S&P Closes Down 6.66%
Mark of the Beastly Bottom?
As many of you know, the S&P 500 reached a decade low in March 2009 at the infamous level of none other than 666. Of course, we now know that the “mark of the beast” defined the level at which maximum fear was priced into the market. So, with the S&P down today 6.66% it will be very interesting to see if this, once again, becomes a floor our hellish markets rebound from. Of course, I make no predictions based on such numerological speculations; however, if the market rallies definitively off today’s lows, I am sure it will fit quite nicely along other so called technical indicators like the Hindenburg Omen, Death Cross, Three Black Crows, or the Abandoned Baby (no kidding, look it up). I, for one, would cast my vote for Satan’s Support or Mark of the Beastly Bottom.
In all seriousness, the market’s huge sell-off today—the Dow was also down a whopping 634 points—is being widely attributed to the symbolic decision by the major credit ratings agency, Standard & Poor’s, to downgrade U.S. debt from its highly revered AAA status down to AA+, a reflection that the risk of default has increased by a very small amount.
In response to this decision, Alan Greenspan decided to capture headlines by saying that there is “zero probability of default” since the U.S. “can always print money”. To me, this is extremely alarming that the previous Federal Reserve chairman would openly admit such a thing since this still amounts to default in real terms, as Vitaliy Katnelson explains very well in his latest piece, “We Are Not AAA”:
The chance the US will default on its debt in a traditional sense is zero. Yes, zero. All of our obligations are in US dollars. Governments that can print their own currencies don’t go through traditional default, they default through the printing press (i.e., by inflation). It will take a few more dollars to buy bread, vodka, potatoes, and cigarettes (I am going authentic here) year after year. The US government will honor its obligations in nominal terms (ignoring inflation), meanwhile defaulting on its debt in real terms (adjusted for inflation).
Of course, our creditors aren’t stupid and are clearly aware of this fact. For the time being though, they’re stuck with US Treasuries and the US dollar for the foreseeable future. Unfortunately, the events going on in Europe only seem to solidify this fact given that any contingency plan for a separate world reserve currency (or basket of currencies) involving the euro is not looking all that favorable.