S&P downgrades U.S. outlook to negative
JEREMY HOBSON: Now let’s get to the news just in from Standard & Poor’s. The U.S. will keep its AAA debt rating for now but the outlook has been revised to negative. That means a downgrade is more likely down the road.
Julia Coronado is off this week — we’re joined instead by Sam Stovall, chief investment strategist with S&P Equity Research. He’s with us live from New York. Good morning.
SAM STOVALL: Morning Jeremy.
HOBSON: Well Sam, first of all, let’s just make clear that you’re with S&P Equity Research and not the fixed income side which did this downgrade of the outlook. But how significant is this and what are the consequences?
STOVALL: Well, I think certainly it’s significant because the consequences are that it’s going to cost the government now more money in order to borrow because the interest rates have risen because of investor’s concern of the quality of the debt or the debt issuer itself. It’s interesting because S&P raised the concern because of the high debt levels but this is actually going to raise their debt levels, and as a result it’s likely throwing them into debtors prison.
HOBSON: And I saw that the reason that they did that was because there’s a concern that lawmakers may not be able to tackle the debt before 2013. Is that this view on Wall Street at this point?
STOVALL: I think many on Wall Street whether they’re equity people or bond people are very cynical of the government and they think that the government is more concerned with their partisan wrangling than they are in getting these issues resolved. Initially I thought that this might actually cause them to have to raise the debt ceiling that they will have to approve, but then i realized that the short term debt issued now will not come due until well after this fiscal 2011 comes to a close.
HOBSON: Sam Stovall with S&P Equity Research in New York, thanks so much.
STOVALL: My pleasure.
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