Posts Tagged ‘interest’

Monday Morning: What Awaits At The Market Open?

Monday, August 8th, 2011

Grim Tidings?

It’s always difficult to suppose one knows anything about how the markets will behave in such a difficult situation, but the early indicators are breathtakingly grim.  Whether this will be merely a correction, or perhaps indicates the beginning of the bottom dropping out, none can say for certain, but this much we know:  When the markets open in a few hours, there’s a pretty high probability that it will be a sore day, on the news that ought to have hit late Friday, but was delayed by White House lobbying.  For the first time in history, the US has been downgraded from it’s AAA rating, and there’s a high probability, as great as one in three according to S&P, that it will be downgraded yet again before the dust settles.  That portends serious consequences in the credit markets, and suggests at least a short-run retreat. What this means to the stock markets when they open isn’t certain, but at the moment, it certainly doesn’t look positive.

How did we arrive here?  Simply put, the downgrade is merely an effect of profligate spending with borrowed dollars on the part of our government.  Deficit hawks have been warning for decades what would be the ultimate result if our spending wasn’t restrained.   We have arrived.  That bleak future may well begin today.  Where is our President?  He has skipped town to Camp David, by all reports, ina pathetic bid for invisibility, and in a play reminiscent of his departure before the large Tea Party rallies in DC.  The problem for the President is that this isn’t going away, and he’s not likely to be able to divert attention from it.  Things are caving in around him, and yet he’s not particularly disturbed by it, and from all appearances, he simply doesn’t wish to be bothered by any negative attention.  Whether he carries on with the “laying-low” approach, or he comes out and  makes a statement of some sort on Monday, you can expect that he’ll be trying to distance himself from any responsibility.  Bet on the Tea Party being blamed, as John Kerry’s already picked up that meme and has been carrying it on behalf of leftists all weekend.  In a clear indication that they’ve long known what was coming, the DC establishment has been setting up their favorite scapegoat for weeks.

Check out this page of Pre-Market data, courtesy of CNBC. For those who dismissed the effect of a downgrade, this should provide an eye-opening dose of reality.

What shall you do?  I don’t offer market advice, ever, because I’m not a paid professional investment adviser, but as you go forward into the coming murky dawn, as the veil lifts to reveal what it will, my advice generally, as a human being, is to preserve value wherever you can.  There may be some buy opportunities, as there sometimes are, but whatever the case, whether climbing, falling, or dropping through the basement, all I can tell you is what I have always told my friends: Prepare for the worst, work for the best, and if you wind up on the sunny side of that equation, smile at your good fortune.  If not, at least you’ll be prepared.

What many expect is another infusion of cash from the Fed at some point, in the form of QE3, as is already being floated.  If so, that’s likely to be a sign that things are worse, so they would do it as quietly as possible, but this strategy is like trying to keep a blown-out tire inflated: Air spills out the breach more quickly than you can pump it in.  At some point, all the pump-priming in the world just won’t get it done, and worse, it could well add to our problem.  At  this point, the proper tack to take is merely the time-tested adage: “Do not put good money after bad.”

Be prepared for the bumpiest ride in at least a generation. Other than that? Good luck to all!

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