Moody's Confirms US Aaa Rating, Assigns Negative Outlook

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Moody's just released this announcement and it was expected.

US Treasury Building - Wikimedia Commons
"New York, August 02, 2011 -- Moody's Investors Service has confirmed the Aaa government bond rating of the United States following the raising of the statutory debt limit on August 2. The rating outlook is now negative.

Moody's placed the rating on review for possible downgrade on July 13 due to the small but rising probability of a default on the government's debt obligations because of a failure to increase the debt limit. The initial increase of the debt limit by $900 billion and the commitment to raise it by a further $1.2-1.5 trillion by yearend have virtually eliminated the risk of such a default, prompting the confirmation of the rating at Aaa.

In confirming the Aaa rating, Moody's also recognized that today's agreement is a first step toward achieving the long-term fiscal consolidation needed to maintain the US government debt metrics within Aaa parameters over the long run. The legislation calls for $917 billion in specific spending cuts over the next decade and established a congressional committee charged with making recommendations for achieving a further $1.5 trillion in deficit reduction over the same time period. In the absence of the committee reaching an agreement, automatic spending cuts of $1.2 trillion would become effective.

In assigning a negative outlook to the rating, Moody's indicated, however, that there would be a risk of downgrade if (1) there is a weakening in fiscal discipline in the coming year; (2) further fiscal consolidation measures are not adopted in 2013; (3) the economic outlook deteriorates significantly; or (4) there is an appreciable rise in the US government's funding costs over and above what is currently expected.

USD/CHF Pierced 2-Year Channel Support (-2%), Crashed Intraday After Debt Ceiling Bill Passed Senate

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Look at USDCHF's 2-year descending channels and the crash today. To be bullish it needs to take out that near term downtrend line and find support on one of these descending channels. USD/CHF just crashed so the first attempt at finding channel support didn't work out that well. The Senate vote on the debt ceiling just passed, so is U.S. Dollar/Swiss Franc now pricing in downgrade risk? QE3? Or something else. Swiss Franc is a safe haven currency. More from
CNN Money:

"The dollar has become the safe haven currency of last resort," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon. "The fact that it's still weakening against the Swiss franc and the yen immediately raises a red flag."

E-Mini S&P Future Technical Update (QE Trend Line, 200DMA), Senate Vote Tomorrow

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source: optionsxpress
I'm watching the E-mini S&P future (ES) tonight because it's been making interesting moves during this debt ceiling volatility. The Senate votes tomorrow at
noon on the bill, so watch how traders price in the progress. Last night when a "bipartisan agreement" was reached on the budget control bill, ES initially spiked 1.5% overnight and gapped up in the morning to test the 50 day moving average. But after weak economic data hit the wire (see below), the S&P lost all of its gains and closed in the red. So you can't always trust what happens overnight.

ES is currently down 0.47% overnight and pierced the QE2 uptrend line and 200DMA on my chart. I've been watching the S&P during the day and overnight mainly to see when it will start pricing in the next recession, or break bull market trend lines. GLD/SPY, or Gold priced in the S&P 500, has been an interesting ratio to watch recently (posts 1, 2).

U.S. Economy: Manufacturing Almost Stalls as Orders Drop" (Business Week)

"The Institute for Supply Management’s factory index slumped to 50.9, the lowest since July 2009, from 55.3 a month earlier, the Tempe, Arizona-based group said today. Figures less than 50 signal contraction, and the July index was lower than the most pessimistic forecast in a Bloomberg News survey."

Economy grinds to halt as consumers pull back (CNN Money) -from July 29, 2011

"Gross domestic product, the broadest measure of the nation's economic health, rose at an annual rate of 1.3% in the second quarter, the Commerce Department said. 
While that's an increase from the revised 0.4% growth rate in the first three months of the year, it is hardly good news. The government originally reported that the economy grew at a 1.9% annualized rate in the first quarter."

10-Year Spain-German Bond Spread Makes New High Again (374)

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The 10-Year Spain-German Bund Spread made a new high today. Weak U.S. and European manufacturing growth could be responsible (read: Bunds Climb, Italian, Spanish Bonds Drop After U.S. ISM Data), and/or it's related to Spanish credit risk. It is just interesting to see this bond spread keep making new highs after it broke out in early July.

Image source:

Watch TimeScapes Trailer To Get Mind Off Debt Ceiling For A Second

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This is the trailer for TimeScapes, a film by Tom Lowe. Visit for more information. He posted this on Google+.

Watch Senate and House Debate, Vote On Debt Ceiling Plan Live (Twitter Conversations)

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Watch the U.S. House debate and vote on the debt ceiling plan live via CSPAN. I also embedded the Twitter conversation on the 'debt limit' as well as House Speaker John Boehner's twitter stream. More from Bloomberg:

"Republican leaders, with no extra time before a default threatened for tomorrow, voiced optimism that Congress will pass a compromise with President Barack Obama to raise the U.S. debt limit by at least $2.1 trillion and slash federal spending by $2.4 trillion or more."

If interested, here is text of the BUDGET CONTROL ACT AMENDMENT (courtesy of Chicago Sun-Times).

Obama's Statement and Fact Sheet of Budget Deficit-Debt Limit Deal

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The S&P future is bouncing off trend line support overnight and using this "bipartisan debt agreement" as a catalyst, for now. The September E-mini S&P Future is up 1.48%, Gold is down 0.90% and Treasury Bond Futures are down 0.51%. The House and Senate still need to pass this bill. Below is more information on the bipartisan debt deal from the White House and House Speaker John Boehner, as well as President Obama's statement (transcript and video). I'm waiting to see how everything reacts. From the White House fact sheet:

Mechanics of the Debt Deal (Source:

  • Immediately enacted 10-year discretionary spending caps generating nearly $1 trillion in deficit reduction; balanced between defense and non-defense spending.
  • President authorized to increase the debt limit by at least $2.1 trillion, eliminating the need for further increases until 2013.
  • Bipartisan committee process tasked with identifying an additional $1.5 trillion in deficit reduction, including from entitlement and tax reform. Committee is required to report legislation by November 23, 2011, which receives fast-track protections. Congress is required to vote on Committee recommendations by December 23, 2011.
  • Enforcement mechanism established to force all parties – Republican and Democrat – to agree to balanced deficit reduction. If Committee fails, enforcement mechanism will trigger spending reductions beginning in 2013 – split 50/50 between domestic and defense spending. Enforcement protects Social Security, Medicare beneficiaries, and low-income programs from any cuts.

