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Warning: Moody’s Is Blowing the Whistle on America’s Debt—What You Need to do Now THE DAILY --- H.E.A.T. Torching Wall Street’s Obsolete Playbook. Delivered straight to your inbox 5 days a week. Subscribe Home Posts Warning: Moody’s Is Blowing the Whistle on America’s Debt—What You Need to do Now Warning: Moody’s Is Blowing the Whistle on America’s Debt—What You Need to do Now The 🔥 --- H.E.A.T.🔥 Formula : AI Driven Insights to Spark Your Portfolio Matthew Tuttle May 19, 2025 Subscribe now Share — # (# ) In Today’s Issue: Warning: Moody’s Is Blowing the Whistle on America’s Debt—What You Need to do Now VST deep dive and more…….. Next Webinar: AI Unleashed: How to Harness AI to Crush Wall Street, Find the Top Investment Themes, and Obliterate Obsolete Investments The AI Theme Engine Blueprint -How I train off the shelf AI models to scan thousands of data points to spotlight the hottest investment themes right now, and identify the stocks poised to soar before the “smart money” even notices. How to Get Buy and Sell Signals from Trump’s Tweets- The exact signals you MUST watch when President Trump tweets, rallies his inner circle, or rolls out executive orders — and how to flip those cues into instant buy-and-sell alerts. Inside the Inner Circle Playbook — Why investing in companies linked to Trump’s closest allies and favored asset classes can deliver asymmetric returns. The Ultimate Hedge Strategy — How to combine options on VIX and SPY so you Sleep Better knowing your portfolio is bullet-proof against the next market shake-out. Covered-Call ETFs Are a Con Game — The shocking data showing how poorly covered-call funds underperform and what could work better. Why Index Funds Are Officially Obsolete — How AI’s precision targeting is rendering index fund strategies dead in the water 5/22 2pm EST GoTo Webinar dashboard.gotowebinar.com/webinar/6733673538207782492 Chris Stadele joined us to talk markets and specifically commodities—-Lithium, Copper, Cobalt, and Gold Warning: Moody’s Is Blowing the Whistle on America’s Debt—What You Need to do Now — # (# ) After hours Moody’s downgraded the US credit rating from AAA to AA1, guess they don’t like the fact that our debt is now almost $37 trillion. My guess is that the market will eventually shake this off, but I am very cognizant that S&P downgraded us in August 2011 and that was an UGLY month. So this could be the catalyst to break the overbought condition. The question will be whether this is what brings us to retest the lows (doubtful) or whether this creates a buyable pullback (more probable). This could also be a catalyst for gold, and maybe silver, to begin uptrends again. Both where positive after hours. We talk about gold a bit on the podcast, it can be different things at different times, but what I like about it at the moment is it is a real hedge. I don’t count it as a hedge from a HEAT Formula standpoint, a real hedge has to work every time, gold is more like this…. Treasuries actually ended up rallying in 2011 so hopefully my TLT trade isn’t FUBAR. Doesn’t look so good at the moment though. ‘Sell America’ Is Back as Moody’s Pushes 30-Year Yield to 5% Longer-dated Treasury yields rose to the psychological 5% level and S&P 500 Index futures slid with the dollar after a downgrade of the US’s credit score by Moody’s Ratings increased concerns over the nation’s debt. www.bloomberg.com/news/articles/2025-05-19/-sell-america-is-back-as-moody-s-pushes-30-year-yield-to-5?srnd=homepage-americas ❝ The equity market is at risk due to the extreme nature of the rally over the past month. The key risks to the Treasury market have been concerns about sparking inflation and the rebalancing of trade. When China tries to hold the renminbi pegged to the U.S. dollar, it sells renminbi and buys U.S. dollars—storing them in Treasuries. As the U.S. government seeks to dismantle this system, inflation concerns are rising and Treasuries are less attractive to foreign nations that are less apt to artificially weaken their currency. The Moody’s downgrade feeds into the immediate-term path of least resistance, but we expect that to be temporary. If we are incorrect, and if Treasury yields were to rise significantly from here, it would result in a much greater problem for global economies and global equity markets. -Mike O’Rourke, Jones Trading While I don’t think we will see parallels with 2011, I had GPT take a deep dive on this. For context, I remember August 2011 so well because on August 2 I got completely out of stocks into Treasuries and I was scared to death that the market was oversold and a potential downgrade would crush Treasuries. Instead, the opposite