S&P vs GDP

An analyst pointed out that -

At the risk of provoking a spat - 

There's a gap in demand

Between equities and

The economy, which is still flat. 

High? What High?

Said a really curmudgeonly guy
On the Dow Jones Industrial high:
"It's still quite a ways
From the Internet craze,
When adjusted for core CPI."

S&P's To Blame

A debt crisis once was created
By avarice run unabated,
As the market was flawed
By schemes to defraud
In bonds that were triple-A rated.

Now Justice may fin'lly report
That they're taking the raters to court
For the role of those chaps
In the housing collapse,
In which they provided support.

Is It Just an Expression?

Investors incessantly say:
"Sell in May, and then go away,"
And stock market nerds
Who heeded these words
Are 6% richer today.

Via the FT's Alphaville blog, we learn that May 2012 was a very bad month indeed for US equities:

The Dow Jones Industrial Average had its worst month in two years in May. The index fell 6.2 per cent, the largest decline since dropping 7.9 per cent in May 2010 (Wall Street Journal). Closing down 0.23 per cent at 1,310 on Thursday, the S&P 500 had its worst month since last September (Reuters).

A strict observance of the "Sell in May then go away" rule, executed on the first of the month, would therefore have yielded the best results.

St. Patrick's Day on Wall Street

There's a Blarney old stock market theory
That prices are frothy and cheery
On the eve of St. Pat,
But decline after that,
When Hibernian eyes are still bleary.

St. Patrick's Day is upon us, and all the sons and daughters of the Emerald Isle are thinking the same thing: what does this mean for my portfolio? With this question in mind, I went to seek answers in the Seeking Alpha blog. There, a laddy by the name o' Timothy Wood posted a wee guide to How St. Patrick's Day Can Make You Money in the Stock Market. Evidently, the market rises by an average of 0.34% in the two days before St. Paddy's. Indeed, in the years between 2006 and 2010, stocks rose during each four-day period from March 15 to 18. As if to confirm Mr. Wood's hypothesis, the S&P 500 rose by 0.6% on Thursday to close above 1400 for the first time in four years. Says Mr. Wood: "This peculiar occurrence is attributed to a rise in mood levels as people await the celebratory day, which encourages investment." In that case - Sláinte!

Dr. Goose reminds you to celebrate St. Patrick's Day responsibly... by listening to Marketplace Money this weekend! Your faithful limericker and host Tess Vigeland will recite tax-time limericks for your pleasure and edification. Check your local public radio listings for the time and station, or download the podcast!

Greece: Select Company

Said Standard & Poor's: "It's preferred
You remember your bond is your word;
When changing the payments
You've promised to claimants,
'Selective default' is incurred."

Greece joined a select company indeed when it became the first euro-zone country to be given a default rating. Standard & Poor's cut the country's long-term rating from CC to "selective default," as it had promised to do if Athens amended the terms of its bonds to add collective action clauses. The Greek CAC effectively forces bondholders to accept a bond swap offering. The measure, which was approved by the Greek parliament last week, could potentially forces bondholders to take losses, but up to now the country has not missed any interest payments; hence, the "selective" qualifier. If a majority of bondholders accept the amended bonds, the rating agency has indicated that it will set Greece's rating at CCC.

France Defends Its Credit Rating

Said the Banque de France Gov'nor Noyer,
On the risk to the French "triple-A":
"But ze debts of ze Brits
Are so deep in ze sh£ts,
For comparison's sake, if I may."

French central bank head Christian Noyer may have sparked a war of words with Britain. Responding to S&P's putting his nation on negative credit watch, with the possible loss of its prestigious AAA rating, Mr. Noyer commented:

"A downgrade doesn't seem justified to me when you look at the economic fundamentals, or else a downgrade should come first for the U.K., which has a greater deficit, as much debt, more inflation, and less growth than us, and collapsing credit."

Trying to keep a stiff upper lip, a spokesman for Prime Minister David Cameron's Conservative government noted the credibility of the UK's deficit reduction plan. In truth, the British have nothing to gain by rising to Mr. Noyer's bait, since their public deficit, at 9.4% of GDP, is far above France's 5.8%.

Weekend Worriers

Whenever a bombshell discloses
After Wall Street on Friday night closes,
The market is fraught
All weekend with what
The chance of new highs or new lows is.

Listening to the weekend's feverish speculation as to the market effect of the S&P downgrade of US sovereign debt, one could not help but hark back to the Lehman failure in 2008, when the world waited breathlessly for the Asian markets to open and point to our global economic fate. Early results this time around indicate a sharp sell-off of anything risky, though not necessarily US Treasury bonds themselves, the risk perception of which has not really changed.

Downgrade Dilemma

That the GOP's debt ceiling polity
Viewed a US default with frivolity
So provoked S&P
That investors may flee
To Treasury bonds for the quality.

In a move that surprised no-one, the Standard & Poor's credit rating agency downgraded the debt of the US government to AA+ Friday evening, citing primarily the "weakened...effectiveness, stability and predictability of American policymaking and political institutions at a time of fiscal and economic challenges." Since, as many market analysts pointed out, the move was long overdue, no material market reaction was expected. Indeed, the expectation is that Treasurys will remain the safe haven whenever investors panic, so, to the extent that the downgrade has lowered the general risk tolerance, it may even cause net inflows to Treasury bonds. Let the Asian trading day commence!

Warning to Washington

Said the national raters of credit:
"The Congress appears not to get it;
We may downgrade a notch
While we wait and we watch
To see how out of hand they will let it."

The August 2 deadline, by which the US Congress must raise the federal debt ceiling to avoid defaulting on Treasury bonds and other obligations, is rapidly approaching. However, both Moody's and S&P have now warned that a downgrade of America's sovereign debt rating may come earlier, if the deadline looms closer without an apparently likely political compromise. This of course has alarmed the financial community, which may finally tip the political scales toward reaching a solution.

A Taxing Unwillingness

A peculiar American silliness
Is to claim that our taxes are killing us;
When we glob'ly compare,
We pay less than our share,
So it's not that we can't, but our willingness.  

Standard and Poor's, in putting US Treasuries on negative watch last week, noted that the American public sector takes up a smaller percentage of national income than those of other AAA-rated countries. This suggests that the US has the financial flexibility to raise taxes in order to lower the deficit. That's the good news; the bad news is we haven't mustered the political will (or maturity) to do it.

Hat tip to The Economist's Free Exchange blog.

Ratings Week II

Said the banker: "My friend, It occurs to me
That you seem just like Standard and Poor's to me;
Though your scruples are real,
In pursuit of a deal
You would give up a wee bit of yours to me."

Who Rates the Raters?

"Credit ratings I don't understand,"
Said a moody young man from Jharkhand,
"Their standards are poor,
And conflicted, I'm sure -
And the outcome seems canned, if not planned."