Welcome to Detroit Sports Forum!

By joining our community, you'll be able to connect with fellow fans that live and breathe Detroit sports just like you!

Get Started
  • If you are no longer able to access your account since our recent switch from vBulletin to XenForo, you may need to reset your password via email. If you no longer have access to the email attached to your account, please fill out our contact form and we will assist you ASAP. Thanks for your continued support of DSF.

Beginners guide to a AA+ rating

mhughes0021

Senior Member
Joined
Aug 1, 2011
Messages
28,586
Your stocks
Bad news for the economy generally means tough times for stocks. But history shows that when a country loses its AAA credit rating, it's not necessarily terrible news for that nation's stock market.

S&P rating downgrade: FAQ
When Canada lost its AAA rating in April 1993, for instance, the country's stocks gained more than 15% in the subsequent year. The Tokyo stock market climbed more than 25% in the 12 months after Moody's downgraded Japan in November 1998.

At the very least, a downgrade could add more fear and uncertainty to an already sluggish economic recovery, market strategists say. As a result, they advise investors to dial down risk in their equity portfolios by gravitating toward shares of larger, stable companies -- but not just any large caps.

Mark Luschini, chief investment strategist for Janney Montgomery Scott, favors "boring blue chip stocks with pristine balance sheets and that are globally diversified and therefore benefit from faster growth outside the U.S., especially in the emerging markets."

Why not just go directly to emerging market stocks? For starters, U.S.-based multinationals are a safer bet than volatile emerging market shares, especially in times of economic uncertainty. Long-forgotten U.S. multinationals are trading at much more attractive values than emerging market stocks, which have been on a tear for the past decade. And large-cap multinationals tend to pay big dividends, which come in handy during periods of slow growth.

Your bonds
In the year following Canada's downgrade in 1993, yields on 10-year Canadian bonds jumped from 7.6% to 8.1%. So the could be an uptick in U.S. bond yields, but experts didn't think it would be big.

That's because Treasuries, unlike Canadian securities, are considered a default investment for global investors seeking safety.

"There isn't a fund that owns Treasuries just because they're rated AAA," says Ben Inker, head of asset allocation for the asset management firm GMO. "They own Treasuries because, well, they're Treasuries."

That said, a downgrade would likely force investors to look at bond issuers with balance sheets, unlike the U.S.'s, that are improving.

"If you're a bond holder, you want the most credit-worthy securities," says Anthony Valeri, fixed income strategist for LPL Financial. That would mean high-quality corporate bonds and emerging market debt, he says.

After deleveraging over the past three years, U.S. corporations are sitting on nearly $2 trillion in cash.

As for emerging market countries, their ratio of debt-to-GDP is falling as the same ratio rises in the U.S. and Europe.

Plus, Americans who buy emerging market debt could see their investments rise simply because emerging market currencies are strengthening against the U.S. dollar.

Your cash
The relative safety of the different vehicles in which you might stash your cash -- FDIC-insured accounts, money market funds or short-term Treasuries, for example -- wouldn't be so affected by a downgrade that you'd need to shift your money around, say experts.

Skittish investors who wouldn't want to park their cash in downgraded Treasuries might feel more secure by putting that money into an FDIC-backed bank account instead, since it would be protected by deposit insurance, says FPA New Income manager Thomas Atteberry.

But the increased sense of security would be little more than psychological, says Peter Crane, president of Crane Data, which tracks the money-market fund industry; after all, like Treasuries, FDIC-insured accounts are ultimately backed by the same entity: the U.S. government.

As for money market mutual funds, which are not insured, the effect of a downgrade is not expected to be dramatic, since those funds generally invest in short-term debt, and discussion of a downgrade has so far been limited to long-term U.S. bonds, says Mike Krasner, managing editor of imoneynet.com, which monitors the money fund industry.

Despite a downgrade, U.S. debt would still be considered a safe haven. "Double A will become the new triple A," says Crane, "because there simply isn't a viable competitor to Treasuries."

Your borrowing
The price of consumer credit would be pegged less to a Treasury downgrade than it would be to bond investors' overall confidence, says Scott Hoyt, senior director of consumer economics for Moody's Analytics.

For now, investors seem optimistic about the future -- but more cautious about the next few months.

Longer-term Treasuries, like the benchmark 10-year, are in greater demand, while many shorter-term bonds are seeing demand fall.

Because yields -- and corresponding interest rates -- move inversely to price, rates that track shorter-term Treasuries are more likely to see a bump.

Rates on car loans, which follow shorter-term rates like the two-year Treasury or LIBOR, the London Interbank Offered Rate, could go up -- but not enough to really hit consumers, says Paul Cuevas, director of auto finance at J.D. Power & Associates.

