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An event that seems to have escaped the main stream press is Moody’s rating in February that although the US was still triple-A, it was no longer rated among the safest triple-A.
‘Sorry Ray, I thought that triple-A meant “risk free”?’
Not any longer - at least not in respect to sovereign bonds. There are now three tiers:
- Countries that are ‘resistant’ to a downgrade: Germany, France, Switzerland, Austria, Australia, Canada, Denmark, Finland, Luxembourg, Netherlands, Norway, Sweden, Singapore, and New Zealand.
- Countries that ‘vunerable’ to a downgrade: Spain and Ireland
- Countries in between; rated not as strong as those in group (1) but stronger than those in group (2).
David Walker (the former comptroller general of the US) wrote an interesting piece in today’s Financial Times. He suggested that triple-A granted to the USA is undeserved - given that the USA now has:
- A negative net worth of more than US$11,000 B and additional off sheet obligations of US$45,000B and
- Is set to run a US$1,800bn-plus deficit for 2009 and trillion-dollar plus deficits for years to come.
Walker suggests that unless Washington acts soon to put its house in order, it will face a much larger economic crisis.But looking at Obama’s direction to date, it’s unlikely that this will happen. Just another piece of the fundamental pie that reinforces my idea that the best we can hope for is in the US stock market a repeat of 1966 to 1982. Certainly any idea that we are returning to the bull markets in stocks of the 1990’s is but a fantasy.
Refer this blog post to a friend or colleague…
