4 Reasons the U.S. Will Not Lose Its AAA Credit Rating

[zantac]

1. Short interest remains elevated

As we have previously discussed, short interest is a very useful tool for investors and traders. Not only is short interest data useful as a sentiment indicator, it is also a structural factor because short sellers are ultimately guaranteed future stock purchasers. Short interest peaked on May 31, 2011 at 317,089,214 shares and has since declined modestly over the last month and a half, but recently short interest rebounded slightly. As of July 15, 2011, short interest was 274,572,534 shares. While below peak levels, this short interest amount is still elevated and indicates bearishness and room for additional upside. In addition, the days to cover is well above 3x and it could provide a multiplier to any stock price rally.

2. Earnings are around the corner

Quarterly results and the earnings conference call should provide additional ammunition to the fundamental SIRI investment thesis. In addition, Sirius should have greater than expected benefits from the earnings period because CEO Mel Karmazin generally does not produce many sound bites or headlines between earnings reports and as such these are limited periods for shareholders and stock watchers to glean information about the company's progress.

3. Flashy competitors like Spotify and Pandora Media (P) have already made their debuts and it was no big deal.

We are big fans of Spotify and Pandora. They came with the fanfare and market attention that you would expect from fast growing companies that have derivative exposure to the strong secular growth in smart phone adoption, but SIRI should be satisfied knowing that the company weathered the hoopla and that the competition is real, but nowhere near as dangerous and transcendent as advertised. Spotify and Pandora are ultimately limited by their dependence on wireless bandwidth which will only increase in cost as wireless providers switch to metered data plans.

4. We continue to believe in the business model and as such, we think time is the shareholder's friend.

This is not a hollow factor. The company made a big bet on the future cost of bandwidth by investing early in satellites and paying the capital expenditures. This bet nearly bankrupted the company but now it has weathered that storm and will likely reap the benefits. As the company improves their financials, it is only a matter of time before the rest of the financial community recognizes the company. As we previously wrote, we think the company's improving fundamentals and unique business make it a prime candidate to eventually join the S&P 500 Index.

5. Start of the NFL season and conclusion of baseball season creates interest in SIRI's sports channels

The baseball season seems endless to some, but even casual fans are drawn to the final portion of the season as well as the playoffs. For what it's worth, baseball is still one of the most important recreational pastimes in this country and this is backed up by the fact that baseball teams draw fans to 162 games per season. In addition, the NFL lockout is over and all of the fan disgust is quickly melting away as football teams trade players and sign new ones. There is no doubt that this is an active time for sports fans and SIRI's sports channels will become a major fundamental draw for the company. If you doubt the value of football to the average consumer, just remember that DirecTV (DTV) paid $4 billion on March 2009 to extend their exclusive NFL Sunday Ticket partnership until 2014. Though the economics of the satellite TV package are different, this is still a clear indication of general demand for exclusive subscription based sports content.

6. Potential competitors are scrambling to survive

Many of Sirius XM Radio's potential competitors are scrambling to survive and reinvent themselves and this makes them less focused threats. Research in Motion (RIMM) and Nokia Corp. (NOK) come to mind because of their access to durable operating systems.

Of course, this does not mean that other competitors will not eventually more seriously jeopardize SIRI's competitive advantage. For example, Research in Motion is currently aggressively trying to devise ways to incorporate their Blackberry and tablet devices into automobiles by using the company's newly acquired QNX operating system.

Nokia's partnership creates an uncertain competitor. They could fail miserably or they could be Microsoft's missing link to the retail electronics market. Nokia could eventually follow a similar path as RIMM and expand the footprint of Microsoft's (MSFT) mobile operating system to automobiles. It is difficult to handicap the odds of such an outcome, but as investors and shareholders we need to remain open minded about threats.

Summary

Dont panic the USA will come out on top

Iraq will RV

We will be come far better of soon, soon meaning sometime soon

Here is a few more reasons why

1. Treasuries remain the most liquid debt securities in the world.

In most cases, large supply alone would put pressure on pricing of the underlying securities, but in the global markets, U.S. Treasuries demand a premium in part because of their tremendous liquidity. As of December 2010, China alone held more than $1.1 trillion of U.S. Treasury securities. While many may speculate that the Chinese are burdened by their stockpile of U.S. bonds and currency, there is also a reasonable counterpoint that the Chinese miracle in recent decades would not have been possible without a highly liquid currency and U.S. debt market. For example, if the global currency markets were still tied to a gold standard, it is unlikely that China would have been able to grow at its recent pace.

