S&P Sells Out (Again), Confirms Greece At BBB+, Removes Greece From CreditWatch Negative, Sends Market Higher

In case you were wondering what just sent the market and commodities higher, and killed the dollar, look no further: S&P just released a note confirming Greece at BBB+, and removing the country from CreditWatch negative, presumably a major euro positive, a major dollar negative, and today's nitrous boost to stocks... Here is the forest for the trees: the market is again dependent on the moronic filth spewed forth by rating agencies. As to what turbo austerity will do to Greek GDP, ah, who cares. S&P will cross that bridge when Greek GDP plummets 10%.

Overview

• We view the Greek government's total package of deficit reduction measures as appropriate to achieve its 2010 fiscal target, given the deterioration in Greece's growth prospects.
• We are affirming our 'BBB+/A-2' sovereign credit ratings on Greece and removing them from CreditWatch negative.
• The negative outlook reflects our view of the government's ability to sustain reform momentum in the medium term.

Rating Action

On March 16, 2010, Standard & Poor's Ratings Services affirmed its 'BBB+'  long-term and 'A-2' short-term sovereign credit ratings on the Hellenic Republic (Greece). At the same time, the ratings were removed from CreditWatch, where they had been placed with negative implications on Dec 7, 2009 (the long-term rating) and Dec. 16, 2009 (the short-term rating). The outlook, which was stable prior to the CreditWatch placement, is now negative.

Rationale

On March 5, 2010, the Greek parliament approved its third set of deficit reduction measures to reinforce its budgetary consolidation strategy and meet its deficit target of 8.7% of GDP in 2010. We view the government's fiscal consolidation program as supportive of the ratings at their current level, hence our rating affirmation.

The additional package--which we understand should reduce the deficit by €4.8 billion--includes measures on both the revenue side, such as increases in VAT rates and excise tax duties, and the expenditure side, such as cuts in the public wage bill, public investment, and current spending, which will bring the total budgetary effort for 2010 to €16 billion (6.9% of 2010 GDP) according to the government's estimates. We view the government's total package of measures as appropriate to achieve its 2010 fiscal target, given the deterioration in the country's growth prospects. According to our revised growth forecast, we expect the recession to continue, with real GDP contracting by 4% this year.

Despite the new measures, we think it will be difficult for Greece to comply fully with its planned consolidation path, reducing its deficit to 5.6 % of GDP in 2011 and 2.8% of GDP in 2012, if it does not implement additional measures in the coming years. We expect much weaker medium-term growth than official forecasts, and, consequently, an erosion of the tax base, while, in addition, we understand that age-related expenditures are likely to increase by 0.8% of GDP over 2010-2015. Moreover, in our opinion, if the currently high borrowing costs persist--the spread on Greece's recently issued 10-year bond was 300 basis points above the mid-swap--the large and growing debt burden, which we currently expect to peak at about 133% of GDP in 2012, is likely to increase further. In light of these considerable budgetary challenges and the difficult economic environment, it remains to be seen whether Greece's leaders will demonstrate the political will necessary to achieve fiscal consolidation. However, our base-case scenario is that the Greek government will implement the necessary reforms to engender sufficient market confidence to reduce borrowing costs.

Notwithstanding potential extraordinary support from European Economic & Monetary Union (EMU) member states, we reiterate that our ratings on Greece will continue to depend on its stand-alone credit rating fundamentals and not benefit from an implicit rating floor. However, extraordinary EMU member state assistance would, in our view, help the Greek government meet its targets.

Outlook

The negative outlook reflects our view of the government's ability to sustain reform momentum over the medium term. It indicates further downgrade potential within the next 18-24 months if the government fails to:

• Address negative deviations from its budgetary consolidation path, including those due to persistently high borrowing costs; or
• Implement the currently planned structural reforms, due, among other things, to an eventual faltering in political resolve to push through the necessary reform measures.
• Either shortcoming would, in our opinion, delay the reversal of the government debt trajectory and could lead to lower ratings.

An outlook revision to stable would be possible in the event of compliance with the government's budgetary targets, implementation of structural reforms in the social security system, and an easing of borrowing costs. These factors
could, in our view, lead to a reversal in Greece's government debt trajectory.

Comments

[Gimp]

We're all monkeys!

[Reggie Middleton]

• We view the Greek government's total package of deficit reduction measures as appropriate to achieve its 2010 fiscal target, given the deterioration in Greece's growth prospects.
• We are affirming our 'BBB+/A-2' sovereign credit ratings on Greece and removing them from CreditWatch negative.
• The negative outlook reflects our view of the government's ability to sustain reform momentum in the medium term.

