Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
I tend to tune out columnists as soon as it becomes apparent that their rhetoric is factually false. It demonstrates, to paraphrase Times v Sullivan, a reckless disregard for the facts. In this column dated Nov 17th, we have the assertion that the Isle of Man is S&P AAA-rated. Yet the WSJ reported, a full week prior, that S&P had downgraded Isle of Man. And S&P confirms that lowered rating.
As far as the significance of S&P's ratings are concerned (I've stated this before, and it's acknowledged in the column), we have the general failure of the NRSROs to actually study what went into CDO tranches before rating them all AAA. (Is the US Treasury actually more risky than that?) But specifically with regard to S&P, its downgrading of the US was confirmed by the market and the other NRSROs. Not. The market almost immediately bid up the price of Treasuries, and one of the other NRSROs went out of its way to subsequently and explicitly reconfirm its Treasury AAA rating.
It's not as though this columnist is unfamiliar with the marketplace determining true creditworthiness, as he mentions it in the next paragraph. He goes on to talk about how a higher S&P rating can make borrowing cheaper, but never corrects for other possible differences between the companies. Rather, he ignores the elephant in the room - where the S&P downgrade of Treasuries made US borrowing cheaper - that's assuming you think that S&P ratings have any impact at all on closely followed countries or companies.
So if you want to build a AAA portfolio, all well and good, but you'd better be able to articulate why you believe that represents companies in better financial shape than others. Citing S&P doesn't do the job, and even at that, you should get the facts right. Otherwise, you lose this reader right there.
Reply to @msf: On the bottom of the article some background info of the author was disclosed. The article is overly simplistic for a complex subject.
"Ben Weiss has worked throughout the Asia-Pacific region for hedge funds and private equity firms. He runs a boutique venture capital firm in Hong Kong."
Comments
As far as the significance of S&P's ratings are concerned (I've stated this before, and it's acknowledged in the column), we have the general failure of the NRSROs to actually study what went into CDO tranches before rating them all AAA. (Is the US Treasury actually more risky than that?) But specifically with regard to S&P, its downgrading of the US was confirmed by the market and the other NRSROs. Not. The market almost immediately bid up the price of Treasuries, and one of the other NRSROs went out of its way to subsequently and explicitly reconfirm its Treasury AAA rating.
It's not as though this columnist is unfamiliar with the marketplace determining true creditworthiness, as he mentions it in the next paragraph. He goes on to talk about how a higher S&P rating can make borrowing cheaper, but never corrects for other possible differences between the companies. Rather, he ignores the elephant in the room - where the S&P downgrade of Treasuries made US borrowing cheaper - that's assuming you think that S&P ratings have any impact at all on closely followed countries or companies.
So if you want to build a AAA portfolio, all well and good, but you'd better be able to articulate why you believe that represents companies in better financial shape than others. Citing S&P doesn't do the job, and even at that, you should get the facts right. Otherwise, you lose this reader right there.
http://www.dividendgrowthinvestor.com/2011/11/how-to-create-bulletproof-dividend.html
"Ben Weiss has worked throughout the Asia-Pacific region for hedge funds and private equity firms. He runs a boutique venture capital firm in Hong Kong."