What S&P Did.

[Beet]

Neither the fundamentals, nor what people know about the fundamentals, changed on Aug. 5, 2011. However, the behavior of one very important institution did.



Thursday, August 4. The Dow is down 512 points, but the 30 year Treasury yield falls by 0.25 percentage points, providing a countervailing stimulus or 'silver lining' to the economy, as it usually does when stocks fall.

OK. So very roughly, 512 Dow points = 0.25 Treasury yield percentage points.

-------------------------------------------------------

Friday, August 5. Markets are flat, but rumors begin to percolate that an S&P downgrade of US debt is in the offing. Yields, on the 30 year Treasury surge by about 0.2%. As if the Dow had rallied back by ~400 points.

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Monday, August 8. Dow futures are down 250 points, or about 2.5%. If the 30 year treasury market had behaved like it did on Thursday, 30 year yields would be down about 0.125 Treasury points. Instead, they were up 0.05% to 3.9%.



Thus the total immediate impact of S&P decision amounts to 0.2 points (Fri) + 0.125 (exp. Mon) + 0.05 (act. Mon) = 0.33%.

S&P's has just raised mortgage borrowing costs for Americans by an average of 0.33%, all else equal. In other words, a single institution has just lowered the income of millions of Americans by an average of about $32 per month, according to monthly payments on a 30 year fixed from 4.5% to 4.83%.

Make note of it, because it's a very rare thing. Usually when "big players" (including the government) move markets, it's by deploying money or promising to. This is an example of how a single player can move the market solely by deploying its institutional influence in human society, the assigned place that it is allowed to stand in the Cathedral.

[J. J.]

The market did that, in part because the government was not willing to make hard choices.  S & P was just reacting.

[Beet]

The market did that, in part because the government was not willing to make hard choices.  S & P was just reacting.

Good lord man, gov't policy has been playing out for years. I'm specifically measuring what happened over a day and a half. I know you're a hack, but stop making a fool of yourself.

[J. J.]

The market did that, in part because the government was not willing to make hard choices.  S & P was just reacting.

Good lord man, gov't policy has been playing out for years. I'm specifically measuring what happened over a day and a half. I know you're a hack, but stop making a fool of yourself.

That is like saying a guy slowly bleeding to death died because on a pinprick.

This has been a long time in coming, but there were ways to avoid it, even until a few weeks ago.  This is the price being paid for the folly.

[Beet]

The market did that, in part because the government was not willing to make hard choices.  S & P was just reacting.

Good lord man, gov't policy has been playing out for years. I'm specifically measuring what happened over a day and a half. I know you're a hack, but stop making a fool of yourself.

That is like saying a guy slowly bleeding to death died because on a pinprick.

This has been a long time in coming, but there were ways to avoid it, even until a few weeks ago.  This is the price being paid for the folly.

But this is not about the patient dying, this is about the patient losing a very specific amount of blood, a rough quantification of which is the point of this post.

[J. J.]

The market did that, in part because the government was not willing to make hard choices.  S & P was just reacting.

Good lord man, gov't policy has been playing out for years. I'm specifically measuring what happened over a day and a half. I know you're a hack, but stop making a fool of yourself.

That is like saying a guy slowly bleeding to death died because on a pinprick.

This has been a long time in coming, but there were ways to avoid it, even until a few weeks ago.  This is the price being paid for the folly.

But this is not about the patient dying, this is about the patient losing a very specific amount of blood, a rough quantification of which is the point of this post.

He's not losing it from that wound, however.

[Beet]

The market did that, in part because the government was not willing to make hard choices.  S & P was just reacting.

Good lord man, gov't policy has been playing out for years. I'm specifically measuring what happened over a day and a half. I know you're a hack, but stop making a fool of yourself.

That is like saying a guy slowly bleeding to death died because on a pinprick.

This has been a long time in coming, but there were ways to avoid it, even until a few weeks ago.  This is the price being paid for the folly.

But this is not about the patient dying, this is about the patient losing a very specific amount of blood, a rough quantification of which is the point of this post.

He's not losing it from that wound, however.

Yes he is.

[J. J.]

The market did that, in part because the government was not willing to make hard choices.  S & P was just reacting.

Good lord man, gov't policy has been playing out for years. I'm specifically measuring what happened over a day and a half. I know you're a hack, but stop making a fool of yourself.

That is like saying a guy slowly bleeding to death died because on a pinprick.

This has been a long time in coming, but there were ways to avoid it, even until a few weeks ago.  This is the price being paid for the folly.

But this is not about the patient dying, this is about the patient losing a very specific amount of blood, a rough quantification of which is the point of this post.

He's not losing it from that wound, however.

Yes he is.

This is exactly the kind of thinking that got us into this mess, not looking at the underlying problem.

[Beet]

The market did that, in part because the government was not willing to make hard choices.  S & P was just reacting.

Good lord man, gov't policy has been playing out for years. I'm specifically measuring what happened over a day and a half. I know you're a hack, but stop making a fool of yourself.

That is like saying a guy slowly bleeding to death died because on a pinprick.

This has been a long time in coming, but there were ways to avoid it, even until a few weeks ago.  This is the price being paid for the folly.

But this is not about the patient dying, this is about the patient losing a very specific amount of blood, a rough quantification of which is the point of this post.

He's not losing it from that wound, however.

Yes he is.

This is exactly the kind of thinking that got us into this mess, not looking at the underlying problem.

I do look at the underlying problem, just not in this thread.

[BigSkyBob]

The reality is that rating that really counts is foreign nations wanting to stockpile our paper as a "reserve currency." That is the downgrade that will really hurt. The reality is that this downgrade has been progressing for some time. For example, OPEC started to move away from pegging oil prices in dollars, and the Chinese are publicly calling for finding another reserve currency.

