United States loses AAA credit rating

I guess it serves me right for heading to bed early on a Friday night. I wake up to terrible news for the US investor. Our bluff has been called.

I can’t say I’m surprised. We were living on borrowed time (and money) when it came to US financial health. And now we will have to pay the consequences. Thank you Congress.

From the Reuters news desk:

The United States lost its top-notch AAA credit rating from Standard & Poor’s on Friday…S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about the government’s budget deficits and rising debt burden. The move is likely to raise borrowing costs eventually for the American government, companies and consumers.

“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” S&P said in a statement.

I agree with Barry Ritholtz and others on this one. When it comes to the rating agencies:

S&P (and the rest of the ratings agencies) helped contribute to the overall economic crisis. [They] rated junk (securitized mortgage backed paper) AAA because they were paid to do so by banks. [Parenthesis added]

Stocks have fallen a little over 10% in the last ten days. That is institutional selling if I’ve ever seen it. A majority of my accounts are in cash, with the only exceptions being some income investments…and even those are under a watchful eye. Hopefully, you’ve also heeded the warning signs and are in cash.

But all is not lost. Keep in mind that corrections are a natural part of market dynamics. We all want gains, and we want them all the time. These tough times will create new buying opportunities for all of us. Stocks that may have been outside of your price range (based on your money management rules), will soon be affordable.

Let the traders deal with volatility. Your job now is to pick your spots.

And now is not the time to stop funding your accounts. Now is the time to build up your nest egg, so that when the markets turn around (and they will) you can get back in and take advantage of the coming buying opportunity.

Sources:
S&P Downgrades US to AA
The Big Picture
http://www.ritholtz.com/blog/2011/08/sp-downgrades-us-to-aa/

US Loses AAA Credit Rating
Yahoo! Finance
http://finance.yahoo.com/news/US-loses-AAA-credit-rating-rb-2187330642.html

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