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Standard & Poor's cuts the US credit rating from AAA for the first time in history on political bickering and budget largess.

By Anthony Mirhaydari Aug 5, 2011 8:59PM

We knew it was coming. But it was still a shock. Late Friday night, credit analysts at Standard & Poor's downgraded the U.S. sovereign debt rating to AA+ and warned that a cut to AA is possible within the next two years. The cut means that instead of ranking with most of the world's strongest economies -- those of Austria, Norway, Germany, Australia and others -- we now join AA credit risks including China, Bermuda, Kuwait, Slovenia, Spain and Qatar.

 

The problem was the debacle that was the debt ceiling debate. As part of the deal, analysts at Standard & Poor's were looking for $4 trillion in cuts over 10 years. Congress gave them a little more than half of that through gimmickry, untested "committees" and a political sideshow that didn't exactly instill confidence.

 

After S&P analysts took such a specific public position on the budget debate, I didn't see how they could walk away from their threats now. Not after the bugling of the rating agencies during the housing bust. Not after their poor performance heading into the eurozone crisis. And while competitors Moody's and Fitch reaffirmed their AAA ratings this week, S&P did the inevitable: It called us out. 

 

China lifts the ban on price increases in cooking oil. Believe it or not, that's significant.

By Jim J. Jubak Aug 5, 2011 6:07PM
Jim JubakI’m getting a ton of e-mail from readers asking whether to buy, when to buy, and what to buy. Being down 500 points on the Dow Jones Industrial Average does raise those kinds of questions.

I do have one concrete suggestion in answer to all that -- and it’s based on a bit of good news yesterday out of China.

The government in Beijing has lifted its ban on price increases in cooking oil.

Don’t laugh. This is huge. And I think it’s a signal that you can start to ease your way into (or deeper into) Chinese stocks.

Here’s my thinking...

China’s leadership is incredibly sensitive to the political effects of inflation.
 

Losing trades happen, especially in a crazy market like we had this week

By Jamie Dlugosch Aug 5, 2011 5:11PM

I have no problem shining a spotlight on earnings trades that have gone wrong. It doesn’t happen often, but losers are inevitable. Even this earnings season where my winners are beating the losers 2 to 1, you are destined to miss the mark when trading corporate profit news.

 

One earnings trade that went wrong was Priceline (PCLN).

 

The on-line travel reservation company is up an impressive 9% on Friday after reporting strong earnings results. This performance in the midst of a market meltdown is particular stunning.

 

When I make recommendations to trade a stock in advance of earnings I do so mostly on the long side. That said there is money to be made selling stocks short that I believe to be over-valued and likely to report weak results. Given the uncertainty in the market heading into the last week such an approach seemed to be the perfect way to go.

 

There are other safe havens for certain, but my focus is on earnings and there are only two ways to go when a company is set to report results: long or short.

 

Yahoo has a punctuation problem, nursing shares fall ill and Washington offers up a double dose of debt ceiling stupidity.

By TheStreet Staff Aug 5, 2011 4:10PM

By Gregg Greenberg, TheStreet

 

Here is this week's roundup of the dumbest actions on Wall Street.

 

5. Yahoo!'s punctuation problem

 

Are we alone or does anybody else think it's long past time to yank the exclamation point from Yahoo! (YHOO) and replace it with a question mark? Because it's a mystery to us how these guys continue to operate the way they do.

 

Alibaba Group, the Chinese internet giant which is 43% owned by Yahoo!, will potentially reap up to $6 billion in a spin-off of its Alipay e-payment division under a deal announced last Friday. Alibaba will pocket no less than $2 billion in proceeds if Alipay goes public or cashes out in some other type of "liquidity event." Shares of Yahoo! initially popped on the long-awaited transaction, but finished the day 3% lower as investors failed to figure out what's in it for them. And as we are constantly reminded, the market hates uncertainty.

 

As for us, we just hate stupidity. And from our vantage point this whole puzzling transaction seems tilted in that direction. Read more

 

Expectations of such a move after Friday's close helped pummel stocks in morning trading. Here's what it could mean.

By Kim Peterson Aug 5, 2011 2:03PM
Updated 8:30 pm ET

As many had expected, Standard & Poor's finally decided to cut the U.S. credit rating late Friday. The world's largest economy lost its perfect AAA status, tumbling by one notch to AA-plus.

The decision came after a day fraught with twists and turns, keeping everyone from President Barack Obama to individual investors on pins and needles. Rival ratings agencies Moody's and Fitch had already said they wouldn't downgrade the U.S., leading some observers to predict that Standard & Poor's wouldn't go solo on such a controversial position. 