happened and Dow Jones wrote an article about me :). Back then I was running an all in, all out, 100% systematic approach. I don’t think such an approach would be workable today, at least not without extreme patience. Market structure has changed and I have changed my approach with it…. — # (# ) Here’s a deep dive on the 2011 S&P downgrade—and what it might foreshadow today now that Moody’s has cut U.S. debt: 1. The 2011 S&P Downgrade: Key Market Moves Stocks Immediate plunge: On August 8, 2011 (the Monday after the downgrade), the S&P 500 tumbled 6.7% —one of its worst single‐day drops since 2008 Wikipedia . Broader drawdown: The index had already fallen 10.7% from July 22 to August 4 on European‐sovereign and growth worries; roughly half of that two-week sell-off occurred before the downgrade itself Wikipedia . Volatility spike: The VIX “fear gauge” rocketed to 48 —a two-year high—up over 140% year-to-date, underscoring panic on both sides of the trade CNN Money . Gold Safe-haven surge: Gold rallied from around $1,600/oz in late July to roughly $1,750/oz by mid-August, as investors fled equities and piled into precious metals Wikipedia . Bonds Paradoxical rally: U.S. Treasury prices climbed sharply—inverting the usual “risk free” fall. The 10-year yield slid from 2.56% (pre-downgrade) to 2.34% on the news, as buyers sought safety in sovereign debt CNN Money ❝ Note: While the downgrade was the headline, underlying fears around Europe’s debt crisis and stalled U.S. growth were already driving markets—S&P’s AAA cut exacerbated, but did not solely cause, the August rout The New Yorker . 2. So…How Much Was “The Downgrade” to Blame? Pre-existing slide: Nearly 11% of the drop in the fortnight to August 4 occurred before the AAA cut. Downgrade day impact: Roughly 5–6% of additional losses can be directly tied to the S&P action—and even that was quickly partially reversed in the days after as bargain-hunters stepped in. bond safe-haven demand: The rally in Treasuries shows investors viewed U.S. debt as a refuge despite the lower rating. 3. Comparing 2011 to Today’s Moody’s Cut Aspect August 2011 (S&P) May 2025 (Moody’s) Macro Backdrop Eurozone crisis + U.S. debt ceiling standoff High inflation, Fed tightening, fiscal deficits Stocks Down ~6–7% day-of; VIX → 48 Likely knee-jerk 2–4% drop; volatility surge Gold +~9% in two weeks to $1,750/oz Near record highs today—another +3–5% leg up Bonds 10-yr yield ↓ ≈20 bp to 2.34% Yields already ~4.5%—limited further rally; risk of slight sell-off on increased supply Attribution ~50% of August sell-off pre-downgrade Markets more rate-sensitive; downgrade effect more noise than driver Key Differences Today: Higher starting yields mean U.S. Treasuries won’t rally like 2011’s—investors face reinvestment risk and may demand wider spreads. Fed credibility is on firmer footing post-inflation fight; a mere ratings cut is less likely to shake core bond-fund flows. Inflation vs. deflation fears: 2011 was deflation-scarce; today’s markets worry about sticky inflation, so safe-haven flows may favor inflation-hedges (TIPS, gold) more than plain Treasuries. Bottom Line: Stocks: Expect a short-lived pullback (2–4%) and volatility spike, but no lasting bear-market signal—underlying earnings trends still critical. Gold: Poised to rally further as the go-to haven in an era of high rates and fiscal stress. Bonds: Limited upside; yields may drift up on supply concerns rather than crash down as in 2011. Conclusion: The 2011 downgrade amplified existing turmoil; today’s Moody’s move will be a market speed bump , not a cataclysm—though sector rotation into defensives and gold is likely. ❝ My sense is that this creates another short term buying opportunity. Need to let it play out a bit and wait for the people who have to make moves to do what they are going to do though. In other news…. Novo Nordisk Boots CEO After Stock Falls 50%. It’s an Unusual Move for the Wegovy Drugmaker. www.barrons.com/articles/novo-larsjorgensen-ceo-stock-price-wegovy-c1337f29?mod=hp_LEDE_C_5www.barrons.com/articles/novo-larsjorgensen-ceo-stock-price-wegovy-c1337f29?mod=hp_LEDE_C_5/ I got out of NVO. I do love the weight loss drug theme ( I hate the idea of taking a drug vs. changing your diet though), but it’s gotten tough to make money on, every time it looks like NVO is going to get off the mat, it drops back down…. This was the most obvious trade of the week, I ended up covering my short puts, didn’t want to hold over the weekend……. Insiders at UnitedHealth are scooping up tarnished shares Kristen Gil, a director at the firm, bought 3,700 shares worth roughly $1 million on Thursday. www.cnbc.com/2025/05/16/tanking-unitedhealth-shares-see-some-insiders-step-in-to-buy.html