There is an Italian Icy's chance in hell that Greece is going to pull off that austerity plan as stated. Even if they succeed, thew will end up somewhere in between a bad recession and a small depression. It is close to sickening to see everyone simply ignore the facts as if it they will somehow just disappear. Let's walk through some facts as presented in "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!

The revenue measures include increasing tax rates, reducing tax evasion and some one-off measures while the expenditure measures consist of salary reduction, freezes in hiring and salary hikes as well as cutting other public sector expenditures. According to the Stabilityand Growth Program, January 2010, the government is aiming to reduce its fiscal deficit from 12.7% of GDP in 2009 to 8.7% in 2010. However, if the impact of the additional measures that were estimated at 2.5% of GDP is also added, the fiscal deficit is expected to come down to 6.2% of GDP in 2010, based on government's estimates. The government further envisages additional proceeds from the sale of stakes in some of the government-owned entities as well as proceeds from the payback of financial assistance provided to the Greek banks, which will be used to reduce the massive government debt of around 113% of GDP in 2009. However, there is strong evidence to support the assertion that the budgeted impact of these measures is grossly overstated, since a) The Greek government's base casescenario for the economy is overly optimistic when compared with analystexpectations, and  b) the dynamics of the announced measures shall lower the total projectedimpact.

The Greek government's base case scenario builds in GDP growth of -0.3% and 1.5% in 2010 and 2011, respectively, which is simply unrealistic vis-à-vis analyst expectations. A recent Reuters poll revealed consensus estimates for GDP growth of -1.5% and 0.5% in 2010 and 2011, respectively. Local subject matter experts such Gikas Hardouvelis, Chief Economist at EFG Eurobank and professor of economics at the University of Piraeus are expecting a deeper recession with GDP declining 2.8% in 2010. Deeper recession and delayed recovery is expected primarily on the back of reduced private and public consumption as a result of the government's austerity measures. Economic performance lower than the government's estimates will result in lower tax base and lower tax revenues, and shall consequently offset the projected impact of the revenue measures like increase in tax rates. Evidence of this is already apparent in the ability of Greek labor unions to shot down much of Greece during 24 hour strikes which effectively eliminate large swaths of revenue and productivity for the day. Tax collectors, customs inspectors, the police, doctors, teachers... The striking populace apparently encompasses a very broad swath. This has happened several times in the last month and several future strikes are planned as well.

The Greek government's macroeconomic assumptions also seem overstated when compared with EU estimates.

  Revenue Generation Measures? It appears more like hoping one can change the centuries worth of behavior by the end of the year...

The Greek government has so far announced revenue measures with budgeted impact of nearly € 10.7 billion, or 4.4% of GDP. The announced revenue measures range across an increase in VAT rates, excise rates, fuel tax, property tax; unique taxation scale and elimination of tax exemptions; and reduction in tax evasion.

However, there are very serious concerns to be raised concerning the successful implementation of these measures and meeting the targets. The perception of performance of these measures (largely consisting of an increase in tax rates and reduction in tax evasion) in Greece is seriously undermined (at least in the eyes of the prudent practitioner) by the lengthy history of high tax evasion in the country. Over the years, the authorities have failed to crack down on the rampant tax evasion and there is no evidence to suggest that this will change, particularly amidst the current environment of declining income levels and higher tax rates.  

1.     Friedrich Schneider, chairman of the department of economics at the Johannes Kepler University. - Greece's unreported -- and untaxed -- shadow economy is one of the largest and equals about one-quarter of GDP. That compares with 22% of GDP in Italy (keep in mind that this is inclusive of the evasion performed by the famed La Cosa Nostra as well as the lesser known  Camorra, the 'Ndrangheta or the Sacra Corona Unita, as well as foreign organized groups) and 20% in Spain and Portugal, according to his estimates.

EXPENDITURE MEASURES

Announced expenditure measures are expected to cut the government's expenditure by nearly € 8.1 billion or 3.3% of GDP. Expenditure measures include salary cuts, freeze in hiring and salary hikes, as well as cuts to other public sector expenditures.

The biggest risk factor in the implementation of these measures is the growing social unrest, which is likely to put political pressure on the government to roll back some of the planned actions. The newly elected socialist government is facing strong resistance against the announced austerity measures in the form of nation-wide strikes, clashes by thousands of people, and growing public fury may force the government to cut certain targets for salary reductions, pay and hiring freeze, etc.

