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Moody's Downgrades Spain Two Notches To A1, Outlook Negative
Where was the Guardian on this one?
Moody's downgrades Spain's government bond ratings to A1, negative outlook
London, 18 October 2011 -- Moody's Investors Service has today downgraded Spain's government bond ratings to A1 from Aa2. This rating action concludes the review for possible downgrade that Moody's had initiated for Spain's rating on 29 July. The ratings carry a negative outlook.
The main drivers that prompted the rating downgrade are as follow:
(1) Spain continues to be vulnerable to market stress and event risk.
Since placing the ratings under review in late July 2011, no credible resolution of the current sovereign debt crisis has emerged and it will in any event take time for confidence in the area's political cohesion and growth prospects to be fully restored. In the meantime, Spain's large sovereign borrowing needs as well as the high external indebtedness of the Spanish banking and corporate sectors render it vulnerable to further funding stress.
(2) The already moderate growth prospects for Spain have been scaled back further in view of (i) the worsening global and European growth outlook and (ii) the difficult funding situation for the banking sector and its impact on the wider economy. Specifically, Moody's now expects Spain's real GDP growth in 2012 to be 1% at best, compared with earlier expectations of 1.8%, with risks mainly to the downside. Over the following years, the rating agency continues to expect a very moderate pace of growth of around 1.5% on average per annum.
(3) Lower economic growth in turn will make the achievement of the ambitious fiscal targets even more challenging for Spain. Moody's expects the budget deficits for the general government sector to be above target both this year and next. In particular, Moody's continues to have serious concerns regarding the funding situation of the regional governments and their ability to reduce their budget deficits according to targets.
These were the main reasons for placing the ratings of the Kingdom of Spain under review on 29 July 2011 and the key areas that Moody's considered during the review period. Since that time, funding challenges for sovereign-related credits as well as uncertainties about the specifics of future euro area support, and about near-term economic growth (and hence the likelihood of further deficit reduction) have increased rather than abated. The credit strengths, on the other hand, have been largely unchanged.
Today's rating action on Spain follows Moody's recent rating actions on the sovereign ratings of Italy (A2, negative outlook) and Belgium (Aa1, rating on review for possible downgrade), which were driven by similar concerns.
Moody's is maintaining a negative outlook on Spain's rating to reflect the downside risks from a potential further escalation of the euro area crisis. The rating agency expects that the next government to emerge after Spain's parliamentary elections on 20 November will be strongly committed to continued fiscal consolidation. Spain's rating would face further downward pressure if this expectation did not materialise. On the other hand, the implementation of a decisive and credible medium-term fiscal and structural reform plan coupled with a convincing solution to the euro area crisis would trigger a return to a stable outlook.
In Moody's view, Spain's sovereign rating is more adequately placed in the A rating category than the Aa category given the potential for contagion from further shocks and the domestic fragilities. Long-term economic strength -- a key input into Moody's sovereign methodology -- is no longer considered to be very high but only moderate given the expectation of a lengthy economic rebalancing process. Moody's also notes that most sovereign issuers with a Aa3 rating have much stronger fiscal and external positions than Spain, including very low public debt, sound public finances and a net creditor status vis-a-vis the rest of the world. This constellation renders them far less vulnerable to a confidence-driven funding crisis than Spain.
At the same time, Moody's acknowledges that Spain has significant fundamental credit strengths when set against its close peers. Even when accounting for the missed deficit targets, Spain's public debt ratio will likely peak at around 75% of GDP, implying a lower vulnerability to growth and interest rate shocks than some of its lower rated peers.
Despite a slow start, there is now a clear track record of policy action in Spain which encompasses not only fiscal consolidation but also labour market and pension reforms as well as recapitalisation of the weak parts of the banking sector. The recent constitutional amendment which was supported by the main opposition party is a clear indication that there is a broad consensus on the need for further fiscal consolidation.
Despite the downward rating action, Moody's notes that the risk of a default by Spain is remote.
