Monday, August 8, 2011

Standard & Poor`s? Way Behind the Curve

The stock markets tanked today. The market participants were spooked by Standard & Poor`s downgrade of the U.S debt. But why? Did anything change fundamentally over the weekend? No.

Did the Dollar fall today? No, the U.S. currency rose against the Euro & the British Pound ( marketwatch.dollar)! Did the interest rates of U.S. government bond climb today? No. The interest rate for treasuries (bonds issued by the U.S. government) dropped  .marketwatch.treasury-yields  !

No wonder. Standard & Poor´s is way behind the curve. The recession/crisis ended in spring 2009. Since then the U.S. economy is healing, towed by the recovering global economy. The economic indicators show that the U.S. economy is still growing, though slowly. Consumers spend more money as the rising sales of the retailers show, the profits of the companies are climbing, that implies more tax income for the government.

The downgrade decision doesn`t have much to do with the economic environment. Many commentators explained the S&P downgrade as a political decision ( They might be right. And the downgrade might be connected with the huge ego some people at Standard & Poor`s show. They demonstrated that they can move the markets whatever it may cost.  By the way: After Warren Buffett criticized, that the S&P people confused their job, they downgraded the outlook of his company ( ). That is like a "kindergarten": If you damage my sandcastle, I will damage yours.

No comments:

Post a Comment