Martin Lee @ Sg
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S & P Downgrades US Credit Rating

On Friday after the US market closed, S&P downgraded the US credit rating from AAA to AA+. They also kept the outlook as “negative”, which puts it inline for further downgrades in the future.

Actually, the downgrade has been been hinted at for some time, but the actual downgrade might herald in a new financial era.

Warren Buffett argues that the downgrade was a mistake, and as much as I am a fan of him, I have to differ from his view this time round.

US treasuries have rallied of late because of the increased market volatility. But with this downgrade, will institutional funds be forced to sell off their US treasuries? It will be interesting to see the outcome of this tug of war and how the equity markets will react.

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3 comments
James says 12 years ago

On a interesting note, when Canada lost its AAA ratings in 1993, Canadian stocks rallied more then 15% in the subsequent year.

Japanese stocks moved over 25% higher in the 12 months after Moody’s downgraded Japan in November 1998

Reply
James says 12 years ago

The Asian markets have already over-reactivated & crashed this morning. Most probably USA market will recover tonight.

It’s a case of selling during rumor of USA rating downgrade last week & buying tonight when this downgrading news is now confirmed.

Like what Warren Buffett says: “Be greedy when everyone is fearful”.

Reply
    Martin Lee says 12 years ago

    Dear James,

    Think still a bit early. Carnage in Wall Street last night.

    Reply
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