What The S&P Downgrade Means For You
The Dynamic Wealth Report
August 8, 2011
by Robert Morris, Editor
The week was done. The market's had taken a beating, but we made it
safely into the weekend without a complete market meltdown. In fact, the
Dow even managed to eke out a slight gain on Friday after a 4% drop on
Thursday.
Then it happened...
Early Friday evening Standard & Poor's dropped an atomic bomb on the
markets. The rating agency issued the first ever downgrade of the United
States' sterling triple-AAA credit rating. They lowered the once
seemingly invincible AAA rating by one notch to AA+.
-------------Sponsor-------------
Where Can You Turn $300 Into $1.3 Million Right Now?
Our own small-company specialist, Robert Morris, has found a
way to 'sniff out' tiny penny stocks on the verge of a major breakout. And
the timing for this has never been better.
You see, the system takes advantage of an obscure SEC regulation that
sends penny stock prices through the roof.
We've seen some stocks gain 852%... 5,450%... even 17,496% in no time
flat.
Click here
for the details...
-----------------------------------
And they're maintaining a negative outlook... that's agency
speak for further potential downgrades ahead.
As you might expect, the move is roiling markets this morning.
The Dow's down 2.7%. The S&P 500 is about 3.3% lower. And the Nasdaq is
off by more than 3.4% early on.
It certainly looks like we're in for another big down day in the stock
market.
Many of you are probably wondering what the downgrade means to you and
your money. While only time will tell how the markets will ultimately
react, here are a few things to watch out for.
First off, the downgrade is likely to send stock prices significantly
lower. The market hates uncertainty. And the downgrade deals a major
blow to already fragile investor psyches.
Stock markets have tumbled over the past two weeks as the economic
picture darkened. The Dow's lost about 10% of its value, the S&P has
shed nearly 11%, and the Nasdaq is off by more than 14%.
Investors around the world are clearly worried the US is falling into a
double-dip recession. And for good reason...
The latest GDP data show the US economy is growing much more slowly than
everyone thought. Consumer spending is falling off a cliff. And despite
a better than expected jobs number on Friday, unemployment remains
stubbornly above the 9% level.
Now add to these woes a credit downgrade of the world's most productive
economy and you can see why investors are shaking in their boots.
Many investors are worried the downgrade will hasten the US' fall into
recession.
The theory is the US government will have to pay higher interest rates
going forward to entice investors into buying more US Treasury debt. And
these higher rates will in turn drive up interest rates on everything
from mortgages to consumer loans to borrowings by businesses.
Of course, higher interest rates make it tougher for the economy to
expand. Consumers tend to spend less when the cost of financing
purchases moves higher. And businesses usually borrow less and less as
rates climb.
Exactly the opposite of what we need to keep the economic recovery on
track.
Given the increased risk of another recession, don't be surprised to see
stocks move a lot lower over the weeks and months ahead.
Now, you'd think the credit downgrade would impact US Treasuries the
worst. If interest rates are heading higher, it makes sense US
government bond prices would drop.
But the ongoing sovereign debt crisis in Europe is likely to prop up
bond prices for some time.
You see, despite what S&P is saying about the quality of US debt, most
investors still believe US Treasuries are the safest place to park their
money. No market is more liquid and more stable than the US Treasury
market.
But this is probably just a short-term phenomenon.
Once Europe gets their house in order, the focus will likely return to
the US government's debt woes. If the government hasn't made any serious
headway on deficit and debt reduction by then, we could certainly see US
Treasuries move lower.
The one bright spot in the markets is Gold.
The shiny metal has been moving steadily higher since the financial
crisis began in the fall of 2008. Seen by many as the ultimate hedge
against all kinds of risk, gold has been one of investors' favorite
places to hide. And this time around shouldn't be any different.
So, what's it all mean?
Unfortunately, it's just too soon to draw any conclusions about how the
credit downgrade will affect markets longer term. There are too many
variables with potential to change at a moment's notice.
With that said, we're probably looking at a steeper and more protracted
downturn in the stock market. Treasuries are likely to move higher in
value short-term as investors move in seeking shelter from the storm.
And gold is poised to make serious gains as investors flee to safety.
*** Editor's Note*** We’re less than 24 hours
away from the next currency option recommendation. The last one jumped
96% in just 4 days! To get in on gains like that,
all the
details are uncovered here.
Share This Story:
Print
Page
Bookmark Us
Home | Whitelist Us |
Terms of Use |
Privacy Policy |
Contact Us | Security |
Site Map