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Yesterday, ratings agency
Moody’s downgraded Greek debt four levels to non-investment grade or “junk”
status yesterday. The downgrade triggered a late slide for stock prices and
what started as a bullish continuation of last week’s gains ended up as a down
day.
Yeah, I’ve really missed
having Greece in the news.
Ultimately, Moody’s
downgrade is based on skepticism that the reforms Greece has put in place can be maintained.
Vice president-senior
analyst for Moody’s sovereign-risk group Sarah Carlson told Bloomberg “We’ve
got a lot of uncertainty around the growth outlook for Greece…It’s rare for a
country to implement so much structural reform in a very short time.”
In its statement, Moody’s
acknowledged the possibility of Greek default is low. Still, the potential for
default is higher than it was, so despite the stable outlook, the downgrade is
official.
I’m starting to think that
the ratings agencies are being extra vigilant when it comes to potential debt
issues. I’m sure they are hyper-aware of the criticism they’d face if they miss
another big debt story.
Of course, the downgrade may
make Greek debt more expensive, and if it didn’t have a line of credit with the
EU, that could actually cause more problems.
It’s likely that Greek bonds
will fall in value after this downgrade. But I don’t think the effect on the U.S. stock market will linger.
After all,
three of the past six trading sessions have started in the green and ended in
the red. And still, the stock market has managed to advance.
1,105 is still acting as
resistance on the S&P 500. I expect we’ll see a move above that level, but
it may take a few attempts. I still believe the potential for earnings warnings
is hanging over the market’s head, so every day that passes without one is good
for the bulls.
One kind
and very well-informed Daily Profit
reader wrote to ask me for my opinion about an Oil Exploration ETF. I hate to
admit it, but I think I accidentally deleted that message.
So now would probably be a
good time to tell you that I love the responses I get from you, and I read
every single one of them.
I went ahead and looked up
“Oil Exploration ETF” on Yahoo! Finance and I found the S&P 500 Oil &
Gas Exploration and Production ETF (XOP). I was pleased to see that there isn’t any exposure to Gulf of Mexico in this ETFs major holdings. (At the same time, I
only gave the fund a cursory look.)
I was, however, disappointed
to see that the fund’s performance has not been stellar. It’s traded roughly
between $35 and $45 since last Autumn. And even when oil was at $147 a barrel,
this fund fetched $70 a share. Now, that’s not a bad gain from current prices
around $43. But if I catch a $75 advance for oil prices, I want to do better
than a 62% gain in my investment.
In other words, there are
oil stocks out there that will post several hundred percent gains if oil moves
back to its all time highs. And I think I have several in the Energy
World Profits portfolio right now.
And besides, like a good oil
E&P company, I thrive on the discovery of dynamic, little-known companies.
Still, you could do worse
than XOP. And an ETF will protect you against stock specific bad news. And
there’s something to be said for stability.
I hope that helps, and I
promise to be more careful with the “delete” button in the future.
Finally, keep your comments
coming to [email protected]