Budget talks: This is getting nasty

Less than a minute in, down 200. NASDAQ off 90.

 

This is bewildering. S&P has been doing its conference call this morning. Morons.

They tried to explain why France deserves its AAA (even said it deserves it MORE now than it did a year ago), while the U.S. doesn't. Something about them raising their retirement pension age. No mention of the fact that French banks are the most exposed in the world to the toxic debt of a half a dozen countries on the brink of default

Which is why this is the most insane thing I have ever heard. I am not saying the U.S. is all peachy keen. But we are in GREAT shape compared to the Eurozone, which is being held together by scotch tape. There are some serious defaults on the horizon, and the European Central Bank announced it is going to buy sovereign debt to try to bolster the failing lending markets in places like Spain and Italy, where everyone is expecting eventual defaults right now, so yields were going up.

This is actually beyond insane. Europe is going to collapse -- I can't say when, but they are running around like Keystone Kops right now to try to put off what is looking more and more inevitable. The European Central Bank is embarking on inflationary policy in a move that will amount to spitting into the wind. And at some point -- maybe if Italy defaults -- there will be contagion effect that will look like 2008 all over again. This is global.

But the problem isn't the U.S. We can meet our debt obligations. The Eurozone is falling apart and has almost half a dozen countries that either can't meet their debt obligations or are on the brink of not being able to. We are facing some serious tail risk, so I am not saying the U.S. should be trading independently. But the U.S. is not the problem. And S&P is out of its mind. It is flexing its muscle for being made a punching bag by U.S. politicians in 2008, and it is making itself look even more foolish yet.

 

Equities aren't what is telling about it. That rating downgrade should effect yields on U.S. treasuries. And it it isn't having much effect.

I just posted on the gold thread that the amusing thing is how much noise this is, and how the U.S. bond markets are not reacting much to the S&P rating. It's a bunch of noise. As Jack Bogle just said, "A year ago, S&P was the gang that couldn't shoot straight." Yet, now their downgrade is supposed to mean something? And Moody's hasn't said a thing, which is telling. Our bond markets are mostly ignoring S&P. Good.

Other great thing about this. Those social networking stocks that were trading on hype, and not earnings, are getting slaughtered. LinkedIn is down 10 percent. In a way, even though this is an overreaction, in certain areas, it is making people come to their senses.