Barron’s (January 3)
“Of all the fearless forecasts put out there for the new year, one conspicuously missing from those lists is probably the easiest one: The United States of America will lose its last remaining triple-A credit rating.” Standard & Poor’s was the first to lower its rating on U.S. government debt in 2011. In 2023, “Fitch Ratings followed suit.” That November, Moody’s Investors Service “lowered its outlook to negative.” It seems inevitable, especially given Trump’s desire for tax cuts, that Moody’s will eventually lower its Aaa rating as well. “Given the lack of serious measures, so far, to slow the government debt growth, the U.S.A. doesn’t merit a triple-A rating.”
Tags: 2011, 2023, Credit rating, Fearless, Fitch, Forecasts, Government debt, Inevitable, Lower, Merit, Moody's, Negative, Outlook, Rating, S&P, Tax cuts, Triple-A, Trump, U.S.
Financial Times (January 9)
“Investors looking for haven assets are increasingly having to pay up for the safety they provide as the volume of negative-yielding eurozone government debt has swollen to a record €1.2tn.” The change to assets you effectively pay to hold is unprecedented. At €0 in June 2014, this negative-yielding debt now accounts for roughly one quarter of outstanding eurozone sovereign debt, mostly “concentrated among the short-dated debt of core eurozone countries.”
Tags: Assets, eurozone, Government debt, Haven, Investors, Negative-yielding, Safety
Forbes (May 5, 2013)
Urging financial institutions to adopt one-size fits all risk models has can be disastrous. “We have real-life proof of the folly in this kind of forced uniformity: the Basel Accords. For years regulators around the world have been concocting uniform risk assessments to judge bank loans. The results of this exercise have been disastrous. Banks had to hold no reserves against government debt yet hold hefty set-asides for business loans. Greek government bonds were seen as infinitely safer than a loan to, say, IBM. Mortgage-backed securities also got preferred regulatory treatment–and we all know where that led.”
Tags: Banks, Basel Accord, Government debt, Loans, Mortgage-backed securities, Regulators, Reserves, Uniform risk assessment
Economist (December 29)
America’s economy is looking better, but investors should “proceed with caution.” While forecasting America’s economy will grow by nearly 4% in 2011, the Economist points out “share prices are meant to be based on more than just the next 12 months’ earnings, and the medium term is as treacherous as ever; perhaps more so.” Chief among the concerns is “the American government’s inability to sort out its finances in a credible way.”
Tags: Economic oulook, Government debt, Investors, U.S.
