Bill Hicks wrote:If the credit agencies were at all honest, the U.S. would be rated ZZZ.
Aug 06, 2011 (DailyFX via COMTEX) -- Through it doesn't come as much of a surprise to the skeptics of the United States' feeble attempt at reining in the country's ballooning deficit, Standard & Poor's announcement that it was downgrading the country's top credit rating will nonetheless catch the market off kilter. With the official announcement coming in the evening hours Friday; the market now has the whole weekend ahead of it to mull over the impact this unprecedented shift has on the market. The considerations are multivariate and confusion will likely be the most consistent result. However, there are general expectations on which to establish expectations.
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The first consideration is that the greatest potential benefactor from this shift will be gold. The dollar's gradual depreciation has been a key selling point for the greenback; and this move will certainly further undermine the dollar's value as a safe haven as its anchor in the world of finance (Treasuries) has come unmoored. Scrambling for an alternative that meets the standard that the asset is almost as good as cash while avoiding the financial crisis developing in Europe and Asia leaves few other options besides the precious metal. Of course, if risk aversion kicks into high gear, the need for liquidity to cover margin calls on other trades could very well draw capital out of gold. Such uncertainty exists everywhere.
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From the FX market, the risk appetite and funding considerations behind the dollar will be pivotal. Measuring the currency's health against its various counterparts sets us up with different categories. Those currencies that stand to benefit the most from the loss of safe haven appeal are the Swiss franc and Japanese yen. Both countries have attempted recently to devalue their currency; but active intervention against a wholesale dollar unwinding is destined to fail. As such, we'll be watching to see how quickly USDCHF and USDJPY can drop below 0.75 and 76.00 respectively - and how far they could run beyond it. Watch for emergency meetings over the weekend and stated plans for coordinated action in an effort to stablize the market's and these pairs specifically.
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Going down the list, we have the core group which includes EURUSD and GBPUSD. If the market abondons the dollar, the euro will hold the appeal of being the second most liquid currency in the world; but its funding troubles will complicate this scenario. For the cable, the sterling has no immediate fundamental issues to deal with; so it would be easier for GBPUSD to run and keep running.
PrestonSturges wrote:Which is not to say that people are dumping the dollar, no, people are fleeing to the dollar!
TheAutomaticEarth called this months ago!
PrestonSturges wrote:Which is not to say that people are dumping the dollar, no, people are fleeing to the dollar!
TheAutomaticEarth called this months ago!
timmac wrote:What country still has AAA ratings, or is there any..
careinke wrote:I suspect some very serious pressures are being applied to the S&P. My bold prediction is they change their rating back to AAA before the Chinese Markets open.
careinke wrote:I suspect some very serious pressures are being applied to the S&P. My bold prediction is they change their rating back to AAA before the Chinese Markets open.
americandream wrote:careinke wrote:I don't mean to suggest that they are sitting somewhere in a dark room fiendishly planning these outcomes. However, these necessarily follow each stage in capital's development as the emphasis now shifts back to wealth being in the hands of a small group as oppsoed to the brief foray into populist capitalism during the heyday of home ownership.
stephankrasner wrote:americandream wrote:careinke wrote:I don't mean to suggest that they are sitting somewhere in a dark room fiendishly planning these outcomes. However, these necessarily follow each stage in capital's development as the emphasis now shifts back to wealth being in the hands of a small group as oppsoed to the brief foray into populist capitalism during the heyday of home ownership.
Dave Emory was predicting stuff like this years ago. http://spitfirelist.com/for-the-record/ ... the-train/ It's interesting that I saw Germany mentioned in an earlier post as being AAA quality.
I'm with Sixstrings on this one. That canary is currently choking on the gas leak that S&P opened intentionally on Friday. The question is will anyone react and open a window before it's catastrophic? The worst of it is that I am only 4-6 months away from being 100% debt free after six years of effort...
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