2. USA has power of taxation.

Ultimately, the U.S. cannot have a lower credit rating than corporations that are domiciled in the U.S. or consider the U.S. a large end market because the U.S.' taxation authority can infringe on corporate creditworthiness. For smaller countries, this power of taxation is limited because at some tax rate, it is better for the company to take their company and business elsewhere. But the U.S. is currently such a desirable place of business and a large consumer of products that any serious international company is likely largely dependent on the U.S. and in turn subject to U.S. tax policy. For example, a company headquartered in the U.S. faces property taxes, income taxes, and employment taxes. A foreign company that sells products in the U.S. can still fall under the influence of U.S. tax policy through sales taxes and tariffs.

3. USA has power to print the currency in which their debt is denominated

Of course, a country cannot maintain their credibility by simply printing money to repay debts, but this is an obvious and desirable source of fiscal flexibility. It is a major differentiating factor between blue chip companies with strong balance sheets and a country with a strong fiscal balance sheet. During the recent fiscal crisis, blue chip companies like General Electric (GE) faced short term liquidity crunches as the commercial paper market dried up and threatened short term funding. This is not a problem for a strong country like the U.S. While America's spending binge during recent years has put increasing pressure on the dollar's status as the world reserve currency, there is no practical alternative at this point.

4. USA has the world's largest military

This may be a politically incorrect factor in this discussion, but we think it is relevant. While economic stability and military spending are generally uncorrelated, it would be foolish to think that they are not related at the extremes. As such, the United States' military expenditures in 2010 of $687 billion were 6x the next largest spender (China) and we think this ultimately promotes the stability of the nation's creditworthiness by giving U.S. the full flexibility to protect the economic well being of our interests domestically and abroad.

Edited July 31, 2011 by zantac

[coldwarvet]

Excellent analysis. Tracks closely in many respects with George Freidmann's of STRATFOR. For all the political posturing, the international financial gurus will not let the world's policeman fall. Chaos would result, and financial gurus treasure predictability, no matter how well concealed it may be, above all else.

[capt.cliff]

I am not an economist and follow this line of thought you have presented only in part but in relation to China and thier 1.1 trillion holdings in our treasuary debt the biggest holder of our debt, I have read that China in thier quest to control the commodities needed to continue the development of thier country meaning oil, copper, aluminium, gold, rare earths and everything else you can think of has been locking up the deals by paying for them with US Treasury debt that they have bought through the years---more or less a trade --never cashing the debt in but reassigning it to others for products--

There is no clear understandiing at how much they actually own now---there is a clear picture that they have cut back on how much they are purchasing in OUR OWN AUCTIONS!

I am sorry I can't provide a link but it is just from reading never knowing that when I will have to prove my honestity.

Your number 6 I have reservations about military spending while we state what we spend in that area --China doesnot say any thing more then what they get called on---much of the profitability of the country is seeded by thier military covertly and when the money is flowing it mis funneled back in to the military and spent on the newest weapons, research, navy, airplanes, supporting factions all the while have a small pubicly budget---you really need to dig on this one---while we look to be the biggest spender and protector things might not be as presented.

Again just look to see who really owns the other half of the port of LOS ANGELES one whole half is just unloading Chinese vessels---all supported by our government, a presentage funneled back to the chinnese military!

Well that's enought of sounding like a kook!--AMERICAN CITIZENS , stop listening to what you are being sppon fed---do some real real search on your own and BE AFRAID VERY AFRAID

Good NIght and sweet dreams if you can

capt cliff

[RodandStaff]

Just by reading the post I can tell it was written by a man... how many ladies would mention baseball and football as economic plus's for our stability. NICE, and very smooth... I will have to try that one next football season.. "but honey, I'm helping the economy"! I had better make sure my life insurance policy is paid up first! Good post though, esp. from a "guys" standpoint. Lets hope it's all gonna work out, esp. with the wife come fall!

[cottn68]

I am no economist by any measure, and until this evening I had never heard of Egan-Jones Rating Co. however on this evenings news Sean Egan states that they have already downgraded the U.S. to AA+ from AAA.

So this to me is kinda telling of the near future, since our "leaders" can't even seem to agree as to whether or not they have reached an agreement...my opinion.

[429]

I had better make sure my life insurance policy is paid up first!

Health insurance and accident and injury policy maybe. Life insurance? What're you going to get out of it? Just sayin'

[OhmEye]

3. USA has power to print the currency in which their debt is denominated

Oh, how I wish this were true. Hopefully, one day soon it will be. Since 1913, we have been defrauded of this right by a private consortium of bankers called "the Fed." It is time for us to nationalize the Fed, make all debts null and void, and take the right to issue currency back to ourselves.

