Aug. 8 (Bloomberg) -- Bill Gross, manager of the world’s biggest bond mutual fund, said Standard & Poor’s showed “spine” by cutting the U.S. debt rating, contradicting Warren Buffett and Legg Mason Inc.’s Bill Miller, who said the rating company erred.Buffett keeps on calling the bull and asking for the government to channel money from the american's pockets to his hedge fund.
“I think S&P has demonstrated some spine; they finally got it right,” Gross said in a Bloomberg Television interview with Tom Keene yesterday. The U.S. has “enormous problems,” he said, referring to the country’s mounting debt.
S&P on Aug. 5 lowered the U.S. one level to AA+ while keeping the outlook at “negative” as it becomes less confident Congress will end Bush-era tax cuts or tackle entitlements. The U.S. merits a “quadruple A” rating, Buffett, 80, said in an interview with Betty Liu on Bloomberg Television. Legg Mason’s Miller said S&P was “precipitous, wrong and dangerous” in lowering the rating after last week’s stock market selloff.
Aug. 7 (Bloomberg) -- Billionaire Warren Buffett said Standard & Poor’s erred when it lowered the U.S. credit rating and reiterated his view that the economy will avoid its second recession in three years.The Treasury obviously barks. But listen to Coburn below, could he be more spot on?
The U.S., which was cut Aug. 5 to AA+ from AAA at S&P, merits a “quadruple A” rating, Buffett, 80, said yesterday in an interview with Betty Liu at Bloomberg Television. The downgrade followed the biggest weekly selloff in U.S. stocks in 32 months, with the S&P 500 slumping 7.2 percent to its lowest level since November.
“Financial markets create their own dynamics, but I don’t think we’re facing a double dip recession,” said Buffett, chairman and chief executive officer of Omaha, Nebraska-based Berkshire Hathaway Inc. “Clearly what stock markets do have is an effect on confidence, and this selloff can create a lack of confidence.”
Aug. 7 (Bloomberg) -- The U.S. Treasury Department said there is “no justifiable rationale” for Standard & Poor’s move to downgrade the nation’s credit rating as global finance ministry officials prepared responses to the historic announcement.S&P Seen Surrendering to Tea Party at Expense of U.S. Taxpayer — See how much negativity there is in this report (see emphasis):
The Treasury Department issued a statement saying S&P had acknowledged an “error” in its calculations and that the rating company made a $2 trillion mistake.
[...] Senator Tom Coburn, an Oklahoma Republican and a member of the so-called Gang of Six that has been working since early this year on a bipartisan deficit-reduction plan, said the S&P downgrade was “probably long overdue.”
“For decades, political careerism has trumped statesmanship in Washington,” Coburn said in a statement yesterday. “Both parties have done what is safe, not what is right. The dysfunction in Washington is the belief that we can live beyond our means forever. We can’t.”
Aug. 8 (Bloomberg) -- Standard & Poor’s, the rating company that downgraded the debt of the United States to AA+ from AAA for the first time, now finds itself assailed by investors led by billionaire Warren Buffett for making a political decision that has more to do with Tea Party politics than the financial stability of the U.S.
The New York-based subsidiary of McGraw Hill Cos., whose inflated grades of mortgage-backed investments -- paid for by the banks that created the toxic debt -- were blamed by Congressional investigators for fueling the financial crisis, rattled investors around the world and provided fodder for President Barack Obama’s rivals in the 2012 elections. U.S. equity futures and global stock markets tumbled, oil sank and gold rallied to a record.
“Clearly the ratings downgrade was a ‘political decision’ in the sense that the politics explained the timing of this, because the numbers have been irrefutable for a decade,” said Robert Litan, vice president for research and policy at the Kauffman Foundation in Kansas City, Missouri. “It gives an enormous amount of ammunition to the Tea Party. They said the deal didn’t go far enough and they’ll say ‘see.’”
S&P’s action may hurt the U.S. economy over time by increasing the cost of mortgages, auto loans and other lending tied to the interest rates paid on Treasuries. JPMorgan Chase & Co. estimated that a downgrade would raise the nation’s borrowing costs by $100 billion a year. The U.S. spent $414 billion on interest in fiscal 2010, or 2.7 percent of gross domestic product, according to Treasury Department data.
BlackRock Inc., the world’s biggest money manager, and Buffett, the chairman of Omaha, Nebraska-based Berkshire Hathaway Inc., said the decision doesn’t reflect any inability of the U.S. to pay its debts.
John Bellows, the Treasury’s acting assistant secretary for economic policy, said in a blog post that S&P initially overestimated future deficits by $2 trillion over 10 years. “After Treasury pointed out this error -- a basic math error of significant consequence -- S&P still chose to proceed with their flawed judgment by simply changing their principal rationale for their credit-rating decision from an economic one to a political one,” he wrote.
S&P said in a statement that the revision lowered its forecast for the debt-to-gross domestic product ratio in 2015 by two percentage points and didn’t affect its ratings decision. S&P said in the Aug. 5 report that the ratio of debt to GDP would reach 77 percent in 2015 and 78 percent by 2021.
“The old fashioned ratings agencies where humans make the decision to downgrade are always wrong,” Christopher Whalen, managing director at Institutional Risk Analytics, said yesterday in a telephone interview.
S&P came under scrutiny for ratings of financial products linked to subprime mortgages after losses and writedowns by the world’s biggest financial institutions reached $2.1 trillion.
The Financial Crisis Inquiry Commission called S&P and Moody’s “key enablers of the financial meltdown” in its January report. In April, a Senate panel said that the rating companies engaged in a “race to the bottom” to assign top grades on mortgage-backed securities in order to win fees from banks.
“There is no reason to take Friday’s downgrade of America seriously,” Nobel Laureate Paul Krugman said in a New York Times column. “These are the last people whose judgment we should trust.”
“To downgrade you have to argue there’s an increased chance that we won’t pay our debts,” said Peter J. Solomon, founder of New York-based investment bank Peter J. Solomon Co. and a one-time counselor to the Treasury Secretary under President Jimmy Carter. “I don’t think that’s been proven, I think it’s been proven that we always will pay our debts.”
[...] Alice Rivlin, former President Bill Clinton’s budget director who served on a fiscal commission Obama set up last year, called the downgrade “entirely symbolic.”
S&has no inside information and has done no original research, so they aren’t telling anyone anything they didn’t know already,” Rivlin said in an e-mail. “It is not like downgrading a company or a complex security, where they might actually be contributing new information -- although their track record before the crisis doesn’t inspire confidence there either.”
Perma-Bull Carl Futia goes out of his way (usually ignoring market and political news) to join the herd and bark at S&P and being completely ignorant when it comes to economics knowledge, he makes quite a few silly and unwelcome personal attacks:
After Friday's close the credit raters at the S&P downgraded their ratings of US government debt securities from AAA to AA+.
I think the S&P rating folks are imbeciles and don't deserve to be taken seriously by adults. Why?
1. Their understanding of real estate economics led them to rate the vast majority of mortgage backed securities AAA back in 2005-07. This alone should be sufficient to destroy their credibility among thinking people.
2. Their downgrade of the US is based purely on predictions of what the politicians will or won't do. I find it hard to believe their political forecasts are better than their real estate forecasts.
3. As I have often pointed out it is impossible for the US to default on debt servicing and repayments. We borrow in our own currency which we can print at will.
4. RE 3. - If the world was worrying about US failure to repay why have treasury securities been rallying the past week as investors flee to quality?