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Moody's Puts Italy's Aa2 Rating On Downgrade Review, EUR Slides, And A Bonus Report From SocGen: "How Vulnerable Is Italy?"

Tyler Durden's picture


Trust Moody's to come up with the Friday afternoon bomb. EURUSD slides on the news, which sends the 100% correlated stocks plunging.

Full text from Moody's:

Frankfurt am Main, June 17, 2011 -- Moody's Investors Service has today placed Italy's Aa2 local and foreign
currency government bond ratings on review for possible downgrade,
while affirming its short-term ratings at Prime-1.


The main drivers that prompted the rating review are:

(1) Economic growth challenges due to macroeconomic structural weaknesses
and a likely rise in interest rates over time;

(2) Implementation risks surrounding the fiscal consolidation plans that
are required to reduce Italy's stock of debt and keep it at affordable
levels; and

(3) Risks posed by changing funding conditions for European sovereigns
with high levels of debt.

Moody's review will evaluate the weight of these growing risks in light
of the country's high rating but also relative to some credit-strengthening
trends that have been observed in recent years and are expected over the
coming years, such as improved fiscal governance, lower budget
deficits and a modest economic recovery.



First, the Italian economy faces growth challenges in an environment
characterized by long-term structural impediments to growth and
potentially rising interest rates. Structural economic weaknesses
-- mainly low productivity and important labour and product market
rigidities -- have been a major impediment to growth in the last
decade and continue to hinder the economy's recovery from the severe
recession it experienced in 2009. Italy has so far only recovered
a fraction of the nearly seven percentage points in GDP that it lost during
the global crisis, despite low interest rates, which are likely
to rise in the medium term. Growth prospects for the Italian economy
in the coming years will be a crucial factor that will determine the government's
revenues and the achievement of fiscal consolidation targets.

Second, there are implementation risks to the fiscal consolidation
plans that are required to reduce Italy's stock of public debt to
more affordable levels. Against a backdrop of rising interest rates
and weak economic growth, the government may find it difficult to
generate the primary surpluses that are needed to place the public debt-to-GDP
ratio and the interest burden on a solid downward trend. The adoption
of additional conservative fiscal policies may prove more difficult in
the near future because the current government's electoral support
is weakening, with the government facing challenges in gaining public
approval for its policies. For example, the government's
recent energy and water supply proposals were rejected by popular vote.

Third, the fragile market sentiment that continues to surround European
sovereigns with high levels of debt poses additional risks for Italy.
The continued stability of market demand for Italy's debt is uncertain
at current yields. Although future policy actions within the euro
area could reduce investors' concerns and stabilize funding costs,
the opposite is also possible. In any event, going forward,
investors appear likely to differentiate more among euro area sovereign
borrowers than they did prior to the financial crisis, to the disadvantage
of euro area countries with higher-than-average debt burdens,
like Italy.



Moody's review of Italy's sovereign rating will focus on the growth prospects
for the Italian economy in coming years, and particularly the prospects
for a removal of important structural bottlenecks that could hinder a
stronger economic recovery in the medium term. The review will
also examine the government's ability to achieve ambitious fiscal
consolidation targets and to implement further plans to generate substantial
primary surpluses in the medium term. This will include an analysis
of the vulnerability of the Italian government debt trajectory to a rise
in risk premia, as well as the options for the government to react.
The government's new fiscal plan, which is expected to be
announced shortly, will be considered during the review.

In addition, any broader developments across the euro area,
in particular with regard to the resolution of the euro area debt crisis
and its impact on funding costs, could be important determinants
of the outcome of Moody's rating review


Moody's last rating action affecting Italy was implemented on 15 May 2002, when the rating agency upgraded Italy's Aa3 government bond ratings to Aa2 with a stable outlook. The rating action prior to that was taken on 3 July 1996, when the rating agency upgraded Italy's A1 government bond ratings to Aa3.


And now that the topic of Italy is so critical, here is SocGen's recent must read: "How Vulnerable is Italy"

How Vulnerable is Italy


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Fri, 06/17/2011 - 15:22 | 1378449 Hugh G Rection
Hugh G Rection's picture

Why does anyone still listen to Moody's?

