Investors have few spare tires left. Think of the image of a car on a bumpy road to an uncertain destination that has already used up its spare tire. The cash reserves of people have been eaten up by the recent market volatility.
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Mohamed El-Erian Quote
“For the next three years, we're going to see different economies work out different problems. For European economies, especially Greece, it would be through default.”
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As a whole, investors should welcome attempts to safeguard the integrity of markets. You need very clear rules applied to markets.
America's downgrade may serve as a wakeup call for its policymakers. It is an unambiguous and loud signal of the country's eroding economic strength and global standing. It renders urgent the need to regain the initiative through better economic policymaking and more coherent governance.
It is hard to imagine that, having downgraded the US, S & P will not follow suit on at least one of the other members of the dwindling club of sovereign AAAs. If this were to materialise and involve a country like France, for example, it could complicate the already fragile efforts by Europe to rescue countries in its periphery.
The world is on a bumpy journey to a new destination and the New Normal.
Because in the New Normal you are more worried about the return of your capital, not return on your capital.