S&P cuts Ireland rating to AA on bank rescue cost

S&P cuts Ireland rating to AA on bank rescue cost - Monday, June 08, 2009, for the second time in 3-months and since the debt crisis began, Standard and Poor's cuts Ireland's sovereign credit rating to "AA" with a negative outlook!  They cite the sky rocketing cost of bailing out the country's banking system.  Other rating services, Fitch also had cut Ireland's debit in April and Moody's warned of a pending cut, so the ratings rivals are once again all pretty much in line with each other's timing! 

It is not a matter of IF but WHEN the asset quality of the "Celtic tiger" will deteriorates further; The Prophet  predicts they surely will!  At which time, the rating agencies will be FORCED to cut Ireland’s debt further!  In the short-term, this all raises the cost of protecting and issuing Irish Government Debt.  The much larger question is how quickly, will further downgrades due to the mass worldwide over-leveraging and debt contagion spread to the UK, EU and ultimately the US and the world!   Here again, The Prophet  says it is only a matter of time here as well!  The rating agencies have been inept a best, generally completely missing the calls due to what many believe are inherent conflicts of interest in their compensation structure!

Today’s downgrade continues to be the only the "tip of the iceberg" and the Prophet Counsel   predicts that for everyone talking about greens shoots and the end to the recessions will be embarrassed by how far off they continue to be in the months and years to come.  Of course, that is when the perma Bulls will simply tell you "there was no way of them  knowing things were going to get so bad" but at which time it will be of little compensation to your net-worth! 

The Prophet  is not predicting an immediate end to this bear market rally but a significant correction is perhaps already beginning!  Although, we believe that this is in fact a bear market rally and will turn out to be, very close to the mother of all head fakes!

 

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National Deficit $11.4 Trillion and counting, NOT a tax the rich issue! It is actually a tax your CHILDREN and GRANCHILDREN issue

National Deficit $11.4 Trillion and counting, NOT a tax the rich issue!  It is actually a tax your CHILDREN and GRANCHILDREN issue  - this argument has been falsely framed in a tax the rich vs. the needs of the many debate.  If that was true, more taxes for the rich would surely make sense.  After all, the rich can spare a little more to help everyone out.  It sounds only patriotic and the right thing to do.  But the truth of the matter is you cannot tax the rich enough to pay for the spending addicted government.  The reported National Debt is now $11.4 Trillion and counting and everyone knows that government statistics lie- so the Debt it is more than likely MUCH, MUCH more!

The problem is not that the rich are not paying enough.  the problem is an out of control government that cannot stop  themselves from spending money they just don't have.  So in order to spend today they will have to tax more in the future and that means taxing our children and grandchildren.  I really don't know anyone who would not sacrifice themselves or go without for the future of their children and grandchildren.  So if they were to tell you: every dollar we spend that we do not have, your children will have to pay it back with interest; and by the way, the economy will be much weaker too because the debt payments will take away from productive uses of those scarce funds; so your children might not even be able to pay it back; then maybe people would start standing up and say no WE just can do without!

The problem is not that the rich are not paying enough, the problems lies with the government themselves.  Because in order to get elected, the scoundrels make lots and lots of promises to groups of voters, who then expect the elected scoundrels to make good on those promises.  And those promises cost money.  So to keep their jobs these scoundrels keep making promises and keep spending money they don't have!  Talk about moral hazard!

You could say that the government has become a kin to a crack whore but calling them crack whores is actually an insult to the crack whore because at least, the crack whore actually provides a service to support her habit!  The government is more like a crack whore with someone else's check book and an unlimited ability to write checks.  Until someone stops them, they will just keep writing checks and over drafting.  So until the people stand up and say no more, the spiral will continue.  So get use to double-digit TRILLION dollar deficits forever.  Maybe there should be someone else who authorizes the government's budget, other than the scoundrels themselves!  Just food for thought!

The Prophet

Prophet with the Profit- Prophet@WSprofit.com      www.WSprofit.com

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FLASHBACK to Countrywide Financial 2007 with Today's Market Action

Today the market looks UNBEATABLE up 221.11 DJIA points, 2.60% and almost back to the 200-sma. A number of the higher beta indices like .NCOMP and .NDX are already nicely above their respective 200-sma. Sound really nice right? All the while one of America's all time great companies, General Motors: GM finally filed for bankruptcy today and yet another JP-Morgan: JPM announced near the close they will need to raise still $5-Billion more to pay back the TARP!

Not long ago, back in late 2007 I was short with a majority of my client base, a now notorious company by the name of Countrywide Financial at around $35/share. Countrywide was in the process of floating a bond offering to raise cash. Basic Wall-St. training teaches you issuing new shares is dilutive and bearish to the existing share price. Despite common sense telling you the more shares, the less the existing shares are worth, they ran the stock to around $45. Does any of this sound familiar with today's situation!

When the deal was finally floated and the shares once again began trade freely (more about this later), the stock began a death dive to below $20, finally getting bought out at $6 by Bank of America: BAC. You see like the song says, they needed the money. And everyone knows that investors like to jump on the band wagon and would rather pay up for stock then buy it when the market is down. so if you need to raise money, you better do it during a market rally, GET IT!

So what are the lesson to learn, if any from this experience? Well for one, you cannot build your views based on short-term moves. Technicals can change / the charts, well they lie (if you cold just follow the charts, everyone would be rich! But over the longer term, fundamentals will win! (more later)

The Prophet

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US/World Index Futures Pointing Sharply Higher! Don't Drink The Cool-Aid!

US/World Index Futures pointing sharply higher today.  Overnight international trading was in full rally mode.  The Prophet says, don't drink the cool-aid!  After a 3-month rally that rivals anything since 1930 in points and percentage gains, the market is screaming BUY me Mr. Retail Investor.  If the retail guy has not bought this market yet, they are now feeling how bad they are missing the boat.  Mother Market Rule:  Markets move on fear and Greed!

the Prophet suggests that the only boat they are missing is a short-term high and the hang-over they would feel when the market fails.

Mother-Market's rule:  Buy on rumor, sell on news works back-words in bear market rallies.  The GM bankruptcy today is the news event that in a bull market would send stocks sharply lower.  Coupled with the possible 1/2-million layoffs which will come from the bankruptcy filing is the negative news the market is reporting.  So if you want to know "Is this a Bear Market Rally?"  Ask yourself, in a bull market would this bring the market up or down?

Another noteworthy event, China is continuing to buy US-debt (like they now have a choice), since they are now tied to the US at the financial hip.  Which is why the world has been calling the relationship - Chinamerica.  (to be continued)