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LIVE CHAT: What the Downgrade Means for Your Money

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After falling for most of the past two weeks, stocks are set for another day in the red today after Standard & Poor's took the unprecedented move of downgrading the nation's credit rating on Friday.

It might not be over. S&P may downgrade states, local governments, and other public entities that implicitly rely on the federal government's purse this week. While these downgrades are widely expected, they could add to the general mood of disgust and disappointment that's been guiding markets lately.

There's never a good time to panic. And keep things in perspective: The Dow Jones is still up 9% over the past year! Stocks are down about 12% from recent highs. While gut-checking, that isn't an extreme correction by any means. It's almost an annual ritual. What's taken investors off guard is the speed at which the declines came, and -- importantly -- painful memories of the 2008 market crash, with fear we could be headed back down the same path (though that seems quite unlikely). Psychologists call this "recency bias."

Motley Fool columnists, analysts, and advisors are hosting a live chat starting now until approximately noon ET today, discussing what the downgrade means for your money. Please join the conversation below. Drop a question, answer someone else's, or just share your feelings and investment advice. We're expecting a large volume of comments, and we simply can't answer them all, so don't be discouraged if yours doesn't make it through.

The Motley Fool has a disclosure policy.

Read/Post Comments (33) | Recommend This Article (51)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 08, 2011, at 10:13 AM, yhtbaotbai wrote:

    Our country is still the greatest place on earth. I predict that U. S. Treasuries will remain the top risk-free asset for the foreseeable future. I suspect that the downgrade in opinion by Standard & Poors was based upon their political opinions as well as their financial analyses. It seems that the political "to-ing-and-froing" at the national level if government in recent times does not deserve any AAA opinion.

  • Report this Comment On August 08, 2011, at 10:22 AM, surfman007 wrote:

    The timing of the S&P downgrade alone is suspect. After giving AAA status to junk, now it seems they're doing this to save face. However, to wait until Friday evening, after a horrible slamming of the markets, this feels more like kicking someone who is already down.

  • Report this Comment On August 08, 2011, at 10:38 AM, NEMnyWtch wrote:

    To keep things in perspective, this is the same ratings agency that had Lehman at four stars(?) or so, just before it failed. I particularly enjoyed the conference call where they also downgrade both DTC and NSCC. Really? This is like downgrading VISA. Whether markets go up or down, these agencies route all of the transactions. They have nothing to do with the debt cieling, Europe, or any of the other bearish news. Following their recommendations, in my opinion, will keep your "standard", "poor".

  • Report this Comment On August 08, 2011, at 10:41 AM, ahorselady wrote:

    Is MF feeling this is a time to buy more of the stocks in portfolio or hold cash and wait?

  • Report this Comment On August 08, 2011, at 11:23 AM, wrenchbender57 wrote:

    As folks around the world look around and try to find a safer place to invest, I think they will come to the conclusion that the USA is still the best bet.

  • Report this Comment On August 08, 2011, at 12:09 PM, Eric6 wrote:

    The fundamentals of the really solid companies is the same today as it was last week. companies that have a lot of cash, pay dividends and have a good strategic plan in place. the downgrade of government shows how messed up washington is these days. Many comments and decisions are made purely based on politics and getting re-elected. We need to keep pushing for smaller government.

  • Report this Comment On August 08, 2011, at 12:19 PM, platypusman wrote:

    A good share of my investments are either 401-k or IRAs so there really isn't much choice other that hunkering down and waiting out the storm. This latest slump is rooted in a political battle and does not appear to be tied to fundamental economics. I would hope that when the dust settles we will have a solid foundation for a few years of steady growth.

  • Report this Comment On August 08, 2011, at 1:28 PM, Igolfr wrote:

    I have the same question as ahorselady: buy or hold?

  • Report this Comment On August 08, 2011, at 1:45 PM, keesluijt wrote:

    The S&P downgrade is a (mostly) informed view of the state of the US's debt going forward, just like that of Greece, Portugal, Ireland, Thailand, Vietnam etc. etc. Same for the other agencies.

    In my honest opinion, there is a large amount of overreaction here. As Eric6 writes, fundamentals of most companies haven't changed, in fact many are sitting on a hoard of cash greater than ever before (wonder how much that totals up to?). This should get them through rough spots in the coming months and years.

    The real question: when is the real economy going to kick in again? When is hiring going to get back to normal levels? How is inflation/deflation/stagflation going to develop in the coming period?

    The last two weeks brought me back in the red for the first time in 2 years, bit i see it as a buying opportunity, especially for solid divident yielders and innovative companies which will benefit from a rebound and upstart in the economy.