E-Mini S&P 500 Future (ES) Is Trading At Important Levels (Technical Update, July 29, 2011)

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This is a technical update on the E-Mini S&P September 2011 Future (ES), which trades overnight. When Republican Leaders cancelled the debt limit vote last night, both the S&P future and
U.S. Dollar (in Euros) initially sold off. ES traded all the way down to its 200 day moving average (red line) and uptrend line from June 2010, where it bounced. ES is still trading under its 50 day moving average (blue line), so I'm thinking the debt limit vote will either be the catalyst for the next "risk rally" (watch QQQor technical breakdown, which would confirm a new bear market. I'm trying to figure out if that is a head and shoulders formation at the top (bearish), or an ascending triangle (bullish). The second chart shows that ES already broke through the bull market trend line from March 2009. If ES breaks through the 200DMA and trend line from June 2010, it looks like 1,200-1,215 is the next area of support (pre-flash crash high). See charts after the jump.

EUR/USD Goes Crazy After Moody's Warns Spain And Debt Limit Vote Gets Delayed

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EUR/USD intraday (courtesy
After,"Majority Whip Kevin McCarthy (R-Calif.) told reporters shortly before 10:30 p.m. that there would be no vote Thursday night on the bill" (
Washington Post)the Euro initially spiked against the U.S. Dollar and hit a high of 1.4361 off the 1.42820 low. However, at 1:20am, when "Moody's placed Spain's Aa2 ratings on review for possible downgrade", EUR/USD retraced the whole move and is now making new lows at 1.42693. So, which sovereign debt crisis wins? Here is more from the Moody's announcement.

"New York, July 29, 2011 -- Moody's Investors Service has today placed Spain's Aa2 government bond ratings on review for possible downgrade. Spain's Prime-1 short-term ratings are unaffected by today's action.

The initiation of the ratings review is driven by the following concerns:

1.) The continued funding pressures facing the Spanish government, which the precedent set for future euro area support arrangements by the official package for Greece is likely to exacerbate, and the resulting increase in risks to bondholders.

2.) The challenges posed to the government's fiscal consolidation efforts by the weak growth environment and the continued fiscal slippage among several regional governments.

Funding costs have been rising for some time for the Spanish government and for many closely related debt issuers, such as domestic banks and regional governments. Pressures are likely to increase still further following the announcement of the official package for Greece, which has signalled a clear shift in risk for bondholders of countries with high debt burdens or large budget deficits. The package has not relieved market concerns over the position of such sovereigns because (i) it sets a precedent for private sector participation in future sovereign debt restructurings in the euro area, and (ii) while an expansion of powers has been proposed for the EFSF, it is not clear when the powers will be implemented.

Moody's views positively that the central government has been successful in meeting its near-term fiscal consolidation targets, but the rating agency nonetheless notes that challenges to long-term budget balance remain due to Spain's subdued economic growth and fiscal slippage within parts of its regional and local government sector." (Continue reading the announcement at

Moodys: 162 Aaa Local Governments On Review For Possible Downgrade ($63 Billion)

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Source: Kazuhiko Kawahara at
From a Moody's
announcement today:



EUR/USD Is Back In Descending Channel, GLD/SPY Testing Freedom Level

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Is the Eurozone about to flare up again? Or is this about the U.S. debt ceiling. Yesterday, Greece was downgraded by S&P to 'CC' from 'CCC' on the belief that a "selective default" is likely to occur with a "30%-50% recovery of principal" (link). EUR/USD is currently trading at 1.43513, just above the 50 day moving average (1.43445). It sold off hard today along with other "risk assets". E-mini Dow, Nasdaq and S&P futures are slightly positive overnight, we'll see what happens tomorrow with stocks and the GLD/SPY ratio. The ceiling resistance level to break on GLD/SPY is 1.2065, or the high made in June 2010. Today GLD/SPY pierced through that level and hit a high of 1.215, but ultimately closed at 1.204. There could be some wild swings as August 2 approaches on Tuesday.

EUR/USD (Euro / US Dollar)
Courtesy of

GLD/SPY Ratio: Freedom = >1.21 (imo)
Courtesy of

For near and long-term GLD/SPY trend lines to watch, visit my previous post on 7/18/2011: Watching GLD/SPY Ratio, Down 16% From March 2009 S&P Low.

"Raise The Debt Ceiling" Rap Video By Remy

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"Raise The Debt Ceiling" by Remy is probably the hardest finance rap song I've heard in a while (hat tip Zero Hedge).

S&P Cuts Greece To 'CC' On Likely "Selective Default"; Outlook Negative

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March 25 - Greece Independence Day
Img embed source: Aster-oid on Flickr
Here's an update on Greece's soon to be "selective default" status. Read the full report at A login may be required. EUR/USD is currently down 1.03% at 1.43607 and the S&P fell over 2.03% today with no decision yet on the debt ceiling.

"LONDON (Standard & Poor's) July 27, 2011--Standard & Poor's Ratings Services today lowered its long-term sovereign credit rating on the Hellenic Republic to 'CC' from 'CCC'. At the same time we affirmed the short-term rating at 'C'. The outlook is negative. Our recovery rating of '4' for Greece remains unchanged, indicating an estimated 30%-50% recovery of principal by bondholders, including on those bonds subject to a 20% reduction in net present value (NPV) as estimated under the Institute for International Finance (IIF) proposal.

Following review of the European Council's (EC's) July 21 statement, Standard & Poor's has concluded that the proposed restructuring of Greek government debt would amount to a selective default under our rating methodology. We view the proposed restructuring as a "distressed exchange" because, based on public statements by European policymakers, it is likely to result in losses for commercial creditors. Moreover, the objective of the debt exchange/rollover is to reduce the risk of a near-term debt payment default and to give the Greek government more time to undertake fiscal consolidation and policy reforms. Under our criteria, we characterize a distressed borrower as one that would--in the absence of debt relief--fail to pay its debt on time and in full."