[randalln]

HOW COULD WE LOSE AAA THERE IS NO ONE ELSE THAT EVEN COMES CLOSE TO OUR CREDIT CARD

[xxxgator]

i think mostly above all the credit rating is getting downgraded because the longer we go without economicc recovery the less chance we have of paying it off .By the end of 2012 with the numbers shown on the tv.,even with the debt ceiling raised they will more than likely not be able to make the minimum payment's .Unless God himself step's in and changes our course we will default .The reason ? Well even my 19yr old daughter knows tthe answer! You can't spend more than you make ! IT DOESN'T MATTER WETHER YOUR A CORP. , COUNTRY , OR INDIVIDUAL THERE'S ALWAY'S THE BILL AFTER DINNER! I pray your right though Zantac .however i ,beleive this has been the obama plan from day one.JMO

[kobuk1]

"The dinar investors speculate why America will stand strong. Strong americans will stay strong, they will be the foundation of survival. They will uphold this great nation,,the weak will suffer needlessly. Gov't must slim down and welfare must go, so they say. That's where the first cuts should be, too many people on gov't support that should work. One fella boasts that he passed the nutcase test, now he can go on welfare. Speculations are endless, let's just rv, they say, git'er done! " As The Dinar Turns

[chara55]

IMO, Don't think for a minute that we CAN'T be downgraded, and YES we can print Money (THAT'S THE PROBLEM) we have over extended and the Dollar is going down the drain. When we have to borrow .40 out of every Dollar, that is a problem. We are the largest taxed country in the nation and we are STILL BROKE. The question is , if you were a lender would you lend money to the Govt,from what i have seen the answer would have to be NO from me. You just can't have BILLIONS and SPEND TRILLIONS common sense says you will go broke and thats what we are IMO

God Bless

AND GO RR VVV

[sheik]

If the United States were one person trying to buy a car, they would be riding home on a donkey. If they are lucky.

[cgbrown]

If the government is handling this like all other dealings ..... we are never given factual information. The debt could really be far less than it is and we are just told the larger amount for their ploy. OR-- THE DEBT could be much higher than it is and we are not told that either.

How many government reports have come out....... only months are years later was it admitted that the first report was false.

Sorry, folks, I dont trust our government leaders on either side of the isle.

[Rossenbos]

3. USA has power to print the currency in which their debt is denominated

Ouch!! Can you take an analysis seriously, by a person who writes and believes this??

The USA does NOT have the power to print the currency. That is the whole point!!

They "gave" it to the Federal Reserve Bank CORPORATION and have to pay interest on it just like the rest of us.

Pffff.... Another waste of space.

[randalln]

All you need is one reason

WE ARE THE UNITED STATES OF AMERICA

and we invented Debt.

[BigJonPoker]

Very well Stated!! Thanks for the good read....

[Quattro 8]

Ouch!! Can you take an analysis seriously, by a person who writes and believes this??

The USA does NOT have the power to print the currency. That is the whole point!!

They "gave" it to the Federal Reserve Bank CORPORATION and have to pay interest on it just like the rest of us.

Pffff.... Another waste of space.

exactly !, the 5th Reason ( and the real reason) are that all the main credit rating agencies are American and when the SWHFT they kept up AAA ratings on all of "the Debt",

so in true Orwellian speak, we have the "best" debt rated AAA and and the "not so best debt rated" say BBB ie more likely to default. ,,,,and the market's answer to that is to charge more interest (usary) on the not so good debt making it even more likely they will default due to the ever increasing payable interest.

And, as the private for profit Fed Reserve issues the currency and the interest payable is payable in the script issued by the Fed can anyone see a Ponzi scheme here?

its compound interest pure and simple and there is no escaping from it

the only way out is war ( ie stealing from the otherside if you "win" ) or default and let the lenders take the haircuts ... hmmm which one is more likely?

[OhmEye]

The USA does NOT have the power to print the currency. That is the whole point!!

They "gave" it to the Federal Reserve Bank CORPORATION and have to pay interest on it just like the rest of us.

This is from a Fox Business News interview with Congressman Dennis Kusinich of Ohio on June 6, 2011:

Kusinich: What I want is for us to take control of the money system again by putting the Fed under Treasury and have the government be able to invest money instead of the Fed loaning money to banks--or creating money out of nothing and giving it to banks--which then park it at the Fed and gain interest with no benefit to the economy.

I want to see money spent to create jobs, rebuild America. We shouldn't have to borrow this money. I have a different approach.

