The Downgrade Which Shook the World
There are many investors and analysts who insist that the S&P credit downgrade will have little effect on markets. Although I would like to be drinking their economic Kool Aid I don’t have that luxury or escapist tendencies like so many others. The credit downgrade, which anyone with a little bit of foresight could see coming will have drastic effects in both the psyche and purse stings of both Wall Street and Main Street. Besides the main stream media finance programs, most analysts (excluding the delusional bulls) have seen one continuous catastrophe (economically speaking) from 2008 until now. There has been no recovery besides the manufactured one and now that QE2’s effects have worn out, the stacks of cards has become a pile of rubble. With the credit downgrade holders of American debt like China and Japan will stop acquiring more. And who could blame them? This will have a negative affect on the bond market and of course affect lending rates. For those arguing this is just a psychological downgrade, most of investing and economics is psychological. WHen a society is upbeat about its future investments rise and jobs are created and the opposite is true when a society like America sees itself on the waning end of the economic spectrum.
Where to Now?
I have no predictions, because volatility of the market is just so high. If you were one of those that hedged on gold or the Swiss Franc (meaning you had to believe that we we headed to disaster) then you are doing OK. Other than that I would put money back in cash or perhaps some tech stocks like Apple and Google. They at least offer stability (albeit in the long term), yet this is no time to assume that we are just in a slight market correction. Major things are underway and many negative indicators around the world, from the Euro crisis to the US debt issues point to a possibility that Thursday’s plunge maybe child’s play to what is coming.
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