Disaster after US rating downgrade? (8 Aug 2011)

The news that S&P downgrading US credit rating shows that rating agencies are doing their job fairly. Previously, rating agencies were blamed by Greece and Europe countries for downgrading their ratings when Greece facing rising debt issue. Though, US did not spare this round when S&P downgrade US AAA rating to AA+ (one notch lower).


What would be the implications?
Normally, the downgraded currency will slump, sovereign bonds will become less attractive by carrying higher degree of risk, hence pushing up the yields. Does US follow these theory? NO.

Why US is different?
USD will not fall much like Euro. First, USD is one of the safest asset, along with gold, during economic uncertainties. That's why USD was chosen as the world's most widely traded currency. During uncertainties (like now), investors are scare and they pull-out from equities around the world. But, where did they put the cash? USD is the answer mainly because it is widely used globally and of high liquidity.

Bond Yield will not jump like Greece's. Second, when the demand for USD is still there, US treasury bonds' yield will remain (or even fall). Continuing from previous question, where would you place your money, if it must be denominated in USD? Treasury bond or Cash Deposit? Definitely treasury bonds which still can give you around 2.5% yield (10 years US treasury).




The remaining AAA rated currency by there of the largest rating agencies.

How is the currency market would be?
Finance Malaysia believes that USD will weaken against major currencies which were rated AAA, but will strengthen against other non-AAA countries (including Malaysia). You may refer to the table above to gauge which currency should perform better in the near term.

Comments

Post a Comment

Popular posts from this blog

"You Can Keep Your Existing Health Insurance"

I wondered about this statement at the time Obama made it.  Clearly, by changing all the rules of health care insurance and mandating conformity, it was unlikely that the vast majority of Americans would not find themselves forced by 'The Affordable Care Act' to have to deal with a completely different health insurance plan and completely different set of health care providers. I now understand what Obama meant.   He was speaking to his immediate family and (politician) friends.  They are exempt from the "Affordable Care Act."  Clearly what he meant to say was: "if you are exempt from Obamacare, like me and my family, you can keep your existing health insurance."  He never meant to mislead.
Read more

Work Ethic of 70s, 80s, 90s

Image
Different generations have their own view on working. You like it or not, working is part of our live. No work = No life. However, this equation has since changed to " Working = No life ". Do you agree? Generally, those born in 70s were perceived to be loving their job. They work hard mainly because of 3 meals/day. For them, a secured life means having a stable job with stable income. They believe that with every efforts you put in, that will reward you back later. As such, over time (OT) is nothing for them. As a responsible 70s, losing their job is a serious matter they tend to avoid. That's why they usually found another job first, before resigning. How about 80s? Other than chasing for stable income, those 80s working adults will also look into the job scope , opportunity for promotion , or working environment . They will take initiative to find for better job. Hence, job hopping is very common for them. Notably, 80s are reluctant to sacrifice their quality of life b
Read more

Things We Now Know

The poor are losing ground in the new Obama world.  The facts are showing up even in the halls of collectivist extremes like the New York Times.  The rich are getting richer and poor are being locked in place.  Big government is throttling the economy and the hopes and dreams of lower and middle class Americans. Today's Wall Street Journal's article by Simon Constable lays out some of the simple and obvious facts of the Obama era: "The richest 20% of households account for 38% of spending, according to government data for 2011, the latest available.  Compare that with 2003 when the top earners spent 26% of the total."  The article goes on to say..."it could get even worse."  It will. Who really benefits when the regulators strangle the banks?  Do banks really need to get much more conservative in their lending practices?  Why does the government know best?  How far can you stretch the FDIC guarantees before American banking is simply a subsidiary of the US g
Read more