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EYE-BALL Guru on – Moody’s Rating Agency confirms its Diminished Reputation –

December 22, 2011
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Moody’s Rating Agency confirms its Diminished Reputation –
T he Credit Rating Agency Moody’s and confirmed Australia’s AAA credit status.    [Read full ABC story on-line – here.]  The story appears below –

Moody’s affirms Australia’s AAA rating

Updated December 22, 2011 10:12:48

Moody’s credit rating agency has reaffirmed Australia’s AAA sovereign debt rating.

Moody’s says the rating is based on very high economic resiliency, very high Government financial strength and low susceptibility to risk.

The Australian Government has very low gross debt that is easily affordable, compared to most other nations with that rating, it says.

“As one of the world’s most advanced economies, the country has not only a significant natural resource sector – including minerals, hydrocarbons, and agriculture – but also well developed manufacturing and service sectors,” the report said.

“It also demonstrates strong governance indicators. In particular, the framework for fiscal policy is transparent and has, until now, consistently kept government debt at low levels.”

Acting Prime Minister Wayne Swan says it is another resounding endorsement of Australia’s sturdy public finances and strong economic fundamentals.

“Once again, this shows that people like Mr Abbott and Mr Hockey who continually talk Australia’s economy down are wrong,” Mr Swan said.

“Despite the substantial global headwinds that are hitting our economy, Australians have reason to be confident about our economic strengths that are unmatched by just about any other developed economy.

“We have a solidly growing economy, low unemployment, contained inflation, strong public finances and a record pipeline of investment that is gathering pace.”

The report does note that Australia will have to implement policies to deal with its ageing population.

Last month, Fitch Ratings upgraded its assessment of Australia’s sovereign debt to AAA, making it the first time Australia has attained the top rating from all three international agencies.

This is why Credit Rating Agencies rank below brokers, their pimps and whores when it comes to creditability issues. In all seriousness – Australia is a tin-hat economy – take out resources and agriculture we would be third world status. Yet Moody’s thinks we deserve the AAA basis a measure of our Sovereign Debt levels measured to GDP and because we rank well on this scorecard we deserve the AAA rating.

If China decide to buy their resource needs from Brazil in the next few years – who else would buy the Australian resources. African mineral deposits are another competing stream due to come online in the next decade or so.

The World’s best Treasurer – Wayne Swan has adopted a ‘high value’ Australian Dollar policy – it has cost us the tourism, manufacturing and retail industries – it has severely diminished the value of our resources and agriculture revenues and the Australian Treasurer thinks this is a good thing. The AAA rating encourages overseas investors to park their funds here for a time – and this adds to the ‘currency value’ problem. But that does no long-term benefit to Australia’s economy other than allow off-shore investors to take advantage of our high-interest environment to the detriment of Australian mortgage holders.

The irony for the Australian Treasurer to be able to brag about the off-shore future investment commitments – some $500 billion over the next 3-5 years –  in the mining sector – is that it’s all short term political gain that will always end up in the lap of the next Treasurer and the one after that.  What happens when the world shifts and Australia’s terms of trade disappears because the world is buying its resources elsewhere.  All those forward commitments will disappear and then Australia’s credit rating falls like Greece has.

The Credit Agencies – trying to recover from the ‘sub-prime’ crisis – a time when credit rating’s were purchased and the rated asset was worthless or worth less than 10c in the $.   The rules where and how Fund Managers invest their funds have not really been upgraded – they still rely on Credit Rating agency ratings and soverenity.  Who rates the Credit Rating Agencies and their ratings accuracy?

Credit Ratings Agencies are the ‘joke’ of the financial community – that same community is now doing its own due diligence and relying less on credit agencies – it’s about time that the investment world decided to do the same.

Anyone who invests in Australia long-term based on Moody’s confirmation of a AAA rating – is no serious investor.  Investing in Australia at the current high-value of the A$ – also makes no sense given the mean average since the A$ was floated in 1983 is A$0.75c verses the US$.   Australia is purely a parking zone for global investors whilst the ‘risk-trade’ – or ‘cash and carry’ trade pays off.  Once the exit strategy on trade is triggered – the same 45% fall in currency value that happened during early 2009 at the height of the GFC will happen all over again.    That then means capital outflows in the $100’s billions …  will Australia be still AAA rated then?

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Guru  The EYE-BALL Guru … [click here to read recent GURU posts]

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  1. oztruth
    February 2, 2012 at 9:56 pm

    Ahhhhh Mr Swan the permabull on the Australian economy. Everything is ok folks, go back to sleep…. we’re rated AAA like Lehman in 2008. hahahaha.
    I bet old Swanny prays for resistance at the $1.07, failing that $1.10 levels on the dollar. More unemployment and chapter 11’s coming up otherwise.

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