SPACs continue to be back….. SPCX: The SPAC and New Issue ETF www.spcxetf.com — # (# ) SPAC Highlights….. Last week, another 6 SPAC IPOs raised $1.6bln in trust proceeds (CCCMU, CCCXU, PMTRU, RTACU, TVAIU, WENNU). YTD SPAC New Issue count moves up to 44, $9.1bln raised, with activity expected to continue in the coming weeks. For reference, April and May saw 25 new deals pricing, totaling $6bln alone. SPAC IPOs US SPAC IPOs Listed Notional 2025 39 $5.3bln 2024 57 $9.6bln 2023 31 $3.8bln 2022 86 $13.4bln 2021 613 $162bln 2020 248 $83bln 2019 59 $14bln 2018 46 $11bln — # (# ) VST Deep Dive From time to time I like to have GPT take deep dives on stocks in the themes I am watching. Friday was CRWV which ending up being my biggest personal position by a large amount the good way as it was up 22%. I sold most of it based on the idea that you need to take your profits or someone else will. CoreWeave pops almost 60% this week on AI growth momentum, big Nvidia stake CoreWeave's stock price has had by far its best week since joining the public market in March. www.cnbc.com/2025/05/16/coreweave-pops-60percent-this-week-on-ai-growth-momentum-big-nvidia-stake.html Today it’s Vistra (VST), it’s a stock I own and IMHO a key player in the AI theme. The stock has been in a solid uptrend and I would look to add on dips into the 10 day… Jefferies wrote a research report giving it a Buy rating so I had GPT take a look….. Jefferies’ Take on Vistra’s 2.6 GW Lotus Acquisition Jefferies LLC highlights a bolt-on deal where Vistra (VST) is buying 2,557 MW of Northeast natural-gas generation from Lotus for $1.9 billion EV (~7× FY 26 EV/EBITDA, ~19 % FCF yield pre-synergies) financed entirely with cash. Management stresses that net leverage remains flat (~3.2× net debt/EBITDA post-deal vs. 2.98× today) and that this is more accretive than share buybacks (8 % FCF yield). Jefferies’ verdict: “small but highly accretive,” and they foresee a “positive reaction” to the deal—even as their $145 PT sits ~5 % below yesterday’s $152 share price. What Jefferies Gets Right Attractive Valuation 7× EV/EBITDA is well below both the market’s 9–10× midstream average and peers’ recent transactions. ~20 % FCF yield even before synergies compares favorably to sub-10 % yields on organic growth or buybacks. No Balance-Sheet Strain All-cash funding and maintained net leverage mean Vistra can keep its utility-grade credit profile intact and continue buybacks. Accretion vs. Buybacks Buying EBITDA at 7× is more accretive than repurchasing stock at an ~8 % FCF yield—every dollar of FCF here buys back more earnings. Where I’d Push Back Aging Asset Base Average in‐service date of 2002 means these plants may face higher maintenance capex and lower efficiency vs. newer builds. Long-term O&M costs could erode part of the FCF yield. Data-Center Relevance As an AI-infrastructure play , investors want green, resilient power. These assets are gas-fired peakers with limited land for co-location or green retrofits (e.g., solar+storage). That limits synergy with Vistra’s growing data-center footprint. Peaking vs. Baseload Mix With ~25 % of EBITDA from true peakers, revenue is more capacity-price-driven and volatile. Vistra will need hedges or longer-term contracts to smooth cash flows. Odd Price Target Jefferies’ Buy rating alongside a $145 PT (below the current $152 quote) feels internally inconsistent. In a truly accretive deal, you’d expect upward PT revision, not a modest pullback. My Take & Rating Call: Moderate Buy Rationale: The deal is undeniably accretive at the stated metrics and preserves financial flexibility. In a yield-starved utility world, 20 % FCF on funded EBITDA is compelling—especially if synergies materialize. Caveats: Execution on maintenance and O&M cost control is critical. Investors should watch how Vistra integrates these aging gas plants, manages capex, and balances its green-energy transition narrative. Rating: 7 / 10 Strengths: Very accretive valuation, cash-flow boost, leverage neutrality. Risks: Asset aging, limited green synergy for AI data centers, and peaker-price volatility could clip the thesis if not carefully managed. How Did You Like Today's Newsletter Love it It's Okay Not Great Login or Subscribe to participate Before you go: Here are ways I can help ‍ ETFs : We offer innovative ETFs that cover all aspects of The --- H.E.A.T. Formula, Hedges, Edges, and Themes. Consulting: I'm happy to jump on the phone with financial advisors at no charge. I've built a wealth management firm and helped other advisors grow their practices through the use of substantially differentiated investment strategies. 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