But others thought a downgrade was inevitable, particularly after S&P placed the country's perfect AAA credit rating on "CreditWatch negative" on July 14. That status generally means the agency will make some ratings move within 90 days. The rumor was resonant enough that it helped punish stocks in early trading Friday.
 

While it's almost over, price damage calls into question the 3-year-old bull market.

By Anthony Mirhaydari Aug 5, 2011 12:35PM

It's been a brutal few weeks in the stock market, with Thursday's loss being the worst single-session slump since the final drop into the March 2009 bear market low. It was a wipeout driven not by any particular catalyst but by a general sense that the recovery is sputtering -- and rich world governments are powerless to do anything about it.

 

Since July 21, the Dow has fallen for nine of the past 10 sessions and lost more than 1,340 points, or 10.5%. All of the major averages are in negative territory year to date. My newsletter subscribers were perfectly positioned for the drop: Month to date, the Edge Portfolio is up 5.9% versus an 8.4% drop for the S&P 500.

 

Now the question is: When does it all end? To answer that, we first need to understand what's driving the sell-off. Then we'll look at a few technical clues that suggest a major shift is under way. Here's why.

 

The VIX, a common indicator of market gloom, rises beyond the 'uh-oh' threshold of 30.

By Kim Peterson Aug 5, 2011 12:34PM
The market chaos this week has sent the VIX ($VIX), often called the "fear index," soaring. The index was up 23% Friday to 38.98 before falling back to 32.19 -- and that's after soaring 35% the day before.

Investors look at the VIX as an indicator of volatility expectations for the next month. It's a good way to gauge investor sentiment, and this week it's saying that investors are scared and think it will just get worse.

This is after a jobs report Friday that was better than expected. Payrolls rose by 117,000 last month, far outpacing the 85,000 economists had estimated. The unemployment rate fell to 9.1%. But the good news didn't last long with investors who were uneasy about Europe's economic problems and the possibility of a renewed recession in the U.S. 

These companies, all of which went public in 2011, have so far overpromised and underdelivered.

By TheStreet Staff Aug 5, 2011 12:30PM

By Debra Borchardt, TheStreet

 

Many IPOs win over investors by promising growth. It's an easy promise. We all want to do well, right?

 

Sure, a company wants to open 100 stores. Of course, a manufacturer wants to sell millions of widgets. If that doesn't happen according to plan, that's alright because the disclosure language in IPO filings always includes a risks section that basically states everything can go wrong.

 

Many times new IPOs have private equity companies, who are just looking for a profitable exit, promoting all the positives while brushing off any criticism.

 

Here are the worst offenders of IPO companies that have promised much and delivered little:

 

Customers ordering from Yoox Group can opt to have the delivery man wait at their doors while they try on clothes.

By Kim Peterson Aug 5, 2011 12:02PM
When Chinese shoppers buy pricey items from fashion website thecorner.com, FedEx (FDX) delivers the shipment a few days later. That's normal.

What's not normal is the next step: The FedEx delivery man will stand at the door and wait while the customer tries on the items and decides whether to keep them. If the customer wants to return anything, FedEx will whisk it away, according to The Wall Street Journal.

That's how influential China's wealthy have become. They know the high-end fashion brands and they have the money to buy them. They are pampered at every turn, and even FedEx is in on the game. 

Thursday was bad for everyone, but 2 sectors suffered the most.

By MoneyShow.com Aug 5, 2011 11:52AM
By Tom Aspray, MoneyShow.com

After what had been a horrible week for the market, Thursday’s plunge was much worse than almost all expected. Those who had been calling for a bear market for the last two years were probably the only ones who were not surprised.

The market internals were some of the worst I have ever seen, with the Arms Index (TRIN) closing at 4.64, while the number of new lows jumped sharply to 441 from just 86 on Monday. The major averages are now already close to their next key support levels that I discussed earlier in the week.

The major market averages are oversold on a number of levels, and most are currently below their weekly Starc- bands. That said, they can still get more oversold...just like the bond and gold market can still become more overbought. There is the stretched rubber band effect that is likely to kick in at some point in the next week.

The markets are now nervously waiting for the monthly jobs report, although I have to expect that if we get a pretty bad number it is already factored into prices. The first signs of a short-term low would likely be when stocks stop declining on worse-than-expected economic news.