Fri, 06/17/2011 - 15:21 | 1378457 scratch_and_sniff
scratch_and_sniff's picture

not really, expect a retrace within the hour.

Fri, 06/17/2011 - 15:26 | 1378480 Ahmeexnal
Ahmeexnal's picture

Il Cavaliere ain't gonna take this shit.
He'll pull out of the NATO criminal adventure in Libya.

Fri, 06/17/2011 - 15:33 | 1378495 Quintus
Quintus's picture

He would if he weren't so very dependent on Libya's lovely light sweet crude.

Fri, 06/17/2011 - 15:51 | 1378558 French Frog
French Frog's picture

"Euro slides" ... reckless exageration

up 210 pips from the low and retraces 35 pips on the news, that's not a slide, barely a hiccup


Fri, 06/17/2011 - 15:33 | 1378492 vamoose1
vamoose1's picture

Moodys Fitch and s and p just got sued by Uncle, they just got religion when the writ dropped last week.

Fri, 06/17/2011 - 15:44 | 1378546 MisterAmbassador
MisterAmbassador's picture

If even Moody's recognizes the need for a downgrade, then aren't things actually way worse than we think?

Fri, 06/17/2011 - 16:15 | 1378649 Cdad
Cdad's picture

Pay no attention to the time bomb in the corner...the one that just stopped ticking.  Everything is fine.  Greece is fixed.  Didn't you hear.  All better now.  Serious "upside earnings revisions" coming for Greek banks.  Go all in on Greek debt and Greek banks.  You won't regret it.  

And think of the retail sales potential in that country once the people stop throwing jars of gasoline at the cops.  I mean talk about your revenue beat!

Fri, 06/17/2011 - 16:58 | 1378762 kito
kito's picture

@ hugh g.....and economists and bank analysts and politicians and imf officials and world bank officials and msm and.....?

Fri, 06/17/2011 - 15:24 | 1378453 Jack Mehoff
Jack Mehoff's picture

China is not happy

Fri, 06/17/2011 - 15:46 | 1378550 MisterAmbassador
MisterAmbassador's picture

I'm sure their fortune cookie told them that this was coming.

Fri, 06/17/2011 - 15:49 | 1378556 TruthInSunshine
TruthInSunshine's picture

***Breaking News Alert***

  • Moody's put Italy on 'downgrade review.'
  • Rating Agency Fitch hired by Greek Finance Minister.
  • Standard & Poor's wants in on "some hot Spain action."
  • Bill Gross says he will short soon to be issued 1000 Year U.S. Treasuries.
  • Jamie Dimon claims JP Morgan close to buying unspecified silver miner.
  • Timothy Geithner expects +750,000 NFP print within "months."
  • McDonald's to outsource assembly and fabrication jobs.
  • Lloyd Blankf..err..Obama urges Congress to approve John Bryson as Commerce Secretary.
  • Obama snags his 14th hole-in-one.
  • Abby Joseph Cohen forecasts S&P at 4,999 by end of year.
  • UMich Consumer Sentiment from this morning since revised 27 pts higher.
  • Buffet Withdraws from Gates Charitable Trust; Will Give Fortune to Harold Camping.
  • Bernanke picks Mets to Win World Series in 2012.
  • Paul Krugman & Larry Summers pitch 'Dig Hole to China Standard of Living' Fiscal Stimulus, shovel ready Public Works Project (est. 188 trillion USD).

***This Has Been A Breaking News Alert***

Fri, 06/17/2011 - 16:21 | 1378658 Idiocracy
Idiocracy's picture


Fri, 06/17/2011 - 23:09 | 1379509 TheProphet
TheProphet's picture

I've had a lousy day. Reading this, I feel much better.


Fri, 06/17/2011 - 15:24 | 1378455 slow_roast
slow_roast's picture

Market is trying to ignore this story, might see some major selling in the final stretch.

Fri, 06/17/2011 - 15:36 | 1378483 hambone
hambone's picture

Market has forgotten what it is like to be a market and is confused...but ahhhhh, not to worry, Monday is double heroine mainlining, I mean double POMO...alas, pick your squiggle in the chart and go long w/ the sure knowledge you can sell it all at a profit come Monday, Monday, Monday. 

