Market Update: Stocks Crushed on Downgrade, Recession Fears

Stocks were crushed Monday on S&P’s downgrade, fears of debt issues in Europe, and concerns that a double-dip recession could become a self-fulfilling prophecy if investors and consumers can’t shake the gloom and doom.

Commodities also fell, except for gold. The financial sector was clobbered as the increasing flat yield curve will put pressure on their borrow short, lend long activities. Master limited partnerships, levered closed end funds and business development companies have also suffered during this rate shift. After today, every sector of the S&P 500 index is showing a loss. A few thoughts: 

The S&P 500 has fallen roughly 16% in the last eleven sessions, which matches the drawdown from last summer’s pullback

Look to the U.S. to do one of three things (or a combination thereof): let the dollar decline to stimulate exports (reducing the drag on GDP from the trade deficit could add millions of jobs); give tax breaks for corporations to invest and hire in the U.S. (perhaps coupled with a modest tax hike for rich folks); or some sort of QE III program. Note that the first and third option involves printing money.

President Obama’s silence has been deafening.  Political wonks dream about making their mark during a crisis.  Mr. Obama, it’s time for your close-up!

It should be noted that the depth and breadth of the U.S. economy is without precedence. The markets will eventually find some footing, so it’s best to start developing a go-to “buy list” now.

Also, it should be noted that while everyone is busy selling, Warren Buffett is busy buying; in this case, Berkshire just offered $52 a share for Transatlantic Holdings. Similarly, Mr. Buffett invested $5 billion in Goldman Sachs in late 2008, a position that has thus far generated $3.8 billion in profits. Buying low and selling high really works.

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