Most mortgage rates, however, track the 10-year Treasury yield, which continues to fall. Adjustable rate mortgage holders could be slightly more vulnerable, because ARMs are typically tied to shorter-term interest rate movements, says Lawrence Yun, chief economist for the National Association of Realtors.

For students and parents who rely on private student loans, any jump in borrowing costs for lenders would be passed on to borrowers, says Mark Kantrowitz, publisher of FinAid.org and Fastweb.com. Federal student loan rates would remain fixed.

Credit card rates are pegged to the prime rate, which moves with the federal funds rate. If the prime rate goes up, consumers could be hit with credit card rate hikes, says Beverly Blair Harzog of Credit.com. Even if the rate doesn't go up, she says, card issuers spooked by a credit downgrade could raise your interest rates anywhere from 1% to 5% -- but only if you've had your card for more than a year.

See!....nothing to worry about!
 
a debt rating from S&P, Moody's, or Fitch is about as meaningful as a preseason coaches' poll ranking.

so, no, I don't think S&P downgrading the U.S. means much at all.
 
oh, by the way, in case you had any lingering doubts over whether the downgrade was legitimate, or just more political games, read this... http://moneywatch.bnet.com/economic-news....e-people/165 1/. investors fleeing the stock markets for U.S. Treasuries indicates the problem has NOTHING to do with budget deficits. Good thing our idiot political class is pushing massive budget cuts which will only further depress things.

Also, the Treasury themselves apparently told S&P their numbers were wrong, to the tune of a $2 trillion... yet they downgraded the U.S.'s creditworthiness anyway, and didn't bother to correct anything. Link: http://www.treasury.gov/connect/blog/Pages/Just-the-Facts-SPs-2-Trillion-Mistake.aspx:<blockquote> "Independent of this error, there is no justifiable rationale for downgrading the debt of the United States."</blockquote>
 
It is good to know i went from poor to poorer... But I always have power ball this week...Thanks for the info guys...
 
the funny part is boehner loves to brag that he got 98% of of what he wanted out of the deal. After the consequences of this shit deal plays out im sure the republican party doesnt accept 98% of the blame. The really sad thing is theyll turn it into something Obama did and he wont stick up for himself or his party.
 
I am tired of Obama giving in to the republican demands all of the time.. It is really sad that Mitch McConnell has really just about accomplished ( With his friends help) what he has said he would do as soon as Obama was elected. That he would do everything in his power to make sure that Obama was a one term president. Come on is that really what the American people want you to work on Mitch.. Compromise and work on some legislation that is good all Americans not just a select few. Oh well at least we have this board.
 
[color=#006400 said:
biggunsbob[/color]]I am tired of Obama giving in to the republican demands all of the time.. It is really sad that Mitch McConnell has really just about accomplished ( With his friends help) what he has said he would do as soon as Obama was elected. That he would do everything in his power to make sure that Obama was a one term president. Come on is that really what the American people want you to work on Mitch.. Compromise and work on some legislation that is good all Americans not just a select few. Oh well at least we have this board.

You bring up a point that is indictive of our government and how communistic it has become...they are all for themselves and what they seem to think they can obtain from it
 
mhughes0021 said:
the funny part is boehner loves to brag that he got 98% of of what he wanted out of the deal. After the consequences of this shit deal plays out im sure the republican party doesnt accept 98% of the blame. The really sad thing is theyll turn it into something Obama did and he wont stick up for himself or his party.

yeah, Boehner largely got exposed as an ineffectual leader. I think he figured the Tea Party wing would fall into line and wouldn't actually make a big deal over something as routine and silly as raising the debt ceiling.

He's fine with the rhetoric out on the campaign trail, but he's a longtime Washington insider, and he looked uncomfortable throughout this whole thing.
 
mhughes0021 said:
The really sad thing is theyll turn it into something Obama did and he wont stick up for himself or his party.

I think once you get away from the nonsense rhetoric about Obama being "communistic" or "the biggest socialist president we've ever had" and look at the man himself, the actual legislation he's passed, and the ideological positions he's staked out, he's really center-right, or almost totally right wing. shocking, I know, but in terms of national defense, and civil rights, he's in line with the Bush administration and DOJ, if not more extreme than them. On social issues, he's talking about cuts to Soc security, Medicare, domestic spending, etc. His health care bill was largely opposed by progressives, identical to what Mitt Romney passed in Massachusetts & what congressional Republicans had proposed in the 90s.

so these debt deals where he cuts spending, keeps taxes on the rich low, maintains defense spending, etc., these aren't "out of character" for Obama; he's a center-right politician, just like most Washington insiders -regardless of party affiliation - getting exactly the policy he wants passed.
 
