August 11, 2011

The U.S. Downgrade and the Euro Sovereign Debt Crisis

The consequences of the debt downgrade may be felt on the real economy for reasons other than a crisis of confidence. U.S. economic growth has hit a soft patch but may not regain momentum anytime soon if the fiscal stimulus is withdrawn, as a result of deeper spending cuts.

We discuss:

• The U.S. after the S&P debt downgrade
  
  
• The rush for a safe haven
  
  
• Our outlook
  
  

August 8, 2011

U.S. Treasuries Have Been Downgraded.
Silver Lining May be Seen in Long Term.

While near-term market volatility is to be expected, we do not expect the intermediate term effects to be material.The ratings downgrade could spur a credible plan of action that results in an upgrade to U.S. debt back to AAA.

• Given the apparent unwillingness/inability of Congress to either raise taxes or meaningfully cut spending (S&P professes to be agnostic as to the appropriate mix of spending and revenue measures), S&P apparently judged that there was little to be gained by waiting until after the 2012 elections to revisit/cut the U.S. debt rating.
  
  
• If the ratings downgrade serves as a "wake-up call" or a "call to action" and results in a credible plan to reduce deficits enough to at least stabilize (and better, reduce) the Debt:GDP ratio, then the U.S. will be upgraded to AAA and our financial future will be more secure than if S&P had continued to rate the U.S. AAA while the situation continued to deteriorate.
  
  

August 5, 2011

Maintain Your Perspective in Volatile Markets

Since peaking for the year at 1371, the stock market, as measured by the Standard and Poor's 500 Stock Index (S&P 500), fell 12% to 1200 on August 4th close. Last year, by comparison, the market suffered a 17% correction between April 26th and July 1st.

• The market does indeed fluctuate; but over longer periods it has trended upward. Of course past performance does not guarantee future results, but savvy investors will take this opportunity to tune out market noise, maintain a healthy perspective and look for potential bargains in the market.

August 5, 2011

A Classic Market Panic

The 500-point drop in the Dow on August 4 was not an isolated event but the culmination (though not necessarily the end) of a sell-off which started two weeks ago.

Topics covered include:

• What was the cause?
  
  
• The economic news flows
  
  
• Why was there a 500-point down day?
  
  

July 2011

The Credit Rating of the United States: Threat of Downgrade

The 500-point drop in the Dow on August 4 was not an isolated event but the culmination (though not necessarily the end) of a sell-off which started two weeks ago.

• We believe that the U.S. will raise its debt ceiling, most likely on or before the August 2 deadline (although we suspect this deadline can be extended as well)
  
  
• Regardless of the outcome of the debt ceiling talks, the U.S. may be headed for a downgrade if it cannot address its budget deficit and entitlement spending programs.
  
  
• Except for its status as the world reserve currency, and as the strongest military power, the U.S. merits a lower debt rating on the basis of its economic and credit statistics.
  
  

Market Corrections have Offered Opportunities

Four investment scenarios following one of the biggest market drops in history:

• Avoidance
  
  
• Engagement
  
  
• Investment
  
  
• Opportunity
  
  

The Power of Buying Low

Stock market investors who bought at market lows – viewing them as buying opportunities – historically have fared better over the long term.