Daily Market Commentary for August 8, 2011

Investors have moved to the sidelines. (read more at Millennium-Traders.Com) http://www.millennium-traders.com/ne...ommentary.aspx

Early afternoon, President Obama addressed the air-waves with comments such as The United States "will always be a triple-A country." Additional comments from the President consisted of: The U.S. should make adjustments to Medicare and wealthier individuals should pay 'their fair share' to help close the U.S. budget deficit, Obama suggested. The President also urged Congress to extend a payroll tax cut and prolong extended unemployment benefits to help grow the economy. The President also added that, 'U.S. fiscal problems eminently solvable'.

Comments on Sunday regarding the downgrade from Treasury Secretary Timothy Geithner criticized Standard & Poor's for downgrading its U.S. credit rating to AA+ from AAA and feels the decision showed 'terrible judgment' and 'a stunning lack of knowledge' of U.S. budget policy.

Gold for December delivery soared higher by $61.40 to settle at $1713.20 an ounce. Crude-oil futures for September deliver fell $5.62 or 6.7%, to trade at $81.20 a barrel on the New York Mercantile Exchange. Volatility surged today amidst the slide on Wall Street.

S&P downgraded the credit of Fannie Mae and Freddie Mac to 'AA'. S&P also downgraded credit ratings and ratings on senior debt issued by 10 of the 12 Federal Home Loan Banks to 'AA+' from 'AAA'. The government-backed entities had been under review since July 15. In addition, senior debt issued by the Federal Farm Credit Banks has been lowered to 'AA+' from 'AAA'. S&P likewise downgraded the rating on 126 Federal Deposit Insurance Corp. backed issues from 30 financial institutions to 'AA+' from 'AAA'.

Treasury prices rose on Monday, pushing 10-year yields down the most seen since June 2010, as investors pulled funds out of stocks and most commodities and sought the liquidity and safe-haven status of the U.S. debt market after the country’s credit rating was downgraded. Yields on the benchmark 10-year notes fell 18 basis points to 2.38%, after initially rising to nearly 2.59% in Asian trading hours. Benchmark securities’s yield briefly fell last week to 2.33%. Yields on 2-year notes fell 5 basis points to 0.24% and briefly fell just to 0.22%, which is a new record low and notably, below the top of the Federal Reserve’s target interest rate range. Thirty-year bond yields declined 14 basis points to 3.71%. The U.S. Treasury debt is still considered the safest in the world and the world will continue to flock to bonds to keep their assets secure. On a positive note, there should not be much to worry about with interest rates on mortgage and consumer loans.

What will the downgrade mean for Main Street America? Interest costs are likely to increase for the man - Uncle Sam. The trickle down theory could cause interest rates to eventually creep higher because a credit-rating downgrade drives up the costs of borrowing. Due to the fact that credit-card rates follow prime rate, the Federal Reserve has given us no reason to think those are going to change anytime soon.


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