MichChamp02 said:
I think once you get away from the nonsense rhetoric about Obama being "communistic" or "the biggest socialist president we've ever had" and look at the man himself, the actual legislation he's passed, and the ideological positions he's staked out, he's really center-right, or almost totally right wing. shocking, I know, but in terms of national defense, and civil rights, he's in line with the Bush administration and DOJ, if not more extreme than them. On social issues, he's talking about cuts to Soc security, Medicare, domestic spending, etc. His health care bill was largely opposed by progressives, identical to what Mitt Romney passed in Massachusetts & what congressional Republicans had proposed in the 90s.

so these debt deals where he cuts spending, keeps taxes on the rich low, maintains defense spending, etc., these aren't "out of character" for Obama; he's a center-right politician, just like most Washington insiders -regardless of party affiliation - getting exactly the policy he wants passed.

This is an interesting analysis. Not sure it is all correct as he tried to do some of this, but was thwarted by the grid-lock in Congress. I suspect he is more centrist than the right gives him credit for, but one thing is for sure - the rhetoric will be ramped up from now on, and hit fever pitch by about this time next year. The recent debt deal was a kick down the road to the 2012 elections expecting the voters to provide a mandate for what direction the country should go in.

I absolutely can't believe that the downgrade will mean much of anything. I am sick of all the news markets on both sides pointing fingers at who is to blame. LOL - Typical. Like I said, when there is really something to worry about - you will definitely know it.

The market will rebound, and I think its down reaction was more due to the fears by the other world markets in Americas ability to handle this "downgrade".
 
KAWDUP said:
MichChamp02 said:
I think once you get away from the nonsense rhetoric about Obama being "communistic" or "the biggest socialist president we've ever had" and look at the man himself, the actual legislation he's passed, and the ideological positions he's staked out, he's really center-right, or almost totally right wing. shocking, I know, but in terms of national defense, and civil rights, he's in line with the Bush administration and DOJ, if not more extreme than them. On social issues, he's talking about cuts to Soc security, Medicare, domestic spending, etc. His health care bill was largely opposed by progressives, identical to what Mitt Romney passed in Massachusetts & what congressional Republicans had proposed in the 90s.

so these debt deals where he cuts spending, keeps taxes on the rich low, maintains defense spending, etc., these aren't "out of character" for Obama; he's a center-right politician, just like most Washington insiders -regardless of party affiliation - getting exactly the policy he wants passed.

This is an interesting analysis. Not sure it is all correct as he tried to do some of this, but was thwarted by the grid-lock in Congress. I suspect he is more centrist than the right gives him credit for, but one thing is for sure - the rhetoric will be ramped up from now on, and hit fever pitch by about this time next year. The recent debt deal was a kick down the road to the 2012 elections expecting the voters to provide a mandate for what direction the country should go in.....

And then they'll do whatever the hell they want (or nothing) in 2013.
 
MichChamp02 said:
DR said:

so... since S&P was wrong, and she predicted it even earlier, I guess she was even more wrong?

I bet if you asked her "What was downgraded?" you would get that famous Palin deer-in-the-headlights look.

If you asked her what AA means to the country shell tell you "AA is very important...i put them in my vibrator once a month"
 
MichChamp02 said:
mhughes0021 said:
The really sad thing is theyll turn it into something Obama did and he wont stick up for himself or his party.

I think once you get away from the nonsense rhetoric about Obama being "communistic" or "the biggest socialist president we've ever had" and look at the man himself, the actual legislation he's passed, and the ideological positions he's staked out, he's really center-right, or almost totally right wing. shocking, I know, but in terms of national defense, and civil rights, he's in line with the Bush administration and DOJ, if not more extreme than them. On social issues, he's talking about cuts to Soc security, Medicare, domestic spending, etc. His health care bill was largely opposed by progressives, identical to what Mitt Romney passed in Massachusetts & what congressional Republicans had proposed in the 90s.

so these debt deals where he cuts spending, keeps taxes on the rich low, maintains defense spending, etc., these aren't "out of character" for Obama; he's a center-right politician, just like most Washington insiders -regardless of party affiliation - getting exactly the policy he wants passed.

Everyone is scared of the term socialist and its hillarious to me....If we were ANYTHING like the socialist countries in Europe wed be getting paid more fairly, unemployment would be decreased and the middle class would have better benefits like actually having time off to enjoy the money we make instead of working our asses off to just be able to pay the bills. I think its been made fun of enough but incase you missed it Mrs "the govt is too big and Obama is a socialist" Bachman uses government run medicare and medicaid funding and also receieved a quarter of a mil in farm subsidies. While im all for a party that represents the people and establishing a voice for the middle class before there is no middle class....itd be nice to get a party that can actually formulate views that make sense, arent a bunch of dumbasses, and in the case of mrs bachmann....arent so effing hipocritical.
 
Back
Top