Keyness Is Still Dead
Well, they did it. After most pundits were telling anyone who would listen that S&P wouldn’t dare cut the Treasury rating until the ‘super committee’ (see below) had a chance to at least start the discussion of what to cut, they did it as soon as possible (evidently S&P wanted to do it earlier, but a mathematical difference of opinion with the Treasury held the process up for most of Friday). Thankfully, it took until after the market closed on Friday to release the change so everybody but the Japanese had a chance to digest the idea over the weekend (Japan has a short session on Saturday which started a couple of hours after the S&P action).
So, what does it mean to not be AAA/Aaa anymore? Evidently, not a lot. When your pundit went to turn-on the light this morning, the lights went on with the flip of the switch. When we went to turn the faucet to get water, there was water. So, the fabric of our daily lives is unchanged in most respects. What will it mean for the markets? Well, so far this morning it hasn’t really upset the Treasury market at all. In fact, Treasuries are higher in price, lower in yield, while most everything else is falling. So, the Treasury is downgraded by S&P while the market continues to treat Treasuries as the last bastion of safety in a world gone mad. Who’s right and who’s wrong will be answered over the next couple of weeks. Read more