Waiting for tomorrow.

About 27 months ago, Election results announced on Saturday gave a victory to the UPA coaltion. This was market friendly news, therefore the markets were expected to gap much higher on Monday, which they did – higher than assumed.

Now, Saturday morning IST, the S&P ratings cut was announced with all markets closed for the weekend. The first reactions will be at monday morning in Asia when the markets open in Japan, around 6.30 AM IST.

For Investors: remember, you are in for the long term. Short term volatility must be accepted as part of investing. Do not panic. If you have spare cash, then go for something like an SIP – systematic investment plan in which you invest a fixed percentage when markets go down by say 10%, or in which you invest a fixed percentage every month.

For Traders: increased volatility can result in bad decisions. try not to trade for a day or two. If you have positions, then you have to manage them. Do not feel depressed if the positions turn unfavorable. This is part of trading.

Downgrade: Storm in a tea cup?

The S&P downgrade of the USA to AA+ may well be like the Y2K scare in the year 1999. Remember Y2K? The world was going to end because there was tons of legacy code that couldn’t accommodate the rollover to the new century. As we now know, January 1, 2000 came in without major incident.

It isn’t yet clear what the impact of the S&P downgrade of the US to AA+ will have. There are good reasons to believe, despite the media hyperventilating, that it won’t add up to much.

Many economists and bloggers have reminded us that the S&P was the same agency which was giving top ratings to securities just before the sub prime crisis in the USA. It is a private company, managed for profit. They have about 100 analysts analyzing 136 countries – a lot of responsibility, for an organization that failed to recognize the collapse of the sub prime market.

My Point:
While initial market reaction could easily be volatile, I do not believe that this action will have any impact that lasts for more than a few days. What will happen is different: there will be a world wide debate on the power of private companies who virtually control the world through their manipulative actions. Since this time, the U.S. govt will be on the opposite side, I assume that the end result will be efforts to curb such power.

Impact on Markets:
Volatile markets are not good places to trade. Have patience. In the enxt few days, I expect a short term low to be in place. This could lead to a tradeable rally. My view remains that we should eventually see a correction to the 4300 – 3800 zone, but that will take its own time.