Investing on Standard & Poor’s downgrade of U.S. debt rating

“Standard & Poor’s move to lower the company’s outlook on the long-term rating of the U.S. sovereign debt to negative may have caught investors by surprise, but Michael Pento, senior economist with Euro Pacific Capital, has been making this case for years,” Robert Holmes reports for TheStreet. “‘It’s not a surprise to me,’ Pento says of Standard & Poor’s revision. ‘It’s clearly late. But at least S&P is now waking up to the fact that the American sovereign debt picture is unsustainable and eventually we have to default on our debt in some form.'”

“In the report released Monday, S&P analysts write that there is a ‘material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013,'” Holmes reports. “If an agreement is not reached and meaningful implementation is not begun by then, S&P analyst Nikola Swann writes, the U.S. fiscal profile would be rendered ‘meaningfully weaker than that of peer ‘AAA’ sovereigns.’ …If being late weren’t maddening enough to critics, S&P’s Swann offers an irritating 1-in-3 likelihood that the firm could lower the long-term rating on the U.S. within two years.”

Holmes reports, “The timing of S&P’s release of the report may be confusing, but investment managers argue it’s easy to invest on the news… Andrew Fitzpatrick, director of investments with Chicago-based Hinsdale Associates, says investors should manage risk exposure by diversifying and cushion the shocks in the market. He argues that there are a lot of risks inherent to metals and commodities. “Despite being a hedge, it could suffer losses by correlating closer to the stock market,” he says. Instead, Fitzpatrick turns to market-leading dividend payers like Procter & Gamble (PG) and Tyco International (TYC) for downside protection and global exposure, and he looks to growth names like EMC (EMC) and Apple (AAPL) as tech names for upside opportunity.”

Read more in the full article here.

[Thanks to MacDailyNews Reader “Broker” for the heads up.]

35 Comments

  1. It is no surprise S&P would downgrade US debt. The current administration wants to spend $1.6 trillion more than it takes in and has a recent history of screwing creditors (see Chrysler bondholders). All US stocks will take massive hits as long as the government is implementing aggressive socialism that puts a target on all private capital. Apple will be hurt as well, even though it has famous liberals running it. There will not be an escape when hyperinflation hits in full and the market collapses. It will take decades for adults to rebuild once the current arsonists complete their intended destruction of the American economy, which they hate with a passion.

    1. You’re repeating the same silly logic of the last 50 years. It doesn’t work; get over it. And get over your vapid claims of ‘hate’ that you apply to anyone who doesn’t share your prejudices against people who have the temerity to have a different world view than you. You are just being insipidly childish.

    2. “It will take decades for adults to rebuild once the current arsonists complete their intended destruction of the American economy, which they hate with a passion.”

      Shush, the guys at Goldman Sachs don’t want everybody to know their secret…

    3. Kent, I strongly advise you to hedge your downside risk by buying my double-priced commemorative gold bullion sets. Stash them in your backyard bunker with your canned peaches and black market Slovakian cop-killer ammo and you’ll be well-prepared for the socialist IRS/ATF death squads!

    4. Yeah? Well up here in Canuckistan we have the economy that is leading the G8 in growth. So much for your dumbass remarks about socialism. Whether Obama, or anyone for that matter, can ever get you out of the hole that GWB dug is the question. Good luck.

  2. The solution is simple. The administration just has to increase taxes.
    Massively.
    Unfortunately, this also means most likely the end of the “American way of life”.
    Because, I don’t think they’ll tax assets (money, real-estate) but usage (VAT, fuel – whatever).

  3. This is a thought experiment, because Democrats don’t need any more ideas. But it’s still a useful experiment because it exposes the fiscal futility of raising rates on the top 2%, or even the top 5% or 10%, of taxpayers to close the deficit. The mathematical reality is that in the absence of entitlement reform on the Paul Ryan model, Washington will need to soak the middle class—because that’s where the big money is.

    Mr. Ryan isn’t proposing controversial entitlement reforms because he likes pointless political risk, or because he likes being berated to his face from a front row seat, as he was on Wednesday. Medicare and Medicaid spending are consistently growing two to three times faster than the rest of the economy, while Medicare’s cash-in-cash-out financing model means that seniors collect far more in benefits than they paid in taxes over their working lifetime. The entitlement state was designed for another era.

    Mr. Obama’s speech was disgraceful for its demagoguery but also because it contained nothing remotely commensurate to the scale of the problem. If the President had come out for a large tax on the middle class, like a VAT, then at least the country could have debated the choice of paying for the government we have or modernizing it a la Mr. Ryan so it is affordable.

    Instead the President will continue targeting the middle class for tax increases to pay for an entitlement state on autopilot, while claiming he only wants to tax the rich.

