Seeking Alpha by Adding Beta

Last week there were many downgrades to US GDP growth with many economists lowering their GDP forecasts to 1% growth. With such a slow growth, there are always dangers of economy slipping back into recession. Markets being 6 months in advance are definitely hinting and to some extent pricing 40-50% chance of this happening. This summer's events and market reaction was almost exact replica of 2010 summer with some extra spice added due to debt limit drama played out in Washington DC. This is why next week's Bernanke speech in Jackson Hole is so important. Last year, in same speech he gave an indication of QE-2 which saved markets and to some extent economy. Would he repeat his performance next week ? Given charged political atmosphere and Fed's bloated balance sheet, this is unlikely. Fed had already given promise of keeping rates low for another two years. However this did not help much at least in short term. So what medicines are left to treat sick patient (aka economy) ...

Last Sunday no one would have thought that we are going to see market history in the week. This is only week where DOW moved 400+ points up or down in 4 consecutive days. Even during 2008 crisis, this did not happen. Despite such large moves, week ended with DOW down only by 1.7%. So if you were awake and cut from news, you are good since no one likes (except day-traders and option players) so much volatility. Few more notable things happened last week: Apple became new company to claim the title of Most Valuable Company in World. It had that crown for two days and then again lost to Exxon which has this honor since 2005. In coming weeks it would be interesting to see this duel fight out. Let's see who wins - ipad or oil by end of 2011. My prediction is Apple ending year as most valuable company. Even though S&P downgraded USA debt, debt markets mostly ignored the downgrade and instead rushed to buy USA debt at record low yields. 10 year treasury yield went down below 2.15% ...

Finally the inevitable happened on Friday 8/5 when S&P lowered USA credit rating from AAA to AA+. This is almost history (which no one should be proud of) since it is happening first time in 70 years. Last year when folks elected bunch of tea-party members, no one imagined that tea-party would make history in wrong way.  This is what we get when bunch of politicians have single minded agenda just to make president's life miserable and not letting him govern the country. They don't care of state of people or for that matter country ! Markets just have guessed that this is what something going to happen and hence they gave an indication on Thursday and early Friday when DOW almost touched 11000 - 10% correction in less than two weeks. I am sure all of us lost quite a bit of money (I did lose significant amounts). This was worst week since first week of March 2009. That says it all. We still need to watch out reaction to S&P decision of lowering credit rating next week. ...