U.S. Downgraded to AA+ from AAA by Standard and Poors

The sovereign credit rating downgrade of the United States from AAA to AA+ by Standard and Poors was expected since the ratings agency was looking for 4 trillion worth of budget cuts and only 2.4 trillion worth of (dubious) budget "cuts" were presented over a 10 year period. In the following video Bill Gross, co-founder and co-CIO of PIMCO tells CNBC back on August 2, 2011 that theoretically the downgrade should occur, but that he did not know if Standard and Poors would have the courage to follow through with the ratings downgrade.

Bill Gross: "It is a close call on whether or not they [Standard and Poors] have the spine to follow through with their 4 trillion dollar number."

Apparently Standard and Poors did follow through with the downgrade even though they made a $2 trillion math error in their calculations, which was pointed out to them by the U.S. Treasury, whom S&P notified first before the downgrade press release.


The European market was closed when the ratings downgrade announcement was issued Friday, but according to RT News, the Eurozone leaders are not happy about it:


In a breaking news release from Business Insider, the Treasury questions S&P rating agency's integrity over the downgrade:

Independent of this [$2 trillion math] error, there is no justifiable rationale for downgrading the debt of the United States. There are millions of investors around the globe that trade Treasury securities. They assess our creditworthiness every minute of every day, and their collective judgment is that the U.S. has the means and political will to make good on its obligations. The magnitude of this mistake – and the haste with which S&P changed its principal rationale for action when presented with this error – raise fundamental questions about the credibility and integrity of S&P’s ratings action.

Don't be fooled by the polite language, the U.S. Treasury is hopping mad as well.

Silver bulls caution warranted ahead of Fed QE2 announcement

Until the Fed has announced its QE2 program scope next week (there is an interest rate meeting Wednesday November 3, 2010) precious metals are likely to keep consolidating.  Will the asset purchases be on the order of a few hundreds of billions of dollars or a few trillion?  What will be the asset mix?  Most importantly, how will traders react?  For example, Bill Gross of PIMCO (who may very well have an inside scoop on the Fed's activities) feels that bonds will sell off rather than be bolstered (the more intuitive reaction). [1, 2]  In any case, there might be some sort of unanticipated surprise or disappointment (at least for those of us who are not psychic or Bill Gross).

Weekly Chart:  Best guess we are in minor 4, of intermediate 5, of primary 3

4 Hour Chart: Zooming in, possible zigzag developing as a fractal within minor 4

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Sources:
1. Bill Gross Telegraphs QE2 Green Light: Buys MBS On Margin Tyler Durden ZeroHedge

2. Bill Gross: QE2 Signals End of Bond Rally, Shanthi Venkataraman TheStreet.com