We're AA+ now – so what?
Did we not know this was going to happen? Are we shocked? Are we appalled? No, of course not. We got the rating we deserved and now we have to deal with reality. It is not our fault if many market participants are not prepared for the reality we have been discussing ALL YEAR LONG. This is the Global slap in the face we expected and our only real shock is how long it took to get here.
I talked all about the Downgrade in our weekend post ("S&P Downgrades US to AA+ – Tied With Belgium!") and I strongly advise reading this week's Stock World Weekly ("Dungeons and Downgrades") to get a full perspective on how we got here and what position we're taking into this mess (PSW Members can use their same passwords to access the SWW site). Go on, I'll wait, give it a read…
Sorry if you missed it but our Market Day began yesterday (Sunday) at 6pm, when the futures opened and I sent out an Alert to Members saying I was PLEASED that we had a sharp 2.5% drop: "We just need to watch those bottoms from Friday and the 2.5% lines but, if they hold – we’re over the hump on the downgrade crisis already."
Our early plays were shorting oil futures below $84 (now $83.12, up $880 per contract) and going long on the Russell (/TF) over the 700 line (stopped at 704, up $400 per contract) and the S&P (/ES) over 1,170 (stopped at 1,175, up $250 per contract) and we hit our highs just after 9 and called it a night.
Well, a night for us, which ends at 3am in the Futures, where the usual 3am trade began a rally in the Dollar that brought our indexes back down to test their lows so, at 4:32, I sent out another Alert to Members, getting ready to reload bullish (a nice, quick primer on futures stop-setting here) and our first set was a series of nickel and dime plays but, by 5:37, I called for bullish re-entries on the sell-off saying:
So, let’s not take our sell-off too seriously, ONCE AGAIN, until and unless we break the lows, which were 690.04 on the RUT (/TF), 1,161 on the S&P (/ES), 2,123.25 on the Nas (/NQ) and 11,077 on the Dow (/YM). Oil is back below $84 and still a good LONG here (/CL).
I was wrong about flip-flopping on oil (down $1,000 per contract if you ignore the stops!) but, so far (8:30) the RUT is back at 694 (up $400 per contract), the Nas is up to 2,137.25 (up $140 per contract) and the Dow is at 1,175 (up $125 per contract). I'm still felling bullish because we accomplished this move up DESPITE the fact that the Dollar has rocketed to the 76 line, up over 1% from the evening's lows and we have not, so far, revisited those lows. We're done with our futures trading ahead of the market open (too dangerous!) and what we're waiting on now is tomorrow's Fed Meeting when we pretty much expect this to happen (pardon the rough sketch):
Fitch expects to complete its U.S. ratings review by the end of the month, saying: "The review will focus on the U.S. sovereign credit fundamentals relative to 'AAA' peers and medium-term economic and fiscal prospects in light of the August 2nd (debt) agreement." Meanwhile Moody's repeated a warning that they could cut the U.S.'s rating before 2013 if the fiscal or economic outlook weakens significantly but, contrary to S&P's pessimism about Washington politics, Moody's sees potential for a new debt agreement to cut the deficit before then (cue Supertramp).
The G7 met this weekend and issued a statement that they "are ready to take all necessary measures to support financial stability and growth."
We are committed to addressing the tensions stemming from the current challenges on our fiscal deficits, debt and growth, and welcome the decisive actions taken in the US and Europe. The US has adopted reforms that will deliver substantial deficit reduction over the medium term. In Europe, the Euro area Summit decided on July 21 a comprehensive package to tackle the situation in Greece and other countries facing financial tensions, notably through the flexibilisation of the EFSF. We are now focused on the quick and full implementation of the agreements achieved. We welcome the statement of France and Germany to that effect. We also welcome the statement of the Governing Council of the ECB.
We are committed to taking coordinated action where needed, to ensuring liquidity, and to supporting financial market functioning, financial stability and economic growth.
Gold is pushing the $1,700 mark as GOLDman Sachs predicts it will continue to climb through next year now with a 12-month target of $1,860 which seems a bit low to me if you are going to be predicting 12 months of gains. We're short on gold (long GLL) and crying about it so far but I updated the positions in the $25,000 Virtual Portfolio and we're going to be adding to it into this silliness. Silver topped out at $40 in early trading so I ask you – what kind of panic is this?
Jim Rogers said this morning: "In America, we had states and cities go bankrupt, many times. It didn't end the U.S., it didn't end the dollar … the idea of printing more money and buying up worthless bonds instead of (bankruptcy) is ludicrous," he argues, while of little doubt that's exactly the course governments will take.
Saying the battle over raising the debt limit calls America's political stability into question, The People's Daily demands the U.S. get its act together. What looks like instability to China's mandarins might just be democracy at work, and China increasingly sounds like a country in a bit of desperation over its $1.2T stash of U.S. paper.
We are cashy and still VERY CAUTIOUS but nowhere near as bearish as we were last week or the week before that, when we had laid on SQQQ, EDZ and other ultra-short plays. Essentially, this is a situation in which the Emperor (the US Economy) has been parading around with no clothes AND NO ONE HAD THE GUTS TO SAY SO! Finally, one little boy (S&P) finally points at our shameful nakedness and now we are exposed for all to see and the men who sold us the suit (Wall Street) and the men who pretended they could see the suit (MSM Analysts) are finally exposed for the ridiculous frauds they are.
