Moodys is toast. Soon.

Berkshire Hathaway is selling more shares of Moody’s. It is clear that rating agencies are the next scapegoat for the financial crisis en Warren wants to get out before Congress is declaring these institutions toast.

A judge decided yesterday that these agencies have no place to hide.

(LA Times, 3/9/09): Credit-rating firms’ shares plunge on subprime-related court rulingInvestors who believe that major credit-rating firms should be held responsible for their disastrously optimistic ratings of subprime-mortgage bonds have won at least an interim victory.U.S. District Judge Shira Scheindlin in New York ruled late Wednesday that Moody’s Investors Service and Standard & Poor’s can’t invoke the 1st Amendment to hide from subprime-related legal challenges.The decision triggered heavy selling of shares of Moody’s parent Moody’s Corp. and S&P parent McGraw-Hill Cos. on Thursday. Moody’s slid $1.84, or 7%, to $24.26. McGraw-Hill’s shares tumbled $3.30, or 10.2%, to $29.01.

No panic, Warren is still sitting on a nice profit because his average purchase price I 10.40 USD.
We’re not there.
Yet.

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Moody's

Buffett dumps Moody’s (ticker: MCO).
The sales listed in the latest filing are:
7/20/09… 1,817,000 at $28.7269 average in open market sale.7/21/09… 3,915,100 at $26.9188 average in open market sale.7/22/09… 2,254,200 at $26.6425 average in open market sale

Also other insiders are dumping the stock: National Idemnity, OBH and GEICO. This is not boding well for the future of this rating agency in particular, but people seem to know that something is brewing.

Buffett reduced his stake from 20,2% to 16.98% over the last days.

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What happened?

Now, this was a quicky. From AAA to –BBB to AAA in one week.
From Bloomberg:

Standard & Poor’s backtracked on ratings cuts issued last week and raised the ranking on commercial mortgage-backed debt from three bonds sold in 2007.
The securities, restored to top-ranked status, had been downgraded as recently as last week, making them ineligible for the Federal Reserve’s Term Asset-Backed Securities Loan Facility to jumpstart lending.
S&P lowered the ratings on a class of a commercial mortgage-backed bond offering from AAA to BBB-, the lowest investment-grade ranking, on July 14. The New York-based rating company reversed the cut today, S&P said in a statement. In a related report, S&P said it adjusted assumptions on the timing of projected losses on the mortgages.
“It is a stunning reversal and certainly raises questions concerning the robustness of their revised model,” said Christopher Sullivan, chief investment officer at United Nations Federal Credit Union in New York. “It may engender further uncertainty with respect to ratings outlooks.”
Debt rated below AAA isn’t eligible for the Federal Reserve’s TALF. Investors sought $668.9 million in loans from the Fed to purchase so-called legacy commercial mortgage-backed bonds on July 16, the first monthly deadline to finance the purchase of the securities.

Throw the ratings agencies out of the window

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The new scapegoat

The next smoking gun. Calpers is attacking the rating agencies in order to divert the attention of Goldman Sachs, recently a lot in the news. Now, this is another important hurdle to get rid with for the regulators. If you can axe the inluence of the rating agencies everybody is a big winner. Imagine the fact that the US will not loose his AAA rating is already a big plus.

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Is the UK a test-case for the US?

From the Financial Times

The S&P decision to downgrade its outlook for British sovereign debt from “stable” to “negative” should be a wake-up call for the US Congress and administration. The federal debt was equivalent to 41 per cent of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82 per cent of GDP in 10 years. With no change in policy, it could hit 100 per cent of GDP in just another five years. “A government debt burden of that [100 per cent] level, if sustained, would in S&P view be incompatible with a triple A rating,” as the risk rating agency stated last week.To understand the size of the risk, take a look at the numbers that S&P considers. The deficit in 2019 is expected by the CBO to be $1,200bn (€859bn, £754bn). Income tax revenues are expected to be about $2,000bn that year, so a permanent 60 per cent across-the-board tax increase would be required to balance the budget. Clearly this will not and should not happen. So how else can debt service payments be brought down as a share of GDP? Inflation will do it. But how much? To bring the debt-to-GDP ratio down to the same level as at the end of 2008 would take a doubling of prices."

Are we going to inflation?
Not yet.

The TIP ETF is barely moving.

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Gold shines

It started.
The rumor mill. If the UK can lose the triple A status, why not the States?
It started.
As venom it’s spreading. The dollar is sliding. Central Banks are sneaky selling their Treasuries. Ben will have to announce much more QE.
The de-leveraging continues.
And it looks uglier by the day.

A part of Europe was enjoying a holiday, yesterday. Next Monday the States are not in. A light Friday. As it is all week. Volume is light. Dollar weakness is met with strength of oil and gold.
The strength in the gold price is met with a good performance of the goldminers. The ratio between those two is favoring the latter. This is a good sign for the ongoing rally.

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England rules the waves

The S&P sent out a rating alert for the UK and now all bells are ringing. The UK credit derivatives widened sharply and the pound was hit.
The UK is going from stable to negative for the first time since 1978 and I can assure you: we don’s see any happy faces.
Fitch and Moody’s were already out to affirm the UK’s triple A rating, but the damage is done.
The action of the Big Three is one thing, doing some good analysis is another. There are many rating agencies out there, but only these three are recognised by the FED. And the rest of the world. But they are commercial firms and I can assure you: the limited number of people working on such serious topics is just
a sickening joke.

I like more agencies as Egan-Jones. At least they do some homework. If you go to www.egan-jones.com you’ll find some fine stuff.

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