Market Commentary

Equities declined and treasuries advanced moderately on the news that Greece
December 09, 2009

Equities declined and treasuries advanced moderately on the news that Greece was downgraded by Moodys.  Dubai’s World debt restructuring also overhung the market.  And then there was Moody’s statement that deteriorating public finances in the US and the UK may test their AAA ratings.

I believe none of the above news is “new” however there was little other events to focus upon yesterday.  The markets are prone for a pullback however I must write I had held this view for about 1500 points and three months. 

I would like to comment briefly upon Moody’s statement surrounding the US and England’s bond rating.  The US is the benchmark, the proxy of world’s financial system.  Any downgrade would have a massive negative impact upon the global markets.

If memory serves correct this is not the first time a rating agency has made such statements.  For example during the budget impasse of the early 1990s that shuttered the federal government for several days, some analysts stated legislators must remain adamant about denying funding thus causing a possible default.  The market would then reward America with lower interest rates as America would demonstrate that it is serious about reigning in fiscal policy and controlling its deficit. 

In my view this opinion is about as ludicrous as those today suggesting home owners should mail their keys back to their lenders if their home values are lower than their mortgages.

In that era Moody’s stated if the US does default or if government cannot exercise fiscal restraint a downgrade will occur.

Today I think the odds of a downgrade are close to zero with the rating agency only firing a proverbial shot across the bow in attempt to convince government that policy direction must change.

Speaking of policy change, the latest Gallup Poll states the President has the lowest approval rating of any president at this juncture of a presidency.  The inception of this data point was 1938.  The stated reasons…the economy, Afghanistan and government spending plans.

Wow especially given a major plank of the Administration’s agenda is deficit spending.   Will or is the court of public opinion more powerful than a warning from a respected ratings agency? 

What will happen today?  Economic data is again light as only Wholesale inventories are released.

Last night the foreign markets were down. London was down 0.20%, Paris down 0.22% and Frankfurt down 0.40%.  Japan was down 1.34% and Hang Sang down 1.44%.

The Dow should open moderately higher.  The 10-year is off 3/32 to yield 3.39%.