Major averages closed in the red on Friday and at the low end of their trading ranges on higher volume. Friday was an options expiration day. Dow 20,000 has thus far remained elusive and the media hype has reached a crescendo. We would note that back in 1999 when the Dow first flirted with the 10,000 level it briefly cleared 10,000 before going into a -4.6% correction.
Australia maintained its ‘AAA' rating at all three major rating agencies, but Standard & Poor's issued a ‘Negative' outlook, meaning a downgrade is possible in the next two years. Years of quantitative easing have weakened the health of financial structures. As we know, the S&P downgraded the US credit rating on August 5, 2011.
The question is whether further downgrades will hit various countries before the effects of QE can be reversed by a gradual tightening of monetary policy. The US Federal Reserve has tightened twice now while the ECB has reduced the level of its bond buying program. Other central banks may also follow suit if their economies can handle it.
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