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Monday, August 08, 2011

What Do Fundsters Think of the Downgrade?

News summary by MFWire's editors

On Friday Standard & Poor's downgraded the U.S. debt rating to AA+, and fundsters may not be surprised that star PMs already disagree over the wiseness and meaning of the move. The Associated Press and Bloomberg both talked with advisors and asset management executives about the downgrade.

Star Pimco [see profile] PM and co-chief investment officer Bill Gross, who has been publicly outspoken this year about Treasuries and the U.S. national debt, told Bloomberg TV's Tom Keene that S&P "demonstrated some spine" and "finally got it right." On the other side of the spectrum, Legg Mason' [see profile] Bill Miller, the former star who PMs Legg Mason Value Trust accused the ratings agency of being "precipitous, wrong and dangerous."

What does the downgrade mean? Gross wants the U.S. "to become more productive as a global exporter," and Pimco CEO Mohamed El-Erian warned of "volatility over a number of days, if not weeks." Stephen Walsh, chief investment officer at Legg Mason's Western Asset Management Co, reassured Bloomberg that "conversations with central banks and foreign investors show that they won't view Treasuries differently, and BlackRock [see profile] fixed income chief Peter Fisher agreed that Treasuries "will still be the hedging vehicles of choice."

"The fact of the downgrade won't change in the near term how we use and think of U.S. Treasuries," Fisher told the wire service.  

Edited by: Neil Anderson, Managing Editor

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