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"NEW YORK (Dow Jones)--Weiss Ratings, a small, independent credit-ratings agency, has carried the debate over the U.S. government's triple-A credit rating several steps farther than the big Wall Street ratings agencies--consigning the world's largest economy to near junk-bond status on Thursday.
Weiss is a little-known provider of opinions on the health of banking and financial institutions. Still, the firm touts its having predicted the failure of major banks, including Lehman Brothers, in advance of the 2008 financial crisis that paralyzed markets worldwide.
Last week, Standard & Poor's warned that the U.S.'s coveted AAA status could be at risk of downgrade within the next two years. The news reverberated through markets at a time when Washington is embroiled in a pitched battle about raising the debt ceiling and closing the yawning budget deficit.
But Weiss--which Thursday assigned the U.S. a "C" rating that lands it squarely in the lower rung of its global sovereigns--argued that the ratings of S&P, Moody's Investors Service and Fitch are "unfair to investors who are undercompensated for the risks they are taking." Weiss's "C" rating is the equivalent of the bottom of S&P's investment-grade spectrum.
Renewing a longstanding debate about large ratings agencies, Weiss contended that these institutions are effectively understating the risks to investors with their ranking systems.
"An honest rating is also urgently needed to help support the political compromises and collective sacrifices the U.S. must make in order to restore its finances," said Martin D. Weiss, president of Weiss Ratings, in a statement.
A spokesman for S&P declined to comment. Moody's didn't comment, but last week issued a report detailing how it interprets the U.S.'s credit strengths and vulnerabilities. A spokesman for Fitch didn't immediately return a request seeking comment.
According to Weiss's scale, rankings range from A (excellent) to E (very weak), and it has four major areas that comprise its ratings: debt burdens, international stability, economic health and market acceptance. Based on these criteria, Weiss scores the U.S. at 33rd among 47 nations--lower than Russia, China, Malaysia, Saudi Arabia and South Korea.
The ratings agency, which had previously specialized in rating banks and insurers, is expanding into sovereign ratings for the first time, the company said.
The C rating assigned to the U.S. "signals that the current fiscal condition of the United States government is far weaker than recognized by the credit rating agencies," Weiss said in its statement.
"At the same time, it means that the U.S. currently retains enough borrowing power in the marketplace to give it the opportunity to take remedial steps. Still, there are grave risks for policymakers and investors, including the possibility of a vicious cycle that includes severe declines in U.S. bond prices and the U.S. dollar," the firm stated.
Bond yields have been relatively stable of late. However, the dollar has plunged to near a three-year low against a basket of major trading partners as investors flee the U.S. currency's low-yields associated with the Federal Reserve's ultra-loose monetary policy."
NEW YORK (Dow Jones)--Weiss Ratings, a small, independent credit-ratings agency, has carried the debate over the U.S. government's triple-A credit rating several steps farther than the big Wall Street ratings agencies--consigning the world's largest economy to near junk-bond status on Thursday
"Weiss Ratings Says US Credit Rating Already Near Junk" Dow Jones Newswires 28 Apr. 2011
While Standard & Poor's gained headlines for putting U.S. debt on a watch list for a possible downgrade, Weiss Ratings says the nation is already below average among 47 nations. The Jupiter-based ratings service, which is known for giving opinions on a variety of investments, has ventured into the field of sovereign debt. It gives the U.S. a rating of C (fair), and ranked it 33rd among 47 nations.
"Weiss Ratings give U.S. debt a C" South Florida Business Journal 29 Apr. 2011
Saying that "the AAA/Aaa assigned to U.S. sovereign debt by Standard & Poor's, Moody's and Fitch is unfair to investors and savers, who are undercompensated for the risks they are taking," Weiss Ratings president Martin D. Weiss added that an "honest rating" was needed to "help support the political compromises and collective sacrifices the U.S. must make in order to restore its finances."
" U.S. High Debt Rating 'Unfair': Weiss " TheStreet.com 28 Apr. 2011
Although there doesn't seem to be lots of worry about inflation at the Fed or in the bond markets, the ratings agencies are not so blasé about the high levels of U.S. debt.
Despite a downward spiral in the dollar and soaring commodity prices—including for silver and energy—inflation just isn't a big concern to investors in the safe harbor of the Treasury market.
Or to the Federal Reserve, for that matter, as Fed Chairman Ben Bernanke made clear at the first-ever press conference last Wednesday that followed a two-day meeting of the Federal Open Market Committee, the Fed's policy-making group.
"Bernanke exceeded expectations," says John Lonski, chief economist at Moody's Investors Service. "He very clearly laid out the Fed's thinking on the U.S. economy and financial markets."
Essentially, Bernanke appears very confident that the economy will continue to recover with inflation under control. That view got a boost Friday when the price index for personal-consumption expenditures—an inflation gauge that strips out food and energy, and that's closely monitored by the Fed—increased 0.9% on a year-over-year basis. That's well below the central bank's desired range of 1.5% to 2%.
Yet, excluding energy seems a bit silly when Wal-Mart CEO Mike Duke says, as he did last week, that the budget-minded retailer's core shoppers—many of whom live paycheck to paycheck and buy in bulk at the start of the month—are running out of money with average U.S. gasoline prices nearing $4 a gallon.
