What the Fed Giveth, The Ratings Agencies Taketh Away

The S&P 500 enjoyed a nice rally following Tuesday's statement from the Federal Reserve. However, after today's decline, those gains have now been erased. The primary catalyst for today's sell-off is a cut in the outlook for General Electric (GE) by Standard & Poor's (S&P), where they said there is at least a 33% chance that GE will have its AAA rating cut in the next two years.

Many have argued that the statement from S&P is old news following Jeff Immelt's comments from December 16th. Regardless of whether or not S&P's comments are 'new' news, it's amazing that even after the events of the last several months, the ratings agencies have any credibility at all. In our view, the only certainty that can be drawn from S&P's statement is that GE is being run by people who at minimum have the intelligence of cows.

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Comments

[malach hamo...:]

Ratings agencies may not be credible any more, but they still have the right to raise questions; and that's really all that S&P did - they questioned whether GE can continue to maintain its business model in the face of higher risks to the entire financial system.

Standing right up front in the biggest spotlight of the world is the Chairman of GE, Jeff (former wonder-boy) Immelt. He's trying to maintain the value of GE's common stock while continuing to hold it hostage to his greatest fear - being known as the guy who cut the dividend.

Many of us have learned that the adage of 2002-2007, "you can have it all", no longer is operative. Jeff better learn this soon or he'll go down as the guy "who blew GE's AAA rating" and forced it to retreat from businesses that otherwise might have restored it to growth.

2008 Dec 19 06:28 AM