Irony and Downgrade Anger

It is with a little amusement that we scanned through the Economic headlines today, following Standard & Poor’s decision to finally downgrade France’s and other Eurozone nation’s Sovereign Debt rating.  France lost its prestigious triple A (AAA) grade to AA+.

Sarkozy and French anger?  Indeed!

This image shows Nicolas Sarkozy who is presid...
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Off course the irony is that an “outsider market agency” has at last pushed a button it has threatened to utilise, forcing a pause for both governments and investors alike.

But the problem is timing as far as Mr Sarkozy is concerned.  This is a Presidential election year in France, so this comes as a slight humiliation to Mr Sarkozy.  And so it should be! He should be shamed out of office! Therefore, hopefully S&P’s decision will  help the voters and tax payers of France sit up and realise that incompetent leadership and decision making in the Eurozone economies now urgently needs to be ‘punished’.

Thank you S&P, for taking this action, because the actions (or rather inaction) of the Eurozone bureaucracy and leadership so far in addressing the root causes of the multiple crises, is continuing to drag the global recovery off course.

Decisions to circumvent exiting (inadequate) European Institutional frameworks and pulling the wool over European Citizens eyes over the inadequate administrative burdens the bureaucrats have imposed on its Citizenry must finally come to an end.

Eurozone 02
Image by slolee via Flickr

Hopefully, we’ll see some slightly more competent new faces in the Eurozone leadership pool and summit photo call line ups very soon… Innovation in Europe might have to start with a new set of leaders?

Countries using the Euro de jure Countries and...
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theMarketSoul ©2012

US Treasuries – An FX or a market call?

So it has finally happened. After threatening for months that a credit rating down grade was probable for the USA, Standard & Poor’s finally took the ‘big step’ on Friday 5 August, after the major markets closed.

English: Logo for FX
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So what next?

In our article ‘US Treasuries – Are the markets really that bothered?‘ published on 30 July 2011, we argued that the markets were not really bothered, as both 5 & 7 year T-Bill currently delivered a negative Real Return to investors.

Everyone is dreading the opening bells in stock capital and forex market on Monday, yet we believe the fundamental question for this week will be:

Is this an FX or market call?

What we meanby this question is:

Will the markets and market participants see the down grade as an opportunity to play an FX gain game; or has the game fundamentally shifted and will the capital markets react by demanding a higher nominal or at least Real Return on US Treasury bills?

All pointers at the moment did not indicate a problem, but time will tell on whether a fundamental shift in attitude has occurred. Remember a credit rating is only a qualitative indicator, not a quantitative one, so on a technical call a few FX traders and investors might make a profit or two; but we are all waiting to see if the entire game has changed, or not.

Other factors that might come into play soon would be QE3 and attitude hardening  by major T-Bill investors.

How the US Treasury and administration now react will be crucial.

Who are we going to trust to make this big call?

English: A logo of the Standard & Poor's AA- r...
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theMarketSoul © 2011

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