Interesting market situation has developed. The market has come down a bit, but the VIX has spiked some 19%.
Looks like the big-boys are protecting themselves for the obvious negative out come. Worst case being the debt ceiling not raised, but more likely a potential downgrade of US debt. A downgrade will cause a temporary shock to the markets because of market mechanics. There are too many funds that have in their by-laws to maintain specifically rated securities.
I don't think even a downgrade will happen. You don't bite the hand that feeds you, and not expect consequences.
Although I am curious to know how many funds right now are looking to change their by-laws to ignore agencies. With their threat, could they have inadvertently destroyed their relevance? (And this time, for real. :)
The current set-up is not projecting complacency at all, which is a good thing.
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