Watch Wingsuit Proximity Flying, Avalanche Cliff Jumping Videos

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Entertainment Break: Watch skiers jump off cliffs in the French Alps with an avalanche behind them (hat tip KS on Google+).

"Matthias Giraud and Stefan Laude capture some of the most incredible content seen by GoPro as they hit the Alps like true heroes skiing the French backcountry while escaping a large avalanche on their tails!" - (GoProCamera on Youtube)

After that watch wingsuit proximity flying by by Jokke Sommer and Jeb Corliss.

Links: Treasury Futures, Downgrade Risk, Marc Faber, Andy Xie, Repo Market, Soros Closes Fund

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img source: financeintelligencer
U.S. Faces Losing AAA Debt Rating, BlackRock, Loomis Sayles, Templeton Say (

"BlackRock Inc., Franklin Templeton Investments, Loomis Sayles & Co., Pacific Investment Management Co. and Western Asset Management said the U.S. faces losing its top-level debt rating as officials struggle to raise the $14.3 trillion borrowing limit and reduce spending."

U.S. Downgrade May Cost $100B a Year: JPMorgan (Bloomberg)

"A U.S. credit-rating cut would likely raise the nation’s borrowing costs by increasing Treasury yields by 60 to 70 basis points over the “medium term,” JPMorgan Chase & Co.’s Terry Belton said"

The $1 Billion Armageddon Trade Placed Against the United States (betting on downgrade of AAA (Jack Barnes at Money Morning)

"In one moment, an invisible trader placed a single trade that moved the most liquid debt market in the world. The massive trade wasn't placed in bonds themselves; it was placed in the futures market. The trade was for block trades of 5,370 10-year Treasury futures executed at 124-03 and 3,100 Treasury bond futures executed at 125-01. The value of the trade was about $850 million dollars." (betting on downgrade of AAA rating)

Marc Faber: The Debt Fight Is Meaningless, As Governments March Toward Hyperinflation (Business Insider / interview at King World News)

"Well when the reset comes it will be say a hundred dollar bill will be exchanged for a one dollar bill or something like this. Before we have the Great Reset, the government they will increase the war effort under whatever excuse that will be but I think that is the likely course of action..." (he also talks about gold)

Nomura: US Downgrade May Cause Repo Market Liquidity Freeze (Zero Hedge)

Andy Xie: US debt crisis may force China to consider faster diversification in asset allocation (Reuters Insider Video)

What Triggers a U.S. Treasury CDS "Credit Event" (Credit Default Swaps)

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5Y US Treasury CDS (Bloomberg)
As you already know, the U.S. faces the risk of
running out of cash to pay bills on August 3 if Congress doesn't raise the debt ceiling. As noted by Christian Post's math, there will be enough money in August to cover interest payments on the debt to prevent a default, but $21 billion will be left unpaid.

It gets more interesting. There are currently $4.8 billion (net) U.S. Treasury Credit Default Swaps outstanding that insure against a "credit event", or missed interest payments on Treasury bonds. If the U.S. Government decided not to pay interest on its debt next month, it would trigger the "credit event" and holders of Treasury CDS would be made whole by the sellers at par (Treasury bond). 5Y Treasury CDS is currently trading at 58 bps in euros and trending higher. It spiked to 99 bps in February 2009. I remember doing a post on Treasury CDS in September 2008 when S&P said "pressure is building on the pristine "AAA" rating of the United States after a federal bailout of American International Group Inc". There are $9.3 trillion Treasury bonds held by private investors, so the CDS number is tiny.

David Geen, General Counsel at the International Swaps & Derivatives Association (ISDA), explained what would trigger a "credit event" for Treasury CDS. Watch the Bloomberg interview after the jump ("ISDA Says Missed Payment Would Trigger U.S. Debt Swaps").

"There doesn't seem to be a lot of fear reflected in the pricing, as it hasn't been reflected in the Treasurys itself. If Treasurys are still trading at par or close to par that means that the CDS settlement, if there was a credit event and there was an auction, then the settlement would not be at large amounts and therefore protection holders are not going to receive large payouts if anything."

More on Treasury CDS and debt ceiling updates:
  • U.S. has 3 days grace before CDS triggered: ISDA (Reuters)
  • Step Aside UniCredit And Italy: The US Is Number One... In Monthly Spike Of Default Bets (Zero Hedge)
  • Betting $4.8 billion on a U.S. default (CNN Money)
  • S&P warns against prioritizing debt payments: report (Reuters)
  • Is default deadline truly Aug 2? Analysts say no (Reuters)
  • U.S. Downgrade May Cost $100B a Year: JPMorgan (Bloomberg)
  • U.S. likely to lose top rating: economists (Reuters)
  • Treasuries Decline as Obama Threatens to Veto House Speaker’s Debt Plan (Bloomberg)
  • Treasuries Fall, Gold Gains on U.S. Debt Rift (Bloomberg)

Debt Ceiling Debate Updates: Congress Has Until August 2 To Raise Debt Limit

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Boehner, Obama and Reid (
This post will provide updates on the debt ceiling debate, mainly links to articles and press conference videos until the day of reckoning occurs. Congress has until August 2, 2011 to raise the debt limit or they run the risk of defaulting on their debt not paying
important bills (*see comment below). Either way, the markets will probably use debt ceiling updates as catalysts. On July 21, S&P said there was a 50-50 chance that they'd downgrade U.S. Treasury debt. Mohamed El-Erian of PIMCO also thinks it is a possibility.

"If an agreement is reached to raise the debt ceiling but nothing meaningful is done in terms of deficit reduction, the U.S. would likely have its rating cut to the AA category, S&P said." (Reuters)

"The U.S. government may lose its AAA credit rating even if lawmakers reach a plan to avoid a default, said Mohamed A. El-Erian, whose Pacific Investment Management Co. is the world’s largest manager of bond funds." (Bloomberg)

Monday July 25, 2011

*Harry Reid's plan vs. John Boehner's "Cut, Cap & Balance" plan (Bloomberg)

"Boehner’s two-step plan would raise the U.S. borrowing limit by up to $1 trillion, with larger spending cuts, and require a new vote on more reductions before an additional $1.6 trillion debt-limit increase next year. It could be voted on in the House within two days. Obama and Senate Democrats oppose a short-term extension, which could lead to another debt standoff next year. 

