US Closer to 'Junk Bond' Status Than Triple-A: Bove
CNBC.com Senior Writer
The US credit rating would be even worse than its recent downgrade from Standard & Poor's if the nation was judged as a private company, banking analyst Dick Bove told CNBC Tuesday.
Speaking amid the hotly contested debate over whether the US should have lost its coveted triple-A rating in favor of the new Double-A plus, Bove said the US balance sheet and the burdensome national debttell a clear story.
"You've got a company which is losing about $1.4 trillion this year, probably will lose somewhere around a trillion dollars over the next couple of years. It owes $14.4 trillion (and) over the next five years that will get up to $20 trillion," the Rochdale Securities analyst said.
"So there's no likelihood whatsoever that this particular company is able to pay down from its own resources the amount of debt that it has, nor is there any likelihood that it's going to get rid of its deficit," he added. "If that was a real company, of course, that would be a junk bond."
The S&P downgrade late Friday roiled financial markets, causing wild swings in trading Friday as rumors of the move spread and then in part triggering a more than 600-point selloff Monday in the Dow industrials.
While the market rebounded in early trading Tuesday, Bove said he would not be buying stocks that likely have more downward pressure ahead.
"I still would expect to see a thousand-point down day at some point in this market as people come to realize there has been a complete change in the financial structure of the world," he said.
While he believes bank stocks are cheap he would not be buying amid what he expects to be significant turmoil.
"We're building a reserve currency around a country which is bankrupt and can't pay its debt. How can you in essence be aggressive and say, 'I know where the bottom is, or I know how this is going to adjust'?" he said.
"We have people buying Treasury securities because they're worried about the Treasury," he added. "We've got people selling banks stocks, taking the cash and putting into the banks for safety. It doesn't make sense. What you're seeing is this adjustment is occurring and people are not sure how to react to this adjustment."
If Bove did decide to buy bank stocks, he said one of his targets would be Bank of America . He called the sharp selloff in BofA stock on Monday "a little bit obscene." The drop followed rumors that BofA might declare bankruptcy and preceded a sharp rally in the stock Tuesday.
"This company is so far away from being in trouble or needing additional capital that it's ridiculous," he said. "I think the market's going lower so I'm not buying anything. The fact is, if I were to buy something I would be buying Bank of America aggressively."