After the close on Friday, Moody’s finally showed up to the U.S. downgrade party - only 14 years after S&P and 2 years behind Fitch.
The funny thing is always the timing. Why now? The fiscal math hasn't changed in weeks. Maybe a decimal crossed some Rubicon. Maybe they just found out about Fiscal R-Star.
We’ll see how the markets digest this news, but it should really be a nothing burger at this stage. Anyone with a Bloomberg terminal and a brain was already aware of the U.S. fiscal situation and doesn’t need a rating agency to tell them.
Maybe everyone’s just coming around to The Fiscal Theory Of The Price Level?
Maybe It’s All Political
Maybe Moody’s timing is political. After all, the One Big Beautiful Bill failed to get out of committee as some members wanted deeper cuts to programs like Medicaid (via work requirements) and food assistance to offset proposed tax cuts. Speaker Johnson believes the bill is necessary to help right the fiscal trajectory, while others say the bill is likely to exacerbate the warnings laid out by Moody’s. Politics.
Anyway, remember the R-star that might actually matter right now is “Fiscal R-Star” - the rate at which deficits, interest costs, and growth all collide. (Spoiler: we might already be above it.)
None of the late Friday news flow was good for the vibes.
Are vibes overrated?
Put me in the camp of just not caring about sentiment data anymore.
In a post back in May 2024, I provided a quote from Claudia Sham,
The best I can do here is say that people are angry and scared of what’s around the corner. They are constantly told that they should be angry and scared. When asked about basic economic facts, they blast all that anger and fear at the questions.”
At the time I added:
“One important thing to keep in mind when it comes to talking about things like the economy is that as humans we struggle to speak about things that cannot be perceived by the 5 senses and most (all?) economic topics fall into this category…Maybe the survey's are actually showing how disappointed people are about the economy because they see words repeated in media for which they have strong negative opinions of in a metaphorical sense.”
In other words when people report that the economy feels bad or they’re worried about some economic topic, maybe they mean: “I saw something I didn’t like on TV or social media.”
Market Vibes Were Good Last Week
The S&P 500 was up 5% last week, closing at 5,958. The 2Y Treasury is around 3.98% and the 10Y around 4.48%
Your Pre-Memorial Day Lineup (aka The Fedspeak 500)
Unless you really like listening to Fedspeak, I would just start your Memorial Day weekend early.
Monday: Fedspeak including Jefferson and Williams - is anyone listening?
Tuesday: Fedspeak
Wednesday: Fedspeak
Thursday: Jobless Claims, S&P PMI’s, 20Y Treasury Bond Auction
Friday: New Home Sales, more Fedspeak
XTOD’s:
XTOD: Chris Hohn was interviewed by @NicolaiTang1 While the investing part is interesting, this is by far the most interesting Reminds me of Rabindranath Tagore
“I slept and dreamt that life was joy. I awoke and saw that life was service. I acted and behold, service was joy.” https://pbs.twimg.com/media/GrPW8gVXwAEXh_Q?format=jpg&name=small
XTOD: Raising top rates to increase SALT is like bailing out water from a boat with a hole at the bottom. Much better to hold the line at the proposed $30K SALT cap.
XTOD: Burnout is rarely a personal problem to manage. It's usually an organizational problem to solve. If multiple people are drained, it’s not in their heads—it’s in your culture and structure.
Widespread exhaustion is a sign that people are being overworked and undersupported.
XTOD: Was the guest of the Norwegia govt sovereign wealth fund, interested in the pricing of climate risk. At dinner I explained the unpriceability of packages that entail absorption:
"How would you price your willingness to drink from this glass of wine with the assumption that it can contain a lethal dosage of poison with unknown probability, under the constraint that you MUST keep taking such bets." Actually, the problem is worse. You and I have a finite shelf life, humanity doesn't.
XTOD: Every leader should create a "how to work with me" guide. This one from Keith Yandell at DoorDash is great. https://pbs.twimg.com/media/GrPYsp4WwAAFd8n?format=jpg&name=900x900
https://x.com/patrick_oshag/status/1924117805684740143
https://x.com/GS_Watson/status/1923849136245256331
https://x.com/AdamMGrant/status/1923366493867110697
https://x.com/nntaleb/status/1923669280098222461
https://x.com/austin_rief/status/1924119794325885386
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