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S&P Downgrades Greece To Junk - Full Obituary Enclosed
Overview
- We have updated our assessment of the political, economic, and budgetary challenges that the Greek government faces in its efforts to place Greece's public debt burden onto a sustained downward trajectory.
- We are lowering our ratings on Greece to 'BB+/B' from 'BBB+/A-2' and assigning a negative outlook.
- The negative outlook reflects the possibility of a further downgrade if the Greek government's ability to implement its fiscal and structural reform program materially weakens in our view, undermined by domestic political opposition at home or by even weaker economic conditions than we currently assume.
Rating Action
On April 27, 2010, Standard & Poor's Ratings Services lowered its long- and short-term sovereign credit ratings on the Hellenic Republic (Greece) to 'BB+' and 'B', respectively, from 'BBB+' and 'A-2'. The outlook is negative. At the
same time, we assigned a recovery rating of '4' to Greece's debt issues, indicating our expectation of "average" (30%-50%) recovery for debtholders in the event of a debt restructuring or payment default. The 'AAA' transfer and
convertibility assessment is unchanged.
Rationale
The downgrade results from Standard & Poor's updated assessment of the political, economic, and budgetary challenges that the Greek government faces in its efforts to put the public debt burden onto a sustained downward
trajectory. We believe that the government's policy options are narrowing because of Greece's weakening economic growth prospects, at a time when pressures for stronger fiscal adjustment measures are rising. Moreover, in our view, medium-term financing risks related to the government's high debt burden are growing, despite the government's already sizable fiscal consolidation plans. Our updated assumptions about Greece's economic and fiscal prospects lead us to conclude that the sovereign's creditworthiness is no longer compatible with an investment-grade rating.
As a result of Greece's rising commercial borrowing costs, the authorities have requested extraordinary support from the Eurozone and the International Monetary Fund (IMF). We anticipate further information in the coming weeks from EU members regarding the terms and duration of support for Greece. We believe that a multiyear European Economic & Monetary Union (EMU)/IMF support program is likely, which should, in our opinion, significantly ease Greece's near-term liquidity challenges. Nevertheless, in our view, pressures for more aggressive and wide-ranging fiscal retrenchment are growing, in part because of recent increases in market interest rates. In our revised projections, we forecast Greece's net general government debt-to-GDP ratio reaching 124% of GDP in 2010 and 131% of GDP in 2011.
We continue to believe that the size and scope of the Greek government's fiscal consolidation program, and the government's political will to implement it, are the main drivers of our sovereign ratings on Greece. Sustained success in this regard could, in time, be reflected in lower market interest rates on Greece's debt. Early indications show that the government is likely to meet its 2010 deficit target. The authorities are also moving ahead with their
structural reform agenda, adopting tax reform in April, while proposals on pension reform are expected in May.
Nevertheless, we believe that the dynamics of this confidence crisis have raised uncertainties about both the government's administrative capacity to implement reforms quickly and its political resolve to embrace a fiscal austerity program of many years' duration. Based on our updated assessment, we estimate that the adjustment needed in Greece's primary fiscal balance relative to that of 2008 in order to stabilize the government debt burden amounts to at least 13% of GDP--a very high level compared with that which other sovereigns have been able to achieve. The government's resolve is likely, in our opinion, to be tested repeatedly by trade unions and other
powerful domestic constituencies that will be adversely affected by the government's policies. At the same time, we expect official lender support to be highly conditional and revocable, and as such, we do not believe that it provides a floor under Greece's sovereign ratings.
As previously noted, the government's multiyear fiscal consolidation program is likely to be tightened further under the new EMU/IMF agreement. This, in our view, is likely to further depress Greece's medium-term economic growth
prospects. Under our revised assumptions (see below), we expect real GDP to be nearly flat over 2009-2016, while the level of nominal GDP may not regain the 2008 level until 2017. Moreover, we find that Greece's fiscal challenges are increasing pressures on the banking and corporate sectors. In particular, we see continuing fiscal risks from contingent liabilities in the banking sector, which could in our view total at least 5%-6% of GDP in 2010-2011.
Greek Government Economic Scenarios And Standard & Poor's Updated Baseline Scenario
Average 2010-2013 Greek SGP 1 Greek SGP 2 S&P baseline
Real GDP growth (% yoy) 1.4 0.9 (0.8)
Nominal GDP growth (% yoy) 3.4 2.7 0.0
General gov't. deficit (% GDP) 4.8 4.8 5.8
CA deficit (% GDP), 2013 6.0 6.4 0.0
Gov't. debt/GDP (%), 2013 113 113 137
SGP--Stability and Growth Program (January 2010). Greek SGP 1--Greek government's base case. Greek SGP 2--Greek government's alternate scenario.
yoy--Year on year. CA--Current account.
Together with the lowering of our ratings on Greece to 'BB+/B', we have also assigned a recovery rating of '4' to Greece's debt. This is in keeping with our policy to provide our estimates of likely recovery of principle in the event of debt restructuring or a debt default for issuers with a speculative-grade rating. A recovery rating of '4' reflects our current expectation of "average" (30%-50%) recovery for holders of Greek government debt.