    One good thing: oil and other commodities are going down, this is bad now, but could prove a boon to give consumers and producers the necessary breathing room

  • Report this Comment On August 08, 2011, at 2:15 PM, mikecart1 wrote:

    This country is going down the toilet. For anyone that things are going to get better anytime soon, please come back to reality. I have lost tens of thousands of dollars the past 2 weeks. I don't blame Obama. I don't blame anyone. This is a result of years of government policy, wars that we had no reason to even be a part of, and horrible use of tax payer money. This is a disaster. I believe this is the true apocalypse the Mayans were predicting. Our money isn't worth anything. Jobs are harder to find than a decent stock. This administration is a scape goat. Obama has no clue of anything about the budget but then again that really isn't his job. He can't do everything even though it seems like he can do nothing.

    God have mercy on us all. :o[

  • Report this Comment On August 08, 2011, at 3:24 PM, floridaboy32826 wrote:

    well damn... lol

  • Report this Comment On August 08, 2011, at 3:37 PM, Lambpants wrote:

    @Floridaboy... Yep, that's about all you can say after that rant right above you.

  • Report this Comment On August 08, 2011, at 3:47 PM, JSMBAPhD wrote:

    For you lovers of voodoo, the market is at a key technical level. As I read it, a technician would say that if SPY doesn't hold 1125 (50% retracement), next stop is 877.

    Now, I don't believe this stuff. But a lot of people do, so you can generally plan around it. If the level holds today and tomorrow, the markets will be euphoric. If not, they will be despondent.

  • Report this Comment On August 08, 2011, at 3:54 PM, WalnutsAZ wrote:

    Wow, our economy is the worst I have seen it in 5 years. I can't believe the President is having partys and we are being downgraded, something that has not happened since 1917. Then the President tells us the Economy is good the S&P does not know anything, oh boy!!! Time for a change we can believe in!

  • Report this Comment On August 08, 2011, at 3:59 PM, JSMBAPhD wrote:

    My opinion is that the S&P downgrade was fully justified. The US political system is paralyzed.

    Everyone knows that our taxes (state/federal/local) are the lightest of major developed nations (by far) and far below the level of the 1990s. Everyone knows that tax hikes (on people making over $1M/year) is necessary to close the deficit. Everyone knows that we have to stop spending so much on war and on medical insurance. Everyone knows we have to spend more on roads, bridges, education, etc. And yet we cannot take the steps necessary to do these things.

    Why not? Because the Senate Democrats have decided that a majority of votes is not good enough and because the House Republicans think that you can spend money without paying for it, which is what they just did on the debt ceiling. And because we do not have any leaders in either national party of the stature and vision of FDR, Eisenhower, Kennedy, Johnson, or even Nixon. Barack Obama seems like a nice enough man, but he has not come to the nation and said, "This is what we need to do, this is why we need to do it, and this is what you need to do to make it happen."

    Until the Congress decides that it can, too, raise taxes and rein in the health insurance companies, the banks, and the Pentagon, the crisis is on. Or, as the saying goes, "the beatings will continue until morale improves."

  • Report this Comment On August 08, 2011, at 4:00 PM, Maraith wrote:

    Isn't S&P the same organization that gave AAA rankings to garbage mortgage-backed products (that it KNEW were worthless)?? Why do I believe them now or even care about them? Only because others do.

  • Report this Comment On August 08, 2011, at 4:03 PM, JSMBAPhD wrote:

    Market closed below key technical level. Unless there is good news overnight, expect tomorrow to be bad.

    Not because it has to be so, but because so many people believe in technical voodoo.

  • Report this Comment On August 08, 2011, at 4:08 PM, at78rpm wrote:

    The US should have been downgraded as soon as W asked for (and got) his first "continuing resolution". This was the first sign that we were unwilling, politically, to ask the people to pay for the wars. It has only gotten worse.

  • Report this Comment On August 08, 2011, at 4:15 PM, Indianagol wrote:

    "FDR, Eisenhower, Kennedy, Johnson, or even Nixon."

    FDR, Kennedy, Johnson, and Nixon are the reason we're in this mess.

  • Report this Comment On August 08, 2011, at 4:30 PM, jrice wrote:

    Thank you Standard & Poors for doing what had to be done...better late than never.

  • Report this Comment On August 08, 2011, at 4:39 PM, jrdavis38 wrote:



  • Report this Comment On August 08, 2011, at 4:43 PM, schwilling911 wrote:

    Funny that even before last week tumble I went toe the motley fool and was told now is the time to buy. well I guess that has changed and now would be the time to buy. Get to together fool I thiought you would be able to see the writing on the wall.

