Overnight, the engine of world economic growth, China, raised rates again, to slow their economy and the world economy. The Finnish election went badly and will likely threaten the bailout of Portugal. There is now serious talk of some bondholders of European governmental debt taking a loss at maturity of their bonds. The head of the FDIC says they already have the power to dismantle banks that are "too large to fail" and should use it. Then, a credit rating agency delivered a stunning blockbuster, when Standard & Poor's re-affirmed the AAA credit rating of the U.S. government but changed it's outlook to "negative." This is a big deal on a busy morning! I'll be reading the details of the S&P report as soon as it is released.
The fear of bond vigilantes roughly doubled this morning. Interest rates are already rising. Is it any wonder that futures now indicate the Dow will open down this morning about 130 points?
While I think it wise to take a wry, indifferent attitude toward daily movements in the stock markets, I expect to see a slight downward bias for the next month or so, unless there is another significant geo-political event or an actual downgrade to our credit. The market has not factored in Congressional approval for lifting the Federal debt ceiling yet, for obvious reasons. Likewise, it is still very unclear what the Fed will do about ending QE2 or starting QE3. As always, the market just hates uncertainty.
We know what has to be done, i.e., raise the debt ceiling quickly, raise taxes, and cut spending. The problem is that political gridlock will make the decision extraordinarily difficult.
So, take a break from reading about the market. It could be scary for awhile, until the politicians understand bond vigalantes. Better yet, take a vacation!
