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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. loses AAA credit rating, downgraded from S&P

U.S. loses AAA credit rating from S&P | Reuters

(Reuters) - The United States lost its top-notch AAA credit rating from Standard & Poor's on Friday, in a dramatic reversal of fortune for the world's largest economy.
S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about growing budget deficits.
U.S. Treasuries, once undisputedly seen as the safest investment in the world, are now rated lower than bonds issued by countries such as the UK, Germany, France or Canada.
The outlook on the new U.S. credit rating is negative, S&P said in a statement, a sign that another downgrade is possible in the next 12 to 18 months

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What a surprise...

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Yes, question is what they will do now next week. Do we see a huge drop, leading to a panic sell off? Capitulation, and then a short-term bottom formed?

Or do we see a huge rally as the market tends to be forward looking, so "the worst is behind us" -- they can't downgrade us to A from AA....

etc.

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Interesting times ahead... Will this start a domino effect? There are troubles in other countries, as well...

What about funds having to be invested in AAA?

Things can get very exciting, very fast...

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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!"

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Let's wait for China answer.
They have $$ and a buzillion of bonds.

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Lornz View Post
Interesting times ahead... Will this start a domino effect? There are troubles in other countries, as well...

What about funds having to be invested in AAA?

Things can get very exciting, very fast...

That is correct. There are so many things tied to US Treasuries. But I would think that banks have been preparing for this. If they haven't, I guess I wouldn't be surprised though as they weren't prepared for the sub-prime crisis. US Treasuries serve as the highest level of collateral for banks. This could potentially create capital calls from borrowers in turn causing mass liquidations in all sorts of assets. Obviously the most liquid will be sold first meaning stocks and other exchange traded instruments.

Portfolio's are based on the risk-free rate + some sort of Alpha spread above that as a performance measurement depending on the fund or asset class. It will be interesting if there is a change to this criteria. Additionally, most institutional investors (pensions, endowments, foundations, sovereign countries, cities and counties, mutual funds, etc.) have an investment policy statement that a certain portion of their assets must be invested only in AAA rated securities. This could cause a major rebalancing move across the board. I know some think there will be a rush to safety in Treasuries but that will affect the short maturity issues only which haven't been downgraded. It's the 10's and 30's that will see the biggest impact from this. The only question that remains is will institutional investors acknowledge the S&P's rating over Moody's? And once again, Moody's is showing there unwillingness to move forward on an obvious hazard just like in 2008. Why would someone really take them seriously? That's like asking Bernanke what he thinks about the containment of sub-prime mortgages.

This downgrade is long over due but will have a wide effect on multiple asset classes. It's possible that the market may have been pricing in a potential downgrade but then again, we could have a limit down come Sunday's open. I've seen those before so, it's definitely not out of the question.

I would imagine next week will have crazy volatility again. These are the times when fortunes are made.

Cheers,
PB

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This week's sell-off might have been the anticipation of the downgrade, either because it was "leaked" , or just because the S&P warned that if a budget deal cutting a minimum of $4tril would be required to avoid the downgrade, since it was only $2tril, it was expected..I'm just glad that they waited until after market hours, to announce it..(and a weekend to think about it)..

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That was my question too. For the AAA requirement, which agency do they decide to use for the rating? An average of all three? Or whichever one they choose to use? Why not Moodys over S&P? etc etc.

What I think is that this downgrade will just be an excuse to wreak havoc, up interest rates, panic the market and them rape the American people some more.

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I think everyone knew that a downgrade was coming for at least a week. So it should be "priced in". But I still think it could be used as a catalyst or more of an excuse to further panic the market downward.

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