GBR Market Wrap: Will the United States Be Downgraded from the Triple-A Debt Club?

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In this Week’s Issue: July 29, 2011

Weekly Snapshot

• Spot gold touched an all-time peak of $1,632.16 a troy ounce on Friday (Reuters)
• U.S. real GDP grew at an annual rate of 1.3% in the second quarter of 2011 (ESA)
• The Dollar fell to a new record low of 0.7850 against the Swiss Franc (Reuters)
• Eurozone inflation unexpectedly fell to +2.5% in July from +2.7% in June (WSJ)
• Brazil imposed a 1% transaction tax on currency derivatives; Brazilian Real tumbles (FT)
• Australian Dollar surged to a 29 year high against the U.S. Dollar (Reuters)
• Insurance cost against U.S. default rose to a record; CDS trading picks up (FT)
• U.S. durable goods orders in June 2011 decreased 2.1% to $192.0 billion (ESA)
• India’s central bank raised its benchmark interest rate by 0.5% to 8% (Economist)
• Moody’s has cut Greece’s ratings three notches to just one notch above default (AP)
• U.S. home prices were unchanged in May but still down 4.5% from a year earlier (Reuters)
• U.S. consumer confidence improved slightly to 59.5, up from 57.6 in June (Conference Board)

Market Barometers

stock market 2011-07-29

fx-2011-07-29

Weekly Chart

As the negotiations about the U.S. debt ceiling approach their final hours, U.S. treasuries seem to show no reaction to the prospect of a potential downgrade of the highly coveted AAA rating. While the U.S. “still” enjoys being a member of this exclusive triple-A debt club one would think that something has got to give by now.  Hearing phrases like “the clowns in Washington” does not exactly sound encouraging to someone lending money to the U.S. government for 10 years at a meagerly rate of 2.8%. And yet, Treasuries are still being bought perhaps as a way of parking cash for the time being.

Having said that, the flight to safety has taken a slightly different format as well.  Gold, Japanese Yen, Swiss Franc, Singapore Dollar, Australian Dollar, New Zealand Dollar, and a few other currencies have all been at or near all-time records against the U.S. Dollar. In times of uncertainty cash is king. These days however, cash is not limited to the green back.

Countries with AAA Debt Rating

AAA Debt Rating Countries
Source: money.cnn.com

Recommended Read

Notwithstanding its somewhat gloomy tone, give “This Country Defaulted Long Ago” a quick read anyway. While the author is not stingy in terms of assigning blame, one should also consider that demographic trends have been playing a major factor in rendering various government programs economically unviable.  One way or another, economic necessities will at some point determine an increasingly narrower choice of solutions.

Recommended Video

How very refreshing to see a plain talking economist.  Please consider Daniel Gross’ interview with John Tamny.

Good luck and good investing!


Clemens Kownatzki, MBA is an adjunct professor of financial risk management at the Graziadio School of Business and Management, as well as the founder and CEO of FX Investment Strategies, a Registered Investment Advisor. In addition to running his investment advisory firm, he is a contributing author at SeekingAlpha.com and BusinessInsider.com. He also authored the book, Money Music 101, available on Amazon and Kindle, in addition to publishing the popular investment blog www.fxinvestmentstrategies.com along with a weekly newsletter.Disclaimer

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Author of the article
Clemens Kownatzki, MBA
Clemens Kownatzki, MBA
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