PROCEEDS FROM PRIVITIZATION

The government is planning to procure funds by offloading stakes in some of the government owned entities, and plans to raise € 5.6 billion or 2.3% of GDP over the next three years, with € 2.5 billion planned to be raised in 2010. In the Stability and Growth Program, the government has outlined a list of companies in which the government owns equity, and gave estimates of values of the government's equity stakes. We back-calculated the government's estimates for total equity of the companies and compared the same with the current market values (market cap) of the total equity of the companies and observed that in most of the cases the government's estimates were overstated (and in some cases, drastically) when compared with the current market value.

It can be argued that the Greek government is factoring in a control premium for their majority holdings. Theoretically this is acceptable, but realistically this will be very difficult to translate into cash. The government would have to find large buyers who are willing,to purchase the entire stake at the premium suggested, from a seller who is in obvious and globally publicized distress - and the Greek government will have to do this several times over, all within a period of less than 8 months to meet the 2010 deadline. We find this to be highly unlikely. It has been our experience that distressed seller's often take DISCOUNTS to the market value of their assets, not PREMIUMS!

1.     Since the Greek government is seen as a distressed seller, it will have to take a discount from any prudent buyer

2.     If the government sells directly into the equity market (the most expedient and likely scenario), the control premium is not applicable.

3.     It will take time to market the properties, negotiate the terms and close on the large deals to capture the control premium, if one is actually attainable. This is not going to happen for all of the properties slated for sale in 2010.

4.     If the government is being aggressive in valuation of public properties, it is most likely to be even more aggressive with non-public properties, where pricing is considerably more opaque.

Below, you can find a sample from  the  Greece Public Finances Projections 2010-03-15 11:33:27 694.35 Kb/ report that should visually drive the point of overvaluation home. Ironically, mismarkng the value of its assets is what contributed to Lehman Brothers downfall.

Click image to enlarge

[lizzy36]

Headline:market rallies 200 points as Tiger announces return to golf. 

[MarketTruth]

QUIZ TIME: If the USA gets their way and China de-links to dollar, the USA dollar drops to ______.

Be careful what you wish for USA, you may get it and then what will you do?

[Rick64]

IMO thats what the U.S. wants. The dollar to drop and the yuan to skyrocket, then the Chinese will be forced to invest outside of China. Buying companies,propeties, ect.. in the U.S.. The Chinese will be filthy rich and their exports won't be as cheap. i.e. Japan in the 80s.  

[carbonmutant]

"Be careful what you wish for USA, you may get it and then what will you do?"

Sell more products? since our goods will be cheaper.

[10044]

Take your pick for the next stop for bond vigilantes: spain, italy, portugal,uk.

[Cognitive Dissonance]

My thoughts exactly. S&P just picked up the walkie talkie, called up the guard outside the triage center and said one word.

"NEXT"

[Kreditanstalt]

Who gives a flying f--k what happens to the Euro-Dollar cross...?  I mean, really...!  Are ANY G-8 fiat currencies any better than any other?  What's with this passion for playing rate games and spreads when we know the endgame?  If these guys are so absolutely DESPERATE for more paper-dollar-bill yield in whatever currency, they're playing what we all know will be a losing game.

They don't realise it yet, but as the years go by the big game is changing from "play-paper-against-paper-for spread" to "preserve-the-wealth-you-have-in-something REAL"...

[John Law]

They had to get the market above 1150 some how. Next stop S&P 10,000!

[Ragnarok]

Hey buddy, what gives with the Avatar?

[Headbanger]

That's it, keep the global Ponzi scheme going....

[Leo Kolivakis]

Selling out? You really want me to talk about US politicians selling out or rating agencies selling out to US corporations? C'mon Tyler, the whole system is about selling out to the highest bidder.

Poscard from Naxos, an island with spectacular beaches:

[Cursive]

Breathtaking in its naked audacity.  If a national leader does not emerge soon to oppose the destruction of America via this kleptocracy, well, we'll have the destruction of America.  It's a shame that valiant souls have fought and died to protect my freedoms only to cede it to the bankers.

[Racer]

Who are these people that believe these idiot ratings agencies? Surely after the sub-prime fiascos their credibility is shot to pieces?

[Missing_Link]

That's just what I was thinking.  Why does anyone continue to pretend that those mental midgets still have a leg to stand on?

[Leo Kolivakis]

Rating agencies are a farce, but in the pension world, where decisions are taken with a cover-your-ass political mindset, they are used as a scapegoat when things go awry. In Canada, they invested billions in asset-backed commercial paper (ABCP) because the rating agencies slapped a AAA rating on them. When things went bad, they blamed the rating agencies, but they never bothered looking at the assets behind these securities. Same in the US with auction-rate securities. Total joke.