Moody's has today also downgraded the rating of Spain's Fondo de Reestructuración Ordenada Bancaria (FROB) to A1 with a negative outlook, in line with the sovereign rating action. The FROB's debt is fully and unconditionally guaranteed by the government of Spain. FROB's Prime-1 short-term rating is unaffected by today's rating action.
RATIONALE FOR DOWNGRADE
The first driver of Moody's decision to downgrade Spain's sovereign rating is the continued vulnerability of Spain to market stress and, as a result, to elevated funding costs and event risk. Moody's believes that, even if policy action at the euro area level were to succeed in the short term in returning some degree of normality to bank and sovereign debt markets in the euro area, the underlying fragility and loss of confidence is deep and likely to be sustained. High debt and/or deficit countries with large annual funding needs are thus considerably more susceptible to event risk in the form of a loss of market access at affordable rates.
Moody's believes that these event risks are better reflected by ratings within the A category rather than the Aa category (see also Moody's recent Special Comment on "Rating Euro Area Governments Through Extraordinary Times -- An Updated Summary" for a broader assessment of the euro area sovereign rating outlook). Nonetheless, Moody's points out that Spain's new A1 rating reflects its view that the risk of default by Spain remains remote. While the Spanish sovereign can sustain higher funding costs for an extended period, the impact on liquidity and funding conditions for regional governments and the banking sector is more severe, with negative implications for the economic outlook.
The weakened growth outlook is the second driver for Moody's rating action. While GDP forecasts for 2011 were already very moderate, the rating agency has now reduced its forecast for 2012 to a real GDP growth rate of only 1%, down from 1.8% previously. The risks to this growth forecast are to the downside. Moody's acknowledges that the necessary rebalancing of the economy is progressing, with positive signs from the export sector. Spain's trade balance with the EU is in surplus for the first time since records began, and international competitiveness is gradually being recovered through lower labour cost increases than in key competitor countries. However, the necessary adjustment of the economy will likely take several more years, and, in the short term, the slowdown in Spain's key export markets will negatively affect growth. This is already evident in the moderation of export growth over the past several months compared to earlier in the year. The situation on the labour market is severe and will remain so unless further reforms are enacted.
The banking sector continues to be fragile as the difficult funding and economic conditions put further pressure on asset quality and profitability. House prices are expected to decline further. At the same time, Moody's acknowledges that the Spanish authorities have made progress with the restructuring of the weak parts of the banking system.
Thirdly, the more moderate growth prospects in turn complicate the already difficult outlook for Spain's public finances. In particular, Moody's expects that the regional governments as a whole will miss this year's deficit target of 1.3% of GDP by a full percentage point of GDP.
While the rating agency acknowledges that most of the regional governments are now adopting expenditure-focused fiscal adjustment policies, Moody's points out that achieving the deficit targets would require a significant acceleration of the cost-cutting measures. In June 2011, Moody's had already warned about fiscal slippage among Spain's regional governments, not only for the remainder of 2011 but also in 2012 (see Moody's Special Comment entitled "Spanish Regions: Continued Fiscal Slippage Would Have Negative Ratings Impact").
Despite the additional fiscal measures implemented by the central government in August (amounting to approx. 0.3% of GDP), it will be difficult for the central government to fully compensate for the deviation by the regional governments. Moody's expects the budget deficit for the general government sector to amount to 6.5% of GDP in 2011, half a percentage point above the government's target for the year. For 2012, the rating agency expects a deficit of 5.2% of GDP (revised upwards from 4.8% of GDP previously), well above the government's commitment to reduce the deficit to 4.4% of GDP. This forecast already includes substantial adjustments in most discretionary and mandatory expenditure categories.
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The EFSF should be called the UMmERr
Yup, just like clockwork...sovereign downgrade announced at 4:30 after markets closed on the same day the markets ramp up huge after the 3:30 FT/Guardian tabloids news release....
Dominos are falling besides the too late downgrades of euro countries.
DLTR is the only thing at 52 week highs now that aapl IBM crm NFLX pcln lulu CROX gmcr ect have been cut in half.
What kind of hot air is keeping this bitch up.... Oh POMO TWIST EFSL Ect.
