Holy &*$%! Batman!!!

Well I suggested last Friday that the first ever downgrade of U.S. credit would be ugly, but I did not see it being this ugly. I mean shave that dog's butt and teach it to walk backwards ugly. I mean, if ugly Betty were this ugly no one could bear to watch the show. I mean . . . well you get the point, damn ugly!

Oh my God, we are back to the level the markets were at - 10 months ago!!! Oh no, we lost 10 months of growth!! The end is here!! Run for your lives!!

Wait a second, did I say just 10 months of growth? Now I realize the 2008 rescession wiped out a good decade and the last 10 months of growth was cherished by many looking to retire, but it is not a game ender. We are just shocked with the speed that 10 months evaporated in a couple of weeks.

In my view, the sell off is perhaps too ugly. Despite the downgrades people are selling their equities and buying what - you guessed it, Treasuries. So they are running to the debt that just had a credit downgrade, and no one really believes the U.S. cannot finance its debt payments. This results in rates going down for Treasuries, which means loans tied to same are also reduced, so even if the gap for loans between Treasuries and loan rates widen due to this, they are widening against a lower base - at least for the moment.

You also have oil that dipped below $80 a barrel today, so that will help a lot of folks.

And U.S. corporations are still doing quite well. Berkshire announced a 74% increase in profits last week. Most U.S. corporations have plenty of cash and decent looking profits. Sure, this is coming from off-shore profits in emerging markets, but base case they are doing pretty well, so a sell off in the equities is perhaps not justified to the extent or at the rate it has happened.

Still, as I write over seas equities are taking a big dive, U.S. futures are showing another 2% down in the morning and the uglieness continues. It will, however, stabilize. Keep the faith.

This is not to say all is fine on the western front. Corporate profits aside, the U.S. is likely entering a new recession. House prices, unemployment, deficit reduction and other factors are a deadly brew making it inevitable in my book. Now I suspect in time QE3 will slow the rescession. It is not here yet and the Fed is not likely to go there tomorrow, but it is coming. I wrote in July that it was baked in the cake at a time when something like 85% of the economists were saying it would never happen. I think that percentage has now changed just a tad. Perhaps still only 50/50 or so, but I am winning converts.

Don't get me started, however, on the EU. I predicted at the beginning of 2009 that the EU may lose the U, or at least some members, and it seems I am starting to get some traction on this prediction. Yes, PIIGS get slaughtered.

Disclosures: I do own some U.S. Treasuries but otherwise hold no investments discussed here and do not intend to buy any in the next 72 hours.