[Rick64]

These rating agencies should be held accountable for the fraud they have already committed in the U.S.. Their ratings have no credibility.

[Rick64]

We need a rating agency to rate the rating agencies.

[Hulk]

Black states that they should just be shut down until fixed....

[Rick64]

Black is a man I have great respect for.

[Hulk]

Black will never be allowed anywhere near a rating agency...

[Racer]

Does the market go up simply as a big pretence and all pals together.. all in each other's pocket... you scratch my back situation..

ratings agencies... rate... GS and JPM gun the futures higher, so eveyone is led to believe that the ratings agencies are a credible force because of consequences on their actions.

You can fool people into believing lies and not trusting their own judgements if you have the power and the will to do so.

The TBTF have been allowed this power and are abusing it all over the place and know they can get away with it, so they just keep doing it, until they completely wreck the world because of their pure greed

[rubearish10]

Oh and Moody's warning to US and UK had no bearing on markets. Oh, that's right, that's a matter for another generation.

[Racer]

of course not, they are only little matters in comparison to Greece after all.......

[rubearish10]

Would I love to be a fly on the wall in these political think tanks and observe the banter that goes on with these imbeciles wielding all that power around. Then the bankers lighting fat stogies and delightfully reminiscing about what happened  1 1/2 years ago as if it was an electric event. All this because they have power, money, a job and influence on how we should live our lives. Boy, should this thing turn (and I gather we all here agree it will), I surely expect to see their blood dripping down their eyeballs and this time with no recourse.

[sheeple]

What's with all the focus on Greece, we still have Iceland, Italy, Portugal, UK in the barrel

[Gimp]

My pet hamster could give better advice than the idiot rating agencies!

[Mr Lennon Hendrix]

Steve Lies Man sitting smugly behind desk.  "Today we have Gimp's pet hamster on to discuss rating agencies."  Hamster 'sits' in chair wearing 3 piece siut, and tie.  "So, Mr Hamster, what do you make of all this talk about rating agency downgrades for Greece, the UK, and the US?  You don't believe that the foremost superpowers in the world could have their credit rating snatched from them, do you?"  Becky laughs.  Hamster looks at Lies Man with disdain.  "Does he have a mic?"  asks Lies Man.  "Will someone mic him up?"  Hamster jumps off chair, then promptly throws the mic in the trashcan and walks of set.

[BlackBeard]

Conflicted much?  Anyone want to pay me for a rating?  I'll promise to give you a good one!

[DavosSherman]

Who did the rating? E&Y or did Arthur Anderson get raised from the dead? Fucking joke!

[Hondo]

Why anyone listens to these rating agencies (or better yet pays them) is beyond me.  Our shop does not adhere to the rating agencies nor do our investment policies mention them.  The rating agencies are not a valid investment parameter for us.

[seventree]

The negative outlook reflects our view of the government's ability to sustain reform momentum in the medium term.

Momentum? None of the proposed measures have begun to take effect yet, and already there is massive resistance from every possible direction. All talk and zero probability of action. Any honest rating should be based on expectation of no reform whatsoever.

[Mr Lennon Hendrix]

"Its a joke...its all a joke...."

[Schlep]

DEBT. The cause of every single financial crisis. Household, City, County, State, Washington D.C., Greece, The World. Every single paper dollar in our economy has been loaned and is costing taxpayer's interest. $105 Billion just for December! Freedom's Vision is a non-partisan plan to fix our economies and return control of the government back to the people. Come visit our Grand Opening. Read the introductions to learn more. There is a lot of excitement building and a lot of cool free stuff. Join us and make the United States great!
www.swarmusa.com

[Rick64]

DEBT. The cause of every single financial crisis.

Easy credit. Then massive debt.

[carbonmutant]

We need a ratings agency outside the US and not subject to the FED or the current administration's policies. And eventually because of the global demand we'll get one.

[Pinefox]

I wonder if US is buying Greek debt. That would be one way to support Greece without proclaiming a bail out.

[mark456]

ucvhost is a leading web site hosting service provider that is known to provide reliable and affordable hosting packages to customers. The company believes in providing absolute and superior control to the customer as well as complete security and flexibility through its many packages. cheap vps Moreover, the company provides technical support as well as customer service 24x7, in order to enable its customers to easily upgrade their software, install it or even solve their problems. ucvhost offers the following different packages to its customers