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.
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.
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Try as the bears might, they couldn't break US stocks. But investors still face frothy prices and considerable headwinds.
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