… AS USUAL, YOU ARE 3 STANDARD DEVIATIONS OF TIME LATE
Readers of Notes From Underground are aware of my total disdain for the three major rating agencies as they have sold their souls to the Wall Street money machine years ago. In an effort to regain some lost innocence, they are attempting to downgrade the nation-states of the world prior to economic calamity. The people at S&P were determined to downgrade the U.S. even when the U.S. Treasury pointed out that their math was flawed and the deficit going forward was off by a mere $2 trillion. Why should I put any value in a rating group that cannot even do the maths correctly and admit they were off by $2 trillion. Do we rally need the whores at S&P to tell us that the U.S. is a problem? Hey, GOLD is trading $1665. Don’t you think the market has already done its ratings?
If you are an ANALYST WHO DEPENDS ON THE WORK OF THE RATING AGENCIES YOU NEED TO BE IN ANOTHER BUSINESS. RATINGS ARE FOR THE PENSION FUND TRUSTEES WHO NEED SOME WEATHERMAN TO TELL THEM WHICH WAY THE WIND HAS BLOWN WHILE THEY SIT IN SOME INVESTMENT BANK’S SKY BOX AT YANKEE STADIUM. Oh, GREEK DEBT GETS DOWNGRADED WELL AFTER 2-YEAR GREEK NOTES CLIMB MORE THAN 10% AND 20%. AGAIN, THE MARKETS HAVE DONE THE RATING ALREADY. IT SEEMS THAT S&P IS GETTING ITS DATA FROM CARRIER PIGEONS WHILE THE INVESTORS OF THE WORLD ARE USING THE INTERNET.
The only question is why S&P decided at this time to downgrade the U.S. debt with so much other turmoil in the world. Would waiting until some stability returns to global markets have been a more prudent thing to do, especially knowing that the math you were utilizing was suspect and prone to error? It begs the question: Being that you are a private, profit-making group and people pay for your services ,to whom did you provide an early release of this “important” decision and how much money was earned? This will become the real issue as even the SEC should be able to examine the market data and secure some certainty about who was able to profit from S&P’s diligence.
Again, the GOLD MARKET HAS DOWNGRADED THE U.S. and Europe long ago. To S&P it is important to ask: WHAT TOOK YOU SO LONG? The only non-conflicted agency, Egan-Jones, downgraded the U.S. awhile ago so it is really no surprise.
The bigger issue for the markets tonight and Monday is whether or not the G-20 or G-7 has crafted a major bailout package for the European sovereign debt market. Rumors were/are running rampant about global phone conferences all through the weekend as WORLD LEADERS and FINANCE MINISTERS attempt to head off a major collapse of markets when Asia begins trading. Bigger than the U.S. downgrade, though, was a story in DER SPIEGEL over the weekend stating that the Germans believed that tripling the EFSF would still not make it big enough to save Italy.
If this story gains traction, it can be the main vulnerability to a very fragile global financial system. The DER SPIEGEL piece is very interesting because the ITALIAN 10-YEAR staged a massive rally on Friday as the BUNDS were sold very aggressively. Again, I urge you to be attentive to the Bund and Italian bond futures markets when they reopen on EUREX Monday morning in Europe. The stage is being set for a major announcement from the G-7 about a massive coordinated support package.
Also, remember that the keys to the IMF treasury are in the hands of France’s previous finance minister, Christine Lagarde, so be alert for the IMF to be throwing its financial weight into the mix. If the markets unravel you can be sure that all assets will be targeted and the havens will attain an even higher status. As my friend Dennis Gartman is fond of saying, WHEN THE WHORE HOUSE GETS RAIDED EVEN THE PIANO PLAYER GETS ARRESTED.
There is no question that the global financial system is on TENTERHOOKS for on Sunday the ISRAELI stock market closed down 7%. Will that be a precursor or a wakeup call for world leaders? Arise, arise, shake off the sand and get the needed support to the areas most in stress. Anybody AWAKE?
Tags: Bunds, Dennis Gartman, Der Spiegel, EFSF, G-20, G-7, Gold, IMF, Israeli stock market, Italian 10-year, S&P, SEC, U.S. downgrade
August 7, 2011 at 12:40 pm |
They’re not only asleep, they’re dreaming! Look at the statement from Merkel’s office late Friday: “”Markets caused the drama. Now they have to make sure to get things straight again.”
From: http://www.smh.com.au/business/armageddon-awaits-as-politicians-fiddle-20110807-1ihjo.html#ixzz1UMzgeIMQ
Kevin
August 7, 2011 at 12:44 pm |
One of the best post! So can we avoid another severe recession?
August 7, 2011 at 12:57 pm |
By the way, your friend is cutting Gold position in half, http://www.bloomberg.com/news/2011-08-05/economist-dennis-gartman-is-cutting-gold-position-in-half-1-.html
August 7, 2011 at 1:13 pm |
There are only two questions to ask today:
1. Who ordered and paid for the rating from S&P?
2. Did the purchaser order a very good, good, average, poor or very poor rating?
A rating agency makes money by selling ratings. In many cases, the purchaser buys a rating on itself to measure its debt-worthiness. For such a transaction, the purchaser wants the best possible rating it can get. The reason is that more worthy it is, the greater the sum it can borrow at a lower interest rate. Think about municipal debt and corporate debt.
Now, it is unlikely that the USA purchased a rating on itself from S&P. Why would S&P gratuitously downgrade America’s debt-worthiness for zero payment, knowing that S&P would catch heavy flak and have to spend time, trouble, effort and money to justify its actions.
Would it be unethical (or illegal) for the likes of PIMCO, Soros and others (I am not accusing them of anything – this is just an educational exercise) to purchase a downgrade of America’s debt? Let’s say that the purchaser had a good reason – they are short Treasuries or Dollars and felt that a downgrade would improve their investment positions.
A rating is just an opinion. An investor can take it or leave it. Or, the investor can blend the opinions of S&P, Moody’s and Fitch to come up with an AAA- rating.
August 7, 2011 at 1:20 pm |
Peter correct but the agencies do sell work to those who request it and also provide insight to people who pay for the raters proprietary analysis—what gets released to the media has already be disseminated to subscribers.There were rumors that certain media organizations were warned to be staffed as the announcement was coming out post 4 EST.
August 7, 2011 at 2:50 pm |
Ira I hope they interview you on TV about this more people need to understand whats going on and not panic..
August 7, 2011 at 3:48 pm |
Thank you Yra. You nailed it!
August 7, 2011 at 5:47 pm |
Bruce–nice to hear from you and that is very high praise–thanks
August 7, 2011 at 5:51 pm |
Spot on… Thanks for another gov’t failure tour de force.
Two items on this. Can we officially deem the Euro-zone bond markets in Jerry McGuire Mode: “Show me the money.” The problem for the Eurocrats is their dirigisme means they alway feel the authoritative ‘word’ is enough, and expect everyone will kiss the ring and wait indefinitely for the funding.
Yet, the more prescient point from your perspective is the downgrade may have already been in the market, as the Gold has readily demonstrated. Not yet below last week’s low, on my work the SEP SP500 would need to crack 1,126 to be really nasty.
What’re the bears so afraid of? Maybe a giant (and equally massively phony) outbreak of bonhomie in the US Congress now that they’ve been collectively attacked by an ‘outsider’? The LoveFest won’t make the equities a bull, but it may be enough to create more of a bear squeeze than anyone expects after the S&P downgrade…. We shall see.
Look forward to more Notes…
August 7, 2011 at 6:02 pm |
Yra, you have noted a few times in the past that you see the US 2year to be the one of the missed priced rates due to it’s use as collateral in the repo and commercial paper market…does this downgrade throw a wrench into the short term lending market due to the downgrade and its use as collateral?