What a joke. If they spent have as much energy trying to prop up housing as the UK we'd all be fine..... But Nooooooo
Due to rating methodology (sovereign rating is essentially a rating ceiling for financials) we will see no Spanish financial with a rating in the AA area soon. Downgrade of BBVA and Banco Santander in 5, 4, 3, ...
This is why I am 100% Cash. When this blows up their will not be Bullshit Rallies.
The problem with your thesis is that the easiest way for debt-ridden nations to get through this problem is to print a gazallion dollars and euros. This is where Keynsians and central bankers always end up. Print and borrow. Print and borrow. In this environment, cash will not do well. Stocks and gold might soar (even while the true economic conditions get much worse)
Its still least rotten of the group. Cash still fine until you hear clear signal of more US printing. And market will have to significantly drop for that to happen- which it will in due time. Maybe APPL and this downgrade will create the downside momentum. The best thing that could happen is Greece default, and ES >1000 to entice the sideline money back into the market. Until then its vapor volume, HFT, and daily volatility, such as yesterday and todays 200 pts swings.
Or you might wake up one morning to learn the Federal Reserve just opened a new $500 billion swap line with whoever-the-fuck. There are no rules.
I don't know how stocks will do in this environment, they will certainly offer you more protection from loose monetary policies than fixed income, but still, in real terms they could be a disaster. Look at the valuation of the DOW in gold or most commodities and see what has really happened in the last few years. The way things are right now, and with the policies being implemented, we are looking for a prolonged stagflationary period that will make the 70s look like Disneyland. At least that's my guess at the eventual outcome of the whole situation. Unless you are a very good market timer, and can figure out when to go in and when to stay out with almost perfect timing, think long and hard about staying in cash for the long run, and consider investing in real assets like commodities or PMs. I for one am convinced that in the long run cash and bonds, will prove to be a disaster in terms of real value, and the stock market, assuming it gets anywhere will offer you only some limited protection.
Stocks and gold might soar (even while the true economic conditions get much worse)
Stocks might soar in nominal (fiat) terms, but money (gold) should do better. Value reminder: the Dow peaked in 2002 at 43 oz gold equivalent; it is now below 7 oz equivalent. Stocks won't soar in terms of gold, even if they soar in terms of Benbux.
Or Cash!
Europe has FT and Guardian.
US has Steve LIESman.
Fuck, I'm moving to Europe. Nothing is worse than Mr. Potato Head sniffing Bernake's jock for financial journalist cred.
That was funny.
And also quite disturbing at the same time.
This is almost funny.
Just get to France already, anyone with half a brain knows they cant afford their banks.
Draghi will have to do a Bernank.
these spineless rating agencies wont downgrade france any more than moodys will downgrade the u.s. you wont see france downgraded anytime soon. too much political weight sitting on the necks of moodys, fitch, s&p.
belgium will follow, but france is "untouchable"
You are likely right, but it will be downright hilarious when the ECB steps in to buy French paper.
i'm holding short but its beginning to ache.
I have been working calls while holding my puts and spreads, generating some cash against my unrealized losses, but it still is a sick feeling in the pit of the stomach. They hedges don't exactly offset, but help me to hold the bearish positions. About the time that I would give up, the market will collapse.
Could ya try to hold on until january?
It's complete B.S!!!!!! There is no (un-manipulated) reason why the markets continue to do this crap! The goberment is in there propping this thing up to buy time for the EU to reach agreement, as part of a list of things anyway. I don't know if my short plays will EVER pay off! The minute this thing looks like it's coming down a new rumor is released. Shorting = pain! Trading fundamentals = your an idiot. I give up.... well at least my losess will come out of Uncle Sam's pocket at the end of the year. Untill then it's more SPAM. Thank God for Ketchup.
I'll do my best to argue a bull case. The 10-yr is yielding 2.15%; as a P/E this is about 46.5. We are in a sovereign debt crisis, so how much of a risk premium should stocks have over sovereign debt? The S&P's P/E right now is mid teens? 20? I don't believe the new accounting all that much, but you get the point.
Also, the most you can ever make shorting is 100% (puts add leverage, but decay). Getting long on the other hand has an unlimited potential return. Look at a longer term chart of Apple. Look at gold in Weimar hyperinflation -- potentially millions of percent, and again shorting's max return is 100%. After a long stint as a bear everyday from 2007 through 2009, putting up with the rumors everyday, in my opinion shorting is just a shitty way to make money. Getting long the next thing, the small market the money will flow towards, is more profitable.
Also in 2006 and 2007, getting short paid interest. Then the crisis hit and most stocks cost money to short. Stocks got hard to borrow. I don't know what the rate is now. Sitting in unleveraged longs doesn't cost anything.
Sitting in leveraged etf's cost nothing as well. Though from time to time you take a little heat. Buy the 3x bears and 3x bulls when no one else wants them and sell them when everyone needs them. Maintain a healthy scepticism of all you are being told by the media with regard to the economy and the banking structures.
Not true. Leveraged etfs all decay, and then they have to reverse split to get the price back up. Look at a long term chart of any of them.
I don't consider these for the average investor. There is decay just because of the option strategy employed. I've held these for months though if I know I'll eventually be right and the decay is not all that problematic. You have to be patient for these trades to set up properly though for the best entry points.
You missed my main point of using both the bull and the bear funds along with proper timing and trust me I know the charts. For instance if you caught the Oct 4th intraday low on the 3x bull TNA you made a hell of a trade this month. Now is the time to put the TZA trade on. Sure you can lose money just as in any trade. Just use sound money management and always look for price and volume to confirm your trading position. For individuls who are not savy traders these vehicles should only be used for day trades.
That's exactly what I've been doing too! i've been holding short positions and hedging as we get closer to the bottom of the range - it has allowed me to add more shorts and stay about even, but I have some pretty large unrealized losses... getting ugly!! The manipulation is frustrating, but it's part of the game now!! Can't complain, just have to work within the framework the best you can!!
described my position exactly. I have to admit the unrealized lossed don't feel good, but I can keep it up for quite awhile if needed, I just hope I don't need to.
Capitulate bitchez!
"About the time that I would give up, the market will collapse."
Reminds me of something I heard back in the day :
"Markets can remain irrational longer than you can remain solvent." John Maynard Keynes.
At least he got something right.
I feel your pain.. hang in there.. the "shorting" upside is MUCH greater than the downside..
yes but in the meantime i've got blue balls. ouch.
Agreed. The Guardian missed a chance to further solidify its reputation. I filed a complaint with the SEC for Guardian's shenanigans right before market close. Yeah, for whatever good that will do . . .
But nobody saw this coming!!!!!1!!1!!!
all things considered, a very bullish day all round ...<sarc off>
Bullish - Can I have good for 300 Alex?
I'll take anal bum cover for a thousand...
Yeah, should be good for a 3% pop across the board here in Bizarro World.
2 trillion euros was not enough? What's taking so long for France to take its rightful place?
Why are the ratings agencies even bothering anymore. The bots are happy bots, programmed to be completely deaf to negativity.
They're running the latest version of BucketShop Pro.
Gives us something fun to discuss over our bar drinks
At this point is this even worth knowing? Markets are in a position to do as they prefer. This isnt a realism issue. I appreciate ZH pointing out data that is worth knowing, it just doesn't make any difference at this time. DOW up over 200 on a day where the data depicts a terrible environment in Asia, EU, USA, Banks, inflation, and all it takes are a few nut jobs talking about how the world of LEVERAGE will save it all.
Depressing, yet satisfying. Reality will one day re-enter the market space. If it does and the market drops 1000 on the Dow that day, it may not matter as we may gain 2000 between now and that date. This is really gambling at its best.
It's not gambling in a casino. It's three card Monte
I guess that makes me feel better, at least it isn't the FULL MONTY!
Markets moving up on bad news can be a bullish sign. We will know more in a few more weeks.
ZH isn't here to give you trading strategies, though TD occasionally does. This is a news service, if you trade on it... well it's your balls on the chopping block and you better believe Shalom is going to cut them off.
Spain downgraded to Portugal.
Can hardly wait until France downgraded to Spain.
Merry christmas ;)
US downgraded to Upper Volta.
BUYBUYBUY!!!
Wow!!! This will be like ultra bullish!!! I wonder what would happen if Germany got downgraded to Ireland. DOW 36000 here we come, BUY,BUY,BUY. Where is Cramer when you need him?
That's good for +500 points on the DOW tomorrow ... definitely bullish!!!
No No NO...tomorrow is ALL APPLE.....EU Who????
Speaking of downgrades though, if the 2tril ends up being real, immediate FrAAnce?
I agree, all these bad news have been major boost to the stock market.
Does neon care?
Transitorial bullish....
Headline for tomorrow: Spain gets DVA, now in the clear.
Spain downgraded, Bullish! Lets get France and Germany downgraded for S&P 500 to 1500!
Wait, two notches?
So... it was never Aa1?
No matter what anyone says, the ONLY way to fix this is for seventeen countries to all vote to give up their sovereignty or break up the Euro....period. Now which is the more likely?
Right, Mactheknife. Pro EU/euro governments will only be electable if the electorate think they will be bailed out. When they realise this can't happen then they will vote for nationalistic and patriotic politicians to regain sovereignty over their own affairs and governance. Same goes for the electorate of creditor nations. The pols will soon decide either they are with their fellow patriots or for the EU elite which is becoming risky for them I would say.
Once a credit rating agency starts talking about confidence driven events and liquidity crunches in an outlook negative then IT IS FUCKING TIME TO PANIC!!!
THE BAZOOKA IS A PEA SHOOTER. GET OUT NOW!!!! SPAIN, PORTUGAL, GREECE, IT IS ALL OVER.
BUY USA TREASURIES YOU FREAKIN FURRINERS. HELP SUBSIDIZE MY LIFESTYLE.
Time to BTFD in gold. Simple as that. Could also use another shot-gun, and some more beaver traps.
Too bloody right my friend. 'Won't be long before the Germans want their gold returned from Ft Knox I shouldn't wonder.
Ya thinkin beaver top hats are coming back into style? Last time those were worn were at the japanese surrender.
Retro... Glow in the dark beaver hats/nitelite combinations, made in Fuckushittinme funded by munis to redevelop the area. (ummmm)
I don't fancy sticking my head in a dead beaver.
Ratings don't seem to matter. 27 banks were downgraded today in Italy and it resulted in the mother of all rallies. The ECB will just keep funding Spain and Italy and keep the can kicking, while the rumors will allow banks to unload assets at skyrocket prices onto the sheeple who truly have no fucking idea what is going on.
IBM didn't tank the market today, AAPL certainly won't do it tomorrow, especially with the offset of INTC. I was right: stock rip this week. The tanking doesn't beging until the actualy plan of the plans are actually and truly unveiled. Once they are, I expect a huge SURGE KNEEJERK RALLY like you've never seen before, and right then, at that point, is when you want to go all in short.
I tip-toesd into a short on Europe today. Big mistake. But no worries, I have lots of dry power to top-tick this fucker.
Hate to admit it but I agree with you.
.
AAPL will have a bigger impact than you think...
Apple will gap down and then ride higher the entire day. Closing down around 3%,
I see it going to test $354, but your scenario tomorrow is possible. I see it as unlikely but possible.
"Whoa!, What was that?"
(huddled on corner of the porch, the world rushing madly away at some incredible speed into the horizon, silently drooling, nose running, eyes buring as the peyote started kicking in, huffing airplane glue, rolling through midnight on the Hiawatha Limited as the sky became a Peter Max diorama whilst laughter emulated from behind the door to the last car on the block, something about crazy fucking Europeans, additional taxes and false promises when the lizard sitting next to me in the kilt asked if we should share another bottle of tequila and I figured it was good for another 500 on the Dow in the morning.... plenty of time)
After being the latest Euro country to be kicked in the nutz by this US lackey rating agency... it's plain - the pain in Spain is mainly in the groin
Waiting for Moody's to downgrade the US, or any one of the 35 bankrupt States. Come on, Moody's, grow a pair.
