Moody's Upgrades U.S. Manufacturing Sector to Stable

Moody's sees signs of very modest growth but does not expect improvement to be exceptionally robust.

Excerpts from Moody’s revises North American Manufacturing Industry Outlook to stable

Moody’s Investors Service today changed its Industry Sector Outlook for the North American Diversified Manufacturing sector to stable from negative. This outlook expresses Moody’s expectations for the fundamental credit conditions in the industry over the next 12 to 18 months.

This change in outlook reflects Moody’s view that the drastic reduction in manufacturing activity experienced over the better part of the past year has begun to moderate and that very modest growth trends may take hold.

This should contribute to the firming of business fundamentals for the diversified manufacturers. A stable outlook indicates that Moody’s does not expect business conditions for the manufacturers to materially improve or worsen.

However, “while Moody’s believes fundamentals to be firming for the manufacturers, the agency does not expect the improvement to be exceptionally robust. Underpinning this view is the weakness that persists in the global economy, which will be a constraint on volume levels for some time. Low capacity utilization of about 67% currently — well below the long-term average of almost 80% — will also constrain growth. Consequently, investment activity will likely remain lackluster while pricing power remains elusive even as higher commodity costs begin to filter through on the input side.”

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[Mad Hedge F...:]

iyn The case against the Big Three rating agencies took another step forward when a New York judge threw out the freedom of speech defense for one of the complaints. Terry McGraw, CEO of McGraw Hill, and owner of defendant Standard & Poor’s, says that at the peak in 2006, the industry was prepared for a worst case scenario of a 15% draw down in real estate prices over 18 months on the local level. Instead, it got a 50% national plunge that is now two years old and aging. It didn’t help that a Moody’s analyst wrote an e-mail saying he would rate paper issues by “cows.” In the race for market share, Moody’s, S & P, and Fitches’ competitively devalued the meaning of “AAA” so that even the most toxic subprime sludge came out highly rated. With their seals of approvals, the agencies became the facilitators-in-chief of the over lending and over borrowing that made the crash a mathematical certainty. The hedge funds that made billions wisely ran their own in-house ratings departments which thought otherwise. They fell down on their knees, thanking God that inflated “independent” ratings led to wild over valuation of debt securities and set up some of the greatest shorts of the century. There is no Hell hot enough to make ratings agencies adequately pay for their deliberate misdirection of trusting investors. As for the hedge funds, their new short play is the one rating agency that is still publicly traded, Moody’s (MCO).

Sep 18 03:03 PM