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Trump Era 2025-2029 : Stock and Economic Comment

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mullokintyre said:
From Quoth The Raven
Click to expand...
The credit rating agencies are themselves a big part of the "complex" that's gone so badly wrong.

They might have some value but I doubt anyone puts full faith in them these days. They're another of those things that no longer have the standing they once did.

The US' debt and trade situation is one of those things where getting the timing right is pretty much impossible but the broad direction has been readily observable for a very long time. It has long just been a question of when, there was no "if" about it.
 

Remember, it's the government that decided who's able to give credit ratings and it was the government that bailed out all the bad actors rather than write some laws that would send them to jail if the whole thing came crashing down.

It's also the government that can revoke their rating authority if they don't get the rating on their debt issuances that they want
 
Remember, however, that governments can just print money to pay debt off in a way that a private company/citizen/state government cannot. The ratings are based on the likelihood of default, not the money being printed into oblivion and rendering the bond worthless by the time it matures.
 
Oh and for anyone wondering, the ratings agencies assume no risk for their ratings. Legally speaking, their rating is an opinion, not an advisement. This is why when people attempted to sue them after the GFC the cases went nowhere and were tossed without even being heard.

A rating is an opinion, not actual financial advice.
 
If you are paying for the opinion though, you would expect some due diligence.
It is a Fortune 500 company.
 
Knobby22 said:
If you are paying for the opinion though, you would expect some due diligence.
It is a Fortune 500 company.
Click to expand...
Depends who's assuming the risk. If the rating is higher than it should be then your insurance against default (credit default swap) is going to be way cheaper than it otherwise would be.

The risk is then effectively assumed by whoever insured the bond, which is exactly what happened in the GFC, except so many of them defaulted that the insurance companies went bust and couldn't pay the losses out, hence the bailout from the government.

Even now the companies know full well that if things go catastrophic the government will have no choice but to bail them out on account of the fact that ordinary people will be losing everything if they don't.

Remember that any asset you park in someone else's books/vault/whatever you're giving them permission to borrow against, so if the bank goes bust it effectively loses your money on you.

It's not their own money they're playing with.
 
It'd be like if a hurricane came through and levelled an entire city and caused so much damage that it bankrupts all the insurance companies that everyone have insured their houses with. The government's going to step in and pay out whatever the insurance companies can't, we just know it is.

The difference is that the likelihood of a hurricane destroying everything (in this analogy) was massively, knowingly, fraudulently underestimated, but the insurance brokers assumed no personal risk for the company getting bankrupted by a huge number of natural disaster claims and couldn't care less for the person that's going to lose everything when the company can't pay their claim out so they just kept selling the insurance raking in massive commissions not giving the slightest of fcuks for the consequences as they were personally completely unaffected by them.

The government then steps in and foots the bill for all the destroyed houses that the insurance company can't and voila, that's how you get privatised profits and socialised losses.
 
As for my personal two cents re: U.S government debt ratings being accurate, well, I'll direct you to my previous post about how governments can just print money where companies cannot.

The ratings are about the likelihood of default and so that basically just becomes a balancing act between the government deciding what kind of approach it wants to take when it can't pay the money back by conventional means.

If printing cash to pay it off causes too much inflation pain and actually balancing the budget (through tax increases, government spending reductions, or some combination of both) is also politically painful/an election loser then the powers that be might very well decide to just default instead.

I imagine the new rating is in response to how unable to use the other methods to deal with the debt the U.S government has been. If the public won't let them inflate it away, won't pay more taxes, and won't go without government services, then default is the only option left.

It's the doomsday scenario admittedly but the public have been very uninterested in accepting the other options so it's starting to actually look even remotely likely.

Hence the downgrade.
 
 

Knobby22 said:
If you are paying for the opinion though, you would expect some due diligence.
It is a Fortune 500 company.
Click to expand...

A bit of background on the GFC and credit rating agencies, for those who weren't around.

One would hope there is more scrutiny and accountability these days.

The Credit Rating Controversy

The three major credit rating agencies have been accused of contributing to the global financial crisis, drawing increased oversight from regulators in the United States and Europe. Nonetheless, inve…
www.cfr.org

The "Big Three" global credit rating agencies—U.S.-based Standard and Poor’s (S&P), Moody’s, and Fitch Ratings—have come under intense scrutiny in the wake of the global financial crisis. Meant to provide investors with reliable information on the riskiness of various kinds of debt, these agencies have instead been accused of exacerbating the financial crisis and defrauding investors by offering overly favorable evaluations of insolvent financial institutions and approving extremely risky mortgage-related securities.

In Europe, the Big Three garnered further controversy over their sovereign debt ratings. While the public debt of crisis-hit countries like Greece, Portugal, and Ireland was relegated to “junk” status, the agencies also downgraded the creditworthiness of France, Austria, and other major eurozone economies. EU officials argued that these moves accelerated the eurozone’s sovereign debt crisis, leading to calls for the creation of an independent European ratings agency.
 
Indeed, great post.

I routinely ignore broker ratings and price targets and have never suffered as a result. However as with Credit Ratings one must remember that a significant majority of investors, some large do not hold our suspicions on their prognostications and the market as was seen in the GFC follows in lockstep. And the it doesn't work.

Being contrarian on the other hand is fantastic, but again when it works, like everything else.

gg
 
The One Big Beautiful Bill is about tax cuts which will be bad US debt.
1. No tax on tips.
2. Permanent tax cuts for the very wealthy,.
3. But they haven't completely forgot the normal worker.
"But the amendments also contained a four-fold increase in the so-called SALT deduction cap, from a maximum of $10,000 in deductible state and local taxes to $40,000 for taxpayers reporting less than $500,000 in income.".

, markets tumbled Wednesday on concerns that Trump’s spending bill would pass and lead to exploding federal deficits and weaker long-term fiscal health for the nation.

The Republican spending bill is sending yields soaring and creating a major market headache
Published Wed, May 21 2025 3:54 PM EDT
Updated 6 Hours Ago

https://www.cnbc.com/2025/05/21/trump-tax-bill-house-vote.html

www.cnbc.com
 
Yeah long dated bond yields are soaring.
 
Markets remain fixated on the US government’s fiscal trajectory after the House passed President Trump’s so-called “One Big Beautiful Bill” — a sweeping package that permanently extends Trump-era tax cuts, introduces new tax breaks, and significantly boosts defence and immigration enforcement spending.

According to the Congressional Budget Office, the measure could add nearly US$4 trillion to the national debt over the next decade. Those concerns were reflected in the bond market, where the 30-year Treasury yield climbed as high as 5.161% — its highest since 2023 — before easing later in the session. The 10-year yield also flirted with multi-year highs before retreating.

The spike in yields reflects both inflationary fears and weakening demand for long-dated government debt. A lacklustre auction of 20-year Treasurys on Wednesday only deepened investor unease, further pressuring equities, especially rate-sensitive sectors.
 
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