S&P Voted Its Conscious

Past performance is not indicative of future results. What’s true for mutual fund managers is true for S&P. Paul Krugman misses this point about the S&P downgrade in his Op-Ed piece Credibility, Chutzpah, and Debt.

With the downgrade, S&P has called America’s political girlfriend ugly. It’s about time. I don’t think this is about finances, debt, nor the creditworthiness of the US. It’s about the breakdown in our political system. No one but the S&P has called them on their audacity and in reading their remarks, you get the feeling that Washington is in a state of incredulity.

After the President spoke today the market voted — it sold off further. Worse, it closed at the lows for the day. It’s normally bearish when the DJIA closes at the lows of a day that’s down 100 points. The magnitude becomes exponential when you close at the lows of the day where the DJIA is off 634 and the S&P 500 is off 80…

That is a mandate: Americans want our political climate to change.

And since the markets closed at their lows today, and that the downgrade is not about debt, there is more downside in the market to come. No one has been in this place before and no one can handicap the level of uncertainty due to the breakdown in politics.

What Mr. Krugman misses is that the stock market is saying that neither the President, the House, nor the Senate has any credibility anymore and no one believes them. Both political parties are to blame for S&P’s recent stance and Americans are tired of the jawboning. I know I am.

As far as I’m concerned, S&P could have blown their last 9 calls in a row. They got this one right.

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