How To Profit From Market Fear Forbes

By Gregg S. Fisher

After a weekend of nail-biting following the announcement late Friday that Standard & Poor’s had downgraded US government debt from AAA to AA+, investors’ fears of a Monday selloff in the equity markets were realized on August 8th: first in Asia, then Europe, and finally the US, where the Dow shed more than 600 points. While a psychological and symbolic blow to our nation, and clearly a near-term catalyst for significant market volatility, the lasting implications of the downgrade are far from clear. First, S&P is but one of three major rating agencies: both Moody’s and Fitch have reaffirmed their AAA rating for Treasuries. Next, the ratings shock should serve as a loud wake-up call for policymakers in Washington—one that hopefully will help inspire a more coherent long-term strategy to cut the structural budget deficit through spending cuts and revenue increases. Finally, we would argue that the downgrade itself is not the crisis at hand; rather, it is one manifestation—of which there will likely be others—of a crisis that has been underway for some time.

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