Still a little concerned bout what happens when there isn't that security blanket on the other side of the weekend...Sinclair's 4000 point drop would sound about right.

Fri, 06/17/2011 - 15:26 | 1378460 hambone
hambone's picture

In another controversial ruling, Moody's states earth is not the center of the solar system and it is likely round.  Thanks for remaining well ahead of the curve there Moody's.

Fri, 06/17/2011 - 15:50 | 1378564 MisterAmbassador
MisterAmbassador's picture

Moody's breaking news:  Sky is blue.

Fri, 06/17/2011 - 15:22 | 1378463 AldoHux_IV
AldoHux_IV's picture

Looks like the corrupt regime is trying to get another plant in place-- Portugal finance minister Vitor Gaspar-- on the wires.

Worked as special adviser to Bank of Portugal and research at ECB.

They're digging into stem the contagion, but will fail imo.


Fri, 06/17/2011 - 15:25 | 1378464 the not so migh...
the not so mighty maximiza's picture

This time it really is different.

Fri, 06/17/2011 - 15:22 | 1378467 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

There is no way to reverse all this mess... therefore, save time and volatility, just downgrade the whole world to junk status in one go...

... then the only way is up.

Fri, 06/17/2011 - 15:53 | 1378573 MisterAmbassador
MisterAmbassador's picture

It's not like the world owes all this money to aliens.

We could all just agree to go back to zero.  Yeah, right.

WWIII should be quite an event.

Fri, 06/17/2011 - 15:28 | 1378474 Cheesy Bastard
Cheesy Bastard's picture


Fri, 06/17/2011 - 15:29 | 1378478 Boston
Boston's picture


Fri, 06/17/2011 - 15:39 | 1378514 scatterbrains
scatterbrains's picture

hft algos are getting hungry for more fresh shorts to devour.

Fri, 06/17/2011 - 15:24 | 1378475 rubearish10
rubearish10's picture

Like a rash of falling knives. One trader term that one could reflect on right now is "get out of the way".

Fri, 06/17/2011 - 15:27 | 1378482 Bam_Man
Bam_Man's picture

I'm doing my part to support Italy's economy by buying/consuming large quantities of Italian red wine.

Can't wait for the Euro to really shit the bed.

I'll be able to afford to drink Barolo or Brunello every night!

Fri, 06/17/2011 - 15:32 | 1378489 SheepDog-One
SheepDog-One's picture

Oh noez! 'Greece fixed', well not really but whatever, good enough for the algo' its on to ITALY'S troubles! 

Too bad Moody's and S&P both totaly missed warning of the complete melt down in 2008....but who coulda seen THAT coming? Easier to just warn of Greek and Italian banks.

Fri, 06/17/2011 - 15:43 | 1378530 Cdad
Cdad's picture

Greece is fixed!  Greece is not fixed!!  Greece is fixed!  

Fuck me Dog.  Oh look...a unicorn that "nobody saw coming".  I'm going over there to mount it now....

Fri, 06/17/2011 - 15:41 | 1378534 SheepDog-One
SheepDog-One's picture

Nobody saw it comin! Yowza!

Fri, 06/17/2011 - 15:33 | 1378494 MisterAmbassador
MisterAmbassador's picture

Now that's a spicy meatball!

Mario and Luigi are our only hope now!

Fri, 06/17/2011 - 15:34 | 1378498 Alea Iacta Est
Alea Iacta Est's picture

Omnia mutantur, nihil interit

Fri, 06/17/2011 - 15:38 | 1378509 buzzsaw99
buzzsaw99's picture

The promise given was a necessity of the past, the word broken is a necessity of the present.

Niccolo Machiavelli

Fri, 06/17/2011 - 15:39 | 1378512 AldoHux_IV
AldoHux_IV's picture

Here's the problem with fiscal plans for every country that has a corrupt regime at the helm that serve only the insolvent financial system: you can't strip economic opportunity and individual rights from the people and expect them to take more cuts to what the governments owe them-- this is why policymakers should have focused on fixing the real economy instead of funneling everything to the insolvent financial institutions-- it doesn't work-- not even in a pyramid scheme does that work as you can't build a pyramid on the broken backs of the peasantry--it's unstable.

