- the prospects for a market facing global tightening and a possible debt downgrade.
The State of Play, Part 1 Posted at 11:17 a.m. EDT on Thursday, July 28. Which is worse, Washington vs. business confidence or emerging markets' central bankers vs. business? What happens if they both combine? And what happens if you throw in a European debt crisis? You get a hard patch. You get a bone-cruncher. You get this market. Sure, we can get breathers, relief rallies. The kind of action you are seeing now. Still, we have to face some facts here about short-, intermediate- and long-term problems, both temporal and structural. There are short-term considerations that seem to grow by the hour: Greek default, soft default in America -- no checks to certain suppliers but Social Security and interest/principal payments not stopped -- and the debt downgrade, which would most likely cause the selling of lower-rated bonds to bring an average debt portfolio a little higher to offset the declining U.S. ratings. > > Bull or Bear? Vote in Our Poll Those are causing some turmoil throughout all markets. They are putting a lid on the financials and are now being trotted out as reasons why the next quarter won't be so hot, a la the statements from Scott Davis, the chairman and CEO of United Parcel Service ( UPS). These are major reasons to stretch a soft patch into a hard stretch. Undeniable. Because when so many leaders say that we are on the verge of an economic calamity, you can't say, "No calamity, the water's fine." You look like an irresponsible joker. The closer we come to both a soft default on select payments and then an unthinkable hard default on our bonds, the more this talk can hurt us. It's the longer-term considerations that are now affecting us, the ones that say, OK, the markets we have relied upon to save us from our U.S. sins, notably emerging markets, are beginning to slow, because the central banks around the world from these markets want to cool things off to prevent inflation. They are using the only tool they know how, rising rates, and their methods are working.
The State of Play, Part 2 Posted at 1:03 p.m. EDT on Thursday, July 28. Third, trucks. Because of tremendous deferrals on new trucks from the 2008-2009 period and because of new environmental rules, we have tremendous pent-up demand, something that we saw with Cummins ( CMI - Get Report) that was obfuscated by Paccar ( PCAR). We got more of that with Federal-Mogul's ( FDML) terrific quarter this morning.