Nov

17

 Some questions about the Fitch announcement:

1. When a ratings service says there is a potential for contagion if the situation worsens, is this bullish or bearish.

2. If it were true, is it bullish or bearish.

3. What are the chances it is true?

4. Why does it happen at 310 so as to liquidate longs.

5. Is it subsumed by the next highly important piece of data like the state of manufacturing in the phil area?

6. Does is serve any purpose except to create friction so the strong can take chips from weak.

7. When the market drops 2 % in a half hour like it did, is it bullish or bearish?

8. Is the sentiments of a rating service related to the threat by the French to vet all their methodologies and to switch in the future? How does this relate to the profit margins and survivability of the services

9. Do the sentiments of one rating service tend to be unduly reversed by an announcement from the next rating service?

10. What other queries would seem relevant?

Rocky Humbert adds: 

About the Fitch announcement:

1. Why do people tend to attribute market price moves to announcements by credit rating agencies? Has there been a single news story that notes that the US Treasury is higher versus when the USA lost its AAA; whereas the French 10 year is roughly 8 points lower since it held its AAA at the same moment in time.

2. Why do people think that falling gasoline prices are bullish but spiking WTI prices are not bearish? Why do people choose to pick particular headlines as "explanations" but ignore the other hundreds of headlines that appear coincidentally? (i.e. MF Global's bankruptcy judge yesterday withheld his ruling on the release of billions in frozen collateral (which isy leveraged into massive liquidity)…and this non-decision arguably has a much bigger impact on the day-to-day price moves)…etc.

3. The ratings agencies receive no compensation for their ratings of the G7 sovereign debt. They do this as a "public service" and a legacy. Why do they do this? If they ceased to issue sovereign ratings, would anything change? Would that be bullish or bearish?

4. After a multi-week/multi-month period of downward prices, a 2% spike in the last 30 minutes brings out the naysayers "the market cannot be trusted," "it's a bear trap," etc. But I've found with absolutely no statistical significance (due to insufficient data points) that it's often a very tradeable bottom. In contrast, a 2% decline in those conditions rarely makes the news.

5. What does bullish or bearish mean?

John Floyd makes three points: 

1. Today's action in Europe provides and interesting contrast. Amongst other negative factors the Spanish bond auction was by almost accounts a failure and yet spreads are tighter between Spain-Germany, Germany yields are up, the Euro higher, etc. So perhaps there are many factors at play that determines what drives prices and it is instructive to observe how the market moves relative to a given piece of news in comparison as to how one would expect it to react. For example if Spanish bond spreads had been tightening the past few days prior to the auction would they react the same?

2. I am not sure given the daily volatility in SPX and the track record or operations of rating agencies that they are able to time and focus on the minutia of the market in such a way. I would need to look but I imagine there are instances like the Spain one above where the market acts in opposite fashion as to what one might expect.

3. I would liken the rating agencies to a biker in the back of a peloton, or a swimmer behind a pack of others, they are getting dragged along by other forces en masse, not breaking new ground. There is the consideration however that a ratings change may cause sales (or buys) buy making an asset class unavailable or available to a subset of market participants. 


Comments

Name

Email

Website

Speak your mind

Archives

Resources & Links

Search