I’ve said it before and I’ll say it again: The mess in the credit market is the fault of the rating agencies. Had they not misled investors by giving high ratings to toxic investments, things would be very different today.
The Financial Times has a great article on an “error” found in the rating algorithms of rating agency Moody’s. Apparently once Moody’s discovered the problem, they decided it was best to keep the investment’s inflated rating instead of adjusting it downward to the correct level.
Here is the evidence, the proof, that ratings agencies have fundemental biases and flaws. The system doesn’t work if they are not honest, much like similar work done by financial auditors.
In order for investor confidence to return, investigations must take place and we need to understand the full extent of their misappropriations. If it is determined that Moody’s or any other agency was aware in advance of the true risk of the structured credit products that had their highest ratings, then they deserve the same fate as Enron’s partner in crime, Arthur Andersen.
There should be no room in the the marketplace for deceitful watchdogs.
Some curious US economic numbers were released this morning. April’s retail sales fell 0.2%, however, when excluding auto sales the number becomes an increase of 0.5%, beating forecasts calling for a 0.2% rise.
The first curious observation is that retail sales were up, even with the recent drop in consumer confidence numbers. This can partly be explained by strong sales in defensive retailers like Wal-Mart and Costco that were reported for the same period.
The second curious observation is not that car sales dropped, as that has to be a no brainer given gas prices and the auto industry’s snail pace at responding to changing market conditions. It is that sales at filling stations also dropped. One would think that it would be very difficult to produce lower sales when your product is in-elastic and at record prices. This has to be the most compelling evidence that people are changing their driving habits. Specifically, they are driving less. Car companies should take note, as less driving will undoubtedly lead to even lower sales.
Today a Goldman Sachs analyst wrote that oil could hit $200 a barrel within the next two years. This follows recent comments by a CIBC World Markets analyst who predicted $200 oil by 2012.
I don’t agree. I think we’re near the top.
