Several important recent news events have been either largely overlooked by the mainstream media or misinterpreted. I focus on two of them here. Both add further weight to my conviction that the U.S. is at a critical crossroads, with time running out to decide whether we join in a global community – as I fervently hope we do – or follow a losing path of clinging to a no-longer-valid belief in our exceptionalism. The former offers the chance of a bright future. The latter will ensure we are left on the sidelines, facing increasingly difficult times.
One event was Moody’s downgrade of its U.S. sovereign credit rating to Aa1 from AAA on May 16, 2025. This did get attention, and you may have read that it was the first time U.S. debt was downgraded by a Top 2 rating agency. However, that’s not accurate, and it’s instructive to compare Moody’s recent downgrade with the situation on Aug. 5, 2011, when Standard and Poor’s—at the time, part of McGraw-Hill—downgraded U.S. debt.
One big difference is that the 2011 downgrade marked a peak in “bad news” for U.S. monetary matters. In 2011’s second quarter, the dollar began a bull run that would last until 2017. The dollar was strong relative not only to other paper currencies but also to gold as well, with gold making a multi-year top about a week after the S&P action. Standard & Poor’s paid a stiff price for its temerity: Condemnation by both government and business leaders led to the forced resignation of the rating agency’s CEO, and McGraw-Hill separated S&P from its other activities.
Another significant difference between the two downgrades is that in 2011, the major reason for it was congressional haggling over the debt ceiling. At its heart, that was a political issue, which common sense would suggest wasn’t going to cause a serious monetary crisis.
It is a truism that there will always be a piece of bad news that represents the end of the bad news and turns out to be a great buying opportunity. Equally true, though, is that in the case of a fundamentals-driven downtrend, there will be a lot more bad news along the way that points to a further worsening in the fundamentals driving the trend. A similar dynamic applies to good news as well. Ironically, the 2011 downgrade turned out to be the last piece of “good” news for the decade-long uptrend in gold.
A superficial comparison
In the current environment, I have little doubt that the Moody’s downgrade is not the last of the bad news for U.S. financial assets. Instead, it likely marks further intensification of our financial problems. At the same time, it points to continued strength in gold.
Note that this time around, there has been no outcry from either government or industry leaders. Rather, on the heels of Moody’s move, the dollar dropped sharply and yields on Treasuries rose sharply as investors began to ditch dollar-based assets.
In other words, any attempt to draw consolation from a superficial comparison between the recent downgrade and the one in 2011 will prove self-deceiving. Moody wasn’t reacting to potential default from political gridlock that could be quickly resolved. Instead, it was responding to a country spending far beyond its means, creating a situation in which a default or complete restructuring of America’s balance sheet had become a question of when, not whether.
For some concluding thoughts, I turn once again to Warren Buffett. As we have discussed previously, Berkshire today is sitting with cash positions that by all metrics are at levels well beyond any the company has ever held. Buffett noted in recent letters that the company is prepared to manage a crisis far more severe than that of 2008-09. And while speculation that Berkshire has amassed a considerable position in gold is just that – i.e., speculation – it’s worth pointing out what such a gold holding would mean for Berkshire. Not only would it position the company to help the government manage a near-certain historic crisis, it would also reward Berkshire with massive gains, ensuring its preeminent role in a new world order.
Buffett’s recent grim comments about investing in America stand in stark contrast to those made in his 2012 letter to shareholders. Back then, he wrote:
“In total, our entire string of operating companies spent $8.2 billion for property, plant, and equipment in 2011, smashing our previous record by more than $2 billion. About 95% of these outlays were made in the U.S., a fact that may surprise those who believe our country lacks investment opportunities. We welcome projects abroad, but expect the overwhelming majority of Berkshire’s future capital commitments to be in America. In 2012, these expenditures will again set a record.”
It is clear that in 2011, Berkshire was deeply committed to building a massive financial colossus. Today, I believe Buffett sees his work as finished. His exit will leave Berkshire as the most powerful symbol of what cooperative capitalism could ever hope to be.
Pakistan’s air force win
The second item that also deserves more thoughtful analysis than it has gotten in the Western press concerns the skirmish in early May between longtime enemies India and Pakistan. Much about the fighting remains murky. However, one clear thing is that Pakistan won the air battle. According to most sources, the Pakistani air force shot down six Indian planes. The significance is that Pakistan flew fourth-generation jets made in China, while India was armed with 4.5-generation jets from France. Technically, the French planes were more advanced if you go by their generation. But the outcome suggests otherwise.
The superior Chinese technology more than equalized a 7-to-10-fold advantage India holds over Pakistan in vital statistics ranging from GDP, population, and perhaps most importantly, military spending. That sends a clear message to countries deciding who they will want to buy arms from. From hypersonic missiles to jet fighters to defensive capabilities, China appears to have a multi-year edge over the U.S. China’s 6th-generation J-36 has been spotted twice in the past several months, indicating its development is ahead of schedule. America has yet to officially announce a 6th-generation fighter. Indeed, if there is a real military competition anywhere in the world, it is between China and its ally Russia, who often work together in developing military technologies.
The Moody downgrade of U.S. debt and the clash between India and Pakistan join a bevy of other developments pointing to a new world in which U.S. preeminence is rapidly fading. They make it clearer than ever that cooperation is the only viable course for the United States. I pray that it won’t require many further demonstrations to convince our leaders, because if they draw the correct conclusions, it opens the gates to a far better life for most Americans.
Take Your Investment Strategy to the Next Level
Affordable. Essential. By joining Turbulent Times Investor, you’ll gain full access to all our Core Investment Portfolio recommendations… Updates delivered directly to your inbox throughout the month… Instant buy/sell alerts.
Join now for just $10 per month
Unlock the Potential of Your Financial Future…
Most investors have yet to grasp the extent to which the world is changing and the profound impact this will have on the financial markets. The global stock markets are rapidly approaching an era of unprecedented turbulence. Investors face enormous risks—but also some great opportunities, which we highlight and monitor in our Core Investment Portfolios. Don’t miss out—join now to stay in the loop.
Take advantage of our exclusive *limited-time offer*
