Friday, September 27, 2013

In Trust, We Trust

PIMCO's Bill Gross put out a curious statement on his Twitter account on Wednesday.

A company spokesperson reportedly told media outlets that Gross' remark was in regards sovereign credit ratings, not necessarily all credit ratings. 

No support is given for either claim - that Moody's and the US Treasury are in cahoots, or that we can trust S&P, Fitch and Egan Jones as alternative providers. 

Why So Curious? 

What's also got to be at least mildly interesting is that if his comment isn't investment advice, it must be close to it: he's suggesting whose credit opinions are trustworthy (or reliable?) and can be taken into account when considering an investment. Given there's no substantiation for his claims, different from a developed theory, he's saying: "trust me, you can trust these guys."  Is he putting his name or rep behind the future performance of sovereign ratings issued by these three companies? 

And of course, we're all clinching our seats in anticipation: Does PIMCO have proof that it hasn't yet shared, either of Moody's-Treasury collusion or that S&P's, Fitch's, and Egan-Jones' (sovereign) ratings are all trustworthy?  These claims should be "provable" after all, shouldn't they? 

We'll let you know if we find out. 

In the meantime, perhaps this speaks to the development of at least one positive trend: that investors will be encouraged to differentiate between and among the rating agencies - preferably not purely on Bill Gross' say-so, but maybe on performance. Rating agency ABC has a more formidable methodology over here, whereas rating agency DEF's ratings hold greater predictive content over there. 

If no differentiation is made by investors, rating agencies will have few reasons to spend moneys improving their systems, or turn away business in a fight for higher standards or increased accuracy.

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