US loses Triple-AAA rating for first time

[dydx]

if you think US as a company, will S&P's, Moody's or Fitch give it an "AAA" or "AA+" rating?

A country cannot be compared with a company. When a company becomes insolvent or is saddled with too much external debts, the creditors can simply resort to liquidating its assets through legal means, and ends its life. But we cannot just liquidate a country when its government has over-borrowed from outside parties - short of starting a war, and allows the victor country (also a creditor) to annex all or part of the land of the loser (also the debtor) - and wipe it out from the surface of the earth. The only viable solution for the creditors is to work with the government of the country concerned to refinance/prolong the debts on more demanding but still mutually agreeable terms and conditions, in exchange for the country's commitment to reduce its high debts level over a reasonable period of time, by exporting more, selling some state-owned assets, promoting economic growth including more foreign direct investments, cutting government spending and deficits, etc. As the government of a country can mobilise all the resources (including the population) within the land, given the right political leadership and corrective measures, and enough time, a country should be able to resolve its external debt problems.

In a sense, a country's financial health and longer term economic survival, is beyond the competence and work of credit rating agencies like S&P and Moody's, and their ratings.

As investors we should be aware that a company with a 'AAA' credit rating does not guarantee investment success or no risk of a sudden massive financial failure, as history has shown many times before that even bonds and shares issued by companies with 'AAA' credit ratings had become worthless, sometimes suddenly. A credit rating like 'AAA' or 'AA+' is nothing more than a code to facilitate those investors who are too lazy to do an indepth analysis into a company or country on their own, and instead prefer to just rely on the opinion of a so-called outside expert. The fact remains, when a 'AAA'-rated company suddenly went bust, S&P had never reimbursed the investors of its bonds or shares, for their losses.

[freedom]

maybe "AAA" or "AA+" is mere a label, but this label can help US get funding and get cheap funding, which is really a myth.

[dydx]

This CNBC report on what WB said about U.S. losing its 'AAA' credit rating, is most interesting.....
http://www.cnbc.com/id/44056326?__source...&par=yahoo

WB's main argument is simple: U.S. Government debts are in effect claims on the largest economy on earth, and "as the richest nation in the world with a GDP of $48,000 per person, America should have no problem meeting that obligation". Can anyone beat that?

[desang]

It seems that what "the man" is saying is that they have a printing press which can continue to print more money and roll the debt into a bigger snow ball.. But it seems that there may not be any other choice at the moment.

If USA don't get their act together, the next step could be either Hyperinflation or devaluation of the USD.

[arthur]

WB's main argument is simple: U.S. Government debts are in effect claims on the largest economy on earth, and "as the richest nation in the world with a GDP of $48,000 per person, America should have no problem meeting that obligation". Can anyone beat that?

Then I would be even more proud to say that Singapore is one of the few remaining triple As sovereign bonds by Fitch, S&P and Moodys.

And I will dedicate this privilege to all our fellow citizens and NOT to the incumbent politicians, esp to our Nation's birthday tomorrow.

Remember that its the people that make up a nation, NOT the political party, however much they want one to believe how good they are in governing, esp. in uncertain times like now.

Personally I do not believe the Americans should be strike off as a "has-been" nation.

I haven't read WB's argument intensely but I guess its a simple case of if not US's bonds, who else could?

Could the US govt create enough employment and generate a next wave of innovation (think of TTM boom in 90s) to create a era of GDP growth?

Rise and Fall of the British Empire..
Well.. Rise and Fall of the American Empire. Takes awhile and two Great Wars to break up the Union Jack.

Cheers.

[brattzz]

"The fact remains, when a 'AAA'-rated company suddenly went bust, S&P had never reimbursed the investors of its bonds or shares, for their losses."

Well SAID!

[memphisb]

if i remember correctly, WB doesn't invest/trade on short side.

From bloomberg:
Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), whose top three shareholdings declined by about $1.6 billion last week, disclosed its biggest quarterly purchase of equities in almost three years.

Berkshire bought $3.62 billion of stock in the three months ended June 30, the most since it spent $3.94 billion in the third quarter of 2008, the Omaha, Nebraska-based company said late Aug. 5 in a filing. Equity purchases exceeded acquisitions of fixed-maturity securities for the first time since 2009.

Buffett, 80, turned his focus to stocks as Berkshire’s cash swelled and interest rates remained near record lows. The firm’s equity portfolio, which rose to $67.6 billion as of June 30, suffered last week as markets plummeted. Stocks around the world fell amid signs the U.S. economy was stalling and speculation that Europe will fail to contain its sovereign-debt crisis.

“He’s gotta put the cash to work somewhere,” said Tom Lewandowski, an analyst with Edward Jones & Co. “We’ve seen the market pull back, and this is the environment he likes to make investments in.”

