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Subject:  Re: S&P cuts U.S. outlook to negative Date:  4/20/2011  6:11 PM
Author:  charliebonds Number:  32697 of 36468

Lokicious, Sir.

Contrary to your claims of their irrelevance, what the S&P has to say about US sovereign debt matters to all investors, both domestically and globally, as anyone with any real interest in the bond market knows. Yes, the three, officially-sanctioned rating-agencies have erred on occasion. Yes, in this instance of putting the US on Negative Credit Watch, they are 10-15 years late. But their opinions matter to all investors, and the fact of US being placed on Negative Credit Watch will impact interest-rates for everyone, some negatively, some beneficially so, as anyone with a real interest in debt-markets understands.

What can be known with a high degree of certitude is that S&P won’t actually down-grade US debt, nor will Moody’s, nor Fitches. The major three are simply positioning themselves to achieve a win-win for themselves. If the Congress doesn’t enact serious budget reforms and a recession/depression ensues, they can say, “We warned you.” If sufficient reforms are enacted to kick the debt can down the road a bit further, then they can again claim victory.

My experience with bond-ratings is this. Those who complain the loudest about the rating-agencies cannot do their own credit-analysis. So they whine that “We wuz tricked; we wuz robbed; we wuz deceived.” Any securities rating (stock, bond, derivative, whatever) is merely an informed opinion with which anyone can disagree. What matters is knowing when the rating-agencies have gotten things right (which they do about 85% of the time) and when they have gotten things wrong.

Complain about S&P and their ratings if you want to, but I’d say this: "A poor workman blames his tools." Bond-ratings are just that, a tool that the skilled use skillfully and the not-so skilled complain about.


PS I'm glad to see you're posting again.
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