Nonetheless, Treasuries got a boost on the news, with the yield on the benchmark 10-year note ending at 3.29%, down 11 basis points from the week before. (Yields move inversely to price.)
The new week kicks off with the manufacturing index from the Institute for Supply Management and ends with Friday's employment report for April, both of which will likely give an indication of when the Fed may discontinue its stimulus.
By the way, the April 7 rate hike by the European Central Bank to 1.25% from 1% has done wonders for peripheral economies in the European Union. Greece's two-year government bonds were yielding more than 25% last week—a sign the market expects an eventual restructuring of the debt.
THE RATING AGENCIES ARE STARTING to pile on the U.S. government's fiscal situation: Late in April S&P changed its outlook on its triple-A-rating to Negative from Stable. That followed the placement of Egan-Jones' triple-A rating on Watch on March 1—meaning a downgrade to double-A-plus is more likely than not.
Now, Weiss Ratings has joined the fray. Like Egan-Jones, it doesn't get paid for a rating by the issuer. Rather, it's paid by self-directed individual investors and by libraries for use by consumers. It made a name for itself in the late 80s when it sent out rating warnings on troubled life and health insurers while S&P, Moody's, A.M. Best and Fitch (formerly Duff & Phelps) were way behind the curve with their ratings.
Weiss last week announced new coverage of sovereign ratings of 47 nations, including the U.S. The scale is different, and so are its conclusions, which are based on, among other things, a country's debt burden ($14.3 trillion in the U.S., which was incorrectly called the budget deficit in a previous column), deficits/surpluses, international stability, reserves, economic health and ability to borrow in the global market.
"It's all based on generic research," says Martin Weiss, president of Weiss Ratings. The U.S. government is ranked 33 out of 47 nations Weiss rates. The rating is equivalent to a triple-B on his larger rivals' sovereign-rating scale. That's five notches lower than the ratings proffered by Moody's and S&P.
In the rating announcements, Weiss said the ratings of its larger rivals are "unfair to investors and savers." Weiss said that "an honest rating is also urgently needed to help support the political compromises and collective sacrifices the U.S. must make in order to restore its finances."
And guess who's No. 1 on the list of 47? China, but of course."
"Is Inflation Tamed or Inflamed?" Barron's 30 Apr. 2011
"The investment strategies involved are perfectly legal maneuvers. Still, the losses show how AIG strayed from its core business: selling standard insurance policies to businesses and individuals to protect against everything from fires to lawsuits. "AIG's financial-products division went heavily into the business of speculation, and its gambling debts are what taxpayers are paying off right now," said Martin Weiss of Weiss Research, an investment consultant in Jupiter, Fla."
"Hedge Funds May Get AIG Cash" The Wall Street Journal 18 Mar. 2009 [link]
"In good times the issues get swept under the rug, and in bad times rough spots show up," says Martin Weiss, president of Weiss Research Inc. in Jupiter, Fla., an investment-research firm that also rates insurers."
"Worry Grows Over Insurers As Ratings Slip" The Wall Street Journal 17 Mar. 2009 [link]
Richardon, John H. "10 Questions with the Bear Who Called the Bubble....Four Years Ago" Esquire 16 Dec. 2008 [link]
"Ascot has also been named in an AmLaw Daily story as a likely target of litigation by Harry Susman, of Houston's Susman Godfrey. Similarly, another prominent fund that invested clients' money with Madoff, Fairfield Greenwich Group's Fairfield Sentry Fund, also appears to have a litigation bulls-eye painted on its back, according to the Wall Street Journal and New York Times on Wednesday."
"Madoff investors race to the courthouse" CNN - USA 17 Dec. 2008 [link]
"The real impact of today's cut will be felt by consumers with products that are tied to the prime rate, a benchmark rate that typically moves in lock step with the federal funds rate. "The only place where you would see a concrete impact at the consumer level would be things that are directly tied to prime," says Mike Larson, a real estate analyst at Weiss Research. Many home-equity lines of credit and certain credit cards with variable interest rates are tied to prime rate. As such, borrowers with these products could see their interest rates decline."
"6 Things to Know About the Fed Rate Cut" U.S. News & World Report 16 Dec. 2008 [link]
"This is a guy that openly claimed he would not answer questions about his strategy," says lawyer Harry Susman, a Houston lawyer who is looking into bringing a suit against one of the feeder funds. "If you put all your eggs in one basket, you better be able to watch that basket well."
"Madoff Victims Look for Ways to Recover Their Money" TIME 16 Dec. 2008 [link]
"Certainly, a lot of his investors have good reason to be upset," said Harry Susman, a lawyer in Texas who was flying to New York on Monday to help a group of investors who had retained him in the matter."
"Firm That Trusted a Disgraced Investor" The New York Times 15 Dec. 2008 [link]
Equal Pay for Equal Work? Finally.
Won, Christine. "State Could Pay Employees $8.5M to Settle Lawsuit" IndyStar.com 19 Aug. 2008 [link]
Guinane, Patrick. "Indiana OKs $8.5 million payout to state workers" NWITimes.com 19 Aug. 2008 [link]
Rizo, Chris. "Indiana Could Pay State Workers $8.5 million to Settle Class Action" Legal Newsline 19 Aug. 2008 [link]
McDermott, Mary. "State Employees Settle Equal Pay Suit" WISH TV 8 Indianapolis 19 Aug. 2008 [link]