Fri, 06/17/2011 - 15:40 | 1378520 A Man without Q...
A Man without Qualities's picture

Half an hour before the end of the week?  Smells like a bear trap to me - there'll be some positive  bullshit news out of Greece over the weekend and futures will open Sunday night 0.5% higher...

Fri, 06/17/2011 - 15:39 | 1378532 SheepDog-One
SheepDog-One's picture

Or 1.5% lower. STEP RIGHT UP, ladies and gentlemen! Place ya BETS!

Fri, 06/17/2011 - 15:43 | 1378543 AldoHux_IV
AldoHux_IV's picture

Possibly, but does it matter what they come out with on SUN? It's a plan, much like last year they had a plan, and much like last year have failed to implement it successfully.

The market may not price this reality in because it's run by the same insolvent financial institutions that need Greece (now Italy and soon to be the rest of EU) to take on more debt to keep the farce running.

2012 will see the same tough rhetoric out of the troika on how Greece needs to make severe cuts in order to serve their banking masters and it will be near impossible to implement such a plan as people will just say 'fuck off EU and your banking masters' and strike-- strikes and discontent to where a country is paralyzed by resentment is far worse than deflation-- that kind of shit topples regimes.

Fri, 06/17/2011 - 15:37 | 1378522 serotonindumptruck
serotonindumptruck's picture

Is this some kind of retaliation against the Italian people who voted overwhelmingly to phase out nuclear energy?

Fri, 06/17/2011 - 15:51 | 1378560 mr_nice
mr_nice's picture

in what world 51% of voters is overwhelmingly anything? (94% of 55% or whatever)

Fri, 06/17/2011 - 16:19 | 1378652 serotonindumptruck
serotonindumptruck's picture

It's probably not relevant at all. It's not as if that many people could give a rat's ass about Italy anyway. Besides, most of us will be dead within the next six months.

Sat, 06/18/2011 - 04:09 | 1379801 mr_nice
mr_nice's picture

awesome, sell long term vol then

Fri, 06/17/2011 - 15:39 | 1378526 agent default
agent default's picture

It's not just Italy.  If Unicredit gets dragged into this, and I don't see why not, things may get really nasty.

Fri, 06/17/2011 - 15:43 | 1378533 hungarianboy
hungarianboy's picture

The report from Socgen is pretty old. Just saying.

Still thnx.

Fri, 06/17/2011 - 15:45 | 1378536 John McCloy
John McCloy's picture

If stocks are 100% correlated to the EUR than I am assured I am more than content being short because this is all going to end in tears. 

Fri, 06/17/2011 - 15:42 | 1378541 buzzsaw99
buzzsaw99's picture

At least Italy isn't being investigated by the porn-watching SEC.

Fri, 06/17/2011 - 15:44 | 1378547 John McCloy
John McCloy's picture

Dow just shot up 40 points in 3 minutes..haha

Fri, 06/17/2011 - 15:52 | 1378557 plocequ1
plocequ1's picture

It must be that compression. Yea, Thats it.

Fri, 06/17/2011 - 15:51 | 1378567 cougar_w
cougar_w's picture

They brought out the heavy guns today. So exciting to watch!

Fri, 06/17/2011 - 16:02 | 1378566 TruthInSunshine
TruthInSunshine's picture

Greece is the appetizer. Many courses to come. Italy won't even be the main course when all is said and done. Save room for desert.

Fri, 06/17/2011 - 15:55 | 1378568 hungarianboy
hungarianboy's picture

Does anybody know how I can send an email or get in touch with TD?

Fri, 06/17/2011 - 15:51 | 1378569 monopoly
monopoly's picture

This is worse then a bad comedy. What a crock of shit this planet is.

Fri, 06/17/2011 - 16:10 | 1378611 plocequ1
plocequ1's picture


Fri, 06/17/2011 - 16:13 | 1378613 plocequ1
plocequ1's picture

CROX +.38

Fri, 06/17/2011 - 15:55 | 1378571 Caravaggio
Caravaggio's picture

Third world's wet dreams.

