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Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Tuesday, April 19, 2011

S&P Downgrades US Debt

S&P still rates US sovereign debt AAA, but has downshifted the rating from stable to negative
to account for lack of meaningful progress by Official Washington (OW) to take steps to reduce
an outsized budget deficit. The poignant irony here of course is that lax practice by S&P and
Moody's credit raters, helped to make the recent severe recession deeper than it might have been.

Street people who have been around a long while and remember what true AAA credits look like,
long ago gave up thinking of US debt as AAA, not with the steady and large accumulation of unfunded
liabilities the US has created.

But S&P is on to something here, and that is a growing investor concern that the US will need a
strong plan to reverse its deficit once the economy seems to be advancing on a self-sustaining basis.
S&P is perhaps correctly suggesting that continual ideological bickering within OW concerning
budget priorities will eventually weaken investor confidence once it becomes more clear that
the eoconomy can progress without such large deficits in support of continuing recovery / expansion.
And, I think there are serious players in the markets who would agree. No one expects draconian austerity measures for 2012 (a national election year) or even for 2013 for that matter.
But people will be looking for a credible, balanced plan to be in place to begin closing the
deficit meaningfully certainly by 2013 if not sooner.

By 2020, the 80 million strong Boomer cohort will be between the ages of 55 - 75, and by 2030,
the bracket will be 65 - 85. So, between 2020 and 2040, there will an historically large call on
entitlement payout for income maitainance and the medical bills which are sure to come in
profusion. OW has known all of this since the 1970 census and the passage of Medicare which
preceded it.

There will be many more budget fixes needed if the US is to honor the intent of these programs
and the US might even find it expedient to not worry about its AAA rating down the road if it
helps get the US through one of the largest fiscal challenges of all time. It all will take some
monumental doing and I am hoping in the process that the US will begin to look long and
hard at ways to insure faster and even more productive growth to provide faster revenue stream

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