S&P Downgrade on U.S. and how to trade my positions

S&P Downgrade on U.S. and how to trade my positions

a mess Monday is going to be!  I am going to be calling Monday –
Monster drink MONDAY !!!  I will be up tonight to watch the Asian close,
Europe open and the US futures @ 5 AM my time.  The honest facts are
the simplest to read and understand.  It is not like we didn’t expect
this to happen and we were warned by the S&P before we even came to
the debt deal.  The timing really seems to be a political decision and a
downgrade to tell the U.S. government that the rating agency is pissed
off at their brinksmanship.  The good news is NObody likes the downgrade
and Moody’s and Fitch still have the U.S. as AAA rating. 

This is one of 5 things that have happened since 2008 for the first time
in our markets.  My list of first time events for today’s traders are

The market lost more than half of it’s value in 6 months in 2008

Flash crash – 10% market loss in 30 minutes

First time oil reached $147.17 a barrel

First time USA at risk of losing and NOW LOST S&P AAA credit rating

Biggest Ponzi scheme in market ever with Madoff

As a money manager I have spent years trying to be prepared for market
crashes.  Hours a day are spent sifting through news to make the best
educated decisions in the market.  Back to the numbers – From close of
July 22 to Aug 5th close the Dow is down 9.7%, S&P 500 down 11.8%
and the Nasdaq down 11.4%.  Hurley Investments and GFund are down ( as a
whole calculated from total accounts value ) 3.2%.  Some may be better
and some may be worse.

Right now the futures are showing about
a 2.3 % drop in the Dow, 2.3% drop on the S&P, and a 1.9% drop in
the Nasdaq.  This is a first time event and from all the news nobody
really knows what is going to happen?   We have historical data showing 9
to 18 years for 5 other downgraded economies to earn their AAA status
back.  Some with this info predict U.S. market Armageddon.  Others say
it is a two to six week blip due to the strength of the earnings of
companies and will have no real affect on the US bond or Equity markets
after the initial knee jerk reaction.  I love Warren Buffet and I always
listen when he speaks.  He commented that he disagrees with the
downgrade rating and he thinks the U.S. should receive a “quadruple” A+
rating.  He also sees the next couple of weeks as a buying opportunity. 

Overall we should be beating the market but let me talk about
how we are going to grow our accounts to the end of the year.  I hated
those evil words from a broker “don’t worry!! It will come back!! Sometime?”  It
will come back sometime be we need to be making money with the downward
movement.  I fall in the camp that believes it will be a short term
blip and we will see a rally at the end of the year.  The numbers do not
add up to a double dip recession.  The economy is slowing down but only
the factory orders show recessionary numbers.  Straight down markets
give us opportunity to make money with the insurance on the stock – long
puts.  Look to see more sets of insurance added as stock fall thru
pricing that used to signal a rebound.  As the stock falls through
certain price levels I will continue to add positions that make money in
a bearish, downward moving market.  If the stock is not profitable we
will hold onto the positions to catch the bounce back up whenever that
may happen. If we have a profit in the stock I will be taking the
positions off.  I would expect to see the markets sell off to the full
20% bearish market status.  I would hope to continue to make money and
capture even more of the downward movement down to a full 20% drop in
our market.  At that point or if dictated by the market at an earlier
time, I will look to pick up stock positions again at a cheaper or
“discounted” price.  I do expect to see quite a drop and I look to make
up some of that downward movement again. I will post some examples tomorrow.

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  1. Nice piece. I agree with nearly all your points and actually wrote a blog along very similar lines. It would be great if you took a look and we could discuss this in a bit more detail perhaps.

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