What S&P Did.

[Beet]

Neither the fundamentals, nor what people know about the fundamentals, changed on Aug. 5, 2011. However, the behavior of one very important institution did.



Thursday, August 4. The Dow is down 512 points, but the 30 year Treasury yield falls by 0.25 percentage points, providing a countervailing stimulus or 'silver lining' to the economy, as it usually does when stocks fall.

OK. So very roughly, 512 Dow points = 0.25 Treasury yield percentage points.

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Friday, August 5. Markets are flat, but rumors begin to percolate that an S&P downgrade of US debt is in the offing. Yields, on the 30 year Treasury surge by about 0.2%. As if the Dow had rallied back by ~400 points.

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Monday, August 8. Dow futures are down 250 points, or about 2.5%. If the 30 year treasury market had behaved like it did on Thursday, 30 year yields would be down about 0.125 Treasury points. Instead, they were up 0.05% to 3.9%.



Thus the total immediate impact of S&P decision amounts to 0.2 points (Fri) + 0.125 (exp. Mon) + 0.05 (act. Mon) = 0.33%.

S&P's has just raised mortgage borrowing costs for Americans by an average of 0.33%, all else equal. In other words, a single institution has just lowered the income of millions of Americans by an average of about $32 per month, according to monthly payments on a 30 year fixed from 4.5% to 4.83%.

Make note of it, because it's a very rare thing. Usually when "big players" (including the government) move markets, it's by deploying money or promising to. This is an example of how a single player can move the market solely by deploying its institutional influence in human society, the assigned place that it is allowed to stand in the Cathedral.

[Beet]

The market did that, in part because the government was not willing to make hard choices.  S & P was just reacting.

Good lord man, gov't policy has been playing out for years. I'm specifically measuring what happened over a day and a half. I know you're a hack, but stop making a fool of yourself.

[Beet]

The market did that, in part because the government was not willing to make hard choices.  S & P was just reacting.

Good lord man, gov't policy has been playing out for years. I'm specifically measuring what happened over a day and a half. I know you're a hack, but stop making a fool of yourself.

That is like saying a guy slowly bleeding to death died because on a pinprick.

This has been a long time in coming, but there were ways to avoid it, even until a few weeks ago.  This is the price being paid for the folly.

But this is not about the patient dying, this is about the patient losing a very specific amount of blood, a rough quantification of which is the point of this post.

[Beet]

The market did that, in part because the government was not willing to make hard choices.  S & P was just reacting.

Good lord man, gov't policy has been playing out for years. I'm specifically measuring what happened over a day and a half. I know you're a hack, but stop making a fool of yourself.

That is like saying a guy slowly bleeding to death died because on a pinprick.

This has been a long time in coming, but there were ways to avoid it, even until a few weeks ago.  This is the price being paid for the folly.

But this is not about the patient dying, this is about the patient losing a very specific amount of blood, a rough quantification of which is the point of this post.

He's not losing it from that wound, however.

Yes he is.

[Beet]

The market did that, in part because the government was not willing to make hard choices.  S & P was just reacting.

Good lord man, gov't policy has been playing out for years. I'm specifically measuring what happened over a day and a half. I know you're a hack, but stop making a fool of yourself.

That is like saying a guy slowly bleeding to death died because on a pinprick.

This has been a long time in coming, but there were ways to avoid it, even until a few weeks ago.  This is the price being paid for the folly.

But this is not about the patient dying, this is about the patient losing a very specific amount of blood, a rough quantification of which is the point of this post.

He's not losing it from that wound, however.

Yes he is.

This is exactly the kind of thinking that got us into this mess, not looking at the underlying problem.

I do look at the underlying problem, just not in this thread.

[Beet]

The market did that, in part because the government was not willing to make hard choices.  S & P was just reacting.

Good lord man, gov't policy has been playing out for years. I'm specifically measuring what happened over a day and a half. I know you're a hack, but stop making a fool of yourself.

That is like saying a guy slowly bleeding to death died because on a pinprick.

This has been a long time in coming, but there were ways to avoid it, even until a few weeks ago.  This is the price being paid for the folly.

But this is not about the patient dying, this is about the patient losing a very specific amount of blood, a rough quantification of which is the point of this post.

He's not losing it from that wound, however.

Yes he is.

This is exactly the kind of thinking that got us into this mess, not looking at the underlying problem.

I do look at the underlying problem, just not in this thread.

This wound was not S & P, and Moody was also dropping hints today.    It is basically the market saying lower spending and raise revenue.

Because that worked great for George Papandreou.

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Since this analysis covers a downmove followed by an upmove along the same portion of the yield curve, it is not really affected by convexity or concavity.

[Beet]

I rest my case.

[Beet]

GOOD NEWS!

The 30 year Treasury bond didn't budge today, despite a 400+ point rally in the Dow, precisely reversing what happened Fri-Mon (The benchmark 10-year also closed higher than it opened, e.g. lower yield). If S&P's rating cut had an effect on the 30 year, whatever happened today counteracted it.