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Debt Downgrade

Is there an upside to the downgrade?

Marketplace Staff Aug 9, 2011
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Debt Downgrade

Is there an upside to the downgrade?

Marketplace Staff Aug 9, 2011
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STEVE CHIOTAKIS: Just about everything we’ve reported about the downgrade of the U.S. credit rating has focused on the havoc it’s caused. But the saying goes — there are two sides to every story.

So Marketplace’s Jeff Horwich is here to tell us about any upsides to this downgrade and market madness. Good morning, Jeff.

HORWICH: Hello, Steve.

CHIOTAKIS: Let’s start with markets. Is there any upside for investors?

HORWICH: So one of the perverse effects of the last few days is that people ran to the very thing that got downgraded: U.S. Treasuries. If you were invested there, you did OK. Precious metals, also a safe haven — so if you’re Scrooge McDuck already sitting on a big pile of gold, you’re happy. And then there’s the general upside of a stock market rout, which is that at some point it turns into a bargain. Frank Fantozzi of Planned Financial Services believes that point is now.

FRANK FANTOZZI: Savvy investors should recognize this is an opportunity to buy in at a discount considering this is comparable to the low point in 2009 when we were in our financial recession.

CHIOTAKIS: So all right, that’s the stock market — are there other upsides out there?

HORWICH: You see the price of oil is down — that could mean lower gas prices. It also, in a bigger sense, helps cool worries about inflation. Let’s say the downgrade is helping usher us into another downturn — retail expert Randy Allen at Cornell’s Johnson School of Management says hard times lead to good deals.

RANDY ALLEN: You know the drop in the stock market makes consumers feel less wealthy. If the house prices start to decline again I think consumers will tighten up and retailers will be forced to react, which will create opportunities for consumers for good buys.

HORWICH: And finally let’s not forget the big potential upside to the S&P downgrade: that it actually has the intended effect of kicking our politicians in the pants. That’s not so evident yet, but S&P just gave a whole bunch more reasons for politicians to feel the heat from voters — at least voters other than Scrooge McDuck.

CHIOTAKIS: All right, Marketplace’s Jeff Horwich. Jeff, thanks.

HORWICH: You’re welcome.

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