message board is largely built around indicators and price action trading. The vast majority seem to have little interest in finance/economics. They only focus on charts, and some squiggly lines on them, ignoring everything else. Of course the vast majority also lose money, so there might a correlation there...
I have read the report, I posted a link to it in the chat when it was published yesterday. I also read the statement that they put out mid-july, warning about a potential downgrade this fall. But in today's world it is very optimistic to assume most people will read something like that, most people can't even be bothered to watch the news anymore. They rely on some talking head like Bill O'Reilly or Chris Matthews to digest the news for them and shape it to fit their existing world view. Intelligent thought is only found in niche magazines and selected social circles these days.. I have given up on the world a long time ago...
As for how this will affect the rhetoric during next year's election campaigns, do you really think it will change for the better? That suddenly the Tea Party, Green Party and the rest stand will stand in solidarity to get the nation back on track? Or is it more likely that we will see even more fierce polemics as the Tea Party asserts that the downgrade is a result of evil Obama's communistic reign, while the democrats claim this is what happens when corporations and the rich don't have to pay taxes...
The following user says Thank You to Lornz for this post:
On a trading perspective, what would you think is going to happen in the near future? Which assets are going to have the biggest response and any guesses in which direction is the movement going to be? What it seems to me is that I'm not going to look for any longs in the coming days ...
now, honestly, this is never a trade I would take, for a whole host of reasons (such as I don't trade indices), but long the ES here with 1st target 1185 2nd target 1200 with stops below the present low + some vol adjustment looks like a lottery ticket worth the commission you will pay for it.
Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.
Need help? 1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first. 2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses. 3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make. 4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance. 5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers. 6) Help using the forum? Watch this video to learn general tips on using the site.
If you want to support our community, become an Elite Member.