The beginning of August has brought nothing but turmoil to investors and the economy. Politicians played chicken with the debt ceiling despite the warnings of every single non-politician who knows even a little bit about economics. Although a deal was reached to raise the debt ceiling at the last minute, it was too late. Americans, and the rest of world, are rightly asking can Washington do anything now that it is so polarized into camps of us and them. That uncertainty comes at an inopportune time since there is already so much uncertainty surrounding the current state of the economy.
Next came the downgrade of US debt by Standard and Poors. Make no mistake, this was a political, public relations ploy. The original S&P U.S. downgrade played up a very high percentage of debt to GDP, and even gave a number at which things would be "good enough" for the United States debt to not get a downgrade. However, when a math error that was big enough to move the number well into "good enough" territory was discovered, S&P downgraded U.S. bonds anyway, making many wonder what S&P bond ratings are even based on.
The company may have damaged its own reputation more than it did the debt of the United States of America. Indeed, the company was so late to downgrade AAA-rated mortgage securities that investors had already lost most of their investment and was so slow to downgrade the debt of Greece that the markets were down significantly before S&P woke up and issued their downgrade. But, now, however, they seem to be chomping at the bit to downgrade U.S. debt early. In fact, none of the other major ratings agencies issued a downgrade.
It seems that S&P wanted to downgrade the debt as a way to institute some sort of power over the U.S. government by chastising them for not reducing the deficit more. Along the way, it made itself the laughing stock of the investing world. How can one rationally say that the U.S. is more likely to default today on its debts than it was one month ago BEFORE Congress was able to pull its highly-dysfunctional state together long enough to come up with ANY plan at all?
Although the markets swooned over 400 points down on Monday, that can be attributed more to continuing uncertainty (of which the S&P downgrade was a part) than to investors taking the S&P seriously. In fact, U.S. Treasury prices actually ROSE in the wake of the downgrade. By Tuesday afternoon, the markets were up over 400 points, essentially erasing the big drop on Monday, in a continuation of a volatile summer where investors are asking whether the economy is slowly recovering or the economy is slowly heading for a double-dip recession. It seems the questions investors are asking have nothing to do with S&P’s attempt at a big splash.
Apple Biggest Stock In World – Briefly
For a short period of time on Tuesday, Apple Inc. became the most valuable company in the world when it’s market cap rose to $341.5 billion to Exxon’s $341.4 billion. However Apple shares slipped back under Exxon shares later in the day. Whether Apple takes over the number one spot for more than just part of a day will depend in large part on the price of oil and how much of premium investors are willing to pay for Apple’s astronomic growth rate.
Also on Tuesday, the Federal Reserve announced that it intended to keep interest rates near zero for at least another two years in an effort to remove rising interest rates from the list of potential concerns about the economy.
That’s good news for homeowners with adjustable rate mortgages (ARMs) who may have been worried about rising ARM interest rates pushing up their interest payments. Although most mortgages are tied to a 10-year interest rate index, ultra-low short-term rates will make big upward movements mid-term bond indexes unlikely. If you can make your mortgage payments today, chances are you’ll be able to make them through the next year, and maybe even the year after that.