Somebody Had To Say It

Sign Up to Receive an Email Alert when "Daily State of the Markets" is Published

 

Good morning. During the tumultuous battle in Washington over the debt-ceiling and budget deficit, I was probably not the only American thinking that the process had gotten ridiculous. And after all the biting, scratching, finger-pointing and name-calling, the powers that be came up with a whopping $2.4 trillion (give or take) in so-called spending cuts. This despite the fact that Standard and Poor's had, in no uncertain terms, said that Congress needed to produce cuts of at least $4 trillion to avoid the country's first-ever credit rating downgrade.

However, as is typical in Washington, the professional politicians believed that they were the center of the universe in the "debate" and that the next election was of primary importance. Yes, this is solely my own opinion and I am indeed guilty of providing an editorial view this morning. However, my guess is that based on recent polls, the country as a whole would like to "throw (all) the bums out" after the embarrassment of the so-called "debate" and now the downgrading of our country's sovereign debt rating.

While the general public probably isn't aware of the fact, the spending cuts finally made in the grand agreement that the White House, Democrats, and Republicans managed to come up with aren't really spending cuts at all. Remember, the current budget is already set and the so-called cuts actually only reduce the proposed INCREASES in spending over the next decade. And if you recall, we are currently running a deficit of more than $1.5 trillion a year at the moment. So based on S&P's decision, it would appear that I was not the only one who was not entirely impressed by the $2.4 trillion number our leaders came up with.

Therefore, somebody had to say it; enough is enough. And it appears that S&P has done just that. China also chimed in over the weekend saying that the good old days of the U.S. borrowing its way out of trouble are over. Thus, it appears that our biggest creditor may be saying "enough is enough" as well. Remember, the Chinese rating agency has already cut its sovereign debt rating on the U.S. twice this year.

If you read the statement from S&P carefully, it really isn't the math that troubles the ratings agency. No, S&P says they just don't think Congress has the will to change their ways. Here's what they said: "More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011. Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon."

There is little doubt that S&P's debt downgrade has come at a bad time. Seriously, couldn't the company have waited a couple weeks or even months to let the current market settle down a bit before dropping their bomb? By waiting until markets were not in crisis mode, S&P could have saved Americans untold billions of dollars in 401(k) plans, IRA, and brokerage accounts. And by waiting, S&P could have let the economy get back on track. However, it appears that due to some internal policy, S&P felt it was their duty to downgrade the U.S., right here, right now.

To be sure, S&P as well as Fitch and Moody's, still have collective black eyes from their questionable activities relating to the ratings of mortgage-backed securities that led to the credit crisis (hmmm... subprime mortgages of American families are considered AAA, but the credit of the U.S. is not?). And I for one believe the fact that the ratings agencies have suddenly found religion to be more than a little hypocritical. However, given what is going on in Washington these days, somebody had to say it.

Turning to this morning... As one might have expected, the foreign markets have moved down in response to S&P's downgrade. This despite the fact that the ECB did indeed start buying Spanish and Italian bonds and the news that the G-7 is willing to take coordinated actions to help protect the global financial system. The bottom line is stock futures will open lower - down near Friday's lows. However, given the volatility seen in the markets lately, anything can happen from there.

On the Economic front... There is no economic data scheduled for release today.

Thought for the day... Remember that you can choose a peaceful mode at any point of any day...

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

• Major Foreign Markets:
  • Australia: -2.71%
    
  • Shanghai: -3.79%
    
  • Hong Kong: -2.17%
    
  • Japan: -2.18%
    
  • France: -1.79%
    
  • Germany: -2.50%
    
  • Italy: +0.25%
    
  • London: -1.88%
  
  
• Crude Oil Futures: -$3.78 to $83.10
  
• Gold: +$49.80 to $1701.00
  
• Dollar: higher against the Yen, Pound and Euro
  
• 10-Year Bond Yield: Currently trading at 2.496%
  
• Stocks Futures Ahead of Open in U.S. (relative to fair value):
  • S&P 500: -22.98
    
  • Dow Jones Industrial Average: -202
    
  • NASDAQ Composite: -48.73

 

Remember, you are in control your email alerts! You can receive alerts for more than 25 free research report alerts including: The “10.0” Report, The Insiders Report, ETF Leaders Report, and The Focus List.

 

The opinions and forecasts expressed are those of David Moenning, founder of StateoftheMarkets.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of TopStockPortfolios and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment.

Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives