Posts filed under “Analysts”
“Wow, that was a sobering meeting.”
-Western Asset Management, Stephen Walsh, CIO
Did S&P leak US credit downgrade info to specific bond firms in advance of it occurring?
That is the subject of a WSJ article today, and should be a question the SEC is investigating:
“Standard & Poor’s Corp. officials held private meetings with large bond investors weeks before the firm’s historic U.S. debt downgrade, leaving some believing the chance of a credit-rating cut was higher than they previously thought.
Though S&P had put the U.S. on “credit watch” in mid-July, some investors were skeptical that S&P would actually strip the U.S. of its triple-A rating, maintained since 1941. S&P said in a news release on July 14 that “there is at least a one-in-two likelihood that we could lower” the U.S. ratings within 90 days.
In the following weeks, S&P officials visited large bond firms including Allianz SE’s Pacific Investment Management Co., Los Angeles-based TCW Group Inc., Legg Mason Inc.’s Western Asset Management and New York asset-management giant BlackRock Inc., according to people who either attended the meetings or were briefed on them afterward. Some of these investors say they came away with a stronger sense the nation’s debt rating would be cut.” (Emphasis added)
Recall years ago when a Goldman Sachs economist John M. Youngdahl told his bond desk he heard rumors of the cancellation of the 30 year bond — that led to his going to jail (but not the traders or the firm, who kept their apparently illicit gains).
If S&P told specific bond funds that material non public inside information — namely, that a US credit downgrade was coming — then how is this not illegal?
While there are protections for opinions and other speech, the nature of this being in S&P’s control puts them on a different footing than an outside 3rd party making assumptions, analyses and educated guesses. Remember, this is speech by S&P about what S&P might do. As John Coffee, a Columbia University securities-law professor, suggested, there comes a point where the ratings agency may have gone too far: “If you add a wink and a nod to that, I think that goes over the line.”
S&P Met With Bond Firms
MATT PHILLIPS And JEAN EAGLESHAM
WSJ, SEPTEMBER 7, 2011
Today’s Dick Bove wannabe is the once respected Paul Miller of FBR Capital Markets & Co. In a note to clients that revealed a stunning ignorance of fiduciary and legal obligations, Miller said FHA, FHFA, and GSEs were “acting in their own self-interest as opposed to that of the broader U.S. economy.” The details of…Read More
I always laugh whenever I hear anyone say eejit hack claim “No one saw it coming!” This video — featuring a thinner, less gray version of your humble blogger — discussing the coming housing storm in 2005 gives lie to that claim. The advice: Sell banks, Sell Home Builders, Sell Home Depot and Lowes. Video…Read More
Slap your best-guess multiple (trend growth?, slow growth?, no growth? contraction?) on 2012 EPS estimates and decide for yourself where fair value is for the S&P. Of course, beware Farrell’s Rule #9. Set an alert to revisit this post one year hence. >
Forecasting is a rough gig that often confounds even those who do it for a living and generally do it well. Situational awareness (see e.g., this and this), on the other hand, is all about knowing “what you need to know not to be surprised,” and having “the ability to maintain a constant, clear mental…Read More
Opinion: An excuse for slashing entitlements Matt Stoller August 9, 2011 06:37 AM EDT Politico.com ~~~ With all the talk of Standard & Poor’s downgrade, no one mentioned that the ratings agency’s business model is, essentially, lying for money. Instead, many politicians insist that the S&P downgrade is the reason for the market turmoil —…Read More
> Our chart of the day comes to us today via Bloomberg, looking at YTD performance of McGraw-Hill (parent co of S&P), Moody’s, and the S&P500 Index. David Wilson observes: “McGraw-Hill and Moody’s face two threats because S&P cut the U.S. government to AA+, Appert wrote yesterday in a report. The first is greater regulatory…Read More