The USA Downgrade: Where We Go From Here

By Todd Harrison  AUG 08, 2011 9:20 AM

The most dynamic juncture in history just got more interesting.

 


The news arrived Friday night like a rumor making its way around the halls of a high school. The S&P (Part of McGraw Hill (MHP)) downgraded the United States of America. (Cue Otter!)

When I first explored the validity of this news, the White House vehemently opposed the downgrade, citing "trillions of dollars of inaccuracies," and S&P reportedly backed off their posture.

It wasn't the type of behavior that infused confidence in either institution, although I'm sad to say I wasn't surprised. The ratings agencies (during the sub-prime mortgage mess) and The White House (in recent weeks) haven't exactly been model American citizens.

Of course, we know now it is fait accompli. For the first time in history, the USA isn't the world leader in perceived safety and/or credibility. The question investors the world over are asking is: what now?

A few points of parliamentary procedure, in no particular order:

Bottom Line? I do believe we'll see a rally attempt, although it could begin at lower levels. How you approach that lift, if and when, should be consistent with your personal time horizon and risk profile.

Is that a cop-out? Well, it's not meant to be. I sense those rallies should be sold. The ability not to trade will be as important as trading ability. And if we can collectively navigate the next two to three years -- which, of course, will be a function of whether we're allowed to take our medicine rather than being force-fed drugs -- I foresee a light at the end of the tunnel that isn't affixed to the front of a train.

I continue to believe that the first half of this decade will be about capital preservation and financial survival, and the back five will reward those who remain engaged after the second side of the financial storm arrives.

That might seem like an easy enough plan but take me at my word, it will be anything but. When the time finally comes to close your eyes and buy them, it will -- and should -- feel like the silliest idea in the world.

Good luck today.

R.P.

Twitter: @todd_harrison

No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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