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Bad News that Could be a Positive

April 18, 2011 – 5:46 pm

The Standard and Poor downgrade of U.S. debt took everyone by surprise this morning and the market reacted to it very strongly. The downgrade spooked investors and traders as it could well raise the borrowing cost for our Government though that is not going to happen overnight. However, it certainly does not look good. The U.S. still has its AAA rating but the outlook went from ‘stable’ to ‘negative’. That literally means that S&P thinks there might be a downgrade in the next couple of years from AAA to less than AAA for U.S. debt.

This may spark a different kind of debate in Washington, but don’t hold out too much hope that anything meaningful will result.

Also, this morning, buried in the shocking ratings news, was the report out by the National Association of Home Builders. This report for April came in at 16 when the expectation was for 17. A reading above 50 means the builders think the conditions for new home sales is positive and below negative. That tells you the state of our housing market today. No one feels very good about what is happening in the housing market and the government is still making changes that are not going to improve that industry.

The more important question is whether this S&P report or the housing data is going to slow down our economic recovery. At this time the answer is no. It certainly gives us cause for concern, but there is nothing new here, just a confirmation of information we already have come to accept. Maybe it’s time not to accept it. Anything to bring attention to and eventually bring down the U.S debt is a long term net positive.

Good Trading
Steve Peasley

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