Slammed

by Larry Levin

The market was slammed today despite the "deal" coming together over the debt ceiling. Perhaps traders see it for what it really is - a joke!  Congress will be in this pickle again and soon, with even higher levels of debt to deal with.  I wanted to do a nice write up about this; however, a nasty storm is coming and I wanted to get this done before I lose power.
 
Therefore, in the mean time I hope you enjoy the following from Karl Denninger discussing today's Moody's statement of a US downgrade...
 
Ready For The Downgrade?

Well here it comes, although they didn't say that up front... or did they?

New York, August 02, 2011 - Moody's Investors Service has confirmed the Aaa government bond rating of the United States following the raising of the statutory debt limit on August 2. The rating outlook is now negative.

OK, so you affirmed the rating.  But that we already knew.  The problem is here:
In assigning a negative outlook to the rating, Moody's indicated, however, that there would be a risk of downgrade if (1) there is a weakening in fiscal discipline in the coming year;

What Congress did is not enough and the coming year is important, which means that waiting until after the election to make the difficult choices will not work.

Worse, if Congress tries to pass a stimulus (that is, more spending on "jobs") bill we get downgraded.

(2) further fiscal consolidation measures are not adopted in 2013;
You know those promises Congress?  You better keep them (and we know you won't.)

(3) the economic outlook deteriorates significantly;
We're screwed.  This is a foregone conclusion.  I wish it wasn't, but it is.
or

(4) there is an appreciable rise in the US government's funding costs over and above what is currently expected.
We'll probably get away with this, if for no other reason than The Fed will get involved (again.)
That's 3 for 4 - the wrong way.
 

Buckle up.

 

 

 

Trade Date: 8/2/11

E-Mini S&P Trades*

(before fees and commissions):

1. VA buy @ 9:28am at 1274.00 = +.75 & -0.75 (2 lots)

2. FT sell @ 2:29pm at 1257.25 = +0.75 & -0.25 (2 lots)

3. FT sell @ 2:41pm at 1255.50 = +1.00 & +1.00 (2 lots)

4. Algorithm positions (4)

5. "Reading the Tape" positions (7) ...combined Secret's, Algo, & "Reading the Tape" total...+6.00

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