Real Madrid bankers, Bankia, pledge Cristiano Ronaldo as collateral for more ECB funds...Moody's rate loan AAA

Bankia, banker to the world famous Spanish soccer Real Madrid, is really up against the wall amidst the current Eurozone debt crisis.

...very creatively, they have pledged as collateral in return for more funds from the European Central Bank (ECB), the club's loan on the Cristiano Ronaldo transfer.

The 2009 deal made Ronaldo's transfer from Manchester United to Real the most expensive footballer in history. He is one of their "galaticos" - star players. The loan has been rated AAA by Moody's.

Ronaldo now achieves the distinction of having a credit rating higher than the United States government, which was downgraded from AAA to AA+ last Friday.

Should both Bankia and Real Madrid go bust, the ECB would own Ronaldo.

Let's also hope for Bankia's sake, Cristiano doesn't suffer any serious playing injuries...like breaking his toe anytime soon...a subsequent "negative outlook with risk of downgrade" attached to the loan's credit rating would not be in the world's soccer...and economic interest.

Spanish bank fields Ronaldo as collateral - Daily Telegraph

Standard & Poors Cuts USA credit rating from AAA to AA+...Federal Reserve on the defensive...next steps?

It was the biggest open secret in Washington DC the failure to satisfactorily tackle the USA debt ceiling debate was going to trigger an urgent ratings review which had been signaled by S&P earlier this year.

It's now happened. S&P announced the downgrade on Friday night around 8.30pm EST, Saturday morning 8.30am Asia. It was a monumental moment in the history of America.

The Federal Reserve had bet the farm QE2 last August and it has lost. The worst move here would be to double-down on QE3, because if it failed to rouse global markets in a sustained fashion, then the Fed's remaining credibility and "magic" would vanish in a puff of smoke.

Would you pull out your super bazooka American Express card now to patch over the last 3 years juggling act using the Mastercard to pay off the Visa debt balance?

The perception has now changed. Interest rates around the world are going to edge up over the next 6 months as the reference price of "risk-free" rates long revered in US Treasury bills are redefined. Should central banks decide not to move interest rates up in order to manage their fragile economies, then expect a degree of foreign exchange rate volatilty.

The impact for the next 6 months will be:

• The wealth effect will start to diminish as asset values become more "costly" to own and service. Will corporates and consumers continue to "pay more" and chase assets?
• Stock markets will have to rapidly adjust for and reflect the extra interest expenses within companies as debt (re)financing becomes more expensive. These are headwinds for those large leveraged companies and small businesses reliant on their bankers.
• Bonds prices trend downwards as investors rethink pricing in the context of a rising interest rate environment

What are the range of options and next steps available to ordinary consumers:

• Pare down stock market portfolios to eliminate as much market risk as possible, so long as financial markets remain vulnerable, and politicians lack real impetus to resolve sovereign debt concerns. Stay with boring stable companies eg utilities that generate dependable cashflows.
• Retain a strong cash component in portfolios to take advantage of potential fire-sale opportunities. Financial markets can over-react emotioally to the downside eg Oct. 2008 & Mar. 2009 as fundamentals get tossed out of the window in panicked dashes to the exits.
• Property investors (the above-water, positive-equity universe) should consider locking in their capital gains and take a breather.
• Assess the alternative of owning precious metals...gold and silver. Historically these have provided a store of value and risk/uncertainty hedge in volatile financial climates.

The US dollar's reserve status held since 1945 is waning. Over the last four weeks, the world has watched aghast as the internet era threw open the incessant bickering within the highest echelons of American government. The mantle of trust and faith in the creditworthiness of the USA, gingerly built up throughout the 20th century, is eroding. Asia is well positioned, but not guaranteed, to assume the economic vitality that has served America so well in the past.

QE3 will not be a panacea...more like Ben Bernanke riding to the rescue on a lame horse. Stay nimble and let the game come to you.

S&P 500 back to March 2009 lows...in gold terms...

