Downgrade!

Fitch kicked the USG in the goolies, roiling the markets. [The Rude Awakening] August 03, 2023 [WEBSITE]( | [UNSUBSCRIBE]( Downgrade! - Fitch - the rating agency everyone usually ignores - downgraded the US to AA+. - This move doesn’t affect bank collateral, thank heavens. - But the downgrade threw cold water on a great rally. [Shocking U.S. Map Exposes $1.2T Opportunity]( [Click here to learn more]( Exactly 2,935 miles away from Wall Street lies [the biggest profit opportunity]( of your lifetime. A little-known opportunity which is creating an average of $32.8 BILLION in new wealth EVERY SINGLE DAY… That’s $1.2 trillion per year… And if you act fast, you have the chance to get in on the action starting right away. Hurry, though – this video will be removed from the internet on Friday at 4PM. [Click here now for details](. [Click Here To Learn More]( [Sean Ring] SEAN RING Good morning from gorgeous Northern Italy. It’s Thursday, and it’s time to wind down the week. But there’s been a wrench thrown in the works, courtesy of Fitch Ratings. If you haven’t heard of Fitch, that’s fine. They’re the red-headed stepchild of the rating agencies. Banking professionals only care about S&P and Moody’s. They only pay those two for their bond ratings. It’s always “S&P, Moody’s, and Fitch” or “Moody’s, S&P, and Fitch.” Fitch always comes last. And that’s why this is a stroke of marketing genius. After all, S&P downgraded US debt way back in 2011, when the current Vegetable-In-Chief was a distant “second-in-command” to the then-worst President ever to disgrace the Oval Office. Fitch did nothing at the time. Moody’s still considers US debt AAA, despite everything. But that’s what happens when [“Never Bet Against America” Warren Buffett is your biggest shareholder (13.44% of the shares outstanding)](. Now, everyone’s heard of Fitch. And I do hope they enjoy their fifteen minutes. Because even Cynical Seanie thinks this market move is but a blip in the grand scheme of things. And no, I don’t think the USG will magically reconsider their stupid spending plans or that the deficit will disappear anytime soon. I just don’t think rating agencies start reckonings. Let’s review what’s happened and see what may happen. What Are Credit Ratings? Credit rating agencies are trying to ascertain an investment's credit risk. Credit risk, or counterparty risk, is the risk that a borrower or issuer of debt instruments (such as bonds) will fail to meet its contractual obligations by defaulting on interest or principal payments. Rating agencies assign letters to help bond investors understand their bonds' credit risk. Here’s a table of the three rating agencies, their lettering, and their definitions. [SJN] Everything above the thick black line, BBB- or Baa3 and up, is considered investment-grade debt. Everything below that is high-yield debt, more commonly known as junk bonds. To be sure, only some people care about credit ratings. Traders, for instance, now have CDS spreads to look at. CDSs, or credit default swaps, can be considered “bond insurance.” The CDS spread - prices of CDSs are called “spreads” - is typically quoted in basis points (bps) and represents an annualized percentage of the notional amount. CDS spreads are the one number traders look at to assess default risk. But for fund managers and retail investors, credit ratings matter. Fund managers cannot put any bonds in their portfolios that don’t reflect the risk they can take. So if there’s a downgrade, fund managers managing an A+ bond fund are forced to sell the downgraded bonds and buy other A+ bonds. Ratings also matter to banks and their collateral, thanks to the ineffective Basel regulations. But luckily for them, a US downgrade from AAA to AA+ doesn’t affect their balance sheet standing. (For lower-rated bonds, banks have to hold much more in reserve.) So why now? Why did Fitch feel the time was right? Because it’s August, traders are on holiday. Volume is usually way down. So if you’re going to make a big move, now’s the time - if you want everyone’s attention. As I said, it’s a great marketing play. Everyone has Fitch on their lips for the first time in… forever. [White House insider exposes epic Biden mistake]( [Click here to learn more]( Thanks to the incompetence of President Joe Biden… [And the HUGE mistake he made on February 24, 2022]( And an unthinkable event has now happened… Bringing in hyperinflation like we’ve never seen… Crushing the value of the money in your savings and retirement accounts… Tanking our economy… And changing our country’s global standing forever. But there’s still time to protect your money. But you can’t wait. [>>See Biden’s terrible mistake here<<]( [Click Here To Learn More]( The Market’s Reaction My friend and colleague Greg Guenther wrote in last night’s [The Trading Desk]( Fitch downgraded the US debt rating overnight to AA+ from AAA... and now the financial media is telling us this is why the market is down today. I'm not sure why we're supposed to believe there's any connection, especially since the dollar isn't budging. But I suppose these folks have to fill their pages with something other than advertisements, so they have to write these ridiculous articles about the debt ceiling and credit ratings and pretend like it all matters. Meanwhile, stocks are likely down today because the market was getting a little too frothy. We began August trade with a mixed bag following a red-hot July. And the entire market is lower by a wide margin. The S&P is down about 1.25%, while the Nasdaq is lower by over 2%... I have one big question on my mind this week as we consider this market action: Will we see a broader move lower that will culminate in an