Thursday, July 14, 2011
Moody's Places US Aaa Government Bond Rating and Related Ratings on Review for Possible Downgrade
New York, July 13, 2011 -- Moody's Investors Service has placed the Aaa bond rating of the government of the United States on review for possible downgrade given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations. On June 2, Moody's had announced that a rating review would be likely in mid July unless there was meaningful progress in negotiations to raise the debt limit.
In conjunction with this action, Moody's has placed on review for possible downgrade the Aaa ratings of financial institutions directly linked to the US government: Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks. We have also placed on review for possible downgrade securities either guaranteed by, backed by collateral securities issued by, or otherwise directly linked to the US government or the affected financial institutions.
RATIONALE FOR REVIEW
The review of the US government's bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes.
As such, there is a small but rising risk of a short-lived default.
Moody's considers the probability of a default on interest payments to be low but no longer to be de minimis. An actual default, regardless of duration, would fundamentally alter Moody's assessment of the timeliness of future payments, and a Aaa rating would likely no longer be appropriate. However, because this type of default is expected to be short-lived, and the expected loss to holders of Treasury bonds would be minimal or non-existent, the rating would most likely be downgraded to somewhere in the Aa range.
The specific rating that would be assigned at the conclusion of the review once such a default is cured would depend on (1) the speed with which the default is cured; (2) an assessment of the likely effect on future borrowing costs; and (3) whether there is a change in process for raising the debt limit that would preclude another default. A return to a Aaa rating would be unlikely in the near term, particularly if there were no progress on the third consideration.
While the debt limit has been raised numerous times in the past, and sometimes the issue has been contentious, bond interest and principal have always been paid on time. If the debt limit is raised again and a default avoided, the Aaa rating would likely be confirmed. However, the outlook assigned at that time to the government bond rating would very likely be changed to negative at the conclusion of the review unless substantial and credible agreement is achieved on a budget that includes long-term deficit reduction. To retain a stable outlook, such an agreement should include a deficit trajectory that leads to stabilization and then decline in the ratios of federal government debt to GDP and debt to revenue beginning within the next few years.
Moody's does not take a position on what measures should be included in any deficit reduction package. Instead, it is the resultant deficit and debt trajectories that are relevant to the rating and its outlook.
Investing in currencies remains a foreign concept to most investors for two major reasons. First of all, the average investor does not have the knowledge to determine how currencies fit into their portfolio and they do not know which currencies to own. The second factor has to do with how an investor will gain access to currencies.
The euro spiked to an 18-month high in May versus the U.S. dollar, only to begin a short-term downtrend on the back on concerns about the health of the Eurozone. By this week, the Rydex CurrencyShares Euro Trust ETF (NYSE:FXE) was trading at a fresh 4-month low. As the fear of more bailouts sweeps through Europe from Greece to Ireland - and newly added Italy - investors are have been dumping the European currency.
Even though the issues in the Eurozone may be real, so are the debt ceiling talks across the pond in the United States. The U.S. dollar has been in a decade-long downtrend even as the government has been promoting a strong dollar policy. The recent bounce in the U.S. dollar can be attributed to the fact the currency is the lesser of two evils. This is why the PowerShares DB US Dollar Bullish ETF (NYSE:UUP) is near a multi-month high.
The emerging market currencies have been holding up well as their underlying economies continue to grow at above average paces. This niche sector can add diversification to a portfolio and offer opportunities to gain exposure to emerging markets.
The WisdomTree Dreyfus Emerging Currency ETF (NYSE:CEW) invests in money markets in 12 different emerging market countries. The goal of CEW is to generate a return that reflects the money market rates in the foreign countries as well as the exchange rate with the United States. Some of the countries included in the ETF are South Africa, China, Mexico, Turkey and India. The current distribution yield is 3.6% and the expense ratio is 0.55%.
Brazil is included in CEW, however, if you want to focus solely on the Brazilian real there is the WisdomTree Dreyfus Brazilian Real ETF (NYSE:BZF). The ETF has been very strong over the last few years as the Brazilian currency continues to climb along with the country's economy and stock market. This is one of my favorite single-country currency ETFs.
The two foreign currencies that are the safe haven during rough times in the equity market are the Japanese Yen and Swiss Franc.
The Rydex CurrencyShares Japanese Yen ETF (NYSE:FXY) has been my "insurance" investment during rough times for equities. In 2008 when the S&P 500 fell 38%, FXY gained 20%. The ETF is currently near a new high and has been extremely strong over the last two weeks of volatility in the stock market.
The Rydex CurrencyShares Swiss Franc ETF (NYSE:FXF) has the best chart of all foreign currencies and is a few ticks from a new high. The ETF has been the leader in 2011, up 12% and beating its peers and the equity indexes. The currency has always been viewed as a safety play due to the country's strong economic background, low unemployment and low debt ratio.