Though everything was slammed Thursday, there were a few individual stocks that stood out as they plunged much more than their respective industry groups.
 

Their dividends are outdoing Treasurys, and their businesses remain stable.

By TheStreet Staff Aug 5, 2011 11:45AM

Image: Power lines (© Digital Vision)By Frank Byrt, TheStreet

 

Thursday's stock market sell-off wiped out the Dow's gains for the year, while Treasury yields sank to record lows and money market rates dropped below zero.

 

Worries that the global economy will fall into another recession have pummeled stocks since they hit a peak for the year in May. With the Federal Reserve's prediction for a revival in the economy taking place in the second half of this year failing to materialize so far, investors are bracing for even more bad news.

 

All of which means the utilities sector should get renewed attention. After all, utilities' customers are "captive," providing stable revenue, and the companies pay fat dividends in lieu of outsized stock gains.

 

Look to high-growth names as an indicator -- and the safest of the safe dividend stocks.

By Jim Cramer Aug 5, 2011 8:53AM

the streetjim cramerDon't trust Friday's stock market. Don't trust it unless it's down big. Sounds funny, but the one thing we don't want to see is the market starting higher than where it went out. That might be the kiss of death, as there are so many people who want out that any lift might be met with selling. You should join them if you have banks or techs to sell. Don't like them. I mean it, sell them. It's not too late. Especially if we get any sort of rally, intraday or otherwise.

 

Second, don't trust any assurances we get from any government that everything is going to be OK. Those have been true nonstarters.

 

What do you trust? I like to look at a couple of stocks that have led us out of all of the big declines and tailspins of the past few years. I'm going to be looking at the highest of high-growth stocks, where the money tends to go first, and that means seeing if or when Apple (AAPL) or Google (GOOG) or Amazon (AMZN) turns around.

 

Deficits should not be the priority now. Fighting unemployment to prop up the economy should be job No. 1.

By InvestorPlace Aug 5, 2011 8:14AM

By Jeff Reeves, Editor, InvestorPlace.com


Some short-sighted folks may have breathed a sigh of relief this morning, since the unemployment rate reportedly "improved" to 9.1%. But let's not fool ourselves. That number is too big and ugly to celebrate.


As we digest the debt debacle and bite our nails over how the market will perform after a 10% decline in the past 10 trading days, one important fact seems to be lost on most Americans: Congress is doing nothing to fix the bleak jobs picture.


In fact, despite the 117,000 jobs added to the economy in July, the reality is that Congress is doing its best to kill jobs right now, not create them.

 

There's a good chance that eurozone bond prices will drop in the next few weeks.

By Jim J. Jubak Aug 4, 2011 5:00PM
Jim JubakDanger, danger, danger.

Everyone agrees that a 6% yield on a eurozone country’s 10-year government debt is unsustainable and that it’s a clear sign that a country is headed down the rescue-package route so recently traveled by Greece for the second time.

On Aug. 2, 10-year bond yields for Spanish debt hit a high of 6.42%. For Italy, 10-year yields climbed to a high of 6.25%.

And the policy response from the eurozone's political and financial leaders? The sell-off of Spanish and Italian bonds is "clearly unwarranted on the basis of economic and budgetary fundamentals," European Commission President Jose Barroso said in an e-mailed statement that day.

Good luck stopping the bears with that weapon.
 

Not a single analyst thinks it's a good idea to buy Berkshire Hathaway right now.

By Kim Peterson Aug 4, 2011 4:05PM
Berkshire Hathaway (BRK.A) is no longer the darling of Wall Street. Heck, it can't even get one lousy "buy" recommendation from equity analysts.

The stock fell nearly 4% Thursday to close at $106,747. It hasn't been that low since June of last year. It's had a rough go of things, particularly with the world equity markets in decline and a spike in reinsurance claims after the Japan earthquake, Bloomberg reports.

And even Warren Buffett can't work his folksy charm this time. In fact, analysts are worried about the company's leadership after Buffett's top lieutenant, David Sokol, resigned earlier this year. His departure leaves Buffett, 80, and Charlie Munger, 87, in charge without an heir apparent. 

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[BRIEFING.COM] The major averages finished the session on a modestly higher note, but not before heavy selling pressure sent the Nasdaq Composite (+0.3%) for a test of its 200-day moving average. The S&P 500, meanwhile, added 0.7% with all ten sectors posting gains.

Equities climbed at the open with the advance built on the relative strength of biotechnology and other momentum names. Despite the solid early gains in those areas, the market began fading from its high as multiple ... More


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