Should you buy into US debt downgrade?

Moody's threatens to lower the United States' credit rating as a deal on the debt ceiling remains elusive.

By Jim Cramer Jul 14, 2011 9:42AM

the streetthe streetBuy the news? Because it isn't news yet?


That's kind of how I feel about this potential downgrade of U.S. debt by Moody's, because this has been one of the most telegraphed potential downgrades around.


The agencies are just doing their jobs when they threaten to lower the U.S.’s credit rating. Think about it: You have a president who is talking about social security checks in jeopardy and a Federal Reserve chief talking about a huge financial calamity.


That said, if the real deal happened -- if there were no budget deal, and we did get an actual downgrade because the debt ceiling wasn’t raised -- then I could see the market losing its gains for the year.

So, here's the problem: Do you sell now into the opening strength? That seems wrong to me. It's serious business, but I think that a deal will get done.


However, if you don't think a deal will get done, then you want to sell into the bounce that my friend Doug Kass predicted.


It's a big mess. This is a warning shot. I still think it will be heeded in Washington. But if it isn't, you know you have to expect that the stock market will repeal this year's gains and more until a deal is done. Just too much turmoil in the market, and in the world, to ignore.

However, I wouldn’t panic. Remember, there are tons of data coming out, so don't just focus on this issue. It will be very difficult to get out of stocks and then get back in if a deal is reached, and I would rather own solid stocks with good yield than non-solid U.S. bonds with low yield.


Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.


Learn how to follow Cramer’s trades for his Charitable Trust.


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Jul 14, 2011 4:14PM
his whole article basically says "gee i don't know"
Jul 14, 2011 12:14PM

have you noticed the fake smile

have you noticed his uncomfortable demeanor

have you noticed he flunked out of the hedge fund business

have you noticed the look at me rolling up of his sleeves


Jul 14, 2011 5:56PM
Of course you don't buy into the ratings. First off rating agencies are idiots. Second, no matter what the rating is, maybe there will be a small knee jerk but in the end investors still will know it is the safest investment on the planet and as such demand won't change and thus rates won't change much if any. Downgrade it today. Do you think US debt  is REALLY an F or a C or even a B? No. Most people are smart enough to realize no matter what happens August 2nd, US debt is still an A+ investment compared to anything else available. It is all just talk from rating agencies that have proved multiple times that they don't have a clue.
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