A dreary market

What a hideous selloff in the last week... On July 27th, I mentioned that I was shifting a majority of my assets into cash (http://tradecnit.blogspot.com/2011/07/cash.html), and I'm glad I did. Everything suffered, even the biggest most reliable names. The "correction" has been brutal already, and presumably already prices in a number of things that people are fearing for next week. In particular, investors are freaking out about the US's downgrade from a AAA rating to a AA+ rating by the S&P. But frankly I think this should be seen as good news, for two reasons:

1. The downgrade "only" put the US down to AA+ rating - really it should have gone lower, so losing one notch might not be so bad.
2. Are investors blind enough that they didn't expect this to happen? the huge drop in the past 10 days must be already pricing in some of this, and really I think it would have ultimately been more damaging if rumors and expectations of a drop continued rather than a drop itself.

Of course, futures are down (about 2% as I write this post) and there's likely to be a lot of blood tomorrow. But if there's anything rational left in the markets, then they shouldn't drop too significantly during the rest of the week, or will perhaps even rebound mid-week.

That being said, keep some cash and some gold, and only invest in risk you're willing to bear.