US Debt Downgrade

As if the US Treasury didn’t have enough problems such as their $1T a year in interest payments! Today after the close (conveniently) Fitch downgrades US debt to AA from AAA. This is really a moot point because we already know major cash cow corps can borrow at much cheaper rates than that of the US Treasury. However this does put a global black mark on the risk free, well just a little less risk free after today, U.S. debt pile. This is probably just a reflection of the growing reality that Government credit isn’t exactly what it used to be, in fact, this is shaping up to be the worst rolling 3Y total return for the US Agg Bond Index in history:

We saw this writing on the well long ago and its why we will continue to see the escalation in global warmongering…nothing solves a good debt crisis better than conflict! Ukraine, Syria, Niger, whose next Taiwan? We saw the US RQ-4 Global Hawk lurking in the Black Sea last night…what happens if a Russian SU-34 intercepts and things go hot?

Well with all this tension we took a look back at 2008 and wanted to compare a little bit of chart structure. We know by July of 2008 the FRB had already cut rates by 275bp so we are not even close yet, but in past epic ramp ups, this seemed like a good year to look back and reflect upon what transpired:

Long time readers know we are looking for 2 important market events, that is the first negative NFPayroll print, and second the first actual rate cut. Historically these need to occur before we actually sustain a downside move, but who knows, we’ve printed so much money, anything is possible, things are so distorted, who really knows what real nominal values are supposed to be!

With the US debt pile growing leaps and bounds, with the BOJ playing around with yield curves and bond purchases, perhaps a bit of steepening is about to occur as the long end of the bond curve sees the most risk right now. Keeping that focus let’s look at the US 2s10s yield spread:

Yes that is historic lows and is it now time for 2s to start catching a bid? Will the US 10Y sell off and narrow this spread that way? Everything seems up for grabs right now.

Another chart we took a look at and is among our favorite failures about to happen is META:

How bout some Sept. 300 puts anyone? Sure seems ripe for some repricing, so too does Apple and we know its on everyone’s radar this week as earnings are Thursday. Maybe traders should be looking at the 190 puts given this unwarranted rally: