Fannie and Freddie Boost S&P Outlook for U.S.
NEW YORK ( TheStreet) -- Standard & Poor's on Monday revised its ratings outlook for the U.S. to "stable" from "negative," in part because of the huge dividends being paid to the government by Fannie Mae (FNMA) and Freddie Mac (FMCC).
S&P affirmed its "'AA+/A-1+" sovereign credit risk rating for the U.S., while saying that the revised stable outlook indicates "the likelihood of a near-term downgrade of the rating is less than one in three."
The main factor driving S&P's lowering of its sovereign rating for the U.S. from "AAA" in August 2011 was the inability of Congress and President Obama to agree on measures to trim the country's budget deficit.
But on Monday, the ratings firm said it expected "the U.S. general government deficit plus non-deficit borrowing requirements to fall to about 6% of GDP this year (down from 7%, in 2012) and to just less than 4% in 2015.""Aside from tax hikes and expenditure cuts, stronger-than-expected private-sector contributions to economic growth, combined with increased remittances to the government by the government-sponsored enterprises Fannie Mae (FNMA) and Freddie Mac (FMCC) (reflecting some recovery in the housing market), have led the Congressional Budget Office (CBO), last month, to revise down its estimates for future government deficits," S&P said. Fannie and Freddie -- known as the government sponsored enterprises, or GSEs -- were taken under government conservatorship in September 2008. The two companies hold a combined $5.2 trillion in mortgage paper and are required under their revised bailout agreements to pay nearly all of their earnings as dividends to the U.S. treasury. The reliance on GSE dividends for the improving fiscal picture underscores the point made by KBW analyst Bose George in a report on Sunday, when he wrote that private investors are unlikely to see any gain from their holdings in shares of Fannie and Freddie . "Congress, especially Democrats, would find it difficult to explain to constituents why the government has to raise taxes or cut spending on programs like food stamps or Medicare while institutional investors are benefiting from the rescue of Fannie and Freddie," George wrote. S&P said that in addition to the CBO estimates, it factored in its own "somewhat more cautious economic forecast and our expectations for the state-and-local sector." In addition to the revised CBO estimates, S&P pointed to another "tentative" improvement: "Republicans and Democrats did reach a deal to smooth the year-end-2012 'fiscal cliff', and this deal did result in some fiscal tightening beyond that envisaged
Email. Follow @PhilipvanDoorn
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV