Friday Dump Complete: Moody's Warns Of Spanish Downgrade, Threatens AAA-Countries In Case Of Grexit

Tyler Durden's picture




 

First we got Spain miraculously announcing late at night local time, but certainly after close of market US time, that the bailout so many algorithms had taken for granted in ramping stocks into the close may not be coming, because, picture this, Germany may have conditions when bailing the broke country's banks out, and Spain is just not cool with that, and now, after the close of FX and futures trading, we get Moody's giving us the warning the after Egan-Jones, S&P, and Fitch, it is now its turn to cut the Spanish A3 rating."As Spain moves closer to the need for direct external support from its European partners, the increased risk to the country's creditors may prompt further rating actions. The official estimates of recapitalising Spain's banking system have risen significantly and the country's indirect reliance on European Central Bank (ECB) funding via its banks has been growing. Moody's is assessing the implications of these increased pressures and will take any rating actions necessary to reflect the risk to Spanish government creditors. Moody's rating on Spain is currently A3 with a negative outlook." Moody's also warns, what everyone has known for about 2 years now, that Italy could be next: "However, Spain's banking problem is largely specific to the country and is not likely to be a major source of contagion to other euro area countries, except for Italy, which likewise has a growing funding reliance on the ECB through its banks." Of course none of this is unexpected. What will be, however, to the market, is when all 3 rating agencies have Spain at BBB+ or below, which as ZH first pointed out at the end of April will result in a 5% increase in repo haircuts on Spanish Government Bonds, resulting in yet another epic collateral squeeze for the country which already is forced to pledge Spiderman towels to the central bank. 

From Moody's

Moody's: Developments in Spain, Greece may prompt euro area sovereign rating downgrades

New York, June 08, 2012 -- Recent developments in Spain and Greece could lead to rating reviews and actions on many of the euro area countries, says Moody's Investors Service in the report "Rating Euro Area Governments Through Extraordinary Times -- Implications of Spain's bank recapitalisation needs and the rising risk of a Greek Exit".

As Spain moves closer to the need for direct external support from its European partners, the increased risk to the country's creditors may prompt further rating actions. The official estimates of recapitalising Spain's banking system have risen significantly and the country's indirect reliance on European Central Bank (ECB) funding via its banks has been growing. Moody's is assessing the implications of these increased pressures and will take any rating actions necessary to reflect the risk to Spanish government creditors. Moody's rating on Spain is currently A3 with a negative outlook.

However, Spain's banking problem is largely specific to the country and is not likely to be a major source of contagion to other euro area countries, except for Italy, which likewise has a growing funding reliance on the ECB through its banks.

In contrast, Moody's says that if the risk of a Greek exit from the euro were to rise further, it could lead to additional rating pressures throughout the region. Greece's exit from the euro would lead to substantial losses for investors in Greek securities, both directly as a result of the redenomination and indirectly as a result of the severe macroeconomic dislocation that would likely follow. It could also pose a threat to the euro's continued existence.

The risk of a Greek exit particularly affects the credit standing of Cyprus (Ba1, Negative), Portugal (Ba3, Negative), Ireland (Ba1, Negative), Italy (A3, Negative) and Spain. However, should Greece leave the euro, posing a threat to the euro's continued existence, Moody's would review all euro area sovereign ratings, including those of the Aaa nations.

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Fri, 06/08/2012 - 18:22 | 2508979 fightthepower
fightthepower's picture

Fuck you Bernanke!

Fri, 06/08/2012 - 18:29 | 2509011 Manthong
Manthong's picture

Good thing there is no risk of default..

anywhere..  at any time.. for any reason..

including no real money left anywhere..

plenty of caca de toro chips to post as collateral.

Fri, 06/08/2012 - 18:37 | 2509041 world_debt_slave
world_debt_slave's picture

and the sick charade continues

Fri, 06/08/2012 - 21:46 | 2509444 brooklynlou
brooklynlou's picture

As long as Germany keeps paying the band the dance continues ...

Fri, 06/08/2012 - 23:13 | 2509548 markmotive
Fri, 06/08/2012 - 23:42 | 2509569 The Big Ching-aso
The Big Ching-aso's picture

 

 

Moody's sure getting real PMessy here lately. 

Sat, 06/09/2012 - 02:38 | 2509717 Michael
Michael's picture

Spain is a perfect example of a Euro currency model that doesn't work for them, as was predicted.

Just look at them now.

Sat, 06/09/2012 - 08:29 | 2509958 Chief KnocAHoma
Sat, 06/09/2012 - 08:03 | 2509933 disabledvet
disabledvet's picture

"M&M alert from the M&M guy's":
http://www.youtube.com/watch?feature=player_detailpage&v=jYlHz8L5yeg
Alert me when Eric Sprott say's "buy a house in the Tortugas."

Sat, 06/09/2012 - 08:30 | 2509959 RiverRoad
RiverRoad's picture

All the "real money" has been, and continues to be, stuffed into tax havens.

Sat, 06/09/2012 - 09:17 | 2509987 GMadScientist
GMadScientist's picture

But "real money" is an oxymoron.

No amount of zeroes in the Caymans will save the likes of Mittens in the collapse.

Sat, 06/09/2012 - 09:34 | 2510006 RiverRoad
RiverRoad's picture

All of the "so called" "real money".  There fixed it.

Fri, 06/08/2012 - 20:36 | 2509327 The Monkey
The Monkey's picture

Those are strong words.  You must have been lined up short.

Anyway, your sentiment itself is bearish, so stay put and see what happens.

 

Fri, 06/08/2012 - 20:49 | 2509357 Buck Johnson
Buck Johnson's picture

Spain doesn't want to be humiliated, but yet over the course of the economic contagion they kept saying everything is fine nothing to worry about.  They need to eat some humble pie.

Fri, 06/08/2012 - 21:48 | 2509447 brooklynlou
brooklynlou's picture

Spain, just suck it up and strap the red gag ball on. Trust me, Greece didn't spit on it much ...

Fri, 06/08/2012 - 23:33 | 2509572 The Big Ching-aso
The Big Ching-aso's picture

 

 

It looks like a race 2 the bottom between Greece & Spain.  I'll have 2 give it 2 Greece as they're used 2 coming from behind.

Fri, 06/08/2012 - 21:26 | 2509411 Al Gorerhythm
Al Gorerhythm's picture

Fuck you, Rand.

Fri, 06/08/2012 - 22:26 | 2509486 lewy14
lewy14's picture

Fuck you, rand()

[FIFY]

Fri, 06/08/2012 - 23:46 | 2509592 Freddie
Freddie's picture

Moodys is owned by Warner Buffert and Charlie Mung-man.   They are fe***hing each other in the bath.

Fri, 06/08/2012 - 18:25 | 2508988 SolidSnake961
SolidSnake961's picture

its all coordinated to keep markets up, don't fight the central planning......stay long or get squeezed

Fri, 06/08/2012 - 18:28 | 2509010 stocktivity
stocktivity's picture

It's all Bullshit!

Fri, 06/08/2012 - 19:41 | 2509203 BlandJoe24
BlandJoe24's picture

i think the Moody's warning is to put extra pressure on all parties of this weekend's Euro summit so they come up with something "positive"....to buy more time...put off the pain....Which would be bullish for Monday...

but i'm just guessing

Fri, 06/08/2012 - 20:17 | 2509292 valley chick
valley chick's picture

good guess!!  :)  I wouldn't prepare the popcorn for Monday ...I would get ready with the skittles...

My question is why didn't Moody's just go ahead and downgrade Spain...heck they are already late for the party...unless of course it is merely smoke and mirrors.

Fri, 06/08/2012 - 20:25 | 2509308 BlandJoe24
BlandJoe24's picture

actual downgrade = done deal, margin/collateral hikes from ECB (see Tyler's explanation of what happens when all the ratings agencies drop below BBB) -> high percentage quick Spain collapse

 

warning of downgrade = "come up with something this weekend!!!.... or else..."

Fri, 06/08/2012 - 20:36 | 2509324 valley chick
valley chick's picture

thats right! IMO Moody's at this point is merely drama or else they would have been in there earlier to downgrade.  Extend and Pretend a little longer with meetings, plans of more meetings, summits...kick...kick...kick...a little further.  Throw out non definative action phrases to pump...pump...pump the "market".

 

Fri, 06/08/2012 - 20:47 | 2509351 The Monkey
The Monkey's picture

(or at least, better time your shorts...)

Sat, 06/09/2012 - 08:08 | 2509935 duo
duo's picture

I hear stories hourly on the radio and TV about how American jobs depend on Europe not crashing.  The sheeple are being conditioned for the massive printing that is a few weeks away, because if we don't we will all lose our jobs.  $6 gas, $5 bread?  That's the price we Americans willhave to pay so that we can keep our jobs (like we export so much stuff to Europe).

Ben pretty much said it on Thursday.  QE is off the table, but if Europe explodes, "we have the tools".

Fri, 06/08/2012 - 18:24 | 2508989 HelluvaEngineer
HelluvaEngineer's picture

* Rand Paul to visit EU, fix everything

Fri, 06/08/2012 - 18:25 | 2508991 slewie the pi-rat
slewie the pi-rat's picture

the dump pump and hump

gloom & doom from loonieToonz

Fri, 06/08/2012 - 18:36 | 2509038 francis_sawyer
francis_sawyer's picture

 "This is a fucking shithole

The assholes I hang out with.

I can't believe them sometimes.

Everybody has to dump on somebody!

Nobody can do it straight, right?

My pa gets dumped on at work,

so he dumps on my mother.                  

The spics dump on us,

so we have to dump on them.                  

Everybody's dumping on everybody.

Even the humping is dumping"

~Tony Manero - SATURDAY NIGHT FEVER

Fri, 06/08/2012 - 19:06 | 2509125 financial apoca...
financial apocalyptic contagion's picture

+1

one of my all time fav quotes

Fri, 06/08/2012 - 23:49 | 2509597 Freddie
Freddie's picture

Now people are dumping on Travolta, his toupes and his gayness.

Fri, 06/08/2012 - 18:25 | 2508992 Muppet Pimp
Muppet Pimp's picture

I can't believe they are pledging the towels.  I had planned on opening an account on Monday to get one, now the ECB gets them all.  Life is not fair.

Fri, 06/08/2012 - 19:05 | 2509121 tbd108
tbd108's picture

I want one of those towels! How about an ambitious Zero Hedger cornering the market on them. I pledge in advance to pay $50.00 for a genuine Spanish Spiderman towel (hopefully big enough to take to the beach this summer).

Fri, 06/08/2012 - 18:25 | 2508993 midgetrannyporn
midgetrannyporn's picture

Moody's, lulz

Fri, 06/08/2012 - 18:26 | 2508995 Tao 4 the Show
Tao 4 the Show's picture

Obama and Monti both mouthing warnings today. Probably not a coincidence.

Fri, 06/08/2012 - 18:29 | 2509016 HaroldWang
HaroldWang's picture

Obama didn't mouth a warning, he told you Spain will get a bank bailout. Market understood this and rallied. It was pretty clear. I can't understand why people weren't getting this earlier.

Fri, 06/08/2012 - 18:32 | 2509024 slewie the pi-rat
slewie the pi-rat's picture

they just don't have your experience on zH?

Fri, 06/08/2012 - 18:46 | 2509076 Tao 4 the Show
Tao 4 the Show's picture

I think Harold is looking to play the markets. Personally, I am more interested in how "they" are playing us.

Fri, 06/08/2012 - 19:07 | 2509124 slewie the pi-rat
slewie the pi-rat's picture

he may learn to turn, but he seems to be just trying to out-robo robo with the trollery and certainty 

just anther troll;  maybe created by zH itself, as many must be, at this point...

Fri, 06/08/2012 - 19:25 | 2509170 ThirdWorldDude
ThirdWorldDude's picture

You think Harold & The Trolls is a product courtesy of ZH's Auto Immune Deficiency? 

Why, that explains a lot!  :)

Fri, 06/08/2012 - 18:38 | 2509043 Tao 4 the Show
Tao 4 the Show's picture

Key here is that markets no longer serve as the signals they once did. Nearly all is manipulated to the extent possible. So value shifts to watching the tactics of the manipulators. Why a change in approach?

As we are now moved more by some deliberate purpose, one can also watch for intent, etc. Those mirror neurons come in handy.

Sat, 06/09/2012 - 10:14 | 2510036 DeadFred
DeadFred's picture

We can hope this is true. Since the mirroring neural system is largely absent in sociopaths the majority of wall street traders will be unable to use that technique. It fact that may explain why there are so many momos out there, they are unable to get inside the minds of the manipulators so momo is all they have left.

Fri, 06/08/2012 - 20:43 | 2509339 Nid
Nid's picture

Btw, "mouthing" would imply a level of insincerity.

Sat, 06/09/2012 - 12:00 | 2510216 BeetleBailey
BeetleBailey's picture

Lot of us did get it......but akin to 2000 1st and 2nd quarter....lots also are not getting sucked into this Polyanna rally....

short term wrong...longer term..,..down.

Fri, 06/08/2012 - 18:29 | 2509017 slewie the pi-rat
slewie the pi-rat's picture

only the tao itself is truly coincidental...

you look like you're in the mood...

Fri, 06/08/2012 - 18:27 | 2508999 Tsar Pointless
Tsar Pointless's picture

So S&P 1400 by - what, the 20th, then?

Is this bullish, or is it just me? And, by "me", I mean pointless?

Fri, 06/08/2012 - 20:59 | 2509375 max2205
max2205's picture

Pssss, take the money and shut up.

Ben

Fri, 06/08/2012 - 18:27 | 2509001 HaroldWang
HaroldWang's picture

Key sentence here (not in bold in your post, oddly): However, Spain's banking problem is largely specific to the country and is not likely to be a major source of contagion to other euro area countries, except for Italy, which likewise has a growing funding reliance on the ECB through its banks.

Market will like that sentence and is fully expecting another downgrade. Market is also expecting really poor data from China. So when Chinese data is bad, Spain gets a mention of a possible bailout on Saturday and come Monday, market rallies big at the open. 

Fri, 06/08/2012 - 18:34 | 2509027 GernB
GernB's picture

You're missing the bigger picture. This is clearly bad news, which should send the market lower. Since that would surely trigger more QE it's good news. So in the new reality bad news is good news making the market go up, and being contrarian is a contrarian indicator.

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