Liquidation

Liquidation

 

Given the US debt downgrade late Friday night, a Monday sell-off wasn’t terribly surprising.  The mass liquidation by the close, however, was surprising. 
 
As I write this, the indices are down sharply on Globex because of global domino effect and more downgrades.  After Monday’s close the expected downgrades of muni-debt hit the tape.
 
From Bloomberg http://www.bloomberg.com/news/2011-08-07/muni-market-prepares-for-loss-of-aaa-ratings-as-s-p-downgrades-u-s-credit.html
 
Standard & Poor’s cut the AAA ratings of thousands of municipal bonds tied to the federal government, including housing securities and debt backed by leases, following its Aug. 5 downgrade of the U.S.
 
The rating company assigned AA+ scores to securities in the $2.9 trillion municipal bond market including school- construction bonds in Irving, Texas; debt backed by a federal lease in Miami; and a bond series for multifamily housing in Oceanside, California. Olayinka Fadahunsi, an S&P spokesman, said he couldn’t provide a dollar figure on the affected debt.
 
S&P also cut ratings on securities backed by Fannie Mae andFreddie Mac, prerefunded issues and munis repaid by using federal assets, also known as defeased or escrow bonds. No state general-obligation ratings were affected.
 
Chris Mier, a managing director at Loop Capital Markets LLC inChicago who follows the municipal bond market, said the downgrades made sense, given the federal rating cut.
 
“In order to keep the system logical and coherent, there are going to be a lot of downgrades,” Mier said in a conference call with reporters and clients.
 
Matt Fabian, a managing director of Concord, Massachusetts- based Municipal Market Advisors, a financial research company, said in a telephone interview that he expected “hundreds and hundreds of municipal downgrades,” which may hurt investor confidence.
 
“Treasuries may be able to shake off a real impact from the downgrade,” he said. “Munis, I’m less sure about.”
 
In an effort to calm the markets, president Obama held a news conference today…and continued to play the Blame Game.  Apparently the market was expecting him to act like a leader; a statesman; a president.  Instead he acted like a typical politician and the market tanked further.  Moreover, as the market continues to tank on Globex, he is pressing the flesh at a $15,000 per plate fund raiser and is surely telling the crowd that without his short speech today “the market would have been 300 points lower. So I saved or created 300 points today.”
 
The FOMC meets Tuesday with a statement at 2:15pm EST. Will Bernanke announce QE3?
 
 
Trade well and follow the trend, not the so-called “experts.”
 
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.

 

   

larrylevin@tradingadvantage.com  Trading Advantage              (888) 755-3846      __