Main Street Finance

Down Goes the Market!

By Andrew

The stock market has dropped faster than a prize fighter that just took one on the jaw. It’s been a rough couple of weeks. In large part, debt, as we have been discussing, has been to blame. Let’s take a look at some of the recent news items:

S&P Downgrades the US Credit Rating:

The credit rating agency, Standard and Poor’s was unimpressed by the recent actions of the US government. Process took too long, didn’t solve enough of the issues and gerenally left the US in an unresolved situation.

Essentially S&P feels like the US governement didn’t do what needed to be done to make the situation better. The US has a TON of debt. A TON. Which means that the US is borrowing more than it’s taking in. Eventually that leads to not being able to pay the debts (not this year, but in years to come) and makes S&P wonder if the US is headed down a bad road.

Bad Credit Rating = Reality

The US credit rating was the star student in the class, always an A+. Now…it’s like like a straight A, or maybe an A 1/2 plus. What this really means is that the US and World economies are recovering, but slowly.

Things are better. Companies are making money (Go look at Ford, Google, LinkedIn…money is being made), and there is money being borrowed and spent (good signs). But things are not great (Look at unemployment levels, housing market and debt levels).

The problem is right now that the US and the world are being very near future focused. Make things better…NOW. The reality is that this is going to be a long process. There were some major flaws in the economy and there are some major issues.

These things cannot be solved with a stimulus. A stimulus is a band-aid, a very expensive band-aid.

The End is NOT Near:

Despite this less than stellar outlook, remember, things are improving. It will take time and it will not be easy. It will require more discipline than ever before (spending cuts).

Just like when a family is going through a rough patch, they trade filet mignon for burgers and eating out for buying bulk at Costco, the governements of the world HAVE to take this approach. HAVE to. Find ways to cut spending (Hint, that health care thing is HUGE).

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About Andrew

Andrew is a corporate finance consultant living in Los Angeles, specializing in distressed and bankrupt consulting. He helps clients review business plans and the general market and decide what steps to take next. He has a masters in finance. Andrew enjoys running and biking in the San Gabriel mountains, cheering for the San Francisco Giants and eating (but trying not to gain weight).