    Full article: The Wall Street Journal, April 17, 2011

    1. You lie:

      “In the first independent analysis, the nonpartisan Congressional Budget Office concluded that President Obama’s budget would rack up massive deficits even after the economy recovers, forcing the nation to borrow nearly $9.3 trillion over the next decade.”

      SOURCE: CBO, White House Office of Management and Budget | The Washington Post – March 21, 2009

      The graphic explains The Obama Failure quite concisely here:
      http://www.washingtonpost.com/wp-dyn/content/graphic/2009/03/21/GR2009032100104.html

        1. The analysis being from two years ago makes it look better for Obama than it really is. If anything, it’s worse as rampant unemployment continues to drain a stagnant economy. The Bush years are fully contained within the graph I have provided and they help to illustrate the insanity of The Obama Failure very nicely, thanks.

            1. Meaningless. I don’t participate in class envy or warfare. I did pay U.S. taxes, if that’s at least a part of what you’re asking. I am a producer and a contributor, not a leech. I believe that most of my tax dollars are wasted on things the Federal government was never intended to do. I’d much rather pay higher taxes to my state and let the state decide how to use the money without federal interference.

            2. By income, you can bet he is. By compassion, he’s in the bottom 0.2% and by intellect, he’s in the backyard bunker with his friend Kent and their Glenn Beck gold bullion…

            3. Fredo,

              Your problem is measuring compassion by how many federal tax dollars are pilfered from the producers and wasted within an overreaching bureaucracy. I give a fair amount to charities each year (charities in which I know the beneficiaries are receiving the promised services) as far more Republicans than Democrats do: http://www.nytimes.com/2008/12/21/opinion/21kristof.html

              Your definition of “compassion” is the problem here, not my level of income, my views on federal vs. state government, taxes, or anything else.

            4. I suspect the part of my “compassion” that you really disagree with is that I’m happy to contribute to a basic safety net for all Americans, regardless of their religious beliefs or skin color. How many of those “charity” dollars that GOP contribute are tied to religion, or benefit only their local white-bread communities? Compassion means compassion for all in need, not just for your same-thinking neighbors.

      1. Please. You have no clue about the US debt. Since the end of WWII, the top three deficit spenders as a function of GDP are (1) Bush 2, (2) Reagan and (3) Bush 1. Democrats are “tax and spend”. The “new” Republicans are “spend but don’t tax”. I want Republicans like Eisenhower, Lincoln, Teddy Roosevelt. Unfortunately, today they’d all be called RINOs. The party of Lincoln has gone extinct.

          1. Definitely get Grandma out of the way before 2012’s Hummer (purchased with Bush business tax incentives, but he forgot about that) roars right over her– since with no more Medicare, you’ll pay her hospital bills out of pocket!

            And, don’t forget to get your kids out of the way when deadly pollution roars uncontrolled out of 2012’s favorite smokestacks…

          2. The “Tea Party” is composed of selfish people who think their own needs are more important than the country’s. They are a passing fad and will cost the Republicans the election in 2014 and will then go extinct shortly thereafter.

  4. Worlds greatest capitalist nation is in hock to the worlds greatest communist nation. Go fig. When will the world wake up to this ponzy scheme and stop trading their spirit for meaningless silver? It’s all a big lie and everyone knows the truth stopped being told decades ago when the powers that be went sociopathic.

  5. The nutcases are on the loose. I’m a civil libertarian and I like a small, tight budget, but on this issue I’m with Paul Krugman, Nobel Prize-winning economist. In a fragile recovery, this is no time to be cutting the budget. Yes, get rid of the pork, start to work on Medicare reform, but making cuts just for the sake of making cuts is nutty. Look at other countries that have implemented austerity budgets like the UK! Their stifling their economic recovery in the cradle.

    Lastly, what is our borrowing rate? The SAME as Germany. If our bonds were so risky, they wouldn’t be priced the same as Germany’s.

    The S&P is trying to act tough because they were pilloried for the sub-prime crisis. I was offered a job at S&P out of grad school, thank god, I turned that down.

  6. I’m often left wondering, how many of our problems are simply caused by having too many damn people on this planet? Are we outgrowing our support? Have we outgrown it already? Thoughts?

    1. “… how many of our problems are simply caused by having too many damn people on this planet?”

      *DING*

      Overpopulation is the course cause of most of our contemporary problems. It is also the very LAST subject people want to address. In the 1960s we were made aware that we were beyond the Earth’s carrying capacity. Then we buried the data and conclusions. But the problem increases geometrically…

      As I often ask: Short of using Red China’s draconian and idiotic solution, how do we get our species to stop making too many babies? Meanwhile, contrary to popular myth, there is no reliable data indicating mankind will naturally reach any stable state population.

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