Outlook
The negative outlook reflects the possibility of a further downgrade if, in our view, the Greek government's ability to implement its fiscal and structural reform program is undermined by domestic political opposition or materially weakens for other reasons, including even weaker economic conditions than we currently assume.
We could revise the outlook to stable if we perceive that political support for government economic policies remains robust and Greece's economic growth prospects prove to be more benign than we currently anticipate.
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So we expect, Moodys to increase its bra size rating in about 12 weeks time for Greece.....
This means nothing to U.S. consumer. BUY BUY BUY. Right Harry Wanger?
You are correct. It is pretty meaningless to the US consumer. Step away from this board and ask anyone not following the markets 24/7 about the effects of Greece downgrade on if they're going to buy an iPad/Phone/Pod. Please tell me how this affects that consumer.
Could you give some investment recommendations/strategies for the illumination of the Jr. investors in this forum?
Thank you
AAPL is trading at 11 times 2011. That's cheap for a company with such amazing growth. Also, if SPX closes above 1200 today buy as much SPY as you can or double up on SSO.
2011? Why not 2020?
AAPL is going to 10 million! Drachmas! And 11x earnings is 11x fiction. It's also the same as 1x, 20x, 1000x, etc. because future earnings projection is a fiction and in the current environment really bad and implausible fiction at that. Less plot than a $2 porno.
But, please, by all means keep investing in dubious stocks. I still need someone to buy them off me while I exit.
unfort wanger is right. was talking about it in a group of biz people and lawyers this weekend, thay had a vague awareness and no interest. sad.
Yet. They probably wouldn't have had an interest in Russia defaulting in 98 either.
Remember - this market is priced for perfection, and we just realised things aren't perfect.
+1, tho my analogy would be the asian crisis. Which wasnt pretty.
OH! This is that same lynch-worthy scumbag from dailyreckoning!
I was thinking of you while watching a tv show on how they killed clergy and nobles during the French revolution....
Well, Hairy, when the euro collapses because half the continent is insolvent, and the US companies that do business with them in one way or another fold or downsize, sending another 10% of US workers to the unemployment line (in addition to the current 18% un/underemployed) THE LAST FUCKING THIN ON THEIR MIND IS A GOD DAMNED METROSEXUAL BATBELT ACCESORY LIKE A PIECE OF SHIT FROM CRAPPLE!
But I'll be glad to give them your address...
BTW I used a winXP PC last month to make rescue CD's and USB's which I have already used to retrieve date from two Crapple computers, one PPC, one Intel.
I can't wait for the mock-turtleneck god of yours to croak.
I avoid DR anymore: Too many people bitch, no one ever offers alternatives or positive solutions.
He sort of reminded me of a certain Pollyanna on the DR.
I am just waiting for a BOOM!
Perhaps they should put some Windex on it!
The CAC has a bit of that with its 3.82% downside move today.
Those genius French Banks who liked to go Greek. :-)
ROTFLMAO!
Its never too late I suppose. Looks like it gave the markets a heart-attack, including techs like everyone's favorite Apple.
Won't be long before they are shut down because of a technical glitch
And S&P waited until the SP500 touched 1217 to come up with this genius research ?? Should we not be thankful that they do such great research ? Its like manna from heaven !!
Let me guess, the treasury is trying to offload a shit load of garbage paper this week?
Wouldn't the smart thing be for Greece to implement some form of "austerity" on a crash, short-term basis, with no expectation of keeping it in place, just long enough so that one of the other PIIGS fails first and Greece can then skip bail quietly while the fuzz are focused somewhere to the west?
there will be serial defaults. there always is after a global financial crisis. unless this time is different. s/
But, but, "this time" is different! This time is always different! Yay!
I'm going to go buy some AAPL at $36,000. I hear that they are collaborating with Kotex and J&J on their newest product.
We may see the currency and hyperinflation come to a new level. The dollar and euro may last for alot longer than everyone thinks by the currency's functions split in two: paper/electronic currency can be the transactional currency that could change rapidly, while precious metals, and even the metal ETFs or the general stock market (which could last some time before blowing up) would be the currency of savings, or store of wealth.
You know those little electronic LCD pricetags they use at KOHLS; I'm investing in those.
AAPL is "cheap" only if the earnings growth pattern can be sustained. That is the "multiple" question.
Global, geopolitical risk and contagion can interrupt that assumption pretty quickly.
Isnt aapl counting on china for its growth story? Seems in doubt to me.
Just uploaded a Dow weekly chart showing bearish broadening top pattern.
And Euro is breaking down now.
MARKET UPDATES:
http://www.zerohedge.com/forum/latest-market-outlook-0
NEXT!
Portugal? Italy? California?
Bueller?
Who even cares about a S&P downgrade?(as if they're even a credible source of ratings anyway) besides S&P isn't saying anything that the market hasn't been SCREAMING for weeks. Just take a look at past Greek treasury yield curves.
The Captain has turned on the "Fasten Your Seatbelts" light. Please return to your seats and fasten your seat belts as we are experiencing some temporary turbulence as we approach the Athens airport.
garble, garble, - - - - - garble - - - - #*&%()$!!
Oh, never mind - -
we're fukt!