Today Singapore’s National Day is being celebrated in the midst of blood all over Asia. I am referring to blood in the stock market. Hang Seng index dropped by more than -7% at one particular point. S&P 500 closed -6.6% last night. At this point of writing, KOPSI is down by a whopping-7.52% !
In the meantime, Fannie Mae and Freddie Mac were downgraded by S&P to AA+ yesterday. This was expected because the US was downgraded to AA+. Companies that had an explicit and implicit guarantee by the US government are all expected to be downgraded. The credit risk cannot be better than the guarantor. With the downgrade, it is expected that borrowing cost will increase to reflect the increase in credit risk. This will only jeopardize the US economy recovery.
It is confirmed that ECB has started buying Italian and Spanish bonds. How can this help? First, ......