Credit Rating Downgrade and Stock Prices: It was a Money Making Opportunity!

Show Me the MONEY!!

I don’t hear too many people talking anymore about how S&P downgraded the AAA credit rating of the United States. Remember that event? It wasn’t too long ago.

When it happened, it was a jolt that impacted many people. Even some people who barely follow the news had heard about this. Once that happened, it seemed like some kind of watershed moment that signified the potential peril that the economy of the United States was in.  Many people were concerned about the impact of the credit rating drop on the stock market.

The news hit on Friday, August 5, 2011.  I recall that weekend, people talking about how our terrible financial management as a country was finally having a clear impact, and that things would never be the same in the U.S.  There were probably a few people that feared an impending stock market apocalypse.

I mean, this just seemed so shocking: the United States credit rating downgraded from AAA?

Well, the following day of trading here in the U.S., Monday August 8, was quite turbulent. The S&P 500 dropped from 1,199.38 to 1,119.46, representing a 6.7% decline in stock prices.

Yeah, that scared the heck out of a lot of people.

I remember a conversation that weekend, where we were talking about how it was going to be that upcoming Monday. There was plenty of chatter in the personal finance blogosphere about it. We knew there would be some immediate impact.

That being said, there were some others that were really getting into a panic. A number of people talked about how stocks would plummet. I remember one individual talking about how he thought there might be a free fall. One blogger discussed pulling out of the market entirely, and putting money in cash.  Several of us tried to dissuade him.

Just over 2.5 months later, are we all talking about this? At all?

Now, I’m not minimizing what this downgrade represented. It wasn’t good. However, what I’m saying is that in reality, we tend to have short-term memories.

We just don’t talk about this as much anymore, in general personal finance circles. AAA companies in the market or not, this topic hasn’t been discussed as much. What was a crisis that got people panicked to the point of talking about pulling out of stocks entirely, is just not the hot topic of the day. The buzz – negative or not – is toned down quite a bit.

As of the most recent close, the S&P 500 stood at 1238.25. This is an increase of 10.6% since the S&P downgrade of U.S. Stocks.

Additionally, this increase means that the S&P 500 is actually higher as of this writing, 2.5 months later, than it was right before the credit downgrade. It’s actually increased 3.2% since then!

Think about it – despite all the panic, if you would have invested in the market right before the credit downgrade became widespread news, you could have seen your investment increase in value. Actually, 3.2% in just over 2.5 months is a pretty good return. We could have made money on this!

What does this tell us about how the stock market reacts to bad news – and then bounces back? Does the stock market overreact to bad news?

We actually saw a similar occurrence after the tragic Japanese tsunami earlier back in March 2011. The Nikkei plummeted from 10,254 right before the Tsunami (on March 11), down to a close of 8,605.15 two trading days later.  By March 31, the Nikkei was back up to 9,755. Clearly, there was a big bounce back in fairly short order – despite all the problems, including some involving nuclear plants. The markets there have since gone up and down (more down of late), but there’s no doubt that the market jumped back up off the canvas within no time after the events there.

My Questions for You:

Were you nervous about the markets after the credit rating downgrade news came out? Have you thought about this much less lately?

What do you think about the notion that the markets overreact to bad news, and these such times just might represent great buying opportunities?

Or, is that we just have short-term memory, and markets recover too quickly?

The Alligator Lady

Sometimes, it’s the prerogative of a blog owner to offer up a discussion about some situation that’s generating a ton of buzz elsewhere. I don’t do it often, but I have on a couple occasions.

I came across a news story that I felt worthy of some discussion. In this case, I’m sure there are some folks that would strongly agree with me, and many others who would just as strongly disagree with me. Which is fine.

The story in question is about a woman that caught a 900 pound alligator in South Carolina.  This lady is basking in the glory of conquering the mammoth beast, as can be seen in this video on Carolina Live.

According to the story, the lady went out for the purpose of hunting an alligator. This wasn’t self-defense – she was looking to kill an alligator for sport.

Anyway, she apparently hooked the beast, and struggled for 2 hours to get it near the boat. Once it’s head came above water, she shot it. Not once. Not twice. But eight times.

That wasn’t it. The gator was still moving, so she and her group then stabbed it a couple of times to sever the creature’s spinal cord.

Then, the animal was killed.  Does this really seem like a good time!?

Check out the video. The way she talks about it, there is excitement radiated by her over the killing of the gator. Was it apparently fun to notice this creature, then make it fight for it’s life for 2 hours, before shooting it 8 times and stabbing it multiple times to finish the job? She even laughs when mentioning how they stabbed it to go after the spinal cord.

Hmmm.

Now, I realize that alligators are dangerous predators, that can easily kill a human if they so desired. I’m not opposed to having an alligator disposed of if it poses threat to proximate human populations. If I saw one nearby, I wouldn’t feel the least bit sorry about it being eliminating it as quickly as possible, in order to save people.

That said, I don’t see why it’s necessary to go out of one’s way to torture and kill one, all in the name of “sport”. As I said up front, I realize that some folks will think I just don’t get it, I’m soft, or something of the like. Fine.

From a financial point of view, I find this to be ridiculous as well. I did some quick research, and it appears that the permits/fees alone cost the following:

  • $10 application fee
  • $100 alligator hunting permit fee (if lucky enough to be selected)
  • $200 non-resident fee

So, that’s $320 to have the privilege of being able to try to kill an alligator for fun.

On top of that, if you’re coming from out of state, surely you have some travel expenses, right? This person came from Massachusetts, which is not exactly a day trip. From Boston, MA to Columbia, SC, is about 800 miles. At 25 miles per gallon, that’s 32 gallons. At $3 per gallon, you’re at $96 – let’s say nearly $100 in gas each way. Round trip, perhaps we’re talking close to $200, without taking into consideration wear and tear.

When you factor in equipment, lodging, etc – the costs go up even more. Adding to it the cost of “processing” the dead alligator to recover some meat, getting it stuffed to show off later, etc – the costs go up way more one would think.

Maybe it’s over $1,000? More? Less? I don’t have the answer, but it’s clearly possible that this isn’t a cheap trip.

What else could one do with that money? Take a great, relaxing vacation somewhere else, perhaps? Or, maybe enjoy the outdoors some other way, such as hiking, kayaking, boating, etc. Or – get this – maybe save the money. Here’s another novel idea: give some of the money to charity.

Nah, there’s no better use of that money – or time – than to go traveling in order to get an alligator.

Cue the eye roll, please! To each their own, and I’m not questioning anything about the people who took the trip. It’s just that I happen to have different interests, it seems.