Emini FuturesCast / The Daily Pod 08/08/11
August 8, 2011 at 3:49 PM (QQQQ)(DIA)(SPY)(GLD)(SLV)
Crash? Burn? Sky Is Falling?
You name it, chances are you've heard it or will hear it before it's all over. When will that be? I don't know. I do know that I tend to wax eloquent when there's really not much going on. But with the Dow Down 600 Points there will be plenty of folks fighting for your attention. Everybody deserves their 15 minutes so give 'em a listen or a read and when the dust settles... I'll be here. Mozying around. And we can chat then...
I will show you a few things they can't...
E-Mini S&P 500: Blame game?
The American people possibly are blaming US lawmakers for the tremendous drop in the E-Mini S&P 500 today stemming from the downgrade Friday evening! The Republicans are possibly blaming the Democrats and the Democrats are blaming the Republicans. Treasury Secretary Timothy Geithner commented that Standard & Poor’s used “terrible judgment” in dropping the US credit rating from AAA to AA+! The downgrade was a reflection of instability and the inability of the US government to affect budget cuts to a desired $4 trillion when the budget cuts were more $2.1 to $2.4 trillion. The warnings had been there for some months, yet the administration could not get the house to agree on a fiscal budget that would cut spending to the desired sum. The AAA credit rating for the US had been in effect since 1917. The debt ceiling had been raised 78 times since 1960 to 14.29 trillion dollars. The haggling has left the investment community with perhaps a lack of confidence in the administration and it is now reflected in the marketplace. In response to the downgrade, a Senate Panel has begun an investigation into the credit rating. This effects the whole financial arena in the products, markets and banking sectors. The debt instruments of our AAA country have been favored by countries such as China who holds 1.1 trillion dollars in US debt. China had harsh words for our administration over the downgrade, but it is unlikely that they would liquidate the US debt instruments. The S&P 500 was down more than 6% on the thoughts of a possible recession. It was thought that panic selling contributed to the fear and anxiety to create a snowball effect. It is believed that possibly $1.35 trillion may have been lost in the stock market sell-off today! The fear and anxiety benefited safe-haven products immensely! US T-Bonds, US Dollar and precious metals all reaped the rewards of the panic stricken investment community. What is alarming would be that the debt instruments would be directly affected by the downgrade.
One must now look at the marketplace and remember that everything has a cycle! After a tremendous sell-off, there may be some bargain hunting, but where? Who will speak to calm the investment community? Where is the bottom of this move?
We may have a pause where the market tightens its range ahead of a turn-around. Bargain hunters will often average down as they start to build positioning. The US government should attempt to further budget cuts and possibly remove the Bush Tax cuts in the coming months to try to re-acquire the AAA credit rating. Moody’s and Fitch’s credit agencies still hold the US to the AAA credit ratings. It is entirely possible that this is a wake-up call to curb behavior that the US simply cannot afford.
Senior Market Strategist
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