August 7, 2011 at 6:27 pm |
Jason–that is the biggest issue facing the market.Most people I respect seem to believe it will not have an immediate negative effect.The bigger issue is the impact of haircuts on U.S. treasuries and whether that will have a deflationary impact as banks and other financials institutions will have to raise excess capital .The two years may well get another bid as its desirability for high rates repo capital
August 7, 2011 at 9:39 pm |
“There will be growth in the Spring”
&
“As long as the roots are not severed, all will be well in the garden”
Chauncey Gardner – 2012 Presidential Candidate
August 7, 2011 at 11:54 pm |
There’s a leak in the dollar bubble and it looks to be on a seam! Joshua Gamen http://youtu.be/a88viSfbQgk
August 8, 2011 at 7:13 am |
Imagine you’re a politician – your options are default, austerity, taxes or inflation. Which do you choose?
August 8, 2011 at 7:21 am |
Arthur—did u mean a leader or a politician.Leadership which has been severely lacking in this country for 16 years has cost us plenty–politicians are a million for 535 –but leadership is a missing element
August 8, 2011 at 8:13 am |
OK, good point. So imagine you are leader. Which do you choose?
August 8, 2011 at 8:59 am |
in the present time–I would take inflation first–as the first and easiet way to go–because the time wasted by geithner et.al trying to bail out the banks and not dealing with the mortgage issue is a major drag but solving the mortgages would have hurt the banks and of course for timmy that was no way to take place
August 8, 2011 at 9:15 am |
IRA,
at this moment in time, the market says that BAC is insolvent to bankrupt. So, BB will have to offload more of their paper at par. QE3 is either here now or coming very soon.
peter
August 8, 2011 at 9:53 am |
Peter–The market may be saying that the BAC is insolvent which is just one more log on the pyre of global capitalism.The idiots are running the asylum –there is no doubt about it
August 8, 2011 at 12:37 pm |
Thank you so much. Learning…
August 8, 2011 at 5:34 pm |
It’s time we all admitted to ourselves that the international banks are, for the most part, insolvent. Using inflation (which is a form of theft, let us remember, counterfeiting is illegal for good reason) as a “solution” will only take from the prudent and give to the profligate. Why should old retirees be reduced to eating cat food, all to save the Goldmans?
The American economist Condy Raguet wrote in the aftermath of the Panic of 1819, then again after the Panic of 1837, “bolstering up, too long, insolvent borrowers…is to prevent matters from settling down upon the solid foundation which the interests of the community demand”.
Yra writes, “Arise, arise, shake off the sand and get the needed support to the areas most in stress”. I ask, where will the powerful get that “needed support” from, except by ripping it from the pockets of the innocent.
We don’t need this insolvent wreck of a banking system, we need it to collapse so new men, honest men, prudent men can pick up the ashes and we can all move on.
August 8, 2011 at 5:44 pm |
To Writer X,
AMEN.
But, we are not in charge. We can only hold gold and silver and prepare for the worst.
peter
August 8, 2011 at 7:25 pm |
“The bigger issue is the impact of haircuts on U.S. treasuries and whether that will have a deflationary impact as banks and other financials institutions will have to raise excess capital .The two years may well get another bid as its desirability for high rates repo capital”
YRA- I hope you are making a ton of money trading…because i’ve been spinning my brain since Friday trying to put the pieces together with interest rates and the S&P DG, and your sentence observation is truely brilliant and so forward looking (it makes me think!)….you nailed it with the 2/10 spread and i think you’re going to nail it again with the short term funding market on short term debt.
…did you happen to catch Pete Yastrow’s take on the SP downgrade… http://www.peteryastrow.com/ …pretty interesting…
August 8, 2011 at 8:36 pm |
jason–yastrow’s work is always thoughtful and worth a look.First class person and thinker Peter is
November 20, 2011 at 2:38 pm |
mortage…
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