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FrAAAnce no more, here comes FrAa1nce

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Oh well, it was only a matter of time anyway… As Bloomberg reports, Moody’s just took away the oh so beloved AAA rating from France.

  • MOODY’S DOWNGRADES FRANCE’S GOVT BOND RATING TO Aa1 FROM Aaa
  • FRANCE MAINTAINS NEGATIVE OUTLOOK BY MOODY’S
  • Long-term economic growth outlook negatively affected by multiple structural challenges
  • Fiscal outlook uncertain
  • Predictability of France’s resilience to future euro area shocks diminishing

Just a few hours after an completely inexplicable day-long market rally, taking equities higher across the board in Europe and the US. Not even another leak to blame it on.

Now, let’s see what the next couple hours and days will bring.

Written by mo

November 20th, 2012 at 12:17 am

Posted in Europe

Tagged with , ,

Spain downgraded… again

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Just a quick note, since it was just a matter of time anyway…

Overview

  • The deepening economic recession is limiting the Spanish government’s policy options.
  • Rising unemployment and spending constraints are likely to intensify social discontent and contribute to friction between Spain’s central and regional governments.
  • Doubts over some eurozone governments’ commitment to mutualizing the costs of Spain’s bank recapitalization are, in our view, a destabilizing factor for the country’s credit outlook.
  • We are therefore lowering our long- and short-term sovereign credit ratings on Spain to ‘BBB-/A-3’ from ‘BBB+/A-2’.
  • The negative outlook on the long-term rating reflects our view of the significant risks to Spain’s economic growth and budgetary performance, and the lack of a clear direction in eurozone policy.

Rating Action

On Oct. 10, 2012, Standard & Poor’s Ratings Services lowered its long-term sovereign credit rating on the Kingdom of Spain to ‘BBB-‘ from ‘BBB+’. At the same time, we lowered the short-term sovereign credit rating to ‘A-3’ from ‘A-2’. The outlook on the long-term rating is negative.

Oh well… So, who’s next?

Written by mo

October 10th, 2012 at 11:17 pm

Posted in Europe

Tagged with ,

US downgraded to AA-

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Following yesterdays QE3 / QE∞ the United States has just been downgraded again, this time from AA to AA- thanks to Egan-Jones:

Up, up, and away – the FED’s QE3 will stoke the stock market and commodity prices, but in our opinion will hurt the US economy and, by extension, credit quality. Issuing additional currency and depressing interest rates via the purchasing of MBS does little to raise the real GDP of the US, but does reduce the value of the dollar (because of the increase in money supply), and in turn increase the cost of commodities (see the recent rise in the prices of energy, gold, and other commodities). The increased cost of commodities will pressure profitability of businesses, and increase the costs of consumers thereby reducing consumer purchasing power. Hence, in our opinion QE3 will be detrimental to credit quality for the US.Some market observers contend that a country issuing debt in its own currency can never default since it can simply print additional currency. However, per Reinhart & Rogoff’s ” This Time Is Different: Eight Centuries of Financial Folly ” , p.111, 70 out of 320 defaults since 1800 have been on domestic (i.e., local currency) public debt. Note, US funding costs are likely to slowly rise as the global economy recovers or the FED scales back its Treas. purchases (75% recently).

From 2006 to present, the US’s debt to GDP rose from 66% to 104% and will probably rise to 110% a year from today under current circumstances; the annual budget deficit is 8%. In comparison, Spain has a debt to GDP of 68.5% and an annual budget deficit of 8.5%. We are therefore downgrading the US country rating from “AA” to “AA-“.

Ratings History:
Egan-Jones rating history for United States (Govt of).
9.14.12  AA to AA (-)
4.15.12  AA+ to AA (Negative outlook)
7.16.11  AAA to AA+

And since Egan-Jones hit-ratio (meaning the ratio at which S&P and Moody’s follow their rating) of well above 90%, expect the major rating agencies to downgrade as well within the next week or so.

Oh, and about that inflation…

Written by mo

September 14th, 2012 at 10:09 pm

US GDP-to-debt crosses 100%

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Well isn’t that just swell? For the first time in 70 years the US debt/GDP today crossed above 100%. Almost exactly one year after the US downgrade at the beginning of August 2011. Happy Anniversary, I guess!

According to the latest data available from the Bureau of Economic Analysis (GDP at 6-30-12), U.S. Treasury (Public Debt at 8-2-12), and U.S. Census Bureau (Population at 8-4-12):
Public Debt $15.921 trillion
GDP $15.596 trillion
Population 314.090 million
Annualized Interest Expense $501.157 billion
Effective Interest Rate 3.39%

And the outlook at the current rate of progression? (Thanks to ZH)

2016:

  • Total US debt: $22.2 trillion (an increase of over $6 trillion from today)
  • Total debt per US taxpayer: $180,000
  • Debt to GDP: 130% (30% higher than today)
  • Food stamp recipients: 50 million
  • M2: $14.3 trillion (an increase of over $4 trillion from today)

and:

  • Total US Unfunded liabilities of $147 trillion (or $1.2 million per taxpayer)
  • $950 trillion in currency and credit derivatives, margined courtesy of TBTF banks’ cash deposits.

Written by mo

August 5th, 2012 at 10:46 pm

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