As you may recall in September of 2012, ratings firm Egan-Jones slashed the U.S. bond rating to AA- following the announcement of QE3. With Federal Reserve stimulus now more than double what it was in September, we should be on the lookout for another possible downgrade to U.S. treasury bonds in 2013 as the US debt-GDP ratio continues to widen. Looking to Europe, the ECB will most likely be forced to ease as well to push the EURUSD lower or face a currency devaluation that would be insufferable. Going forward, the Fed said it plans on continuing this “stimulation” until the unemployment rate falls below 6.5% and inflation projections remain no more than half a percentage point above 2% two years out. The empirical relationship between unemployment and the S&P 500, coupled with the possibility of going over the fiscal cliff increasing with every day, we could very well see a retracement in the S&P to 750.
