S&P and Moody's have been instrumental in triggering the current crisis...
I am convinced that noone could possibly prove to me logically any more that stock XYZ is worth exactly an X amount of money today... Earnings, projections, GDP, credit ratings etc simply do not matter in this market. Hedge fund and mutual fund redemptions keep rolling in every day, and pretty much every bank on the planet is subject to a potential fiasco with creditors and counter parties pulling money out in a "New York minute"...Call it "New Deal" economy, without any rules, guidelines or principles...
You know, when I was studying for my CFA exams, I simply could not understand why did only 87% (or somewhere around that) of "elite" money managers that took all three levels of the exam, that is considered to be a "gold standard" in the money management industry could not pass it at the first try to begin with...It wasn't really that tough from what I saw- just add some common sense to the good-old "Gordon growth" theory and you'll do just fine...
But now after the credit fiasco has finally unraveled, I began to understand the real truth... The damn "theoretical" Wall Street fools never really took enough time to adjust their "book Black-Scholes theories" to the "real life" world. In my opinion, most of our most recent economic problems could be as much attributed to the complete incompetence on the part of our rating agencies, as to fundamental credit addiction problem of the underlying economy...
The "super smart" credit agency analyst's opinion is not really worth anything... I still can't believe that anyone in their right mind really gives a rat's a.s what S&P or Moody's say about the creditworthiness of any economic entity. I am simply astounded by the fact that so many people who have been fooled by these incompetent "fools" to begin with at the beginning of the crisis, now are still listening to them like they really know what they are talking about...Is Ford or GM really worth more today than it was tomorrow because S&P said so? Heh? How about WaMu, RBS, MetLife etc? Are you kidding me?
For the last several years, credit agencies have relied purely on "historical information" to rate all the debt they could legally ( not necessarily ethically) rate, without a single cent of common sense applied to it... They did not care about the quality but rathe quantity and in my opinion, they became simply accelerators of whatever the underlying trend (growth/recession) was going on in the country at the moment...
When things seem peachy, they kept saying that most bonds, CDOs and CMB backed securities should be rated AAA just because they haven't had any defaults in a while- when things became shakies they changed the tune to the opposite direction and in the mean tim have led hundreds of entities to go out of business...
I mean, let's get real here- should investors reallt care what happened yesterday??? If the whole rating procedure implies that a security will behave the same way during the next few years as it had during the last few, why would you even need ratings or agencies? Simply use an extrapolation function from Excel and the whole valuation problem is solved...
However, the bad news is that for some reason investors still believe S&P and Moody's know what they are doing, but now it's happening on the downside... If I had to bet money on the outcome- I bet that these so called "experts" are now wrong again and markets are finally cheap...It's time for everyone to realize that instead of providing a valuable service to investors of estimating the creditworthiness of a particular client, both Moody's and S&P simply exaggerate moves in both up and down directions and make money during the process...
They provide no value in the mean time and thus should simply go away/dissappear and in the process give a way, for someone impartial and logical enough to direct investors towards opportunities that really mean AAA for future, instead of merelt focusing on the past...
About a week ago I've made a commitment to myself to start putting my "real life" hedge fund's money to work in 3-4% increments every day the DOW index moved more than 200 points to the downside ( I've been 95% in cash since mid August)...And while my initial thought was that it would probably take me 2-3 months to fully deploy, here is the funny part - I've been quite wrong- every day for the last 7 days Dow has exceeded my downside threshold and true to my established strategy ,I am now 20% deployed ,and think that today risk/reward tradeoff is quite favorable to go 100% long in the "real life" as well...
Remember, fear is good! It's important and means that a lot of people are selling without any regards for fundamentals...
