S&P on US Debt: Watch the Markets, not the News

OK, by now everyone who is paying the slightest bit of attention knows that S&P put the US on negative credit outlook Monday, the ostensible first step toward a rating downgrade. There was much noise coming from the cable news talking heads, blogosphere, and other pundits everywhere. The signal came from the markets: The US Dollar index jumped and 10 year Treasury yield futures fell. Not the sort of reaction we would expect to see for a nation that was really in trouble.

Unless you are inclined to believe in some kind of grand conspiracy, in which case no financial analysis can be helpful, tune out the noise and watch what the market is signaling. US debt is still the world’s standard, and any situation in which it is not is almost unthinkable – we’ll have much bigger issues to deal with than day to day management of our portfolios. The current issue of Bloomberg Business Week has an op-ed which says political grandstanding over the debt ceiling is worse than playing with fire. They are spot on. There is a lot of irresponsible talk, much of it coming out of Washington. Keep your wits about you and watch the markets.

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