On March 6th 2009, the United States Standard & Poors 500 (S&P 500) index made an intraday low of 666. Gold on that day was $965. Thus, the S&P 500 bought .69 ounces of gold.

Today, at the intraday high of gold and the low of the S&P 500, the index bought .73 ounces.

Therefore, in gold terms and/or in REAL terms as opposed to NOMINAL money terms, today’s action in the S&P 500 has propelled us basically back to the March ’09 low.

What this means is gold closing at US$1,648 today is not expensive / overvalued.

Given the choice to invest in a broad index fund or purchase gold bullion (government mint coins, private mint rounds, bars etc), albeit these do not pay interest and dividends, you can sleep peacefully without contending with all the financial markets' volatility and USA and Eurozone sovereign debt crisises.

Going forward, gold is in a bull market, it is a store of value, it's real money. The financial markets still are still rivetted with risk. I encourage you to research this and consider buying the physical stuff or a financial ETF (NYSE: GLD).

Are you middle class? One possible definition...

Are you middle class? Surprisingly, most people who think they are middle class, are not middle class.

It's refreshing to observe how enhanced global trade flows have enabled significant numbers of people in Asia to rapidly close the gap with their American and European peers.

A recent opinion on "Being middle class" at ChrisMartenson.com (a respected American economics and finance blogger) is being able to afford a dozen of the following items what most would expect a middle class family of 4 or 5 can afford:

1. Income (from job and/or investments) to financially support yourself and your family of 4 or 5 without resorting to government assistance when it comes to housing benefits, welfare assistance, etc.

2. Reasonable health insurance/health care for your family (assuming no major debilitating conditions).

3. Reasonable dental insurance/dental care for your family (cleanings, the occasional crown, braces for a kid or two, etc. with affordable deductibles).

4. Paid off all educational loans within 10 years of graduating college / university.

5. Savings for retirement, around 10% to 15% or more of income put into a pension plan or other investments to cover retirement at age 65, medical expenses, possible nursing home care, etc.

6. Savings for both short- and intermediate-term goals (such as one replacement computer/notebook, television, or home appliance a year; a gently-used replacement vehicle every 7 years for each spouse).

7. Savings for long-term goals (having a 20% down payment towards the purchase of a house near where you currently live within 10 years of entering the job market, having higher education / university expenses at least half-covered within 18 years of each child's birth).

8. Kids' stuff: school clothes, tricycles/bicycles, inline skates or other sports equipment, uniforms or musical instruments, allowances, help with a used car when they reach driving age, etc.

9. A family vacation for a week, at least once every year or two; a family vacation for a week at least 2,000 miles away, at least once every 5 years.

10. Taking the family out to a decent restaurant (not Pizzahut) at least once per week.

11. Some new clothes and shoes each year - no need to shop for second-hand clothes.

12. Debt-free except mortgage - i.e. credit cards completely paid off every month (or at most three months).

For Asia, I would add being able to employ a live-in maid to run a domestic household while one or both spouses are at work.

If you:
- are on government assistance,
- have delayed health care or dental care because of costs,
- cannot save 10% to 15% of your income towards retirement costs,
- are not able to save the equivalent of a 20% down payment towards a house (yes I understand you may not want to own, but you know the directional goal I'm driving towards),
- cannot afford to take vacations,
- are not able to pay off your credit card every month, etc.

then you're really not what traditionally would be defined as middle class. You're struggling or you're working class or lower middle class. Even if you might have an iPhone or some of the latest fashions, you're really deluding yourself.

This goes double if both spouses work and such a lifestyle still can't be afforded. Over 50 years ago, most middle class women in the United States and western Europe didn't even work outside the home.

Obviously, we are looking at financial behavioural traits here instead of focussing on absolute income thresholds, since cost of living indices vary across different countries.

However, when it comes down to the crunch, strong leading middle class indicators include the capacity to save for a down payment on a home, deploy an emergency fund, build up children's college funds, etc.

So feel to mention some other items that would be expected of a typical middle class family, that many who think they are middle class, actually can't afford.