actual pullback of 5% or more, with most stocks and sectors moving lower? Or... Will recent winners (semis, megacaps, tech-growth) drop sharply, while buyers immediately rotate into other stocks and sectors? Hammer, meet nailhead. But the downgrade provided ample cover for those who wanted to take profit anyway. I also think this isn’t the end of the rally. Here’s the SPX after yesterday’s drubbing: [SJN] Using the Keltner Bands (they’re like Bollinger Bands, but use the average true range as the deviations), we’ve only dropped to the 21-day moving average SPX price yesterday. That means it’s far too early to call the end of the rally. If we get below 4,390, however, that’s another story. As for the dollar, after Greg wrote his piece, it rallied! [SJN] The USD Index is up 2% in a couple of weeks now. Sitting on this side of the pond, this makes complete sense, as the EUR is little more than toilet paper. But that’s my bias setting in. If the USD fails to get above 103, we’ll probably - probably - head back down. As for the political angle… The Trump Downgrade My good friend and Daily Reckoning Grand Poobah Brian Maher wrote this in last night’s [Reckoning]( Yet the Fitch downgrading wrung Treasury Secretary Yellen’s gizzard plenty hard. Thus she thunders: Fitch’s decision is puzzling in light of the economic strength we see in the United States. I strongly disagree with Fitch’s decision, and I believe it is entirely unwarranted. Its flawed assessment is based on outdated data and fails to reflect improvements across a range of indicators, including those related to governance, that we’ve seen over the past 2½ years. What transpired two and one-half years ago? Mr. Trump vacated 1600 Pennsylvania Ave. and the sitting president came in. Should it therefore stagger us that Ms. Yellen draws the bifurcation? Meantime, the sitting president’s administration labels Fitch’s downgrade the “Trump downgrade.” Moans Biden campaign drummer Kevin Munoz: This Trump downgrade is a direct result of an extreme MAGA Republican agenda defined by chaos, callousness and recklessness that Americans continue to reject. Donald Trump oversaw the loss of millions of American jobs, and ballooned the deficit with the disastrous tax cuts for the wealthy and big corporations. Of course this fellow is sharply partisan. We therefore apply a steep and immediate discount upon his laments. Methinks the Treasury Secretary illegally imported her favorite Chinese ‘shrooms and passed them around at their last meeting! Make no mistake. This is all on Biden. The Wall Street Journal Editorial Board wrote [this scathing rebuke]( This is where political leadership matters, and where it has failed. The White House criticized Fitch’s decision, but there’s a reason the downgrade happened on Mr. Biden’s watch. It’s a no-confidence vote in U.S. political leaders, and that starts at the top. Wrap Up The downgrade will ultimately mean nothing. This was an opportunity for Fitch to get some spotlight and for traders to close out overcooked positions. I expect the market’s uptrend to resume shortly. If not, we’ll know relatively soon if the next down leg is upon us. Have a lovely day! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( P.S. I forgot to tell you I’m on the [Rickards Uncensored]( call this Friday. So if you’d like to join Matt Insley and me for a chinwag about the markets, I’d love to see you there. [Click here for access]( and I’ll catch you tomorrow at 11 am ET. In Case You Missed It… The F-35? F* This! [Sean Ring] SEAN RING Happy Hump Day from cool, sunny Asti! I had been so content lately. Micah is home from school for the summer. My in-laws have been great to have around. Pam’s been in a good mood. The house purchase is moving along. I had been experiencing Alan Knuckman-like levels of optimism. I might have even gone to target practice to see if I could aim the rainbows I’ve been shooting out of my cornhole. But then I had to do it. I had to hit ZeroHedge. In times like these, I avoid ZeroHedge like the plague. I don’t want their gritty realism to get in my way. I don’t want their “conspiracy theories,” or, as I like to call them, “accurate prognostications,” to get me down. But it’s one of my top hits, so it shows up on my Google Chrome page when I open the app. Once I unconsciously clicked on the site, the first article I opened was “Poland Builds Up Troops On Border In Response To Alleged Belarus Combat Helicopter Breach.” For the love of God, somebody remind the Poles that Jan Sobieski is long dead! As I scrolled through the article outlining how Poland is in NATO and that Russia considers an attack on Belarus an attack on Russia, I reached the bottom. In the advertisements for other articles, I saw this: [Click here to learn more]( Credit: [ZeroHedge]( Then, I thought, “Nah. Can’t be.” Beijing, October 2013 Pam and I had long wanted to visit the Great Wall and Forbidden City. Unfortunately, I hadn’t been sent there to teach. (While living in Singapore, I had been to Shanghai twice on business.) We decided to use some vacation time to head up there. [sjn] The Great Wall of China, snaking over the mountains; Credit: Pam Ring [sjn] That’s me, taking a break from climbing the Great Wall; Credit: Pam Ring [sjn] Mrs. Ring, at the gates of the Forbidden City; Credit: Sean Ring For the first two days, it was clear and impressive. The following two days were unbelievably polluted. In the pic above with Pam, it looks like we shot that in 1971. But that’s how thick the dirty air was. We couldn’t see out our hotel windows. Luckily, Beijing has cleaned up that problem to the point where the Chinese now expect blue skies daily. As we headed to the airport, I remember