[Time of Kairos and Drama!]

"I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years." Warren Buffett

About a week ago, all the financial news was focused entirely on Italy and Spain (Eurozone) but thanks to the S&P’s downgrade, the whole world is catching the flu from this sneeze!

Although many have anticipated the credit downgrade on US’s credit rating, but who could have guessed that global market lost more than USD2 trillion within this short period of time? However, only during this time of chaos, fear and uncertainty will give birth to time of “Kairos” (in Greek). This message had been preached very recently in my church and I truly believed that this is true!

Every financial analyst on Wall Street is now trying to give their own version and opinion on why the market is crashing. Most of them were blaming the president for not being able to come up with a better resolution in trying to save US’s economy. Some were saying that US will never be able to pay back its debt [1]. Last but not the least, some were even blaming S&P’s for downgrading US’s credit rating! As an investor, what should we do? Get out of the market right now or do we take this time to evaluate our portfolio and grab a couple of stocks which we’ve been aiming at for a long time? What else can we do? There are some who suggest that we should transfer our funds into commodities like gold and oil or even bonds (Wait a minute, weren’t we afraid earlier that US might not be able to repay its debt? Could it be that those analysts know something that we don’t here?).

Before we try to solve this enigma on credit rating, I supposed it would be good that we spent some time and effort trying to understand it. This is what I’ve gotten from S&P on the definition of credit ratings.

Credit ratings are forward-looking opinions about credit risk. Standard & Poor’s credit ratings express the agency’s opinion about the ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time [2].

So, in short it means that it is an opinion from S&P on the capability of a party (US government for our case) to repay its “debt” on time.

Okay, what about those AAA, AA+, and BBB represent?The general meaning of S&P’s credit rating opinions is summarized below [2].
‘AAA’—Extremely strong capacity to meet financial commitments. Highest Rating.
‘AA’—Very strong capacity to meet financial commitments.
‘A’—Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.

Looks like the downgrade to AA+ wasn’t too bad I guess. But why then the market is reacting so badly towards this downgrade? I’ve no idea, but I think I will stick to Warren Buffett

“As the richest nation in the world with a GDP of $48,000 per person, America should have no problem meeting that obligation (paying off their debt). And, of course, there's also the benefit of having a Federal Reserve that can print money. I can go out drinking all night, but if I've got a printing press, my debt is good," says Buffett [3].

My reaction would be almost the same, fetch a cup of tea and enjoy this financial drama!

[1] http://www.cnbc.com/id/44054257
[2] http://www.standardandpoors.com/ratings/definitions-and-faqs/en/us
[3] http://www.cnbc.com/id/44056326