In case you missed it, yesterday evening Standard & Poors gave the United States a credit downgrade from AAA to AA+.
First, we have to give thanks where it is due…Thank you Congress.
I can’t say I’m surprised. We were living on borrowed time (and money) when it came to US financial health. And now we will have to pay the consequences.
From the Reuters news desk:
S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about the government’s budget deficits and rising debt burden. The move is likely to raise borrowing costs eventually for the American government, companies and consumers.
“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” S&P said in a statement.
I agree with Barry Ritholtz and others on this one. When it comes to the rating agencies:
“S&P (and the rest of the ratings agencies) helped contribute to the overall economic crisis. [They] rated junk (securitized mortgage backed paper) AAA because they were paid to do so by banks. [Parenthesis added]”
The downgrade just adds some oil to the slippery slope we’re already sliding down. Stocks have fallen over 10% in the past ten trading days. That is institutional selling if I’ve ever seen it.
Poor GM. On August 4th, 2nd quarter earnings were released…$2.5 billion! (that is an 89% increase the 2nd quarter of 2010). Markets reaction? A 3.7% loss in price. Not that you should be buying GM anyway…this example highlights the fact that now is not the time to be buying period.
But all is not lost.
Keep in mind that corrections are a natural and important part of market action. We all want gains, and we want them all the time. But the truth is that we NEED corrections.
These tough times will create new buying opportunities for all of us. Stocks that may have been outside of your price range (based on your money management rules), will soon be affordable.
Let traders deal with volatility. Your job now is to pick your spots.
One last piece of advice. Now is not the time to stop funding your accounts; now is a great time to build your nest egg, When the markets turn around (and they will) you can get back in and take advantage of the coming buying opportunity.
S&P Downgrades US to AA
The Big Picture
US Loses AAA Credit Rating
About Joel Wenger:
Mr. Wenger is an investor, trader, entrepreneur, and business manager. In his “spare time”, Joel is also an avid motorcycle racing fan and back-country skier. He currently works as a strategy consultant in the greater Detroit area and writes columns for joltleft.com as the Detroit Investing Examiner.
Joel’s investing knowledge is shared via Invest-Safely.com, one of the most comprehensive and user-friendly investing resources on the web, as well as the Safe Investing Blog.
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