United Shakes of America

So, the US averted a near default by raising the debt ceiling. But according to the same news source, ratings agency, Fitch, says that the prized AAA rating of US debt may still be downgraded. In just a matter of three days, the US (stock) market sank. The Dow Jones has fallen by over 1000 points since its peak. The S&P on the other hand, is no better and the bad news continue to pour in as there were people saying it has formed a head and shoulders formation (a bearish pattern in technical analysis). I imagine that if the debt ceiling was not raised, far worse things could have happened.

A lot of countries hold US debt, especially China. We (The Philippines) are no different and in fact, the BSP is contemplating diverting some of our funds away from US debt. So, will US debt become subprime as well? I am sure that they will get their acts together, otherwise, we will have a lot of countries none too happy with what is happening. Think about it, if you are holding US debt, and the debtor seems unlikely to meet his obligations, what would you do?

At a personal level, what is happening to the US is similar to you as a consumer maxing out your credit card limit. Further compounding this is that you only pay the minimum amount due. So by the time you are able to pay off all your outstanding debts, you would have been charged more interest than the principal amount.

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I had been thinking about whether or not to post that the local stock market would be in for a correction soon. But when the PSEi sank close to 60 points the other day, I knew that I had to.

We've been going up and reaching historic highs recently. So far, listed companies have had positive earnings. However, I know that some ominous signs are there.

Lately, it has been the basura stocks that are being actively traded. If I remember right, that's usually the last wave of the current bull run. Late entrants to the stock market may want to hold off on the purchase.

It doesn't help that Mr Mobius thinks our market is getting expensive.

So far though, with the exception of the correction the other day, our market has been holding up despite the worldwide sell off, especially the mining sector. Still, the skeptic in me thinks that our market will just need to take a breather for the meantime.

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The American Dream has now turned into a Nightmare. I just hope that we don't have our own bangungot.

Until then appreciate the (heightened) risk first, then appreciate the capital!