S&P Downgrade of U.S. Debt Would Be 'Right Thing'

BOSTON (TheStreet) -- On March 28, after a week that saw the Dow Jones Industrial Average jump 3%, money manager Jeffrey Sica predicted that the borrowing and spending by the U.S. would prompt a downgrade of U.S. debt. Four months later, it appears that gloomy prediction will come true.

Sica, who is president and chief investment officer of Morristown, N.J.-based Sica Wealth Management, a firm with about $1 billion in assets under management, says Standard & Poor's has to make good on the threat to downgrade U.S. debt or lose credibility forever.

With a debt deal now in place, Sica is bracing for a downgrade of U.S. debt by credit ratings agencies by making what some have called unpatriotic bets: short U.S. Treasuries, short the U.S. dollar, move to higher levels of cash and buy commodities like oil, silver and gold.

Standard & Poor's warned in June that it would downgrade the triple-A rating of U.S. debt if significant progress were not made in dealing with a ballooning deficit. The compromise reached by President Obama and congressional leaders over the weekend, which was approved during a House vote Monday evening, calls for up to $2.4 trillion in savings over the next 10 years.

While that raises the U.S. debt from $14.3 trillion through the end of 2012, the credit ratings agency had warned the U.S. would need a plan that would lead to $4 trillion in savings, although the agency has backed off that number in the last few days amid heavy lobbying from the government. "It's thuggery," Sica says.

With a Treasury-imposed deadline to raise the debt ceiling only hours away and with a Senate vote scheduled for 12 p.m. ET, investors have lost faith that Congress can reach a deal that will satisfy S&P analysts and avoid a downgrade. The Dow has dropped 4.7% over seven consecutive losing sessions, and futures were sinking lower Tuesday before the opening bell. Sica, though, isn't surprised by the market's reaction.

"In March, I looked at what a colossal failure our government had been at stimulating the economy, and I knew that there was no way these oppositional views would come together," Sica says. "Based on the divisive views from the two parties in Congress, you knew it was going to become an issue. The political divide was becoming extremely evident back in March. Now here we are at the precipice, and it's gotten even more divisive."

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