How you see the market ?

Now is hold, buy or sell huh?  Market over-reaction or more to come?
(1) US sovereign debt credit rating downgrade by S&P ---> cost of debt increase?
Long-term negative impact on stocks if it hampers the so-called repo markets. In the repo market, large financial institutions take out overnight loans from one another to meet their short-term funding needs, customarily putting up U.S. Treasuries as collateral. If those Treasuries are seen as riskier investments going forward, banks will likely have to put up more of them to get the same-size loan, increasing their borrowing costs and reducing profits.
Check out the REPO rates, seem stable so far.
(2) Collapse of Treasuries prices ---> worsen borrowing cost?
Many stock and bond funds as well as big institutional investors such as insurance companies have guidelines requiring them to hold a certain percentage of assets graded by ratings agencies as triple-A. Because Treasuries are now graded at less than triple-A by one ratings agency, it's possible that these guidelines might force these funds to sell Treasuries to meet their quality requirements. A big sell-off could lower the price of Treasuries, reducing the value of Treasury holdings by other firms and triggering a severe market reaction.

Still, as long as the other two major ratings agencies, Moody's and Fitch, don't follow suit with a debt downgrade, forced selling of Treasuries shouldn't happen at such a large scale to have a catastrophic effect on global markets.
www.foxbusiness.com/personal-finance/201...slide-what-it-means/
(3) Negative impact on China exports
For every 1% contraction of US GDP, China exports fall by 7%, according to Deutsche Bank.
USD will depreciate faster against RMB when demand for USD and US Treasuries fall.  China manufacturers loogie ---> China corporate profits will be hit ---> -ve impact on stock market.
(4) Inflation

Funds flowing out of stock market may drive up commodity prices.
Also, crude oil and iron ore and other USD-denominated commodities will become more expensive if the USD continue to fall.

Margin squeeze, corporate profits hit ---> -ve impact on stock market.


(5) China will sell US Treasuries before value of its foreign reserves decline too much

China is US' largest creditor. 70% of its foreign reserves are in USD, including US$1.5 trillion in US treasuries and another US$700 million of other assets.

Now it wants to diversify foreign reserves, so USD going to depreciate even more !
OR, China government can bargain with US to let it pump FDI into US companies or real estate...!!!
Haha, China can lift RMB capital controls so that Chinese can invest in other currencies. Heheehehehhehe, then investor can have more opportunity to ride RMB appreciation.
english.cntv.cn/program/china24/20110809/119276.shtml
english.cntv.cn/program/bizasia/20110803/102397.shtml
 

This reminds me of the Japan triple disasters early this year. It was shocking and the market was in turmoil. That too has passed.

Same with Greek near-default crisis.... It has been resolved for now.

Same with this US credit rating downgrade. The bad news will ease and the powers that be will act and do whatever it takes to restore stability and hope for the future.

The recent US credit downgrading has caused massive panic sell-off in the world market...seems to be a sentiment crisis than anything else when the fundamentals & liquidity etc. are intact...whether the real reason behind this is to pave the way for QE3 is yet to be seen...Whatever, as there's great wisdom in the ancient saying, "This too shall pass."

I hope the confidence crisis passes quickly too. I however fear that this confidence crisis might morph into something bigger. Yes companies have the liquidity to invest and create jobs, but there is too much uncertainty for them to do that and it feeds into a vicious cycle. I doubt the US has the political will to tackle the deficit until the next president election is over. Will it be too late then. It might... I ask myself, how much more can the market fall until it is a low enough level for investors to jump back in. I look at the aftermath of Lehman, and realize that the market falls abt 20% when the TARP plan was initially killed by congress. Then it was passed and the DOW rebounds strongly, it turns up to be a bear trap and the market suffers another sharp 20% fall. I told my mother- in-law who wanted to rush back in the market today to wait further, as I suspect that bernake effect will be short-lived just like the Passing of TARP. So how much is 20% ? STI will be around 2600 then. However, the market might not slip into a recession after all, (50% chance) so STI might be spared the second 20% that will bring it all the way back to 2100. We will find up soon enough, Aug data will be critical, if all indicators still point to weak job growth poor manufacturing from US and high inflation from china, then the party could truly be over. If Aug data point to a mix data or brightening data, then this gloom might pass earlier. Yes, every crisis will pass, the question is: will it pass at STI at 2100 levels or 2600 levels or best of all 2800. I sold off my only still profitable STI fund to conserve ammo as I am already trap with heavy paper losses. Hoping for the best and bracing for the worse.

Oh my, Dow is down 520 points!
Then again, this is the panic that will also ease in due course, imho.


From Bloomberg:

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon told CNBC that he’s very optimistic in the long run and the fundamental strength of the economy is “still here.” His bank’s shares fell 5.6 percent.
‘Blow Your Socks Off’
“The strength of the system is going to blow your socks off when it comes out of this malaise,” Dimon told the cable- television network while touring his branch network in California . “This will pass too. I don’t know when, three months, six months, nine months or a year, but it will pass.”

Futures on the Euro Stoxx 50 Index expiring in September rallied 2 percent to 2,197 at 7:24 a.m. in London, while FTSE 100 Index futures expiring the same month surged 1.6 percent. MSCI Asia Pacific Index fell 0.6 percent, paring an earlier loss of as much as 2.4 percent. Standard & Poor’s 500 Index futures advanced 1.6 percent