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The Pain of the Downgrade

August 8, 2011 – 4:52 pm

With late Friday’s downgrade of our U.S. debt by S & P 500 the market had it first opportunity to react this morning. That reaction was strongly negative. At the same time, money is flooding into our U.S. Debt, the very thing that was downgraded. That does not make much sense which tells you that fear is at an extreme.

It appears that traders and investors seeing a slowdown in worldwide growth are confused as to where to run and hide. The market action on Friday was wild with huge swings intraday of stock prices.

No one knows what the market will do on a day to day basis. It’s like a spoiled child in the short run. Long term it comes down to earnings and growth of earnings. It appears that the market is pricing in the fear of another recession. The problems in Europe and excess fear could do that. It’s time to be cautious.

On the plus side stock prices are severely oversold and corporate balance sheets and U.S. banks are very healthy. Oil prices have fallen sharply so the consumers will get a break at the gas pump and the Fed continues to keep liquidity very high. This stock market fall will stop and that will be a spectacular buying opportunity. Make sure you have some cash to take advantage of it. Of course as always it is from what level will it bounce?

Good Trading

Steve Peasley

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