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In last week’s Clarion, I opined that the decision by S&P to downgrade the sovereign rating of the United States was wrong. It is incomprehensible, to me, that the United States, being the most powerful, the most versatile, the most influential country in the world, could have a rating (AA+ with, I might add, a Negative Trend), that is lower than that of 18 other countries.

Has S&P now opened Pandora’s Box? How many of these triple-A-rated countries are going to be downgraded in the weeks and months ahead? That’s a scary thought! What is that going to do to global bond markets?

Let me take this scenario one step further, and say that I think the S&P ratings downgrade is irrelevant and should be ignored. More learned and influential people than I have already said so.

On July 7, the head of the European Central Bank, Jean-Claude Trichet, threw a crucial lifeline to Portugal that the ECB had already extended to Ireland and Greece, by choosing to ignore downgrades by ratings agencies and pledging to keep allowing those countries' banks to swap sovereign debt for fresh loans.

The market, itself, also agrees. Normally, when a ratings downgrade occurs, the cost to issue goes up and, therefore, the bonds of the Issuer decline in price. So, U.S. Treasuries should have gone down last week. In fact, they went up … a lot! With yields now down to just above 2%, an increasing number of advisors are saying “Sell”. But that is another story.

If nothing else, the S&P decision has focused worldwide attention on the weakened financial position of the United States. That Pax America must get its financial house in order is without question. And the squabbling in the House of Representatives has weakened U.S. influence on the world’s stage. This has created considerable uncertainty, as evidenced by the violent swings in the markets last week. My generation has never witnessed such see-saw turbulence.

The United States is a mess! Europe is a mess! None of the BRIC countries is yet ready to take a leading position.

The United States will sort itself out. It always has. But, in this instance, it is going to take some time. Maybe a long time.

I am begrudingly coming to the conclusion that this is going to react negatively on Western-World stock markets, maybe for an extended time.

The  Fed is running out of options. In my view, a further round of fiscal stimulus, although it would probably be positive for the stock market in the short term, would be dead wrong. Piling on even more debt, without a clear, concerted plan to address the real issues, just digs the U.S. into a deeper hole. Its deficit is already out of control: $53.1 billion, and counting.

So, what does an Investor do? Gold is already up 23% this year, and 44% over the last 12 months. Many believe it is going a lot higher. But seeking safety in a single type of investment has never been prudent. And a commodity at that! A commodity with limited industrial uses. Very scary!

In every market, some companies and their stocks will do well. But trying to determine which ones is very difficult. If you want to be in stocks, I would emphasize quality. Choose the leading company in those industries that are essential to global needs. An example is agriculture. 

Although a little more difficult to pinpoint, you can also look at companies that offer a product or service in a niche sector that everyone wants to have. An example is Apple and its award-winning iPhone and iPad. Ideally, find a company that is on the verge of a technological break-through. Like Microsoft before the PC burst on to everybody’s desk-top.

You want investments that let you sleep well at nights. Cash and GICs provide that, but offer miniscule returns. They are not going to provide a suitable retirement nest-egg. 

I advise selling speculative, at-risk investments, and have an appropriate cash holding with stocks from a mix of top-quality companies.

I also recommend being nimble. If a stock investment that looked promising when you bought it, but it doesn’t turn out, be prepared to sell to limit your losses.

As that old market adage says, “Sell your losers, and run your winners.”