Transatlantic Holdings Inc. said yesterday that Berkshire offered about $3.25 billion in a bid to break up the New York- based reinsurer’s deal to merge with Allied World Assurance Company Holdings AG. The equity market rout helped push down the value of Allied’s all-stock bid by about 13 percent from the last trading day before the June announcement through Aug. 5.
Stock Plunge

U.S. and European stocks posted the biggest weekly declines since November 2008. The Standard & Poor’s 500 Index fell 7.2 percent, erasing its gains for the year, while the Stoxx 600 Europe Index tumbled 9.9 percent to its lowest in 13 months. The U.S. government was stripped of its AAA credit rating by S&P on Aug. 5 after the close of New York trading.

Buffett, Berkshire’s chairman and chief executive officer, reported a 74 percent jump in second-quarter profit in the filing. Cash holdings climbed 16 percent in three months to $47.9 billion at the end of June as Goldman Sachs Group Inc. (GS) repaid Buffett’s 2008 investment. Net income of $3.42 billion was boosted by derivative returns and earnings from the company’s manufacturing and retailing units.

Buffett said Aug. 6 that while the market slump may hurt confidence, the U.S. will probably avoid a recession.

“Financial markets create their own dynamics, but I don’t think we’re facing a double-dip recession,” Buffett told Bloomberg Television’s Betty Liu. “Clearly what stock markets do have is an effect on confidence, and this selloff can create a lack of confidence.”
Economic Slump

Two-year Treasury yields fell to a record low on Aug. 4 as reports on manufacturing and consumer spending trailed economists’ forecasts. The European Central Bank has signaled it is ready to start buying Italian and Spanish securities to counter the sovereign debt crisis. Buffett said S&P made a mistake and the U.S. deserved a “quadruple A” rating.

Berkshire sold $200 million of equities in the three months ended in June, the second-smallest quarterly total in more than three years. The company spent $2.78 billion on fixed-maturity securities.

Buffett built Berkshire over four decades by acquiring businesses including car insurer Geico Corp. and betting on stocks like Coca-Cola Co. (KO) After debt markets froze in 2008, Buffett used more than $10 billion of Berkshire’s cash to finance New York-based Goldman Sachs, General Electric Co. and Swiss Reinsurance Co. In 2010, he spent $26.5 billion on the takeover of railroad Burlington Northern Santa Fe.
‘Recovery Bet’

Berkshire increased its stockholdings this year in firms it labeled “commercial, industrial and other.” That portfolio was $10.7 billion on June 30 on a cost basis, compared with $6.5 billion on Dec. 31. The “consumer products” portfolio was down 2.4 percent by that measure while holdings of “banks, insurance and finance” were up less than 1 percent.

“That is basically a recovery bet,” Glenn Tongue, a partner at Berkshire shareholder T2 Partners LLC, said of the increase in the commercial and industrial portfolio. “Equities are available today at prices where he’s almost certain to generate an adequate rate of return.”

Coca-Cola, Berkshire’s biggest shareholding, fell 1.8 percent last week, wiping $248 million from the market value of Buffett’s stake. Wells Fargo & Co. (WFC), the No. 2 holding, dropped 9.8 percent, lowering Berkshire’s holding by $935 million. The stake in American Express Co. (AXP), Berkshire’s third-largest stockholding, fell by $429 million as the credit-card company’s shares slipped 5.7 percent.

Buffett is overseeing changes to the stock portfolio after hiring former hedge-fund manager Todd Combs last year to help with investments. Berkshire bought MasterCard Inc. (MA) shares in the first quarter, the only publicly disclosed addition to Berkshire’s U.S. equity holdings. The company hasn’t filed its second-quarter list of holdings yet.

Berkshire agreed in March to buy Lubrizol Corp., the Wickliffe, Ohio-based maker of engine additives, for about $9 billion in cash. Buffett’s firm, which doesn’t pay a dividend, uses earnings and premiums from insurance units to fund investments and acquisitions.

[dydx]

In spite of S&P's down-grating of U.S. Government Treasury's long-term crediting rating to 'AA+', the actual market reality for U.S. Treasury debts is.....
http://finance.yahoo.com/news/After-the-...set=&ccode=
PRACTICALLY UNCHANGED!

[dydx]

In actual fact, after S&P's down-grating of U.S. Government Treasury's long-term crediting rating to 'AA+', U.S. Treasury's debts have experienced strong demand and even rising prices - i.e. their corresponding yields have since fallen again towards their historical low.....
http://finance.yahoo.com/news/Treasury-p...set=&ccode=
http://finance.yahoo.com/echarts?s=%5ETY...off;source=;

A relevant question: Are investors of U.S. Teasury's debts wrong, or is S&P wrong?

[Big Toe]

A case of 'no where else to run'.
Not many places where the governments around the world can put their money to work safely.
Or would you rather put your money in europe?

S&P is not wrong to cut the ratings, it's more of an indication of a lack of political will rather than anything else.
U.S. remains the headquarters and home to many wealthy individuals/multinational companies. There is a huge pool of
potential income(taxes). But the republicans and democrats just dont seem to be able to agree how to get the deficit in order.