Trading Now

Trading Now

Thursday, February 4, 2010

Moody's Finally Does Right Thing and Gets Closer to Downgrading US

*Stocks open lower on Europe debt concerns. How about our debt?
I tell anyone who will listen to roll your traditional IRAs and 401Ks (or 201Ks whatever the case may be) into a ROTH IRA and just pay the 35% tax rate now. Because if you all think that this administration or Congress for that matter (and it makes no damn difference if its pubbys or jackass' people, we are all subprime now), won't bring us to FDRs tax rates you are sadly mistaken. Why old people think they will be in a lower tax bracket in retirement has always been beyond me anyway. So now you know. Read on and see that not only was I right all along, but the FT thinks so. this year Congress has lifted the income limits for ROTHs and you get to pay the tax you owe over a two year period, but guess what? Whatever your nest egg earns from now on will be tax free! Safe from the government swarm of locusts. So what are you waiting for?

Moody’s warns US of credit rating fears
By Michael Mackenzie in New York and Gillian Tett in London
Moody’s Investors Service fired off a warning on Wednesday that the triple A sovereign credit rating of the US would come under pressure unless economic growth was more robust than expected or tougher actions were taken to tackle the country’s budget deficit.
In a move that follows intensifying concern among investors over the US deficit, Moody’s said the country faced a trajectory of debt growth that was “clearly continuously upward”. Steven Hess, senior credit officer at Moody’s, said the deficits projected in the budget outlook presented by the Obama administration outlook this week did not stabilise debt levels in relation to gross domestic product.
“Unless further measures are taken to reduce the budget deficit further or the economy rebounds more vigorously than expected, the federal financial picture as presented in the projections for the next decade will at some point put pressure on the triple A government bond rating,” the rating agency added in an issuer note.
This week, the White House forecast a $1,565bn budget deficit for 2010, which represents 10.6 per cent of gross domestic product and is the highest such ratio of debt to GDP since the second world war.
While the budget gap is forecast to fall to about 4 per cent by 2013, it is based in part on economic growth not falling below government expectations, Congress agreeing to tax rises and a spending freeze on non-security discretionary spending.
Crucially, projections of the overall debt-to-GDP ratio for the US are seen rising from 53 per cent in 2009 to 73 per cent in 2015 and 77 per cent by 2020.

Moody’s, however, says this understates the overall US debt level.
“Using the general government measure, including state and local governments as well as the federal government, which is used internationally, this ratio would be well over 100 per cent in 2020.”
The issue of sovereign risk dominated many discussions in the Davos World Economic Forum last week. While much attention focused on the fiscal crisis in Greece, considerable concern was also voiced about the outlook for countries such as the US and UK.
“Everyone has reason to be concerned about the US economy right now and the US dollar,” said Tony Tan, deputy head of the Government of Singapore Investment group. “We still think that the US economy is the most diversified and resilient in the world, but it is going through a difficult time.”
At the heart of investor concerns is whether countries such as the US with its rising debt burdens has the political will, or the sense of consensus, to take decisive measures to cut debt.
Some investors at Davos suggested it might be helpful if the credit rating agencies were to step up their threats about a potential future downgrade in countries such as the US and UK, since it would force politicians to act – and turn the issue into an election topic.
US treasury bonds were relatively steady on Wednesday with the yield on the 10-year note rising 3 basis points to 3.67 per cent.

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