  • Report this Comment On August 08, 2011, at 4:45 PM, TruffelPig wrote:

    There is a strong need for a rating system that rates rating agencies. A decision by one firm with the goal of getting a better rep in Europe can not possible cost the market 7%! This is insane.

  • Report this Comment On August 08, 2011, at 4:52 PM, TMFTomGardner wrote:

    Schwilling, the long term investor doesn't try to find the exact day to buy. The long-term investor looks for a period of time to buy. Now, we've been buying at The Motley Fool for 18 years, happily. But there are periods when the opportunities get more attractive. We simply think we're in that zone. But the Dow could go to 10,000. Who knows? I do think that 5 and 10 years from now, this will prove to have been a solid time to buy. But, we don't pretend to pick an exact time and date. Foolishly, Tom Gardner

  • Report this Comment On August 08, 2011, at 4:58 PM, majestik wrote:

    Possible capitulation "ZERO HOUR" event in next few months. This is real!!

  • Report this Comment On August 08, 2011, at 5:00 PM, hbofbyu wrote:

    Churchill said we must not let our arguments over the past dominate the present or we will lose the future.

    We need hard leadership from politicians who aren't worrying about fund raising dinners and reelection. I love Obama but he has got to MTFU, bring people together and quit leading from behind.

  • Report this Comment On August 08, 2011, at 5:01 PM, tlm1959 wrote:

    It seems to me that this reaction is overdone.

    Treasuries gapped up, not down. There was no big selling of the dollar. The downgrade did not have the effects that many thought.

    Look at slm-why is it down 15%. It has hardly any credit risk and just short end credit risk. You would have to think that the Libor OIS spreads will gap out like they did 2008 (this spread proxies for their run-off loan portfolio spread).

    Is it really that bad?

  • Report this Comment On August 08, 2011, at 5:18 PM, caltex1nomad wrote:

    Not too Bad. I was expecting a 10 % drop. I have some buy orders in.

  • Report this Comment On August 08, 2011, at 5:34 PM, dude2864 wrote:

    If you have done your due diligence and homework there should not be panic. Of course everyone is worried. That is what the politicians want. I for one have diversified and not just in American stocks. I have some cash saved and once the paranoia has stopped and the panic selling has receded I am going to buy at some incredible prices. Lots of people keep saying "I've lost money". Does anyone not recall the term "dollar cost averaging". My thoughts are this-take accountability for your investment decisions. Financial advice sources are tools not guarantees.

    As far as the blame game goes....i'll chime in.

    First-we have had record low voter turnout for the last thirty years. Guess what? It's our fault we have the politicians that we have.

    Second-everyone keeps saying, "raise taxes or cut taxes and spending". Should we not be demanding value and efficiency for the public money flow we provide to the government? The ROI on our tax dollars is pitiful.

  • Report this Comment On August 08, 2011, at 6:09 PM, iggymonsta wrote:

    My fellow fools,

    This is not the true apocalypse the Mayans were predicting. I have traveled back in time via my Goople Industries time machine (Google buys out Apple in 2015). Start buying on Thursday after the panic has ceased and the president stops talking about about the economy (Note the big slide after his 1 pm speech). CAT, WM, PG, CIM, CHK, FCX, AUY, VOD will soar by years end. I must leave now and go refill my Mr Fusion (developed by a WM and EXC partnership) and go back to the future.


  • Report this Comment On August 08, 2011, at 7:25 PM, Vesta108 wrote:

    Cheers iggymonsta,

    Where were you this morning when I filled a lot of orders thinking the panic might subside too soon and prices go up?

  • Report this Comment On August 08, 2011, at 7:49 PM, grantrobertb wrote:

    Lesson from China:

    Build Build Build.

    Yes -- we have debt problems, but looking around the globe, most everyone else also has this problem.

    I believe that the best way out of our mess is to inact a strong decisive jolt to this lethargic economy.

    One thing the Chinese have figured out, is that if you want to lift a billion plus people out of poverty you must build stuff on a massive scale.

    If you do this, you will realize a return on the investment.

    We know we need to improve our infrastructure. By doing so we can restart the economic dynamo that the U.S. is fully capable of.

    Many of the unemployed are construction workers that do not possess a bachelor degree.

    If we do not act in a strong and decisive way, I feel we will miss a golden opportunity for growth.

    We need to Build Build Build. The debt is gonna take years to pay down. We need to find the money and invest.

    If you like this idea, write your congressman or senator and advocate for the creation of an INFRASTRUCTURE BANK.

  • Report this Comment On August 08, 2011, at 10:10 PM, richie54 wrote:

    Yogi Berra would say "It's deja vu all over again."

    Yeah, it's the spring of 2009 all over again. So, time to go buy some bargains.

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