Fri, 06/17/2011 - 15:53 | 1378574 pirea
pirea's picture

It is the aim at Italy's gold.

This is the only country from PIIGS holding a huge amount of gold.

Fri, 06/17/2011 - 16:05 | 1378582 hambone
hambone's picture

Just imagine in the very near future a Friday like this with no POMO (or in this case) or double POMO on Monday...gee, wonder what will happen?

BTW - what a strange coincidence to have a double POMO on the Monday following triple withching Friday???  Who'd a thunk something like that would just happen?  Serendipity?

Fri, 06/17/2011 - 16:05 | 1378598 DNB-sore
DNB-sore's picture

Berlusconi can always ask Ruby for some advise how to suck things up

Fri, 06/17/2011 - 16:08 | 1378622 Fiat2Zero
Fiat2Zero's picture

Nice timing. Is everyone in on the scam?

Fri, 06/17/2011 - 16:15 | 1378626 hungarianboy
hungarianboy's picture

No problem. China will buy euro's. They have to.

Fri, 06/17/2011 - 16:18 | 1378657 Jasper M
Jasper M's picture

Moodys has new found standing to pass judgement on Italy, because if the rumors of a Massive SEC fruad lawsuit are true, they know exACtly what imminent bankruptcy looks like. 

Disclosure: Been short Moody's since 2006. 

Fri, 06/17/2011 - 16:50 | 1378741 Bansters-in-my-...
Bansters-in-my- feces's picture



Where have I heard that name before...???

Aint those the ones that.....

Oh never mind,it's not important.

Fri, 06/17/2011 - 16:59 | 1378752 IdioTsincracY
IdioTsincracY's picture

Tha anglo-saxon rating agencies are caught up in the final game of domino ... in this interconnected world of debt, they can't downgrade a nation, causing a finacial fallout, without impacting other countries ... they are busy with Europe, but the greatest risk (certainty at this point) is contagion to the bankrupt US and UK ... that will happen and when that happens the problem will not be Europe any longer ...

In the meanwhile, as the UsUk agencies keep people looking at Europe, other rating agencies know where the real problem is:


Let's see what happens this fall.


Fri, 06/17/2011 - 16:59 | 1378760 TruthInSunshine
TruthInSunshine's picture

I started a credit rating agency that is about to crush Moody's, Standard & Poor or Fitch.

It is called Sharts, and it is technically and resource superior to any rating agency that has ever been devised previously, and more importantly, fundamentally honest and to the point.

Our first assessment per AP:

  • 06-17 16:55: Credit Rating Agency Sharts on Italy: "We strongly contend that Italy's already technically insolvent, and bondholders are already walking bagholders."
Fri, 06/17/2011 - 17:03 | 1378782 SOLnow
SOLnow's picture

3 million shares of GLD across the tape at 17:00.  Deep pockets.

Fri, 06/17/2011 - 17:41 | 1378850 gwar5
gwar5's picture

All the ratings agencies lie anyway, so you can't tell if they're now trying to catching up, or just working in concert to pressure sovereigns. I think I read this am a lawsuit is coming their way.

Fri, 06/17/2011 - 18:11 | 1378907 ILoveTheWorld
ILoveTheWorld's picture


Italy only needs to raise tax on capital to 20-25% (in line with the rest of europe) instead of today's 12%, and everything will be fine. If there is one country on this planet that will make it, that's Italy.

Sat, 06/18/2011 - 04:12 | 1379803 mr_nice
mr_nice's picture

you clearly work for the swiss =)

Fri, 06/17/2011 - 18:33 | 1378956 Buck Johnson
Buck Johnson's picture

Italy is that silent member of the PIIGS that they don't talk about, becaush they are to big.

Fri, 06/17/2011 - 18:46 | 1378976 walküre
walküre's picture

Italy's economy is solid. The personal income / debt ratio is among best in the world.

Moody's is full of shit.

It's apparent how Moody's is part of an American propaganda effort to try and salvage the USD come hell or high water.

Sat, 06/18/2011 - 02:42 | 1379754 libelmage
libelmage's picture

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