So thats why the Noth American markets rallied,and BAC was up 10 fucking %...
What a fucking sick joke.
And where the fuck is the 2.8 fucking trillion going to come from for europe..???
Fucking delusional mother fuckers.
Mad....
The whole lot of them.
Fucking Ponzi scheme.
THAT'S gonna leave a mark.
"The tanking doesn't beging until the actual plan of the plans are actually and truly unveiled. Once they are, I expect a huge SURGE KNEEJERK RALLY like you've never seen before, and right then, at that point, is when you want to go all in short."
D'Accord Belarus and better than I could have said it. THAT is the last shoe to drop; and the contemptible mandarins selling their countries and their children's futures to the banks, know it.
What obscene mealworms our elected leaders are, handlicking lapdogs of the lamprey bankers.
For the benefit of the non-Europeans who also like this site, here's what you see in Spain right if you visit right now:
Which was also what you would have seen last year, and the year before.
So finally, now Moody's figure out Spain's not looking too clever. Nice work Moody's.
Is this why the ban was announced first or does the ban announced today not play into this?
Hey... Just think about it. A few months ago the Europeans were still bitchin', pissing and moaning about them fucking New Yawk ratings agencies giving all the toxic shit in the world AAA's that they bought that went all to hell in a handbag....
....when now, all of a sudden, they're gonna be doing their very own fucking road shows to potential investors of the debt to be issued by the EiSaFuckingNuf which is nothing but a Humongolod CDO which'll be jam packed with bank-a-rupt sovreign, sovreign guarantees and maybe even some ancillary shit paper of like the ECB which is likewise a chock a block full of toxic crap (Whoops! That makie it a CDO2 ! Holy Mother of Fitch!) the liabilities (bonds to be sold to the unsuspecting or at least bought back by the fucking already bankrupt) to be rated AAA.
OK? Everybody grasp this bit of astounding clarity?
A Bunch of Bankrupt Entities takes a WHole Bunch of New Bankrupt Paper issued by Them-Bank-Rupt-Selves thinks if they get it rated AAA all's A-OK, eh, even if they're the same ones who buy the same shit?
(long silence..... and another tequila worm consumed.... pleanty of time... plenty)
you drinking Mescal? Good stuff brother, you'll see the future with that stuff
The real magic is that they will find stupid people to buy it.. I don't buy that.. This is planned will take longer than most think and short positions simply will not play..ggsf
The Guardian, Fleet Streets running joke of a newspaper. C'mon Telegraph, get that story running how there will be a German revolt (public) on the HUGE tax the Germans will be slapped with this 'leveraged' bailout fund that ALL the PIIGS will tap at once.
Lets not forget Germany's CDS and borrowing costs will increase + it's payer (China) is going into a hardlanding. Germany will go into a recession
I am fuking shocked. I thought Spain was the chilled out, fun one, no?
AAPL, IBM
BOOM baddd..
downgrages.... BOOM BADDDDDD
futures...
YEEEHAAAAAAAAAAAAAAAA get ready to ROCK and SoarRRRRRRRRRRRR
we are the HFT gunners of any shorters... ha ha ha...
stocks are trading on headlines, essetially the overall market is hardly moving. That is an ultra bearish signal.
Athletes' hydration adage: if you're thirsty, it's too late
Euro-plosion parallel: if Moody's is downgrading...
This is not for anyone in particular but for common edification.
To : A preposition generally meaning toward
Too : Also
Two : 2
There : In that place
Their : Belonging to them
They're : A contraction for " they are "
Moody's should just say "Spanish 5Y CDS spreads are around 350 bps." Fewer words and more information content.
Guess they don't want to accept that markets are going to put them out of business.
S&P downgrades Barcelona city, Madrid region, 17 October 2011, (AFP) http://www.france24.com/en/20111017-sp-downgrades-barcelona-city-madrid-region
Major intervention last few hours.