Moderator then calls Kusinich "one of the New members of Congress who understands the Federal Reserve. . ."

Kusinich: This guy [pointing to himself] wants to change the rules so that we diminish the role of the Fed, put it back under Treasury, which the founders intended under Article 1, Section 8. The power to coin money was not given to the Fed. They siezed that power in 1913. I want to set the Fed aside, as far as that's concerned, regain the power, let the government invest in the economy--- . . . Why should we borrow from banks? The Fed is giving money to the banks. We shouldn't have to borrow money from banks.

In other words, Kusinich wants us to nationalize the Fed by putting it under the authority of the Treasury Department. Then when more money needs to be created in order to support the economy, the government could simply create it WITHOUT PAYING INTEREST, as our Constitution says in Article 1, Section 8.

Kusinich recognizes that the Fed (actually the bankers who own the Fed corporation) "siezed that power in 1913." He is referring to the Federal Reserve Act, passed on Dec. 23, 1913 by just 5 senators. All the others were home for Christmas. It was signed into law by President Wilson in February 1914 after he was blackmailed by the bankers who knew of his extra-marital love affair. This Act gave private international bankers the power to create money out of nothing and loan it to the US government at interest.

[RodandStaff]

Health insurance and accident and injury policy maybe. Life insurance? What're you going to get out of it? Just sayin'

ummmm... Life insurance is for the "surviving members" of a family... and I was implying that it might not be me if my wife doesn't like the case I make for watching football! Ohhhh... I could be so dead!

[kenbo]

Oh, how I wish this were true. Hopefully, one day soon it will be. Since 1913, we have been defrauded of this right by a private consortium of bankers called "the Fed." It is time for us to nationalize the Fed, make all debts null and void, and take the right to issue currency back to ourselves.

You are more correct than most sheep realize! It could be just that simple to fix too.

While we are at it we might as well restructure the "entitlement" programs. Reinstate the Social Security to its original plan. Reducing the size and salary (perks too) of our Government personnel would be a plus. Bringing home the manufacturing businesses could help the USA export more than they import thereby helping to provide the USA with more income than we spend. Similar to our household budjet, bringing home more income than we spend boosts our net worth.

Oh well, I better hush.

GO RV!

[2fast4u2c]

All of the items listed will not offset "trillions" of debt.

US is in trouble and the rest of the world knows it.

[kenbo]

I am truly sorry but I have an additional bit of info concerning the debt.

Did you know that at the present debt, our interest alone is our third largest expendature? Ranked behind Defence and Health and Human Services. "See Attached Chart"

Just imagine what our interest payment will be after raising the debt limit.

"In 1913, when the Federal Reserve was created with the duty of preserving the dollar, one 20-dollar bill could buy one 20-dollar gold piece. Today, fifty 20-dollar bills are needed to buy one 20-dollar gold piece. Under the Fed's custody, the U.S. dollar has lost 98 percent of its value. The dollar is the storehouse of our wealth. Has the Fed faithfully safeguarded that storehouse?"

* http://www.federalbudget.com/ *

[GPCarter]

Boy is this post late. At least one has ALREADY downgraded us to AA from AAA.

When the 1,000,000,000 investment was made betting that the us would be downgraded I had no doubt it would happen. People don't throw away that kind of money.

[BlueOrchid919]

HOW COULD WE LOSE AAA THERE IS NO ONE ELSE THAT EVEN COMES CLOSE TO OUR CREDIT CARD

The US doesn't even rank in the top 10 best rated countries! Can they lose ratings? Absolutely!

http://en.wikipedia.org/wiki/Credit_rating

http://money.cnn.com/2011/07/29/news/international/countries_with_aaa_rating/index.htm

This country needs a monumental reset. Losing our coveted #1 bully status might do the trick. The LARGEST cost to our country is maintaining a foothold (military bases) in every country the American Empire has invaded. Maybe we need to bring our troops home where they can protect our borders and our shores. We, the people, have allowed this to happen and WE The People, must start demanding accountability.

What are YOU doing to help this along?

[RodandStaff]

Boy is this post late. At least one has ALREADY downgraded us to AA from AAA.

When the 1,000,000,000 investment was made betting that the us would be downgraded I had no doubt it would happen. People don't throw away that kind of money.

In your opinion sir, do you think it will keep going downhill from there? I have heard some folks opinions that it doesn't matter even if we do come to an agreement in time... we are too far in debt now to deserve the AAA? I would be interested in what is your opinion is? I am no financial guy, or economist... just a business man. Thanks in advance.