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Monday, April 25, 2011

S&P Shows Spine


It's not surprising that politicians plead to stop Standard & Poor's credit warning, they cannot risk losing their pristine rating. After all, there is now a one-in-three chance that the S&P will downgrade the US Government's rating in the next two years. Considering S&P can't survive without government, though, I give them a lot of slack for doing it anyway.

By contrast, Moody's is taking a more positive tone: "Moody's baseline assumption "is that meaningful progress toward [reducing debt ratios] will be achieved within the next 18 months."

Good luck keeping that assumption with a straight face. This should be an interesting few years.

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  1. Under the Barney Frank hideous financial reg bill, a rating agency that gives a bad rating can be banned from the market. Obviously Moody got the shot across the bow that S&P's rating last week was a "bad rating", and so S&P could be excluded from the market, leaving Moody's the rating superpower.

  2. I didn't realize Buffett via Berkshire controlled Wells Fargo.   I'll be moving my account away from WF soon!

  3. It’s a strange world where the rating agency holds the power of financial destruction over the US, while the US holds the power of financial destruction over the rating agency. Strangely enough in this giant game of “Chicken”, I think the rating agency holds the upper hand. Yes, the government could break a rating company by excluding them from the market in revenge for giving US bonds a bad rating, but that could easily trigger a stampede of enormous magnitude out of the US bond market, costing the US hundreds of billions in interest as they flail about trying to sell their suddenly next-to-worthless bonds. Of course once the stampede happens, whatever rating company hung the albatross on US bonds is going to get hammered just as solidly as the US government can possibly manage, including baseless criminal charges.

    If the US Washingtonites were to put aside their partisan rhetoric, make meaningful cuts in the budget, substantial long-term fixes in entitlements, and budgetary reforms to keep the boom/bust cycle of spending under control once the economy rebounds, we would not have any problems with potential bond collapses. (we are so hosed)

  4. Shorting (a sale of commodities or stocks that the seller does not possess, depending for profit on a decline in prices) US Treasuries, that's hot!

    "The most obvious trade out there right now is to short US Treasuries. With the dollar trending away from being the world's reserve currency, interest rates at what amounts to be 50 year lows, everyone but the Federal Reserve worrying about inflation, and QE2 coming to an end --- what's an investor to do?"

    Seeking Alpha

    "Pimco’s Bill Gross revealed that he’d essentially dumped all of his Treasury positions in the world’s biggest bond fund.
    Now, Reuters is reporting that the $236 billion Pimco Total Return Fund (PTTRX) is shorting Treasuries."

    "I plan to sell short US government bonds sometime in the next few weeks, months. Interest rates all over the world are going to go higher. We have inflation, staggering debt problems and currency problems facing us. So interest rates are going to go higher."
    Jim Rogers, Chairman, Rogers Holdings

  5. The White House posturing on the debt limit and government shutdown has been to spend as usual and dare the GOP to precipitate a crisis. I think the smart move is to avoid crisis and continue to let Obama be the focus point for the ever worsening malaise on the budget, on jobs, on gas prices, on healthcare, and on the wars.