The reason they are pursing other option is the steady decline in the value of the dollar. You simply can't blame the Tea Party for that one because the dollar's slide started well before Rick Santelli's famous rant.

[Torie]

Interesting analysis, but too few data points, to allow one to assume that the equities prices are perfectly negatively correlated with bond prices over this period, with a constant "slope" as it were. A better measure would be the spread between Treasuries and government bonds in countries that are still AAA.

[Paul Kemp]

J.J lol

[J. J.]

The market did that, in part because the government was not willing to make hard choices.  S & P was just reacting.

Good lord man, gov't policy has been playing out for years. I'm specifically measuring what happened over a day and a half. I know you're a hack, but stop making a fool of yourself.

That is like saying a guy slowly bleeding to death died because on a pinprick.

This has been a long time in coming, but there were ways to avoid it, even until a few weeks ago.  This is the price being paid for the folly.

But this is not about the patient dying, this is about the patient losing a very specific amount of blood, a rough quantification of which is the point of this post.

He's not losing it from that wound, however.

Yes he is.

This is exactly the kind of thinking that got us into this mess, not looking at the underlying problem.

I do look at the underlying problem, just not in this thread.

This wound was not S & P, and Moody was also dropping hints today.    It is basically the market saying lower spending and raise revenue.

[The Professor]

J.J. you are on track to fail Atlas Forum Economics when report cards come out. You are also failing Girls 101. Beet, you are on track to get an A in Economics.

[Beet]

The market did that, in part because the government was not willing to make hard choices.  S & P was just reacting.

Good lord man, gov't policy has been playing out for years. I'm specifically measuring what happened over a day and a half. I know you're a hack, but stop making a fool of yourself.

That is like saying a guy slowly bleeding to death died because on a pinprick.

This has been a long time in coming, but there were ways to avoid it, even until a few weeks ago.  This is the price being paid for the folly.

But this is not about the patient dying, this is about the patient losing a very specific amount of blood, a rough quantification of which is the point of this post.

He's not losing it from that wound, however.

Yes he is.

This is exactly the kind of thinking that got us into this mess, not looking at the underlying problem.

I do look at the underlying problem, just not in this thread.

This wound was not S & P, and Moody was also dropping hints today.    It is basically the market saying lower spending and raise revenue.

Because that worked great for George Papandreou.

You must be logged in to read this quote.

Since this analysis covers a downmove followed by an upmove along the same portion of the yield curve, it is not really affected by convexity or concavity.

[J. J.]

J.J. you are on track to fail Atlas Forum Economics when report cards come out. You are also failing Girls 101. Beet, you are on track to get an A in Economics.

You saw what the market did before and after S and P.  And if you were in it, you can no longer afford girls or college courses.  

[J. J.]

The market did that, in part because the government was not willing to make hard choices.  S & P was just reacting.

Good lord man, gov't policy has been playing out for years. I'm specifically measuring what happened over a day and a half. I know you're a hack, but stop making a fool of yourself.

That is like saying a guy slowly bleeding to death died because on a pinprick.

This has been a long time in coming, but there were ways to avoid it, even until a few weeks ago.  This is the price being paid for the folly.

But this is not about the patient dying, this is about the patient losing a very specific amount of blood, a rough quantification of which is the point of this post.

He's not losing it from that wound, however.

Yes he is.

This is exactly the kind of thinking that got us into this mess, not looking at the underlying problem.

I do look at the underlying problem, just not in this thread.

This wound was not S & P, and Moody was also dropping hints today.    It is basically the market saying lower spending and raise revenue.

Because that worked great for George Papandreou.

Because he could get the political support for it.  It is not popular, but it is necessary.

[Beet]

I rest my case.

[J. J.]

I rest my case.

You case is that we turn into Greece?

[Swing low, sweet chariot. Comin' for to carry me home.]

unless the U.S. runs out of ink and paper, I have no idea how U.S. debt, owed in U.S. currency, can be anything other than AAA.

[Sbane]

unless the U.S. runs out of ink and paper, I have no idea how U.S. debt, owed in U.S. currency, can be anything other than AAA.

Which would lead to inflation, which our creditors won't like very much.

[Swing low, sweet chariot. Comin' for to carry me home.]

unless the U.S. runs out of ink and paper, I have no idea how U.S. debt, owed in U.S. currency, can be anything other than AAA.

Which would lead to inflation, which our creditors won't like very much.

doesnt matter in terms of credit rating...all the debt is is a promise to pay in US dollars...it's the dollar's stability that is really in question, but questioning the rating of US debt owed in US dollars is really dumb

[King]

unless the U.S. runs out of ink and paper, I have no idea how U.S. debt, owed in U.S. currency, can be anything other than AAA.

Which would lead to inflation, which our creditors won't like very much.

doesnt matter in terms of credit rating...all the debt is is a promise to pay in US dollars...it's the dollar's stability that is really in question, but questioning the rating of US debt owed in US dollars is really dumb

Of course not.  S&P/Moody's are more political systems than financial institutions.  Why do you think they gave the ratings they did on all those bad mortgage deals in the 2000s?

If the United States is not AAA, then there are no AAAs in the world as 99% of business flows through this country and every country suffers from a bad US rating.   This decision will likely hurt S&P as banks, who have imposed AAA bond requirements for capital, will chose to follow Moody's reports from now on so they don't have to restructure.

Movements on DJIA today only serve to pull bad investors out of the market who are swayed by amateur non-news like the bond rating.

[J. J.]

Anyone know how well Microsoft bonds did today?

[King]

Anyone know how well Microsoft bonds did today?

Better yet, perhaps we should all start mining for bitcoins just in case.