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The Economy Has Imploded and We’re All Going To Die… (Not Really)

The End Of The World:

OK, not really. A top credit rating agency, Standard and Poor’s (S&P), has downgraded the U.S. as borrowers from the top rating of AAA to AA+. Yep, the same ones that gave AAA ratings to banks that sold garbage mortgage-backed securities that led to the last recession (Don’t trust me? Hear it straight from Matt Damon). So what does this mean for us? Should we be stuffing cash in our mattresses and learn to speak Chinese?

Don’t cash out your 401K for kindling just yet. Warren Buffett, this pretty smart businessman, thinks the downgrade doesn’t make sense. Of the $47 billion his company, Berkshire Hathaway (BRK-B), has in cash and cash equivalents, $40 billion of that is in short term Treasury bills that he has no plans to sell. “Think about it. The U.S., to my knowledge owes no money in currency other than the U.S. dollar, which it can print at will. Now if you’re talking about inflation, that’s a different question.”


So America’s still good for every dollar it’s lent, but what happens if we have to print money at a faster rate to continue to pay our debts? That’s where the problem of inflation comes in. Chris Baines, writer for The Motley Fool, agrees with Buffett that the U.S. can’t default, but worries that if the credit market sees inflation coming, they can demand much higher interest rates. America is having a hard enough time balancing the budget as it is, without raised interest rates factored in. So while this downgrade to our credit rating makes a nice headline and we all agree inflation could become an issue in the future, the real story is how investors are actually reacting.

They’re freaking out. The long term Treasury bond ETF (TLT) is up almost 3% today while the S&P 500 is down almost 5%. So while S&P is saying there is a slight chance America could default on its loans, investors are taking their money out of stocks and putting them into long term treasuries? When the market loses its mind, it is an opportunity for us nerd investors to take advantage. Our favorite stocks are going on sale!

If you’ve been thinking about getting into the stock market, you might want to start taking a look at some of the really big, strong companies (blue chips) to invest in. What are you looking at? Thinking about making a first trade? Are you buying today or taking a wait-and-see approach?

Twitter @jontrainor

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11 comments

  • Believe in Shakespeare believe in podcasts on handhelds they work! It’s technology it works and people make financial mistakes they are human but all the world is a stage and we are all actors upon it invest in yourself and share. If bill gates and Melinda would just realize the market for podcasts and kids they would have a trillion. It’s a friggin comic strip. It works. And it has for years a picture is worth a thousand words and more in USA dollars. The nerdist colony as techno geeks shall inherit galts gulch which basically is the earth. It’s wisdom not experience or education. Believe in yourself invest in yourself and share. Applied technologies medical technology 75/25 podcast here. Put some money where your mouth is. Have faith watch the market past five years says Buy Now medical technologies its at the peak of five years growth. Research ok . I believe in you. Good work. Thanks.

  • Bitcoin. I’ll say that again BITCOIN! Jon, if you haven’t covered this, please do! I did a search of this site for the topic and didn’t see anything, so I’m calling that due diligence.

    Anyone can find a general overview of the precepts for themselves, but I would be delighted to see the subject presented here, among nerds. And If you do cover it, I’d be so pleased if some detail could be given to the algorithmic side of Bitcoin. Perhaps as a followup. I just don’t have the nerd chops to understand that stuff, you could do the heavy lifting for us!

    I’m going to pester you till you do it!!!!

    BITCOIN!

  • Sounds trite, but I’m staying the course. House is paid off, I carry no credit card debt, no car loans, heavier in mid-term bond funds than experts say I should be, have stayed mostly in total market index or value funds, will maybe tweak my allocation but will keep the monthly investing going to buy on the way down rather than try and time it. Nerve-wracking at times.

  • At this point, we could use some more inflation expectation. The yield curve and TIPS breakeven spreads are contracting because the market is drawing less from Austrian, Keynes, or Friedman, and more from Fisher. Paying down household debt, and fiscal “responsibility” seem to be the major economic movers for the next few years. Let’s just hope that China’s GDP at 50% fixed investment spending is A-Ok.

    I am finding a handful of businesses that offer decent returns at manageable risks, but this kind of market can fool you with melting valuation metric denominators.

  • Started a portfolio in 2009, big winners so far are Philip Morris (PM), Yum! Brands (YUM), and Intel (INTC). PM is pretty evil but got it cheap, has steady growth, pays good dividends, and nicotine is addictive.

  • I find it very interesting that the countries left with the AAA rating all have Universal Health Care. Come on America, get to it!

    It does seem a good time to invest if you have money and balls, both of which I have neither.

  • Weird article.

    More pointedly – One of the reasons the economy is struggling is because guys like that – and banks and corporations to boot – have dozens of billions of dollars in cash just sitting around. I know there’s risk, but it’s not doing anybody any good.