“I Saw My Duty and I Did It” S&P Puts US on Notice

A famous quote from the  1981 movie Taps I saw my duty and I did it!

For those that do not remember, Taps was a movie of young cadets who turned on their keepers in order to continue their soon to be closed academy.

Yesterday Standard and Poors, for the first time in its’ 70 years of credit rating, turned on their keepers, and put the USA on notice by revising the credit outlook to negative. Click here for the release.

Unfortunately for our S&P cadets, their credibility has been somewhat tarnished due to the recent failure to identify the risks associated with the 2007-2009 debt crisis.  Granted they were one of many in a chain of missed warnings.

Interestingly the notice was focused on US politicians, as they found themselves under the bus, (somewhat deservedly) due to continued expenditures, lack of future plans, and frustration by S&P to conquer the pending debt limit issues.

Many blamed the capital market retreat yesterday on the new boldness of S&P’s credit notice.  We disagree due to the various component moves, (if participants were truly frightened, bonds would not have rallied) but we do believe the capital markets have been looking for an excuse to correct.

Possible Outcomes:

  1. A bold step that wakes up politicians and voters to the fact that debt reduction is necessary, and steps towards reducing the United States debt are needed soon. (We hope this is the result but fear the next is more likely.)
  2. A Taps spirited headline, while extremely important, becomes forgotten as we enter election season, and few if any broach the subject for fear of voter ramifications. (More likely outcome in our opinion, at least until election season is over.)
  3. Like my 3 year old’s soccer game, when one player falls, without any adjustments the rest of the players continue into the stack and create a dogpile. (We think a dogpile from other credit agencies unlikely, but will be interested to hear their comments in the future.)

In closing, we may stand alone in the thought that the S&P cadet notice can be a good thing. It will be interesting to see the actions of the various keepers over the next several years and their resolve. We are cautiously optimistic and certainly not doom and gloomed over the statement or possible outcomes.

Have a Great Day!

JK

Comments are closed.