Be like Bieber: Never ever say never. Ever

by
Bieber

A recent item on Talking Biz News featured an anonymous former investment banker saying that “markets never move in response to a rating agency change….Never. Ever.” The ex-banker went on to intimate that you could spot a clueless business journalist if he or she ascribes a market move to a rating agency change.

Well, maybe that’s why the banker is an ex-banker – or, hopefully, not on the hiring committee of a financial journalism institution. The banker shouldn’t speak in such stark absolutes.

On one hand, I get the point. Rating agencies react to news; they take time to process information. Markets anticipate events. Yes, true, we know all that. I’m not going to defend rating agencies.

But to say “never” and “ever” overstates things. Markets do react to credit rating changes. And the reporters who cite the credit ratings as a reason for market declines might be correct and doing their jobs.

Let’s look back to August 2011 when Standard & Poor’s cut the credit rating of the United States.  Here’s the lead from the Wall Street Journal: “The downgrade of the U.S.’s credit rating sparked a global selloff on Monday, pushing the Dow Jones Industrial Average to its sharpest one-day decline since the financial crisis in 2008.” Not sure I’d tag E.S. Browning, the author of this article, as a clueless reporter. Ever.

Now, a nuanced observer might note that the downgrade itself didn’t spark the stock rout. The downgrade merely underscored concerns about an economic slowdown that the ratings agency was a bit slow to recognize. That’s what Bloomberg said in its article that day: “U.S. stocks sank the most since December 2008, while Treasuries rallied and gold surged to a record, as Standard & Poor’s reduction of the nation’s credit rating fueled concern the economic slowdown will worsen.”

The point remains that these reporters needed to cite the downgrade as the spark that led to the rout. Not doing so would have been irresponsible and ignoring the news of the day. When I edited market or company news coverage, I would have laughed (or yelled?) at those who would ignore the news of the day.

When I read the banker’s rant, I couldn’t help but think this is another example of investment banking condescendence. Many like to think they’re the smartest people in the room and ahead of the market. That’s what they sell to clients.

But others follow the ratings agencies and react to their downgrades. And a good reporter is going to pick up on that and write about it.