This mornings panic hasn't been too bad considering some the frenzy the media has been whipping up with their "experts predict" crap. Self fullfilling prophecy I reckon. May even see a bit of a bounce today as there are quite a few bargain hunters around and no shortage of bargains for them to target.
My buy order from Friday got filled during the open so quite pleased with that also. Did I pick the bottom, nope, never have but happy to be getting more SSN leading into the most significant drilling in SSNs history. Same rewards at a lower cost, just like post xmas sales really.
Can't be sure how the US markets will react tonight so I make no comment on what to expect in coming days but do have some comments on the macro environment relating to Fitza's original question.
a) US credit rating is nothing more than a symbolic event. Its not like the buyers of US bonds didn't know that the US was borrowing beyond its means and had no plan to balance its books. They didn't care before and as long as there is a plan to keep increasing the debt ceiling (as there now is) then they still don't care because they get paid. If anything they may just get paid a little more now so US bond issuances will be fine for the short to medium term. At least the US can make its payments, unlike a lot of other countries we could mention.
b) The deal struct to increase the debt ceiling involves massive cutbacks in govt spending. Not enough to solve the problem I suggest but certainly enough to rip a $1,000,000,000,000 out of the economy. Taking a trillion dollars in govt spending will actually result in multiples of that being pulled out of the economy as a trillion dollars spent by govt trickles through layers of the economy. This means significant job losses. You can cut trillions in spending without people losing their jobs. Its as simple as that.
c) The US already has a employment problem circa 10% officially and higher unofficially, largely caused by exporting their manufacturing jobs to Asia over the last decade or two. While US employment was already in decline, the spending cuts will make the situation much worse. The only way out is to encourage business to invest (spend) and thus creating jobs. Can't see this offsetting the new job losses, let alone the existing problem so major incentives will be required.
d) US companys can only be competative against cheap imports if the exchange rate artificially makes US imports more expensive. They certainly can't compete on the labour costs. The US dollar is holding up too well so a further round of money printing will be required to deflate the USD. Medium term that is the only chance the US has to tilt the balance away from imports to meet domestic demand. Short of walking away from free trade I don't see what other weapon they have to plug the gaping hole into their dike.
e) Oil demand will not shrink dramatically although short term the speculators will hold fire until they are sure of that. Demand vs supply numbers will drive the price back up although it may take a couple of months for those numbers to filter through. Once it does I expect higher highs for oil.
So what are the implications Fitza ?
- Temporary slump in POO. - General selloff in everything except gold - Slide in price for SSN until closer to defender drill bit getting near depth. - Increase in AUD - Tourism and exporters hammered although many commodities prices will bounce back of start to offset the high AUD
Thats all the obvious stuff. This is my opinion only so be doing a lot more research than just reading this waffle before making any decisions.
SSN Price at posting:
10.0¢ Sentiment: Buy Disclosure: Held
