The S&P Credit rating change of “negative” from “Stable” for The United Kingdom may not matter to most Americans, but the implications are there for the United States. England losing its “AAA” rating would be a catastrophe for the United States. We share much more than the same language, as the world thinks of England as having perhaps the highest sovereign rating behind the U.S. And today we had PIMCO’s esteemed Bill Gross hinting at the notion of a debt rating downgrade in the U.S. down the road.
It is easy to add panic to the fire when you get an actual downgrade as we saw today from S&P on the U.K. Technically, that is just a bias downgrade, but that is still enough. The notion that someone with the clout of Bill Gross bringing this risk to light is troubling for investors who have been preparing for the next wave of the economy and credit to be better rather than worse. But technically, this is not a new notion at all. Stocks have remained very weak and long-dated 10-Year and 30-Year Treasuries have seen yields rise 15 basis points to 3.36% and 15 basis points to 4.31%, respectively.
Frankly, there is nothing new here in this sense. Nothing at all.
It was just last week that the Financial Times discussed this notion.
Just this morning, we noted something similar about the comparison about the U.K. to the U.S. and the sovereign ratings.
Yet again, in April this was brought up.
PIMCO even brought up the notion that the Federeal Reserve was underfunded back on March 26.
And it was in late January when Julian Robertson discussed much higher borrowing rates for the U.S. government down the road. Bill Gross acknowledged this as a real concern for down the road as well.
The good news is that if the debt ratings agencies were to seriously consider such actions, then maybe teh government here would get even and make the debt ratings agencies pay up for rating all the garbage securitizations that were left as “AAA” ratings while the ships were all sinking. They also left the ratings artificially high on dozens or hundreds of financial institutions for months and months.
If a sovereign downgrade of this magnitude in the U.K. or in the U.S. looks as though it is going to get closer to coming to fruition, don’t be surprised at all if you start seeing the governments get back to much more aggressive stances in attacking the policy and past practices of the credit ratings agencies. So far, they have been given only minor government saber rattling for missing the whole credit crisis.
Maybe Bill Gross was just short long-dated Treasuries or stocks and needed to exit those positions.
There is another notion here, I mentioned on a CNBC interview earlier this year that there might not really be such a thing as “real” Triple-A ratings anymore.
JON C. OGG
May 21, 2009