When we mentioned that the market would be volatile last week, we didn’t know that Standard and Poor’s would downgrade US Treasuries late Friday night. The downgrade is having a ripple effect across global equity markets today. What is interesting is the yield on US Treasury Bonds has fallen dramatically today. That is the complete opposite of what one would expect after a downgrade. What normally happens is that yields shoot up. The drop in yields is setting the stage for an economic recovery a few months down the road.

I received a call from a client today and was asked, “Do you see anything good out there?” My response was something along the lines of “right now, not much.” But, we are encouraged by the bond market rally, the drop in oil prices and the drop in commodities (except gold). This is exactly what happened in late 2008, early 2009. If oil prices and commodity prices fall, the price paid for goods and services will fall and consumers will have more money to spend. With interest rates dropping, the cost of borrowing will fall. Anyone with a mortgage should refinance now (if you need assistance, please call us). Refinancing will either lower payments or reduce the time to pay off your house, both good for the consumer.

Another silver lining from the downgrade is that it will force our government to confront the debt in a more meaningful way. However, we think that with the economy wavering, the government should take the opposite approach of the typical playbook and cut spending first, and then raise taxes. Even the most recent cuts occur years into the future with no assurances that a future Congress wouldn’t reinstate the spending. The government needs to cut spending in a more meaningful way including the level of compensation for federal workers. (See video below)

If you have facts or figures that dispute the video, please forward them on to us. We are only interested in the truth.

Sincerely,

Your THOR Team