thinking, “Thank heavens they invented radar. I have no idea how our pilots can see anything.” We boarded the plane apprehensively. Upon takeoff, we were already dribbling like a basketball. I knew this was going to be bumpy. Not ten minutes into the flight, Pam was visibly frightened - and so was I. She was hanging onto my arm like it was a life raft. And then, “BOOM!” The white light outside our window blinded me for a second. The sound nearly loosened my bowels. Pam’s polished fingernails were about 1/8th of an inch into my skin. I’ll never be sure if the lightning hit the plane or just flashed past my window. But I was shocked to find us still in the air afterward. We bounced all the way to Hong Kong before settling into a smooth, carefree flight over the South China Sea to Singapore. Thank God and… science, engineering, and mathematics! [New LIVE Demo Video STUNS Crypto Investors]( In [this short 3:28 video…]( Crypto genius James Altucher reveals his most shocking crypto secret yet… A little-known secret that’s delivered over $1,170 in FREE crypto income per month. If you AREN’T using this affordable little device… You’re missing one of the best, easiest ways to earn real cash with cryptos. [Click here to watch this short 3:28 video NOW.]( [Click Here To Learn More]( Please Invade on Clear Days Only! I hadn’t thought about that flight for years until this morning. But then I thought, “My plane ten years ago is better than the crap the US military-industrial complex produces.” Because the F-35, under development since 1994(!), the plane to end all planes, is a piece of shit. We just need to say it aloud. It can’t even fly at supersonic speeds for long because it’s so poorly built. From [Defense News]( An issue that risks damage to the F-35’s tail section if the aircraft needs to maintain supersonic speeds is not worth fixing and will instead be addressed by changing the operating parameters, the F-35 Joint Program Office told Defense News in a statement Friday. The deficiency, first reported by Defense News in 2019, means that at extremely high altitudes, the U.S. Navy’s and Marine Corps’ versions of the F-35 jet can only fly at supersonic speeds for short bursts of time before there is a risk of structural damage and loss of stealth capability. The problem may make it impossible for the Navy’s F-35C to conduct supersonic intercepts. That’s bad. But it gets worse. The F-35 is now prohibited from flying within 25 miles of a lightning storm. Yes. I had to read that twice, as well. Mike Fredenburg of [The Epoch Times]( who wrote the commentary ZeroHedge picked up, reports: So far, the indefinite restriction has been publicly announced as applying “only” to the Air Force’s F-35A. But given the F-35 Joint Program Office’s history of hiding and “managing” bad news, it would not be at all surprising to find out that the same restrictions are in place for the Marines’ F-35B and the Navy’s F-35C, but have not yet been made public. That having this unpublicized policy in place could make sense was demonstrated in July 2021 when two F-35Bs flying out of their airbase in Japan were forced to execute emergency landings after they both suffered millions of dollars worth of lightning damage in the same storm. He continues: This restriction is even more crippling than the F35’s restrictions on supersonic flight, as not being able to fly within 25 miles of potential lightning activity will allow an enemy to use lightning proximity as cover for air, ground, and sea operations knowing that the F-35s will not be flying overwatch or be able to be scrambled to areas where lightning threatens them. That this is the plane that's slated to be the replacement for F-16s, A-10s, AV-8B Harriers, F/A-18E Hornets, and F/A-18F Super Hornets is a decision that needs to be re-evaluated. Lightning hits commercial airplanes twice per year on average. They don’t just fall out of the sky. How is this even possible? The F-35 Joint Program Office, the clown-car circus in charge of this project, won’t reveal what’s actually wrong because the information is sensitive. According to the U.S. Government Accountability Office, [the F-35 program costs $1.7 trillion]( (and the aforementioned 30 years). This isn’t a joke. It’s the government utterly ridiculing the taxpayer. Wrap Up Where’s the congressional oversight? Where’s the citizens’ demand for transparency? This project has taken up nearly $2 trillion and three decades to produce a plane that can’t fly supersonically for too long and can’t go anywhere near a thunderstorm. The U.S. Military better take some British elocution lessons. “I say, old boy, would you mind invading us only when the sky is blue? It really isn’t cricket when the storm’s up. That’s a good chap.” Have a great day. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@rudeawakening.info. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized financial advice. We allow the editors of our publications to recommend securities that they own themselves. However, our policy prohibits editors from exiting a personal trade while the recommendation to subscribers is open. In no circumstance may an editor sell a security before subscribers have a fair opportunity to exit. The length of time an editor must wait after subscribers have been advised to exit a play depends on the type of publication. All other employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Rude Awakening is committed to protecting and respecting your privacy. We do not rent or share your email address. Please read our [Privacy Statement.]( If you are having trouble receiving your Rude Awakening subscription, you can ensure its arrival in your mailbox by [whitelisting Rude Awakening.](