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Goldman's Take On S&P's Warning

Tyler Durden's picture




 

Goldman's opinion on the S&P action took just a little longer than PIMCO to be distributed to clients: 108 minutes. Not surprisingly, after eagerly pushing rating agency opinions to clients buying CDOs from Goldman, the firm's economists are now eagerly trying to talk it down: "Clearly, the US fiscal situation is unsustainable unless a large,
multi-year fiscal tightening is implemented.  However, there is no
information in today’s report about the fiscal situation that was not
already known.  Academic research has generally found that rating agency
actions lag market pricing, rather than lead it. 
Any relevance of
today’s announcement is a) as a potential catalyst for renewed market
focus on these issues, particularly if the other agencies follow suit,
b) a signal of a nonzero probability of an outright ratings downgrade
over the next few years." And who was the research conducted by? Moody's? A Princeton Ph.D. academic? Yes, we know the country is screwed. But we can sure do without this condescending BS.

From Goldman:

BOTTOM LINE:  Ratings agency Standard & Poor’s revised the outlook for its US sovereign debt rating to “negative” from “stable”, signaling the possibility of an outright ratings downgrade within a couple of years.

 
KEY POINTS:

1.     Standard & Poor’s changed its outlook on US Treasury debt today to “negative” from “stable” , citing a “material risk that US policy makers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013” and concern that even once agreement is reached, it might still “take a number of years before the government reaches a fiscal position that stabilizes its debt burden.”   S&P notes that even in its “optimistic” macroeconomic scenario, “the US’s fiscal profile would be less robust than those of other AAA rated sovereigns by 2013.”

2.     S&P’s US sovereign rating remains AAA.  Moody’s and Fitch continue to have the US sovereign debt rating at AAA and stable outlook.

3.     A rating outlook change has no immediate implications—in particular, it does not make a difference in terms of current bond mandates.  It does flag the possibility of an outright ratings downgrade within the next few years, which would have material market implications for investors required to invest a specific portion of their holdings in AAA securities.   According to S&P, the negative outlook “signals that we believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years.”  (Historically, the frequency of ratings downgrades for AAA sovereigns on negative watch is actually much lower than 1 in 3 over this horizon, although there is of course no guarantee that will remain true in the future.) 

4.     S&P made a similar change with respect to the UK outlook in May 2009, lowering its outlook to negative.  It reaffirmed the negative outlook last summer, citing a “a material risk that the UK’s net general government debt burden may approach a level incompatible with the AAA rating.”   Thus far, however, the UK has retained its AAA long-term sovereign rating.

5.     Clearly, the US fiscal situation is unsustainable unless a large, multi-year fiscal tightening is implemented.  However, there is no information in today’s report about the fiscal situation that was not already known.  Academic research has generally found that rating agency actions lag market pricing, rather than lead it.  Any relevance of today’s announcement is a) as a potential catalyst for renewed market focus on these issues, particularly if the other agencies follow suit, b) a signal of a nonzero probability of an outright ratings downgrade over the next few years. 

6.     Since the announcement, and as of this writing, the 10-year Treasury yield is up approximately 4 basis points and the S&P 500 has sold off about 1%.  US sovereign CDS are trading at approximately 50bp, up 7bp (versus a level of approximately 10bp pre-financial crisis and a peak of 100bp in early 2009).

 

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Mon, 04/18/2011 - 11:17 | 1180494 ZeroPower
ZeroPower's picture

However, nice to see EURUSD taking a well-deserved dump. 

Mon, 04/18/2011 - 11:23 | 1180513 66Sexy
66Sexy's picture

God's Work.

Mon, 04/18/2011 - 11:18 | 1180499 SilverIsKing
SilverIsKing's picture

Gee, I wonder how this all turns out in the end.

Mon, 04/18/2011 - 13:18 | 1180976 CPL
CPL's picture

Baddly and predictably?

Mon, 04/18/2011 - 11:19 | 1180504 gordengeko
gordengeko's picture

The algos are coming the algos are coming.  Good luck Ben

Mon, 04/18/2011 - 11:34 | 1180577 gordengeko
gordengeko's picture

Would have said british but they're already here.lol

Mon, 04/18/2011 - 13:19 | 1180980 CPL
CPL's picture

Algos are now just trading with one another.  All it would take is something to mess up and we'll end up in flash crash country again.

Mon, 04/18/2011 - 11:19 | 1180508 Bam_Man
Bam_Man's picture

This is bullish for stocks, right?

Mon, 04/18/2011 - 11:30 | 1180511 SheepDog-One
SheepDog-One's picture

Theyve created a 600 pound rabid meth-fueled Frankenstein monster with 'Abby Normal's' brain which is now destroying the village....no problem GS says we just have to find a way to 'contain' it. Yea good luck with all that, wingtip boyz.

Mon, 04/18/2011 - 11:23 | 1180514 lolmao500
lolmao500's picture

Academic research has generally found that rating agency actions lag market pricing, rather than lead it.

Academic research has also found that they are corrupt to the bone.

