The Financials Review
For the week of August 8, 2011
By Frank LaMantia
In the past, countries that have been downgraded typically show a sell-off in their stock market. As most aware the U.S. rating has fallen from AAA to AA- and for those that do not know this AAA rating has been around since its inception in 1917. Wealthy investors, institutional investors, and those who work on the street in business were likely ahead of change rather than behind. Meaning, they could have been more likely to have sold positions over the past few weeks. Mom and pop accounts may just be waking up now to sell the market. One might think the worst in this type of environment but remember this is also when those on top of the food chain could be looking to buy in. They could be looking for bargains and opportunities. The issues go further than just the United States. Do not forget the debt issues are a global problem and seem to be getting worse. Also, it wise to not forget that the derivative market has still not hit with its losses. The issue is that the brightest minds still do not know how badly leverage those vehicles were stretched.
PIMCO, Warren Buffet, and Geithner agree that countries like China may seek sovereign debt from other countries. China might not take all of their money out but they could spread it around to other countries. This means less money being placed in the United States system. Hedge funds seem to be putting money in cash which one may assume that wealthy investors could be doing the same thing. People do not want to relive the 2008 sell-off hoping for a comeback.
***Chart courtesy Gecko Software
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