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6 Aug 2011. Over the last 10 days I've had a front row seat to the greatest show on earth, watching stock market reactions to Washington theatrics. The US government is finally joining the global deleveraging party, and the dominoes are falling. In a fairly well telegraphed blow, the S&P has cut the USA's credit rating from AAA to AA+, saying that Washington's rescue package isn't enough and that the "predictability of American policymaking and political institutions have weakened". To add insult to injury, the S&P says that the "outlook on the long-term rating is negative" for the US. There are knock-on effects to those operating in the US, and on Monday S&P "will issue separate releases concerning affected ratings in the funds, government-related entities, financial institutions, insurance, public finance, and structured finance sectors." Clearly the US is going to have to cut taxes and raise expenditure by even more, and that loud sucking sound you're hearing is money leaving the world economy, but what's worse is that trust, which is the grease which lubricates the business world, has been lost in the predictibility of American policy.

Countries which retain AAA ratings inclue Canada, France, Germany, and the U.K., while South African has a BBB+ rating with S&P. Now, if this was happening in South Africa the solution of our rash youth would probably be to nationalise the S&P and get the AAA rating back! (said tongue in cheek - of course they wouldn't do something so irresponsible!).

Keep an eye out for opportunities

The above is just background, the important thing is that there are significant market movements going on, and at times like these I keep a close eye on how the relative value of asset classes and markets are moving, to see whether there are any opportunities arising. Most markets have fallen, but South Africans have been shielded from the worst by Rand weakening. Here's how the Allan Gray Funds have seen their value changing from the 1st July 2011 to the 5th August 2011 (most of the big moves occurred in the last week):

I haven't listed the Money Market Fund, as unless there's a default the price should stays constant (income is paid out). Note that our market closed on Friday before the S&P announcement was made, so the returns above don't reflect the official news, although there was probably some trading on the rumour. The S&P's announcement was at 8pm on a Friday - they do it outside trading hours so that the market has a chance to digest the news and react more rationally, minimising the possibility of panic trades. On the other hand some of last week's drop in the markets was due to rumours of the downgrade.

I was lucky enough to have shifted all of my non-retirement fund Orbis Equity unit trust holdings to Orbis Optimal last Monday. I say this not to show off, but because I'm furious that I couldn't do the same with my retirement fund savings as a result of the changes to regulation 28 by our couldn't-care-less-regulators - who at the same time as this is costing me a lot of cake, don't bother to reply to my correspondence.

It's going to be an interesting week, especially Monday.

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