Martin Weiss, Weiss Ratings, appeared on CNBC. According to Weiss Ratings methodology, the US sovereign rating should be 'C' or similar to a BBB rating given by either Moody's or S&P. The 'C' rating is based purely on statistics and there are no qualitative factors considered. The only way to get ourselves out of this mess it appears is to cut government spending (i.e. reform entitlements) and enact pro-growth policies. No nation is history has taxed its way to prosperity. According to Weiss on CNBC:
A 'C' is equivalent to approximately a triple-B on the S&P, Moody's and Fitch scales. It's two notches above junk and one notch above the equivalent of a single A," Martin Weiss, President of Weiss Ratings, told CNBC Tuesday.
Weiss was quick to add that while the rating seems weak, the debt situation is not in a danger zone that would trigger panic, noting that there was still broad market acceptance for Treasurys.
The grade reflects the U.S. massive debt burden, low international reserves and the volatility in the American economy, he said.
David Einhorn: The Fed's Policy is Backfiring
To quote CNBC:
A recent letter from Einhorn's Greenlight Capitol argues that fear of inflation is causing investors to sell bonds and avoid housing, leading both to slump.
Inflation fears are also driving up commodities prices, the letter argues.
From the letter:
Here in the United States, our fears that quantitative easing would be a net harm to economic activity appear to be playing out. The prices of things people actually pay for including food, energy and healthcare continue to go up at an accelerated pace ...
While Chairman Bernanke claims that quantitative easing has succeeded in raising stock prices, it seems that equities have gone up for the opposite reason he proposed. According to Mr. Bernanke, Federal Reserve purchases of government bonds were supposed to raise their price so that they would be less attractive than other investments, including housing and equities. Investors would note the disparity and “rebalance” their portfolio to buy more houses and stocks, which would appear cheap compared to higher bond prices. This would support the housing recovery and make the equity market rise.
David Einhorn: The Fed's Policy is Backfiring (click here)Instead, it appears that in response to quantitative easing, investors now fear inflation and have sold bonds. Interest rates have risen and housing prices have declined further. The housing recovery has faltered, creating another negative wealth effect and putting additional strain on the banking system. The money that the private sector would have lent to the government, had the Federal Reserve not printed the money instead, has gone to other goods, notably commodities and stocks to the extent investors see them as a better inflation hedge than bonds. Though the Federal Reserve has produced “research” that purports to show that quantitative easing has not caused commodity prices to rise, many observers disagree. As the Bank of Japan put it in March, “[I]t is safe to say that globally accommodative monetary conditions are a key driver of the rise in commodity prices by stimulating both physical demand for commodities and investment flows into commodity markets.”
Full letter (click here)
Higher rates mean severe recession
According to this strategist, it may be time to end the ultra-low interest rate policy central banks around the world have pursued. Recently, the economy has underperformed what should be expected out of the economy. This strategist believes a slowdown will occur in the fall. The difference between this slowdown and the last slowdown is central banks will be raising rates going into it which may make the recession that much deeper.
Jack Welch on "free money"
Jack Welch essentially believes the easy money policy of the Federal Reserve will cause problems, as "free money" in the hands of smart people causes problems. To quote Welch on CNBC:
"Free money in the hands of very smart people for too long is going to create something that's not very pleasant," Welch said. "I don't know what it exactly is. But every time we get free money to lots of people who are very, very smart and know how to use it you end up with a bubble or a problem that we don't quite see in front of us."
Stocks signaling inflation
Typically, stocks underperform when inflationary expectations increase. This time around it is different. As commodities prices keep rising, stocks are rising as well. So, is economic theory actually playing out?
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