Tuesday, 19 July, 2011

Egan Jones cuts US credit rating - Source: Bloomberg

Egan Jones cuts US credit rating - Source: Bloomberg

Lots of doomsayers have been crying wolf.

Finally, a credit rating agency has actually cut the US Ratings. Read on for details:

It is interesting to note that Egan Jones was the first agency that forecast the 2008 financial collapse and, more recently, placed USA on credit watch (if I'm not mistaken from March 1, 2011), well before S & P and Moodys followed suit.

Wonder when (not whether) the other major credit rating agencies are going to actually downgrade the AAA rating for USA???

Watch out! The fun and games are just beginning.

If the Republicans & Democrats agree on increasing the statutory debt limit and US Printing presses go to work and lots of dollars are pumped into the global economy (to buy Greek bonds, for instance), perhaps there will be an artificial sense of security. This will result in a huge boost to the stock markets, especially in fast growing parts of the world like Brazil and India. Result could be a new all-time high for our very own Nifty and Sensex.

Alternatively, if S & P and Moodys also quickly downgrade USA and if the European mess is not quickly resolved to bail out Greece, Portugal, Italy, etc., it is almost a certainty that all hell will break loose. And the sub-prime crisis of 2007-08 will look like a walk in the park. Result: All bets are off, and Nifty, Sensex can reach ridiculously low levels. I can't even begin to hazard a guess at the levels to which the indices can fall in such a scenario.

Unfortunately, I'm a bit of a realist and am afraid that the pessimistic option given above looks increasingly likely.

Regards,

N


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