Fiscal Cliff Resoultion Won't Help U.S. - Egan-Jones

Includes: QQQ, SPY
by: Colin Lokey

You have to love 'underdog' ratings agency Egan-Jones. While the DBRSs of the world are busy keeping Spain's banks afloat by making sure their collateral stays eligible, Egan-Jones spends its time issuing ratings that actually mean something.

For instance, the firm downgraded Spain to CC in late September, well into 'junk' territory. This was the seventh time the firm had downgraded Spain in 2012 and its rationale was simple: the banks are collapsing and the regions are bankrupt. In other words, the firm basically cited "common sense".

Egan-Jones hasn't been kind to the U.S. either. The firm has downgraded the U.S. twice in 2012 and currently has it at AA-. In fact, Sean Egan, president of Egan-Jones didn't even spare the U.S. on election day. On CNBC Tuesday morning, Egan poured cold water on the notion that an amicable and timely resolution to the fiscal cliff debate would meaningfully improve the credit worthiness of the country:

"The key measure on sovereign credit quality is debt-to-GDP, in the case of the U.S., it's risen rather dramatically, from four years ago at 75 percent debt-to-GDP, to currently over 104 percent."

Egan also has a talent for cutting through the nonsense. So in case the above quote wasn't clear enough, he crystallizes it a bit further:

"The problem in the U.S. is that the debt has grown whereas the GDP has not grown."

There you have it -- a rather difficult statement to argue with. Saying a fiscal cliff resolution will fix the U.S. and put stocks in the clear is like saying a positive vote on new austerity measures in Greece this week will end talks of a 'Grexit.' Investors are advised to listen to Sean-Egan and stay short the broad market (NYSEARCA:SPY) (NASDAQ:QQQ).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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