Memo #10: AAA Demise and is Estée’s Messtee over?

The Last AAA Falls¹

You can only kick the can so far down the road before someone steps on it. That someone, last week, was Moody’s², which finally stripped the United States of its last remaining AAA credit rating. The downgrade wasn’t exactly a shock (Fitch did the deed last year, and S&P way back in 2011), but it’s still a symbolic blow.

Moody’s cited “large and persistent fiscal deficits and a declining debt affordability”, which is ratings-agency-speak for “no one in Washington can do math or agree on anything.” (I’ll note that Trump appears to be more fixated with receiving a $400mn jet at the moment — we really do live in a simulation.)

Markets shrugged at first — The S&P notched a quiet gain, yields wobbled but didn’t panic, and traders collectively muttered, “cool story, bro.” Yet that was perhaps a little premature — as of writing Dow Futures are down ~250 points while the 30yr T-bill is looking to surpass 5% again.

Still, with over $34 trillion in federal debt and a growing interest burden, the downgrade serves as a reminder: just because the dollar is the least-ugly currency in the beauty pageant doesn’t mean it’s not aging poorly under stage lights.

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“Thanks Donald, Again”

Reddit taught me a Chinese proverb this week: “In every tariff crisis lies a buying opportunity for the brave, the desperate, or the chronically online.” Or something like that. Either way, the latest gift from Washington came in the form of market tremors after some good old-fashioned geopolitical sabre-rattling.

The UK and Japan were the unexpected winners of the Trump tantrum discount. FTSE 250 names suddenly looked as cheap as a Wetherspoons breakfast, and Japanese equities got hammered like a pachinko machine during happy hour. A few bold investors — including at least one ex-construction worker in two-toed boots — seized the moment and rebalanced hard.