moody’s cuts us credit rating

[mathjak107]

all the other credit agencies cut our rating many years ago .

moodys was the only hold out and now they reduced us like the rest of them .

it will be interesting to see if there is any reaction in the stock and bond markets monday .

it may just be business as usual unless there is a knee jerk reaction

[mathjak107]

tlt certainly taking it on the chin today , pre market down close to 2% .

[dualstow]

I think Seajay’s nipples just got hard.

[mathjak107]

a pretty MEH day for stocks and just another down day for long term treasuries

[Kevin K.]

Great piece on this over the weekend by Cullen Roche:

"When you say the US government is at risk of default you are indirectly arguing that the US private sector will weaken substantially or that the US government will become so incredibly reckless with its spending that it will essentially destroy that private sector. I don’t see it. Even with the reckless Covid spending we still only have 2.5% inflation and low interest rates. And I think we’ve all realized that printing that much money during Covid was a mistake. In fact, Trump’s early deficit figures show meaningful sign of a slowdown in government debt expansion.

I can only assume there’s some political angle to all of this and that the argument is that US government debt has become riskier because of the tariffs or the more protectionist position. But again, that’s just not a realistic discussion on a relative basis. The US Dollar is 57% of foreign reserves. The next closest currency is the Euro at 19%. There just isn’t a remotely close second here, just like the revenue data. And that’s the nutty thing about this debate. There are 160 fiat currencies in the world. And that means there are 159 dirtier shirts in the fiat closet when compared to the Dollar. If the US government is a aa1 entity then that’s the new AAA because every other entity on this planet must have a lower credit rating given that nothing comes remotely close to having the same levels of income and credibility. For instance, Moody’s rates Johnson and Johnson AAA. And while I love baby wipes and will probably continue to buy them well past the days where I am cleaning dirty diapers there’s just no universe in which JNJ, with their measly $90B of annual revenue and non-existent printing press, can ever be placed on the same pedestal as the US federal government. JNJ is not even in the same universe when compared to the US government. And they’re far from the only entity that Moody’s claims is a higher quality entity. My point is, in terms of underlying financial resources and ability to pay, there’s no entity in the world that can claim to be as credible as the US government.

None of this is to say there isn’t inflation risk in the Dollar or that we couldn’t be creeping towards a level of government spending that erodes the value of the Dollar. As many of you know, I was rather alarmist about inflation during Covid due to government spending. But on a pure credit basis there is nothing that comes even close to the safe haven nature of the US government’s liabilities because there’s nothing that comes close to being able to generate the income it can generate.

But back to downgrade – does it matter? I would say 100% no. It might cause a market reaction, but again, we’ve seen this before. S&P downgraded the USA In 2011 and they had egg on their face just a year later. Fitch downgraded US government debt in August of 2023 and rates are largely unchanged since then. It was at least a little different in 2011 when the change from AAA impacted some derivatives contracts that could only be tied to AAA debts, but the USA hasn’t been a AAA entity according to the other agencies for a long time now so I don’t see the impact here.

Of course, if you’re making an inflation argument that’s a very different (and more valid) perspective. Then again, if you were going to downgrade US government debt based on inflation risk the time to be doing that was during Covid, not after inflation has come down to 2.5% and appears to be softening broadly. So, this just looks like a big nothingburger to me."

https://disciplinefunds.com/2025/05/17/ ... e-weekend/

[dualstow]

Great piece on this over the weekend by Cullen Roche:
“
…
I can only assume there’s some political angle to all of this
… So, this just looks like a big nothingburger to me."

https://disciplinefunds.com/2025/05/17/ ... e-weekend/

Here’s a nice succinct version:

IMG_9814.jpeg (140.52 KiB) Viewed 441 times

[boglerdude]

"if you were going to downgrade US government debt based on inflation risk the time to be doing that was during Covid"

Questioning the covid response was not permitted at the time. And those bags of money had to be given out to get obedience

[mathjak107]

the markets barely reacted to it .

even the long treasuries had their normal DOWN day .