The most powerful people in the economy are not Bernanke, it's the rating agencies. And if they were doing their job, the bankrupt would go bankrupt and the good ones would prevail.

When the SP is downgrading America, you can bet the elite has moved to the ``collapse America`` part of their plan.

Mon, 04/18/2011 - 11:25 | 1180522 PY-129-20
PY-129-20's picture

"Academic research has generally found that rating agency actions lag market pricing, rather than lead it. "

haha - and now I feel better about the situation with this sort of...defense?!?

 

Mon, 04/18/2011 - 11:27 | 1180534 DaveyJones
DaveyJones's picture

academic research has also also found that Goldman Sachs actions lag legality rather than lead it 

Mon, 04/18/2011 - 11:33 | 1180571 SheepDog-One
SheepDog-One's picture

Why does Goldie suddenly need academic research for anyway? I thought they were the masters of the universe with all the answers and knowledge and doing Gods work daily?

Mon, 04/18/2011 - 11:52 | 1180647 optimator
optimator's picture

Reichsluftverteidigung (!)

Mon, 04/18/2011 - 12:41 | 1180838 knukles
knukles's picture

Pshaw...
it's all academic anyhow.

Mon, 04/18/2011 - 11:23 | 1180524 lsbumblebee
lsbumblebee's picture

I was hoping they'd have Jim O'Neill write this so I could update my fantasy football league.

Mon, 04/18/2011 - 11:27 | 1180532 writingsonthewall
writingsonthewall's picture

Academic research has generally found that rating agency actions lag market pricing, rather than lead it

Fuck off - I mean seriously fuck off.

Market had this 'priced in' did it? - or was it living on hubris again and decided 'not to bother'?

S&P's words today are the first brave step in the road to rehabilitation

Step 1 - Admit you have a problem.

I hate Goldman so much, they manipulate the market, hedge against their clients, they have the ear of the Fed sewn up and they cry when they lose and the rogues start to fightback.

They are the worst type of pathetic, snivelling little bully. Now it's time for them to meet their maker - maybe then they can discuss "who's work" they were actually doing.

 

Fuck Goldman - I mean seriously, fuck 'em.


Mon, 04/18/2011 - 11:28 | 1180545 SheepDog-One
SheepDog-One's picture

Right, seems with markets at all-time highs compared to gold and silver real purchasing power, downgrade of world reserve currency debt is obviously already 'priced in'. Makes perfect sense, if one has no sense at all.

Who is this fooling? Headline trading HFT bots? 

Mon, 04/18/2011 - 13:01 | 1180912 DavidC
DavidC's picture

Put Lloyd in prison with some of the less savoury types, that would stop all the banking crap quickly.

DavidC

Mon, 04/18/2011 - 11:27 | 1180536 writingsonthewall
writingsonthewall's picture

..apologies for my foul language - but seriously Fuck Goldman and their balding little shitbag leader.

Mon, 04/18/2011 - 11:31 | 1180547 r101958
r101958's picture

aaaaah, but nevertheless well stated.

Mon, 04/18/2011 - 11:38 | 1180596 BoNeSxxx
BoNeSxxx's picture

I thought you were going easy on them... 'have the ear of the fed'?

They ARE the fed!

Fuckers.  And Congress is all a bunch of lame ducks -- permanently. I care not what time of year it is... post, pre election... no matter.

The 'debt ceiling' was an 'automatic' safety mechanism put in place under Gramm-Rudman (I think) back in the '80s... see how the bastards roll?  They have never seen a safety valve they couldn't circumvent.  Any now they are proposing 'automatic' spending cuts -- automatic because they know the future congress will be as ball-less as they are today.

Mon, 04/18/2011 - 12:16 | 1180732 American Dissident
American Dissident's picture

Indeed - I want to see ya get real Foul, make it count! 


Mon, 04/18/2011 - 11:29 | 1180550 oogs66
oogs66's picture

Rating actions lag reality. The situation is far worse than Aaa on negative outlook. Look how bad the ratings lagged elsewhere and still lag!

Mon, 04/18/2011 - 11:33 | 1180552 American Dissident
American Dissident's picture

The real fun begins when the Chattle herd realizes what the Market Making Bankster Gangsters did to their country. And as an entity with a direct interest in "The Fed" - Gollum, I mean Goldman has some very exciting times ahead of it! G I D D Y!!!

Mon, 04/18/2011 - 11:32 | 1180561 SheepDog-One
SheepDog-One's picture

I dont know about Goldies 'academic research', but I can smell bullshit and desperation and fear a mile away.

Mon, 04/18/2011 - 12:36 | 1180804 I am Jobe
I am Jobe's picture

Bull shitz is a required course at Harvard.

Mon, 04/18/2011 - 11:34 | 1180564 Herne the Hunter
Herne the Hunter's picture

Tell it to Long Term Capital Management...

Mon, 04/18/2011 - 11:36 | 1180576 r101958
r101958's picture

Agreed SheepDog

Mon, 04/18/2011 - 11:41 | 1180602 mspgrandi
mspgrandi's picture

of course they Lag...

 

i mean Portugal is not junk yet, and Spain is still AA....

 

surely if you relied on a rating agency downgrade as signal for default risk you d have lost most of your money

Mon, 04/18/2011 - 11:50 | 1180640 DaveyJones
DaveyJones's picture

Isn't it based on latitude?

Mon, 04/18/2011 - 11:51 | 1180646 baby_BLYTHE
baby_BLYTHE's picture

Why should anyone take any ratings agency seriously about any rating (including the US government) since their abysmal performance in the market meltdown. As a key player in the financial crisis I think their ability to providing meaningful guidance is highly suspect. Trying to rate politics is a fools game since both parties are complacent in the scorched earth economic policy

Mon, 04/18/2011 - 11:54 | 1180664 AldoHux_IV
AldoHux_IV's picture

Fuck Goldman-- they're just a bunch of criminals-- like a mob family trying to desperately to hold its leverage upon the market they'll say anything and bullshit the logic and point to academic blah blah blah.  The whole firm should be shutdown and thrown into pound-me-in-the-ass prison.

Mon, 04/18/2011 - 12:09 | 1180719 zaknick
zaknick's picture

So thats the plan. Cuts to the bone, paramilitary police for possible protestors and they get to keep squeezing blood from a rock for a couple more years.

Bankster slaves, bitchez!

Mon, 04/18/2011 - 12:12 | 1180728 AldousHuxley
AldousHuxley's picture

Banksters vs. Bond raters....they are both part of the discredited financial syndicate.

Bond raters should get paid as much as USDA meat marbling raters. Heck, we can have computers do that real time for free.

Banksters will also be extinct once Fed burns down. Should have had happend back in 2008, but Bush-Obama leaders stabbed Americans in the back.

No mercy for these criminals.

Mon, 04/18/2011 - 12:23 | 1180755 carbonmutant
carbonmutant's picture

Sounds like they're all jumping on the "unsustainability" bandwagon

Mon, 04/18/2011 - 12:29 | 1180782 Downtoolong
Downtoolong's picture

Goldman's opinion on the S&P action took just a little longer than PIMCO to be distributed to clients: 108 minutes.

Incredible isn’t it, how these geniuses can produce such deep and insightful opinions of events in such a short period of time; unless you account for the possibility that they knew what the S&P statement was going to say two days ago. In that case, I imagine the 108 minutes that Goldman took to produce their opinion was about 10 minutes longer than it took them to short the shit out of the market this morning.

Mon, 04/18/2011 - 12:33 | 1180801 I am Jobe
I am Jobe's picture

Austin Goolsby is whining. F off bitch Austin you falming gay boy

 

http://www.bloomberg.com/video/68795678/

Mon, 04/18/2011 - 12:36 | 1180802 ivana
ivana's picture

"Academic research has generally found that rating agency actions lag market pricing, rather than lead it"

HAHAHAHA :-D

Jesus they are really afraid that something can go wrong with interest rates along the scenario pathway (that rates can abruptly rise out of control). Seems that utilities will have much less ammo in next round of this financial scam

Mon, 04/18/2011 - 12:47 | 1180852 Cone of Uncertainty
Cone of Uncertainty's picture

UST CDO spreads out 8bps on downgrade.

Goldman fails with respect to claiming the market already incorporated this cut in the pricing of US debt "insurance."

FAIL bitches.

 

Mon, 04/18/2011 - 13:17 | 1180964 sbenard
sbenard's picture

Hey GS, since when is a 1 in 3 chance of a fiscal nightmare merely "nonzero"?

Perhaps GS should change its company initials to BS!

Wall Street is so drunk on Fed money creation and taxpayers gifts that they are blind to all risk. They are therefore certain to create another economic crisis!

We must therefore plan and prepare accordingly!

Mon, 04/18/2011 - 13:16 | 1180967 Bob Sacamano
Bob Sacamano's picture

Now you know how they got it out so fast.  Quality would take longer to produce.

Maybe there isn't a conspiracy lurking in every corner.

Mon, 04/18/2011 - 13:46 | 1181087 Grand Supercycle
Grand Supercycle's picture

'COPPER has ignored the recent equity bounce. Daily and weekly are not bullish' ~ March 31, 2011.

'When the sell off does occur, it won’t be pretty. As mentioned earlier, this market behaviour is similar to 2007 / 2008' ~ April 6, 2011.

'DOW/S&P500 is tracking sideways once again suggesting that short covering rally has lost momentum' ~ April 7, 2011.

http://stockmarket618.wordpress.com

Mon, 04/18/2011 - 14:32 | 1181262 belsebub
belsebub's picture

4.     S&P made a similar change with respect to the UK outlook in May 2009, lowering its outlook to negative.  It reaffirmed the negative outlook last summer, citing a “a material risk that the UK’s net general government debt burden may approach a level incompatible with the AAA rating.”   Thus far, however, the UK has retained its AAA long-term sovereign rating.

Well, I assume that could be a result of the severe austerity measures that the new UK Government has taken. Remains to be seen if the US political leadership has what it takes to do the same thing. I seriously doubt it.

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