It all started shortly after the show began. But just before noon I had a little hope that the losses would be cut short. But as I predicted the big action came between 3 and 4 o’clock and anxiety was too much for traitorous. They cashed in their chips, took the profits, and walked away. The president’s response this afternoon should have been Washington intends to take action and he should’ve named some specifics. But then that would be leading from the front. Instead he led from behind again.
If the downgrade was a wake-up call, then the past few weeks on Wall Street certainly should have been. It was a pretty rocky ride on Wall Street today with a big drop as Wall Street came to a halt at 4 o’clock.
U.S. stocks tumbled deeper into correction territory in a Monday rout that sent the Dow Jones Industrial Average plunging to the biggest point drop since Dec. 1, 2008.
The Dow Jones Industrial Average plunged 634.76 points, or 5.6%, to 10809.85, falling beneath 11000 for the first time since November and adding to last week’s steep losses. The blue-chip measure ended at session lows, in a harried trading day that was the stock market’s first since Standard & Poor’s downgraded the federal government’s credit rating late Friday.
Investors’ flight from risk struck assets far and wide. Gold futures soared to a record settlement of $1,710.20 and U.S. Treasurys were a winner despite the credit downgrade, with yield on the 10-year note falling to the lowest levels since January 2009.
“Everybody is looking for whatever they perceive as a safe haven, even if it’s just plain illogical,” said David Kelly, chief market strategist for J.P. Morgan Funds. “Things are pretty dismal right now.”
The goal doesn’t surprise me. The oddity here is the flight to US Treasurys. If the US is such a credit risk then why put your money in US debt? What’s unfortunate here is that the answer is what other country are you going to put your money into? The next question is after things calm down where will the money go then?
A little more I leave for the day. Not only did S&P downgrade US debt, but also downgraded Fannie Mae and Freddie Mac, and Obama’s biggest supporter Warren Buffett.
Major stock indexes cascaded lower throughout much of the session, as S&P added downgrades of clearing bodies, entities such as Fannie Mae and Freddie Mac and lowered outlooks for companies including Warren Buffett‘s Berkshire Hathaway, following the Friday U.S. credit rating cut to double-A-plus from triple-A.
And the president’s response to all of this? More of the same. Catch this:
We knew from the outset that a prolonged debate over the debt ceiling — a debate where the threat of default was used as a bargaining chip — could do enormous damage to our economy and the world’s. That threat, coming after a string of economic disruptions in Europe, Japan and the Middle East, has now roiled the markets and dampened consumer confidence and slowed the pace of recovery …
… Last week, we reached an agreement that will make historic cuts to defense and domestic spending. But there’s not much further we can cut in either of those categories. What we need to do now is combine those spending cuts with two additional steps: tax reform that will ask those who can afford it to pay their fair share and modest adjustments to health care programs like Medicare.
Making these reforms doesn’t require any radical steps.
Actually it’s going to take more than modest adjustments to Medicare to solve this problem. Currently Medicare pays out 3 times the amount of money it took in for each beneficiary now collecting. Modest changes are not going to do it. What’s more the president is still making excuses. He still refuses to own up to his responsibility in this mess. S&P made it clear here that it wasn’t so much the political argument that took place over the last few weeks but rather the lack of an agreement on long-term agreement on the debt and that will not be solved by taxing the rich.
Just for kicks here’s what the head of S&P’s sovereign debt rating service told Neil Cavuto on Saturday on why S&P downgraded US debt and no, the overriding reason was not the political fight, it was the lack of political will to do something on debt.