“Fundamental Analysts: You don’t need them in a Bull market, and you don’t want them in a Bear market.”
I started out in this business on a trading desk. The head of trading who trained me was a crusty no bullshit former Marine Jungle Combat Instructor. He was not keen on Fundamental Analysts, and I vividly recall that quote above as one of his favorite expressions about them.
I was reminded of that no-nonsense attitude when reading about the recent threats of a US credit rating downgrade by S&P and Moody’s.
There are three problems with the NRSROs:
1. The Ratings Agencies completely missed the biggest credit risk and collapse in a century. Why should anything they ever say be trusted by investors again?
2. They subverted their own business models from objective analysts to paid shills in pursuit of greater profits. Hence, they have failed in even their most basic obligations to investors, as well as their fundamental business structure.
3. Their status as Nationally Recognized Statistical Rating Organizations (“NRSROs”) reduces competition in analysis and ratings, and gives them unnecessary credibility.
After the colossal clusterf$#% they helped creat, why on eart are they afforded any special privileges or competitive advantages?
It is time to eliminate the special NRSRO status, radically open up the ratings space to real competition, and force bond buyers to do their own homework.
It is the 21st century. Perhaps out regulatory structures should reflect that . . .