By contrast, Reid’s proposal would cut $2.7 trillion in spending and give Obama the full $2.4 trillion in additional borrowing authority he seeks, enough to get through the 2012 elections."

Speaker Boehner's response to Obama's address (, 7/25/2011)
President Obama's statement to the nation on the debt limit (, 7/25/2011)
House Speaker John Boehner's news conference (, 7/25/2011)
Senator Harry Reid's news conference (, 7/25/2011)
No endgame in sight as debt default looms (Reuters)

Daily Technical Analysis Report By MIG Bank (7/25/2011), EUR/USD, USDX Charts

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Today's daily technical analysis report has been supplied by MIG Bank, the first forex broker in Switzerland to become a Swiss bank. Click here to read the full report on their website.

The report embedded below includes technical analysis on EUR/USD, the US Dollar Index, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD, GBP/JPY, EUR/JPY, EUR/GBP, EUR/CHF, Gold and Silver. I also embedded their special study on CHF/NOK.

EUR/USD, US Dollar Index (MIG Bank)
Daily Technical Report
25 July, 2011
EUR/USD: Extended rebound stalls into key resistance 1.4400-1.4419.
  • EUR/USD’s extended rebound (from its bullish reversal pattern near the200-day MA), has stalled into key resistance zone between 1.4400-1.4419(76.4/78.6% Fib level).
  • Our outlook remains neutral/bearish, while price holds beneath key resistance at 1.4578. Failure into these levels will keep bearish risks on for a resumption of the downside pattern breakout, offering an accelerated impulsive (wave 3) into 1.3750/1.3659 (2 yr uptrend/61.8% Fib-Jan 2011 rise), thereafter squeezing further conservative trend-followers into our initial objective at 1.3370.
  • Only a sustained close above 1.4578 will lead to a reassessment of our long standing bearish view, opening a potential extended recovery into previous key resistance at 1.4711/30.
  • Inversely, the US dollar index is now holding steady around key support at73.50. We expect this level to hold (as the last point of defence), where a potential oversold bounce could develop."

Nasdaq 100 (QQQ) Pierced Resistance On Friday, Future Below It Monday Morning (NQU11)

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If we're going to see one more "risk rally" in the months ahead, there needs to be a market leader. On Friday I saw that $QQQ, or the Nasdaq 100 Index ETF, pierced through May and early July ceiling resistance (59.32). But, tonight, with the ongoing debt ceiling feud, the E-mini Nasdaq September 2011 Future lost 0.85% and moved back below that key resistance level (2,422). It is now down 0.66%. In my opinion, the Nasdaq 100 looks the best on a technical basis when compared to the Dow, S&P, Transports and Russell 2000. So we'll see if it can lead the market here, or confirm a top.

PowerShares QQQ (Nasdaq 100 ETF) - Courtesy of OptionsXpress

E-mini Nasdaq September 2011 Future (Courtesy of OptionsXpress)

Is There One More Market Rally Ahead? (Links - 7/23/2011)

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Exclusive: John Paulson says bets were too aggressive - (Reuters
  • He's trimming his net long position to 50% from 81%;
  • Moving away from bank holdings with heavy mortgage exposure;
  • and increased his bet that the euro currency would fall as a hedge against further fallout from Europe's debt crisis"

Felix Zulauf on the inevitability of further crisis in Europe (Credit Writedowns)

"In the short run, Felix says, the plan, as we've seen, allows investors to exhale and markets to rally. But once the touch of euphoria plays itself out, the omens are anything but bright."

FX Concepts’ Taylor Sees One More ‘Risk Rally’ Before Recession Takes Hold - (Bloomberg)

Bob Janjuah: Euphoric In The Short-Term, Apocalyptic In The Longer (Zero Hedge)

Howard Marks on the U.S. Debt Ceiling: Oaktree Capital Commentary - "Down to the Wire" - (MarketFolly)

Resource Limitations 2: Separating the Dangerous from the Merely Serious, July 2011 (By Jeremy Grantham, founder of GMO Capital) - (GMO LLC)

Goldman's Complete Summary Of The European Council Decisions - (Zero Hedge)

I’m Gonna Tell You How It’s Gonna Be… "A chilling head-fake sell-off followed by new highs for equities." (The Reformed Broker)

Read these reports..

"Strategic Investment Conference: Luminaries In Finance Presentation Series: Part 2 - David Rosenberg" April 2011 - (Zero Hedge)

"Strategic Investment Conference: Luminaries In Finance Presentation Series: Part 1 - Gary Shilling" April 2011 - (Zero Hedge)

Video of Michael Burry On Bloomberg's RiskTakers (I Was 100% Confident)

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Courtesy of Business Insider (read more there)
Former hedge fund manager Michael Burry, who was profiled in Michael Lewis's book "The Big Short", was featured on Bloomberg's
RiskTakers a few days ago. I embedded the video after the jump. The picture with him and the black swans is from his 2007 ("I told you so") investor letter. He returned 472% for his investors in eight years (2000-2008). If interested, read his original thesis on his big subprime mortgage short at "A Primer on Scion Capital’s Subprime Mortgage Short - November 7, 2006".

Burry didn't give any investment calls in this video, but in an interview last year on Bloomberg TV he said was bullish on gold, small asian tech, farmland with water on site and distressed, special situations in real estate. I'm not sure if the same holds true today. Below are a few quotes from the video:

"Ironically, I'm in this book, 'The Big Short,' but I'm not a big short. I don't go out looking for good shorts. I'm spending my time looking for good longs. I shorted mortgages because I had to. Every bit of logic I had led me to this trade and I had to do it. And I had to pull back on equities, because I saw what was coming I thought would affect everything."