The choice comes down to which currency ETF, if any, you should own. Unfortunately, all investors are different and that decision needs to be made by you or your advisor. For our clients, we look to create a mix of currency ETFs depending on the current market environment. The safe havens appear to be the most attractive at this time.
You've donned the cap and gown and you are staring down years' worth of student loans – congratulations, you've graduated! For those looking to enter the job market, you probably triumphantly added your new degree to your resume - and nothing else. After years in academics, any area of your resume except education might feel a bit empty. Here are a few tips to highlight your true potential to your first employer.
Highlight the Experience You Do Have Consider using this trick. Look up your ideal job and read through the posting (it doesn't have to be geographically desirable, just the right career opportunity). Highlight or keep a list of the keywords used and find a way to incorporate them into your own resume. Even if you don't have the exact experience they are requesting, think about parallel experience that you do have. For example, that perfect job posting may request experience in project management; you may never have done that in a formal office setting, but organizing the large charity event you ran last summer will undoubtedly have required a similar skill set. Make sure you do yourself the credit of highlighting all of your relevant experience – there's likely to be more than you think!
Add Unpaid Experience Just because you didn't get a paycheck doesn't mean you didn't walk away with something valuable. Consider any volunteer experience you might have as if it had been a job; list the responsibilities you had, the skills it required, and the goals you achieved.
Include Soft Skills We've probably all found ourselves in this situation: your interviewer asks if you have any experience in a particular field or situation, for example, conflict resolution with a coworker. Luckily, you remember a time when you had to resolve a scheduling issue with someone you worked with. You do have conflict resolution experience! But is this skill listed on your resume?
Mark Jeffries, a leading expert on soft skills in career management, describes soft skills as "anything that enables you to influence others, to pitch ideas, and to successfully persuade others to take action," according to CareerJoy.com. Do you take initiative on new projects? Do you have a tendency to rework organizational systems for the better? These are all highly marketable skills.
The catch is that you can't just list them out on a resume. Imagine if you were the hiring manager reading a list of 30 soft skills: leadership, communications, people skills, zzzzz… Don't do yourself the disservice of boring the person who is reading your resume. Instead, look for ways to incorporate these keywords into concrete examples. It will keep a human reader engaged, and still help an automated resume scanner or bot to flag you as a possible candidate.
Consider Your Education Completing your education is nothing to sneeze at. It may seem to you as if everyone has a degree, but that's simply not the case; and having that diploma means more than just a framed piece of paper. Successful students must exhibit exceptional time management skills, project management, attention to detail, and be strong readers, writers and (though it may seem obvious) learners. These are all skills your potential boss needs to know about.
Beyond the skills it took to get you through school, consider highlighting what you actually did. Did you earn any scholarships? Take on extra-curricular responsibilities like student government? Perhaps you organized an event for your dorm-mates. On the academic side, did you complete a thesis? Assist a professor? Go over your academic career carefully and make note of all of your accomplishments, no matter how small they may seem.
Highlight, Don't Lie There's a slippery slope between shining a spotlight on an accomplishment (and, let's be honest, polishing it up a bit) and outright lying. If you really did start a small summer business selling homemade greeting cards, play it up! You probably did some marketing, client schmoozing, and kept your own books. But don't lie about the size or profits of your business just to make it seem more legitimate. Lying on your resume, even seemingly harmless lies, is the fastest way to get your resume ripped up.
The Bottom Line Recent graduates face a unique challenge when they enter the working world for the first time. But just because you've been in school for the last few years doesn't mean you aren't a desirable candidate. It just means you need to find a way to showcase your best without relying on a ton of work experience. And really, marketing yourself effectively is the goal of all jobseekers.
Potash Corporation of Saskatchewan, Inc. (NYSE:POT) is another stock that has started to show some life. It also has been following a channel as it consolidates, and rallied along with MON in late June. It hasn't cleared the channel definitively like MON, but is in the process of testing for a breakout. Traders should keep a close eye on it to see if buyers can assume control at this point. (For related reading, also see 5 Things To Know About Potash.)
CF Industries Holdings, Inc. Co (NYSE:CF) hasn't quite followed its peers in either the consolidation, or the attempted breakout. In fact, this stock has been more volatile as it shakes both shorts and longs out near the boundaries of the current base. However, one thing it does have in common is that CF is showing some signs of life as it rises to test aresistance level. The $155 area has been capping recent rally attempts, and traders should keep a close eye on this area as CF attempts to push through again.
How the markets trade through the rest of the summer will likely have a deep impact in how these stocks behave as they attempt to clear these resistance levels. If the markets fall apart, then these stocks will likely suffer alongside them. However, with the power of the recent market bounce, it is possible that the markets can resume heading higher in the near future. If this does transpire, then the agriculture stocks could easily reclaim their spot in the limelight and provide a great trading opportunity.