So today S&P downgraded the credit ratings of Freddie Mac and Fannie Mae, the mortgage giants which were taken over by the feds in 2008 after the mortgage disaster/scandal/swindling-of-American-homeowners-and-investors in which S&P was a co-conspirator. I realize some people are going to have a big problem with me describing S&P as a “co-conspirator” but hey, facts are facts: look it up.
Well, a better title might be waiting for the markets on this particular Monday morning. Since the S&P’s historic downgrade ot the U.S. rating, from AAA to AA+ happened after the markets closed on Friday, this will be the first chance we have to see how investors will react.
Signs from abroad, as well as futures trading this morning, suggest we will see a decline. Generally I am seeing multiple reports that analysts think there may be an initial shock – blunted, I think intentially by S&P, by the timing if the announcement for maximum cool-off before the markets next opened – followed by stabilization. Analysts seem to agree there is no tangible reason that the stock market should react at all to the U.S. rating downgrade.
But then I keep thinking there is no tangible reason the market should react to nine out of ten news events – it just does. People are strange, and unpredictable, and irrational, and subject to herd mentality, especially where the behavior of markets is concerned. And people make those buying and selling decisions. Then too, there is no precedent to look to in order to predict what will happen with the markets, as a downgrade to the U.S. credit rating has never happened before.
Waiting.
Update: DJIA down around 200 points within minutes of opening. Bad, but not all that shocking. Will be interesting to see where market closes.
Update: Is S&P on a mission? They’ve just downgraded Freddie Mac and Fannie Mae, DJIA down 356 as I type this.
So this morning’s job report was better than expected, with the economy adding 117,000 jobs. So that’s good, right? Well, not really. More like mediocre. Among other things, we get to write off people who are so discouraged they just stopped looking, meaning there were actually less people working in July than in June. So that’s the mediocre.
The Bad is the downgrading of the country’s credit rating, courtesy of S&P. As a coworker of mine noted last week, when this was only a possibility, “If you’ve seen the movie Inside Job you’d kind of have to take any rating coming out of S&P with a grain of salt – okay maybe a truckload of salt – becuase how did those people put it when they were in the Congressional hearings? They said something like ‘It’s not like those ratings mean anything, it’s more like’…what’s the word I’m looking for here?”
“You mean ‘It’s more like they’re guidelines?'” I asked”
“Exactly!” she said. “Like Pirates of the Caribbean, which is fitting, since they are real, live 21st Century Pirates.”
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