"While we politely disagree with David Rosenberg on what is the ultimate flight to safety "security" (in our insolvent day and age perhaps the very word at the heart of capital markets needs to be changed), with him believing in bonds, predicated by a fear of an eventual deflationary crunch, while we ignore any instrument that is used a policy tool by the central planners and instead prefer precious metals, we always are impressed by his ability to synthesize reality in a few succinct bullet points (even if according to Eni's Recchi itself is irrelevant after saying that "Italy’s bond yields don’t reflect reality"). That is most certainly the case today when in his latest Breakfast with Dave letter to clients, Rosie summarizes the 7 reasons why "we should be worried."
From Rosie:
• S&P has come out and said that it may downgrade the U.S. government in July, whether or not there is an impasse in the debt ceiling talks. We've never had the experience of having the world's reserve currency at least not attaining AAA status. It may not lead to anything, but it will be something we have not had to confront before as investors. Don't forget that it is not just $9.7 trillion of Treasury bonds that would be affected, but the $7 trillion of Fannie Mae and Freddie Mac debt, and the other $130 billion of AAA-rated state and local government debt plus bank bonds insured by FDIC — plus countries like Israel that rely on the backing of the U.S. government. And what about the $2.7 trillion repo market tied to U.S. Treasuries? A default could trigger a giant margin call for the banking industry. You see, the effects are quite far-reaching..."
at http://www.zerohedge.com/article/rosenberg-explains-why-we-should-be-worried?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
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