S&P Might “Downgrade” US Debt – What’s It to You?

NEW YORK (Reuters) – Standard & Poor’s on Monday downgraded its credit outlook for the United States, citing a risk that policymakers may not reach agreement on a plan to slash the huge federal budget deficit.

Read More HERE: Yahoo Finance

Not that the country completely trusts the ratings agencies (remember bank and mortgage bond ratings fiascos?) but for some reason they still carry weight when they make ratings calls. Interesting point though – the stock market is only down 1.5% which even though the newsrooms are calling this a “plunge” and such, is really not that big.

Some points to think about:

1. stock market is down only a bit considering this is the “unthinkable” – downgrading US debt. The slight move down, considering the news, tells me many people would rather be in stocks. If the debt drops, and the dollar drops, why sell stocks and move to cash? perhaps investors prefer owning a diversified international company that earns profits and in multiple currencies and pays dividends from those earnings?

2. Gold stocks were slightly down in the AM – folks, these were just the weak hands looking for a reason to sell. A weak dollar is not bad news for gold – I’m writing this about noon and I’m seeing a couple of major mining stocks (including one our clients own) turn positive for the day.

3. We may see a move to other currencies speed up – businesses, investors, central banks, in addition to gold, may push the Swiss Franc, Norwegian Krona, Singapore Dollar and Canadian Dollar even higher.

We live in interesting times – keep your eyes open as this could get “exciting” over the next few months. Remember, the ‘flash crash’ happened around this time last year, and the “sell in May and go away” people are likely getting itchy again.

Conclusion: One needs to be able to hold two contradictory ideas simultaneously in his head. For investing, for example, one must have conviction about an idea, but also be willing to change your mind if the paradigms shift.

Does that make sense? What do you think about holding two contradictory ideas at the same time? Do you feel this way?