Do S&P know WTF they’re doing, Episode 93

Standard & Poors just confirmed the UK’s triple-A status. Speaking as a Brit myself, right now I wouldn’t lend my government a corkscrew to open one bottle of Bulgarian Merlot: but S&P rationalises this mad judgement on the following risible basis:

‘We project that, despite recent weakness, the U.K. economy should begin to recover in the second half of 2012 and steadily strengthen, and we expect economic policy to continue focusing on closing the fiscal gap’

Absent from this ‘analysis’ are the following factors:

i. The British banking system is heavily exposed to Russian and Spanish debt

ii. The UK economy’s decline in Q2 was, at 0.7%, three times the expected fall

iii. 75% of UK exports are still invisible/service/financial management products. Our manufacturing base is a joke at 13%, and agriculture provides just 2% of gdp

iv. 47% of our exports are to the EU, a trading bloc at All Stop.

So on these bases, the outlook is about as stable as Syria’s at the minute. But hark, because S&P has a few other cavalier judgements to throw into the mix.

* ‘We are affirming our ‘BBB+’ long-term rating on Barcelona….We forecast that the City of Barcelona should maintain what we view as healthy operating balances and gradually moderate its investments to stabilize debt, taking into account a sustained commitment to budgetary stability and solvency.’

Talking to contacts in Catalonia and Madrid last week, The Slog was unable to find a single analyst, trader or debt executive who shared that view.

* ‘We are affirming our ‘BB+’ long-term issuer credit rating and ‘ruAA+’ Russia national scale rating on RusNano. The outlook is stable, reflecting our expectation that strong ongoing state support in the form of guarantees will continue at least until 2015.’

There are two issues here -  one macro, one micro.

In a macro sense, when I say I wouldn’t lend my Government a corkscrew, I wouldn’t lend the Putin Government a cork. He is disliked widely, his economy is massively energy-export dependent in a global economy going south, and the Russians are losing influence everywhere in the Middle East.

In a micro sense, I am less than impressed with the Rusnano fund’s investment nous. It paid close to $40 million for just under five million newly issued shares in NeoPhotonics of California – equivalent to around a 17% stake. The premium at that price is bonkers: at $8 per share, Rusnano paid close to double the market price of the San Jose company’s stock.

But what do I know? I am just an humble blogger who called S&P wrong on Spain, Greece, Italy, Ireland, Portugal, Australia, and China. And indeed verily I say unto you, they were wrong.

Maybe the credit agency needs to rise above standard in order to stop being piss-poor in its forecasts.

20 thoughts on “Do S&P know WTF they’re doing, Episode 93

  1. ‘The UK’s economy decline in Q2 was, at 0.7 percent,3 times the expected fall’.I thought the Slog was about deconstructing bollocks-ONS figures for GDP bare no relation to the much more reliable figures for employment,and the growth in private sector employment.Sorting out Garry’s sabotage of England was never going to be done in 2 years.

    • ”…reliable figures for employment,and the growth in private sector employment…”

      manipulated DWP horsesh*t, training, enforced minimum wages AND employer bonus’s and tax advantages.

  2. Pingback: John Ward – Do S&P Know WTF They’re Doing, Episode 93….- 28 July 2012 | Lucas 2012 Infos

  3. Ah credit rating agencies…

    The financial equivalent of Mystic Meg…

    So why on earth does anyone take these jokers seriously?

    After all they have been getting it wrong for years, and being paid very nicely for it…

  4. It’s nearly enough to make you support Van Rompuy and Barrosso in their efforts to get rid of the credit ratings agencies.

    Nearly. ;)

  5. Surely it’s all relative? We know we are all broke and in debt but some countries are far more broke and more in debt than others. They can’t rate everyone as junk level, so in the fashion beloved of exam boards they have to indulge in grade inflation.

  6. They know EXACTLY what they are doing.

    While we won’t know their exact goals, it’s patently clear they are a cog in the propoganda machine.

    The more I look at it, the more it seems the whole game plan now is to hide the fact the emporer never had any clothes from average man in the street.

    If UK debt “costs” spiral and the world’s oldest living fiat currency (though strictly speaking decimalisation means this isn’t the case) collapses what would that mean to the other fiat currencies that used the BoE’s model as exemplar?

    Could the US really pin this on “risky London” to avearge Johnny six pack, whose pensions (which will be highly exposed to GBP based stock prices / derivatives etc.) is completelty decimated without the growing anti-Fed feeling exploding?

    Even in a non-collapse, and the government simply “prints” more money, what would your man on the street who thinks pound actually = pound of gold/silver (while you may scoff, Andrew Marr actually posited this on a recent radio 4 program! I Don’t blame him, I was told similar during my A-Levels!).

    The intertwining of government and banking (explicitly via issuance of fiat money, not the derivative casino stuff) would collapse around our ears.

    People would realise taxation is a moot concept in this world of print all you want money. Heck let’s just print all the Nurses/Bobbies/… salaries. Or let banks go bust and “print” enough to cover all UK deposits.

    Fiat is about faith of the majority, and ultimately faith is overcome by fact (unless of course the Earth truly is flat?)

  7. Oh I’m sure they know what they’re doing alright, it’s just not anything they’d want the rest of us to know about…

  8. Pingback: On Standard & Poor, UK’s tripple A and Bully Boys or Why London Lives in LaLa Land « Aotearoa: A Wider Perspective

  9. Egan Jones has a somewhat different rating.
    That the only rating to give even the slightest credence.
    They have a blind spot on the US which is in every bit as
    much trouble as the UK,maybe more
    I am glad you appear to be getting honest figures,the US
    data is pure garbage in/garbage out.fantasy.Unemployment,
    inflation,GDP ,corporate profits,bank balance sheets,everything
    is a lie.Do not get caught holding any of this paper.

  10. John fixing ratings is the new libor,the new con on the block althoughthey cross over even run simultaneously,sounds like a sentence doesn’t it,but for us not them

  11. I wonder did the people from S&P have tickets to the oh limp pricks,curtesy of Gov and shills?
    In the real world of Russian oligarchs and those in the know,why are they feverishly buying property in the most boring parts of Switzerland for cash,whilst remortgaging property in London and the South of France?

    • why? because when Dominic Raab’s private member’s bill goes through certain Russians may be nervous about holding assets in the UK (
      and similarly in the US).

  12. Did S & P actually opine where this UK growth was going to appear from, or are they assuming assuming a change from austerity to growth policy from the Gov?

    Do not the employment figures fail to specify between full and part-time work and thus mask the actual total productive activity?

    The UK is having an amazing run of good MSM press and support given all debt/deficit reduction targets have been missed even if the Gilts etc interest rate is being manipulated lower by the BOE QE strategies (and returning to the Treasury all the ‘profit’ the BOE is making from buying vast quantities of gov debt).

    Everything appears dependent on the MSM and if they wave their confidence fairy over one.

  13. Didn’t these agencies give Bank of Ireland and US CDOs AAA?
    A bit like asking Gordon Clown for wealth management advice.

  14. Pingback: Do S&P know WTF they’re doing, Episode 93 | Machholz's Blog

  15. Pingback: John Ward – Wobbly Russia : Putin Stick The Boot Into The Regions, And The Rating Agencies – 28 August 2012 | Lucas 2012 Infos

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s