About credit rating agency

While the well-known credit rating agency may not seem like an obvious short, given that its services tend to be in demand in both good times and bad, I see a different type of risk here. I think that there could be some unforeseen legal risk in the cards. To be clear, I don’t have any information that isn’t in the public domain.

However, I speculate that many of the investors that have lost money investing in lenders with subprime exposure will be anxious to sue somebody in attempt to recoup some of their losses. Of course, the credit agencies that tracked companies would be one of the possible scapegoat. Regardless of whether they are at fault, at least a few lawyers will probably try to pass off the blame to them in court.

While I think that Moody’s is a terrific company that will ultimately survive, and thrive, in the long-term, I think that the near term risk of litigation could make for an interesting short sell in the near-term. The company is still a solid bet for the long-term, but if news of a sizable class action lawsuit hits, short sellers could stand to benefit from a short-term dip in the stock’s price.