1. Moody's Bad Date
Look Moody's (MCO), we know that our politicians can't get it together, but did you have to remind us on the one day the country actually tries to come together?
The ratings agency announced Tuesday - September 11th mind you - that it may downgrade the U.S. government's debt rating by 2014, citing the nation's debt to gross domestic product [GDP] ratio and the risks that Congress cannot agree to a new federal budget. Currently, Moody's blesses the U.S. government's bonds with its highest rating of Aaa, although it added a "negative" outlook last year, signaling that a rating review would likely yield a cut.
If, however, negotiations in Congress lead to a debt-to-GDP stabilization over the medium term, Moody's says "the rating will likely be affirmed and the outlook returned to stable."Of course, considering the cast of do-nothing knuckleheads now occupying Washington that's one big freaking "If." Certainly last summer's disastrous debt ceiling debate offers us little confidence that anything will be different this time, and the upcoming fiscal cliff coupled with Presidential election only steepens our concern. Then again, while the Dow fell more than 600 points on the first day after Moody's rival Standard & Poor's went ahead and stripped America of its pristine AAA rating, the yield on 10-year U.S. Treasury bonds has actually fallen as much as 100 basis points, or one full percentage point, over the past year. So if that's the case, who gives a flying you-know-what about what Moody's et al have to say about our country's credit? Weren't they the same blind mice who gave AAA ratings to thousands of toxic mortgage bonds and then went running when the resulting contamination decimated the global economy? Well, unfortunately we have to give a flying you-know-what, and, even more unfortunately, yes they were. You see, like our currently incapacitated Congress, these ratings agencies are the only ones we've got, lousy track records notwithstanding. That means banks and pension funds around the world still take their cues about what they can and cannot hold from the likes of Moody's. And just because rates sank last year after their initial warnings doesn't mean they were wrong about the deteriorating state of U.S. credit and the long-term threat of higher yields (and lower bond prices). Lots of other forces affect the price of Treasuries including massive Fed-buying and even more massive worries about the future of Europe. Put simply, Moody's could just be early with its September 11th call. In fact, they probably are ahead of the curve, yield and otherwise. But why couldn't they have been a single day earlier? --Written by Gregg Greenberg in New York.
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