"I tried to raise a fund, Milton’s Opus (being Paradise Lost) to just do this because I wanted to do it in big size, but I couldn’t get it going. And the urgency came from my belief that I can’t be the only one thinking this. Somebody will see it and when they do, spreads will blow out wide. I want to get it on when it’s cheap."

"My positioning with my investors had always been from the beginning, I need 3-5 years. I saw the time clock. I knew when it was going to happen. We just needed to make it through to that period. And that was a hard sell when it moved against us initially"

"Even when there was the investor rebellion and even when we had these difficulties in ’06, I was 100% confident when it was going to happen and I would tell people: just wait. We’re on the cusp, 2007, it will happen."

"I was actually 100% confident. I thought it was a sure thing. Because basically those mortgages started going bad by late 2005 and 2006. They started going bad early."

Updates On Oslo Bomb Attack, Utoya Island Gunman (Videos)

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Amateur footage showing aftermath of bombing
Courtesy of Channel 4 News, below is amateur video footage showing wreckage from a bomb that hit the Office of the Prime Minister and set fire to the Norwegian Oil Ministry in Oslo, Norway. According to
Reuters, the bomb killed 7 people and shortly after a gunman opened fire at a youth camp at Utoeya Island, which is north-west of Oslo. UPDATE: See Reuters and RussiaToday videos below.

"A bomb ripped through Oslo's central government district on Friday and a gunman dressed as a policeman then opened fire at a youth camp on a nearby island, killing at least 17 people altogether." (Reuters at Yahoo News)

Update: "A gunman shot dead at least 80 youths at a summer camp of the ruling Labour Party on Friday, police said" (Reuters)

Norway death toll may rise to 98, police say. A man named Anders Behring Breivik was arrested (Reuters)

European Council's Statement On Greece's 109 Billion Euro Loan (EFSF), EUR/USD Charts and Articles

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Source: The Council of the European Union
EUR/USD and stocks rallied yesterday on news that EU member states and the private sector would provide 109 billion euros of low interest financing to Greece to "fully cover the financing gap". The private sector will contribute 37 billion euros. Look how EUR/USD reacted to this news in the chart below. It is currently trading at 1.43841. I embedded the statement and linked to articles after the jump. EFSF = European Financial Stability Facility.


EURUSD Trend From 6/2010 (FreeStockCharts)
We reaffirm our commitment to the euro and to do whatever is needed to ensure the financial stability of the euro area as a whole and its Member States. We also reaffirm our determination to reinforce convergence, competitiveness and governance in the euro area. Since the beginning of the sovereign debt crisis, important measures have been taken to stabilize the euro area, reform the rules and develop new stabilization tools. The recovery in the euro area is well on track and the euro is based on sound economic fundamentals. But the challenges at hand have shown the need for more far reaching measures.

Today, we agreed on the following measures:


1. We welcome the measures undertaken by the Greek government to stabilize public finances and reform the economy as well as the new package of measures including privatisation recently adopted by the Greek Parliament. These are unprecedented, but necessary, efforts to bring the Greek economy back on a sustainable growth path. We are conscious of the efforts that the adjustment measures entail for the Greek citizens, and are convinced that these sacrifices are indispensable for economic recovery and will contribute to the future stability and welfare of the country.

EURUSD July 21-22, 2011 (FreeStockCharts)
2. We agree to support a new programme for Greece and, together with the IMF and the voluntary contribution of the private sector, to fully cover the financing gap. The total official financing will amount to an estimated 109 billion euro. This programme will be designed, notably through lower interest rates and extended maturities, to decisively improve the debt sustainability and refinancing profile of Greece. We call on the IMF to continue to contribute to the financing of the new Greek programme. We intend to use the EFSF as the financing vehicle for the next disbursement. We will monitor very closely the strict implementation of the programme based on the regular assessment by the Commission in liaison with the ECB and the IMF.

3. We have decided to lengthen the maturity of future EFSF loans to Greece to the maximum extent possible from the current 7.5 years to a minimum of 15 years and up to 30 years with a grace period of 10 years. In this context, we will ensure adequate post programme monitoring. We will provide EFSF loans at lending rates equivalent to those of the Balance of Payments facility (currently approx. 3.5%), close to, without going below, the EFSF funding cost. We also decided to extend substantially the maturities of the existing Greek facility. This will be accompanied by a mechanism which ensures appropriate incentives to implement the programme."

"5. The financial sector has indicated its willingness to support Greece on a voluntary basis through a menu of options further strengthening overall sustainability. The net contribution of the private sector is estimated at 37 billion euro."


Daily Technical Report By MIG Bank (July 21), Look at Gold Charts

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Today's technical analysis report has been supplied by MIG BANK, the first forex broker in Switzerland to become a Swiss bank. Click here to read the full report on their website.

The report includes technical analysis on EUR/USD, US Dollar Index, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD, GBP/JPY, EUR/JPY, EUR/GBP, EUR/CHF, Gold and Silver. Their gold charts were interesting today. I couldn't embed their report today, but you can view the PDF here.

Gold Charts 7/21/2011 (via MIG Bank)

Sharp correction expected beneath trigger level at 1588/82.
  • Gold price activity remains fragile after its recent sharp correction. The move followed an unprecedented rise of 10 consecutive higher closes, which also triggered multiple exhaustion signals (notably DeMark™ Combo/Sequential). SEE our trade alert for more details.
  • With such explosive moves (upside or downside), it is critical the market confirms a reversal beneath a filtered price/time trigger point. Watch for a sustained DAILY close beneath our trigger level at 1588/82.
  • In terms of the big picture, this move is also taking place within the apex of a 12-year exhaustion pattern (illustrated on the weekly log chart), which has also developed a unique long-term DeMark™ exhaustion signal.
  • Downside risk favours an initial move into key support at 1577.57 (02nd May peak) and 1558.25 (22nd June high). Meanwhile, a sustained close above 1620 will lead to a reassessment of this view.
  • Gold’s COT liquidity indicator (net long positions) is also squeezed within a tight range (as Gold continued to make push to record highs on lower volume). At this stage, the risk remains for a downside breakout which would unlock over 1.5 years of sizeable gold long positions."

