S&P, You’ve Got To Be Kidding


Oh Standard & Poor’s, you’ve got to be kidding. Apparently the ratings agency is still giving Triple-A ratings to securities backed by subprime loans.

""S&P is poised to provide AAA grades to 59 percent of Springleaf Mortgage Loan Trust 2011-1, a set of bonds tied to $497 million lent to homeowners with below-average credit scores and almost no equity in their properties," Bloomberg reports.

S&P seems to have forgotten that these mortgage-backed securities defaulted to the point that it nearly brought the world’s financial system down. Of course, banks held too many of them, and had leveraged them too much, but S&P was complicit.

But, I guess when you’re getting paid — approximately $1.67 billion in bond rating fees last year — anything goes.

If there was any doubt that S&P had ulterior motives when it downgraded the U.S., this news should remove them. Whatever credibility S&P had should now be completely undermined.

And by the way, the parent company for Standard & Poor’s is McGraw-Hill, ticker symbol MHP on the New York Stock Exchange. I can’t say for sure the stock is headed lower, but earnings estimates have not been lowered, and I have no idea why anyone would pay S&P for a rating that’s essentially worthless.

I’ve already offered up my thoughts on consumer confidence polls. It’s my experience that consumer confidence correlates poorly to consumer spending. But there was an interesting data point in the dismal August consumer confidence report.



Apparently, those polled said they thought inflation would run at 5.8% for the next 12 months. And research shows that consumers have had pretty unrealistic inflation expectations for the last few years.

Sure, real inflation is underreported in official government statistics. For one, housing prices are included in inflation numbers, and those clearly aren’t moving higher. Still, the disparity may be an important reason why consumer confidence seems to be exaggerated on the negative side.

TradeMaster Jason Cimpl’s Hurricane Irene play on a building material stock is up 9% so far. The stock ran around 40% in the months following Hurricane Katrina. And while the devastation of Katrina was worse, there should be some more upside for this stock.

It won’t be enough, but Germany approved a bigger bailout fund for other Eurozone countries. This will definitely help the bullish bias for stocks.

Also, unemployment fell in Germany, which is a bit of a relief after the recent weak manufacturing data there.

Let’s not forget that Germany is helped by the novel employment policy it enacted in the wake of the financial crisis. Instead of simply letting companies fire workers down to the appropriate level of demand, the German government paid companies to keep workers on the payroll.

This is likely a much better solution than simply extending unemployment benefits as the U.S. has done. I haven’t run the numbers to get a handle on the costs, but both unemployment, demand and growth are much better in Germany than here in the U.S.

Of course, Germany is benefiting from the weak euro. There’s no doubt Deutsche marks would be stronger, thereby hurting Germany’s booming exports. But the point remains, Germany’s stance on unemployment worked.

Private payrolls grew by 91,000 in August, according to ADP. That’s pretty close to the median estimate of 100,000. Now we have to wait and see how Nonfarm payrolls come in. There’s usually little correlation between the two employment numbers.

It’s expected that the economy added 75,000 jobs in August. But the Nonfarm payroll number has been missing estimates consistently. Let’s hope that changes, because we could sure use more good economic data to keep this rally going.

Published by Wyatt Investment Research at