ripvanwinkle
Well-Known Member
All that is necessary for evil to succeed is that good men do nothing - Edmund Burke 1729 -1797
Joined: Jan 9, 2011 22:36:42 GMT -5
Posts: 1,354
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Post by ripvanwinkle on Aug 13, 2011 13:02:11 GMT -5
As I was out walking yesterday, my elderly neighbor, a retired banker was out and I stopped to say hi.
We of course lamented about the market and he pointed out something I had not thought about. He said they had to only buy "High Grade" rated funds, stocks or bonds for his clients by the rating companies for their managed portofolios. If they dropped in ratings, they had to sell them and reinvest in something else of the same grade.
He went into a somewhat long explaination of the world now but in short, since the S&P downgraded the US rating, it forced money managers to billions of shares to maintain their portfolios mission.
Sound good but is this affecting the market this much?
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Driftr
Senior Member
Joined: Mar 10, 2011 13:08:15 GMT -5
Posts: 3,478
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Post by Driftr on Aug 15, 2011 7:58:01 GMT -5
Doubt it. From everything I've heard, money managers get to use the highest rating by any of the big three ratings agencies (S&P, Moodys, Fitch) in determining whether or not what they're holding is rated strong enough.
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Deleted
Joined: Apr 30, 2024 17:07:28 GMT -5
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Post by Deleted on Aug 15, 2011 8:23:13 GMT -5
From what I have heard from the "experts" this is not as big a deal as it sounds. Instead of selling US Bonds, most will just change other aspects of the portfolio so they are compliant.
For instance, some portfolio managers are required to keep an average rating. In that case they will sell the lower grade paper in order to keep the US paper. If others are required to buy only AAA paper, they may just change their rules to allow them to buy AA+ paper, etc.
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Deleted
Joined: Apr 30, 2024 17:07:28 GMT -5
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Post by Deleted on Aug 16, 2011 1:27:54 GMT -5
You do have to appreciate the irony that the market's response to a US debt downgrade is to jump into "safe" US treasuries.  |
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Small Biz Owner
Familiar Member
Joined: Dec 26, 2010 8:43:06 GMT -5
Posts: 607
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Post by Small Biz Owner on Aug 16, 2011 13:19:06 GMT -5
The flight to safety of US Bonds shows that most investors realize stocks are overpriced and earnings can fall creating a loss. The Government, on the other hand, has the ability to raise Taxes to pay for Govt Bonds.
Asset Preservation is becoming more prevalent as the 401k population ages and is cashing in those stock gains form the past 15 years.
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Post by yclept on Aug 16, 2011 20:04:32 GMT -5
Actually if they've just been holding on to the stocks that gave them gains during the 90s, they haven't seen any profits in the intervening years to hold onto! If they held the ones that soared in the 90s, they have a much-reduced portfolio.
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