Gary Shilling Sees 20% Drop In House Prices and New Recession In 2012

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Source: The Daily Ticker (Yahoo)
Gary Shilling, President of A. Gary Shilling & Co., who predicted the first housing and economic recession in 2006 (watch Shilling on Kudlow & Company on 11/27/2006 below), thinks home prices will drop by another 20% and cause a new recession in 2012. He discussed housing with Jeff Macke on The Daily Ticker on
July 13, 2011.

Shilling believes excess inventories will cut house prices even further:

"The problem is that there are just too many excess inventories. We estimate that there are 2 to 2.5 million excess housing unit inventories over and above the normal working levels, and that's a lot. We normally build about a million and a half houses a year. Getting rid of those excess inventories, if you look at what's happening in terms of household formation and new housing being built, it will probably take 4 or 5 years, and that's plenty of time for this excess inventory to depress prices. Excess inventories are the mortal enemy of prices. We're looking for another 20% decline in house prices."

When asked if housing was already priced in, Shilling said:

"If we have the 20% decline, which would bring us back to the long term trend inflation adjusted on house prices. If we have that, and I think that's likely, and markets often overshoot on the downside by the way so it may be a conservative estimate, the percentage of mortgages underwater by our calculations would jump from 23% now to 40%, and at that point........"

Ray Dalio Sees 10 Year+ Deleveraging Period With Money Printing; Soros, Gartman..

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Hedge fund manager Ray Dalio, founder of Bridgewater Associates, was interviewed by The New Yorker and at the end of the article Dalio gave some pessimistic views on currencies and economic growth going forward. He thinks "late 2012 or early 2013 is going to be another very difficult period". But what does Dalio think about the reflation trade going forward (equities and commodities)? This is important...

Now that the slowdown appears to have arrived, Dalio thinks it will be prolonged. “We are still in a deleveraging period,” he said. “We will be in a deleveraging period for ten years or more.” 

“There hasn’t been a case in history where they haven’t eventually printed money and devalued their currency,” he said. Other developed countries, particularly those tied to the euro and thus to the European Central Bank, don’t have the option of printing money and are destined to undergo “classic depressions,” Dalio said.

Read the full story at The New Yorker

Iran Opens Oil Bourse - Harbinger of Trouble for New York and London? - Guest Post

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Iranian Rial (Wikimedia Commons)
Guest post by John C.K. Daly for

Iran Opens Oil Bourse - Harbinger of Trouble for New York and London?

The last three years of global recession have dealt a major blow to American capitalist ideas trumpeted throughout the world on the value of "free markets." Wall St has been revealed as a form of casino economy, with the bankster insiders gambling with other people's, and eventually, the government's money in the form of bailouts. As the Republicans in Congress, scenting victory in the 2012 presidential elections, hold a gun to the Obama administration's head and rating agencies consider downgrading U.S. government bonds in light of Washington's possible defaulting, many ideas around the world that previously seemed implausible because of the dominance of the U.S. economy are garnering renewed interest.

Not surprisingly, many of these concepts originate in countries not enamored with Washington's influence, perhaps none so more than "Axis of Evil" charter member Iran, which has seen its economy hammered by more than three decades of U.S.-led sanctions. Now Iran is working a program, that, if it succeeds, could help undermine the dollar's preeminence as the world's reserve currency more effectively than a Republican filibuster.

Iran's sly weapon against the Great Satan's currency? An oil bourse on Kish Island in the Persian Gulf, which has now begun selling high-grade Iranian crude oil.

Moody's Places 5 Aaa States on Review For Possible Downgrade Due To U.S. Sovereign Risk Vulnerability

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Moody's Investors Service - July 19, 2011



New York, July 19, 2011 -- Moody's Investors Service has placed on review for possible downgrade the Aaa ratings of the states of Maryland, New Mexico, South Carolina, Tennessee, and the Commonwealth of Virginia. In connection with Moody's July 13 action placing the Aaa government bond rating of the United States on review for downgrade, Moody's announced that it would assess the ratings of Aaa-rated states to gauge their sensitivity to sovereign risk. The review actions affect a combined $24 billion of general obligations and related debt.

Should the U.S. government's rating be downgraded to Aa1 or lower, these five states' ratings would likely be downgraded as well. Moody's will review the ratings of the five states on a case-by-case basis and announce any rating actions within seven to ten days following a sovereign action.

Daily Technical Analysis Report By MIG Bank (July 19, 2011) - Guest Report

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Today's technical analysis report has been supplied by MIG Bank, the first forex broker in Switzerland to become a Swiss bank. Click here to read the full report on their website. The report embedded below includes EUR/USD, US Dollar Index, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD, GBP/JPY, EUR/JPY, EUR/GBP, EUR/CHF, Gold and Silver.

EUR/USD, US Dollar Index
19 July, 2011

  • Bullish engulfing targets key zone between 1.4282-1.4325.
  • EUR/USD triggered a bullish engulfing today that targets key resistance zone between 1.4282-1.4325 (14th July high/61.8/66% level). We remain negative, expecting current upside probes to fail into the latter zone.
  • Our short position continues to favour a resumption of the downside pattern breakout, offering an accelerated impulsive (wave 3) into1.3700/1.3659 (2 yr uptrend/61.8% Fib-Jan 2011 rise), thereafter squeezing further conservative trend-followers into our initial objective at 1.3370.
  • A sustained close above 1.4325 would trigger a move into 1.4405/20. Only above here offers meaningful upside recovery into 1.4578 (05th July peak).
  • Inversely, the US dollar index still needs to hold above 76.36 (23rd May high), to confirm a multi-month base pattern for an extension into 77.01and 78.03 (50%/61.8% Fib-Jan 2011 Decline), then 79.00 (objective).

BNY Mellon's Simon Derrick Sees Euro/Dollar In Low 1.30s By Year End

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BNY Mellon's Simon Derrick on BloombergTV
Bank of New York Mellon's Chief Currency Strategist, Simon Derrick, told Bloomberg's Oliver Joy on July 11 that EUR/USD could see the low 1.30s by year end. It is currently trading at 1.41. Here are a few points he made during the interview. Watch the 11:57 minute Bloomberg TV video after the jump.
  • In 2-3 months time, there is a "very real prospect" that there won't be a Greek bailout in place, and Greece won't get the next tranche of cash from the IMF and EU.
  • Uncertainty drives investors out of Euros and risk assets, "and back into the funding currencies, the US Dollar and the Yen, and also into the ultimate safe haven currency which is the Swiss Franc."
    EUR/USD (
    He's betting on a trend breakdown
  • "If there were a quick resolution for Greece, I feel fairly certain that there'd be a reasonable rally for the Euro."
  • Important secondary issue related to China and the end of QE2: "Over the course of the last 12 months, one of the main forces driving the Euro higher, despite the Euro crisis, has been the recycling of reserves by countries like China. The stronger the reserves flow into those countries, the stronger the diversification at the margins, the higher the Euro's got. At the moment there is a concern that maybe China is going to have a slowdown during the second half of this year. And particularly coming at the same time that QE2's dissipating in the United States, there is a belief that less money will be flowing into those markets." (which means less recycling into Euros, or support for the Euro)
  • Outlook for EUR/USD at year end: "We've been actually bearish for quite a while now. Our belief really from about February of this year was that this summer would see a turning point for the Euro, and that we would see a more risk averse, more soft patch for growth taking place in the second half of the year. So we've pretty well been bearish; the only question is do we need to revise down our targets even further from where they currently are. My belief we'll probably end up with targets in the low 1.30s for Euro/Dollar by year end." 

Germany's 5Y Credit Default Swap Makes New 2-Year High (64 bps)

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German 5Y CDS (CDBR1U5:IND at made a new 2 year high yesterday at 65.61 basis points. I'm not sure what to make of it, but look at the snapshot of the chart going back to 2008. During the financial crisis German 5Y CDS hit a high of 91 bps.

Source: Bloomberg

Gundlach Has 10% In Cash, Hussman Sees Topping Process, Taylor Sees EURCHF At Parity, Rosenberg...

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Wall Street (Source: Jpellgen on Flickr)
Links for 7/18/2011

Gundlach Leads Bond Funds Boosting Cash (

"“We are looking for a more severe down move in prices, for a better level to buy,” said Jeffrey Gundlach"

“Gundlach, the chief executive officer of Los Angeles-based DoubleLine Capital Inc., said in a telephone interview that he has 10 percent of the fund’s assets in cash, about five times what it usually holds. He views a move in the 10-year Treasury yield above 3.5 percent as a buying opportunity."

David Rosenberg (Gluskin Sheff) Explains "Why We Should Be Worried" (Zero Hedge)

Rosenberg on CNBC: We Are One Small Shock Away From a New Recession (Pragmatic Capitalism)

Swiss Franc Is Most Expensive Currency as Taylor Sees Euro Parity (BusinessWeek)

“The Swiss franc looks like it will go to par with the euro,” said John Taylor, founder of FX Concepts LLC in New York, the world’s largest currency hedge fund." (hat tip ZH)

Watching GLD/SPY Ratio, Down 16% From March 2009 S&P Low - 7/18/2011

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GLD/SPY (see below)
I'm watching the GLD/SPY ratio at the moment, or Gold/S&P 500 in ETF form. With the ratio at 1.18 (as of 7/15/2011), GLD/SPY is close to testing 2010 resistance at 1.20. As you already know, Gold and the S&P 500 have rallied hard over the past two and a half years on the reflation trade and "breadth thrust" after the financial bailouts. But it is interesting to note that GLD/SPY is down 16.42% from the March 2009 bottom on the S&P (see chart #2).

The first chart (as seen above) shows more than two years of sideways action after the ratio put in a blow off top at 1.41 in early 2009. I'm wondering if GLD outperforms SPY going forward, even if they both go down in tandem. It depends if the ratio can take out 2010 resistance in the sideways channel and stay on the uptrend line from 2007. If GLD underperforms SPY in the near term and breaks down, there is still a major uptrend line to test when using the 2000 and 2007 lows. If GLD/SPY gets above 1.20, it could be ready to test the 1.41 high (imo).

When looking at the last two recessions, GLD outperformed SPY during the 2000-2003 and 2007-2009 periods. Not only are the Euro and US Dollar looking ugly at the moment due to fiscal crises, some economists and analysts are predicting a new recession in 2012. Treasury yields and Eurozone solvency are probably the wild cards for gold and currencies in my opinion. What do you think. GLD by itself is in a strong ascending channel using the uptrend from 2008. GLD looks strong at the moment, but it also looked strong in the second half of 2007 before it peaked at 100 and lost 30% in 2008. When that happened, the GLD/SPY ratio chopped around between 0.64 and 0.85. See charts below of GLD/SPY, GLD:SPY performance and GLD.

S&P: U.S. Ratings Placed On CreditWatch Negative, 50% Chance of Downgrade In 90 Days (10Y, 30Y UST Charts)

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30Y T-bond Price (see larger view below)
Standard and Poor's put United States of America's 'AAA/A-1+' Ratings on negative watch today. This comes after Moody's put 
US's Aaa Government bond rating on review for possible downgrade yesterday. Will 10 year Treasury notes and 30 year bonds make new highs? LOL. See charts after the jump.

"United States of America 'AAA/A-1+' Ratings Placed On CreditWatch Negative On Rising Risk Of Policy Stalemate Overview


• Standard & Poor's has placed its 'AAA' long-term and 'A-1+' short-term sovereign credit ratings on the United States of America on CreditWatch with negative implications.

• Standard & Poor's uses CreditWatch to indicate a substantial likelihood of it taking a rating action within the next 90 days, or in response to events presenting significant uncertainty to the creditworthiness of an issuer. Today's CreditWatch placement signals our view that, owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days. We have also placed our short-term rating on the U.S. on CreditWatch negative, reflecting our view that the current situation presents such significant uncertainty to the U.S.' creditworthiness.

