Credit Agencies: Where Are They Now?

On Tuesday, President Obama made it official and signed a bill (Budget Control Act) to raise the national debt ceiling.  Now, the debt ceiling has been raised 75 times since March 1962.  The Dow (NYSE:DIA) responded by closing down 265 points and gold (NYSE:GLD) climbed to a fresh new high above $1650 per ounce.  Over the past few months, America’s debt crisis has led to voiced concerns from many different sources.  One of the most discussed voices have been credit agencies.

In July, Moody’s (NYSE:MCO) placed America’s debt rating on review due to the rising chance that Washington was not going to raise the debt ceiling by August 2nd.  Now that the debt ceiling will be raised by an immediate $900 billion, Moody’s can apparently sleep better at night.  The agency has confirmed America’s debt rating of Aaa.  What does legend commodity (NYSE:RJI) investor Jim Rogers think about Moody’s?  In July, Rogers said, ” It’s like the subprime mortgages, they didn’t downgrade anybody until it was already over.”  He goes on to explain that the credit agencies are clueless and are hesitant to downgrade the U.S. because of conflict of interests (compensation) and fear that Congress would come after them.

Standard & Poor’s (NYSE:MHP) is another rating agency that has warned of a U.S. downgrade. Last month, S&P declared that it would downgrade U.S. debt if the Treasury Department had to prioritize payments due to Congress not raising the debt ceiling. Furthermore, S&P said that there was a 50-50 chance that the U.S. could receive a downgrade within three months, and that even $4 trillion spending cuts may not be enough to prevent a downgrade.  The Budget Control Act only cuts $2.4 trillion in spending over the next decade, and $1.2-$1.5 trillion of the $2.4 trillion has yet to be determined.  However, just days before the August 2nd deadline, S&P President Deven Sharma told a congressional panel that previous reports indicating Congress would need to make $4 trillion in deficit cuts over 10 years to retain the top credit rating were inaccurate. Was Jim Rogers correct, did someone have a little chat with S&P?

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Some rating companies are more action and less talk.  Credit rating company Egan-Jones, has already cut America’s credit rating by one notch to AA+, due to America’s high debt load and inability to cut spending.  China’s credit rating agency Dagong, has also cut America’s debt rating from A+ to A, with a negative outlook.  Dagong had already cut America’s credit rating last November from AA to A+ after QE2 was announced.

Although many stocks sold off Tuesday, silver (NYSE:SLV) and gold (NYSE:GLD) related investments continued to shine. Silver miner First Majestic Silver (NYSE:AG) surged 6.04%, and gold miner Yamana Gold (NYSE:AUY) closed nearly 3% higher.  Barrick Gold (NYSE:ABX), Newmont Mining (NYSE:NEM), and Endeavour Silver (AMEX:EXK) also participated in the precious metals (NYSE:DBP) rally on Tuesday.

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Disclosure: Long AGQ.