Bernanke: If U.S. Defaults On Its Debt We'll See A Major Crisis (Video, 7/13/2011)

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Ben Bernanke, Chairman of the Federal Reserve, presented the Fed's "Semiannual Monetary Policy Report" to the House Financial Services Committee yesterday, which included their economic outlook and position on monetary policy (see below). When asked during Q&A what would happen if the debt ceiling wasn't raised on August 2 and the US defaulted on its debt, Bernanke said:

"Clearly if we went so far as to default on our debt it would be a major crisis because the Treasury security is viewed as the safest and most liquid security in the world. It is the foundation for much of our financial system and the notion that it would become suddenly unreliable and illiquid would throw shockwaves through the entire global financial system" (At 57:18 in the CSPAN video below)

In his testimony, Bernanke said if there is another threat of deflation, the Fed could provide additional stimulus. Read his full testimony and watch the Q&A session after the jump.

"However, given the range of uncertainties about the strength of the recovery and prospects for inflation over the medium term, the Federal Reserve remains prepared to respond should economic developments indicate that an adjustment in the stance of monetary policy would be appropriate.

On the one hand, the possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support. Even with the federal funds rate close to zero, we have a number of ways in which we could act to ease financial conditions further."

Moody's Places US Aaa Government Bond Rating on Review for Possible Downgrade

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Total Federal Government Public Debt (St. Louis Fed)
Uh oh... From Moody's today:

"New York, July 13, 2011 -- Moody's Investors Service has placed the Aaa bond rating of the government of the United States on review for possible downgrade given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations. On June 2, Moody's had announced that a rating review would be likely in mid July unless there was meaningful progress in negotiations to raise the debt limit.

In conjunction with this action, Moody's has placed on review for possible downgrade the Aaa ratings of financial institutions directly linked to the US government: Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks. We have also placed on review for possible downgrade securities either guaranteed by, backed by collateral securities issued by, or otherwise directly linked to the US government or the affected financial institutions.


Daily Technical Analysis Report By MIG Bank (July 13, 2011)

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Today's technical analysis report has been supplied by MIG Bank, the first forex broker in Switzerland to become a Swiss bank. Click here to read the full report on their website.

The report embedded below includes EUR/USD, USDX, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD, GBP/JPY, EUR/JPY, EUR/GBP, EUR/CHF, Gold and Silver.


Breaks out of triangular consolidation.
  • EUR/USD has resumed its bearish activity and has broken out of the all important triangular consolidation pattern.
  • The move follows last Friday’s worse-than-expected NFP figures which paradoxically pushed the US dollar higher, as market sentiment refocused back onto risk aversion and a flight to traditional quality/safe haven assets.
  • Our short position favours sustained weakness to unlock an accelerated impulsive (wave 3) into 1.3670 (61.8% Fib-Jan 2011 uptrend). Only a sustained close above 1.4653 and most importantly 1.4711/30 will lead us to re-evaluate.
  • Inversely, the US dollar index has broken above 76.36 (23rd May high), to confirm a multi-month w-shaped base pattern for an extension into 7701 and 78.03 (50%/61.8% Fib-Jan 2011 Decline).
  • Further upside scope is also being supported by increased long positions on our COT liquidity, which has been positive for the last 6 weeks."

Moody's Downgrades Ireland to Junk (Ba1), Ruins FOMC Minutes Rally (Dow Chart, EUR/USD)

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Moody's downgraded Ireland's credit rating yesterday to Ba1 (junk) and completely ruined the '
FOMC Minutes' spike in the Dow. There are interesting forces affecting the markets right now. At 4:08a EST, EUR/USD is up 0.34% at 1.40520.

Yesterday (7/12/2011), EUR/USD pierced through the 200 day moving average, hit an intraday low of 1.3872 and almost touched the major uptrend line from 2010. Since then EUR/USD regained the 200DMA, but be prepared for any unexpected negative catalysts out of the Eurozone. In my opinion, the 200DMA and uptrend line are important support levels that need to hold to prevent a structural breakdown in EUR/USD. I'm wondering how the US Dollar and Treasuries start pricing in the August 2, 2011 debt ceiling deadline. My futures widget says E-mini Dow (YUM11) is up 57 at 12,470. Risk on? Below is more information on the downgrade from Moody's Investors Service.

FOMC Minutes vs. Ireland Downgrade 
Dow Industrials via
"Frankfurt am Main, July 12, 2011 -- Moody's Investors Service has today downgraded Ireland's foreign- and local-currency government bond ratings by one notch to Ba1 from Baa3. The outlook on the ratings remains negative.

The key driver for today's rating action is the growing possibility that following the end of the current EU/IMF support programme at year-end 2013 Ireland is likely to need further rounds of official financing before it can return to the private market, and the increasing possibility that private sector creditor participation will be required as a precondition for such additional support, in line with recent EU government proposals.

As stated in Moody's recent comment, entitled "Calls for Banks to Share Greek Burden Are Credit Negative for Sovereigns Unable to Access Market Funding" (published on 11 July as part of Moody's Weekly Credit Outlook), the prospect of any form of private sector participation in debt relief is negative for holders of distressed sovereign debt. This is a key factor in Moody's ongoing assessment of debt-burdened euro area sovereigns.

Some FOMC Members Considering QE3 If Economic Growth Too Slow (FOMC Minutes, Dow Chart)

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Industrial Average Intraday 7/12/2011
When the June 21-22 FOMC Minutes were released yesterday, the market initially spiked when traders saw the possibility of QE3 ("additional monetary policy stimulus"). I quoted the portion below from page 8 of the released (see below). The market then crashed intraday when Moody's downgraded Ireland to junk (Ba1). More on that in my next post. Quantitative easing during the next bear market will be interesting to watch, when that day comes.

"However, many members saw the outlook for both employment and inflation as unusually uncertain. Against this backdrop, members agreed that it was appropriate to maintain the Committee's current policy stance and accumulate further information regarding the outlook for growth and inflation before deciding on the next policy step. On the one hand, a few members noted that, depending on how economic conditions evolve, the Committee might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run. On the other hand, a few members viewed the increase in inflation risks as suggesting that economic conditions might well evolve in a way that would warrant the Committee taking steps to begin removing policy accommodation sooner than currently anticipated." (source: Federal Reserve)