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Greece – Still in a Death Spiral

August 20, 2010 By Chuck 1 Comment

The headline coming from the U.K. Telegraph says it all

The European Commission has approved the next €9bn (£7.4bn) tranche of loans for Greece, but the underlying economy continues to deteriorate as Greek banks suffer a record loss of deposits and output contracts at a quickening pace.

A report by HSBC said banks had lost 8pc of their entire deposit base in the five months to May. “The Greek market has never, since the first data in 2001, experienced such attrition,” said banking analyst Joanna Telioudi.

“The entire country is in the grip of a depression,” said Speigel. “Everything seems to be going downhill. The spiral is continuing unabated and there is no clear way out.”

Mr Stannard said a report on Greece by Spiegel magazine entitled “Entering a Death Spiral” revived worries about political stability, painting a picture of a country nearing popular revolt. It said unemployment had reached 60pc to 70pc in depressed areas.

The green light from Brussels failed to offer any respite for Greek bonds. Spreads on 10-year Greek debt rose to 835 basis points over German debt. They are trading once again at the crisis levels of early May, before the EU launched its “shock and awe” rescue and the ECB began purchasing Greek bonds. {…}

While some withdrawals point to capital flight by wealthy Greeks, it is clear that households and companies are running down savings to make ends meet. The Athens Chamber of Commerce warned yesterday that its members are in “dire straits”, with a majority facing a liquidity threat. {…}

Mr Rehn said “risks remain”, warning that tax revenue was falling far short of the 16pc rise targeted for the year. There was slippage by local governments and social security funds.

While Greece may have fallen off the radar of late, the problems are still there and are smoldering.

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Greece in Depression: Austerity Measures Are Backfiring Badly (Shocked Investor, 8/18/10)
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Read more on Investing in Greece at Wikinvest
Filed Under: Market Updates Tagged With: ,

Fridays Stock Market Action – Technical Bounce Fueled by Hopes of More Quantitative Easing

August 8, 2010 By Chuck Leave a Comment

Following in the footsteps of the recent series of bad economic data, the monthly employment situation report issued on Friday morning did not deviate from the recent ‘bad’ news concerning the economy.

The employment situation data caused a ‘stop in your tracks‘ and sell reaction in the major indices at the market open. The S&P 500 never reached my target price for entering a short position and I was not about to short the hole as we traders refer to the action that occurred on Friday morning. Remember it always comes down to achieving the best entry, chasing a position (long or short) is dangerous to your capital.

The S&P 500 (SPX cash index) sold down and reached the lower wedge line I discussed many times over the past week. This lower wedge line provided a text book market bounce that created a flood of short covering, sending prices higher in a nearly panic buying frenzy into the close.

What also fueled the afternoon recovery was a report circulating from Goldman Sachs that they lowered their full year GDP outlook for the United States. So if Goldman Sachs, and others, are lowering their outlook for the economy then why did the market rally? For this answer we only need to look at Ben Bernanke and his merry men at the FOMC. The market believes that the recent series of poor economic data and forecasts will put new pressure on the Fed to initiate another round of monetary easing.

This “easing” could be in the form of the Fed buying additional assets, a new round of stimulus spending, or any number of other “prop up the economy with toothpick” scenarios that failed to work in the first round. Organic growth continues to be missing, and without that any measures to prop up the economy will be once again simply be a temporary fix to what is a systemic cancer of debt spreading throughout the economy.

The FOMC will be meeting tomorrow and will announce their latest rate decision along with policy statement on Tuesday at 2:15pm (US ET). One investment firm is already out saying that the FOMC will have to respond to the deteriorating economic conditions right away and announce new measures as early as this week. Ben Bernanke and his printing press happy cohorts are in a bind. In his FOMC statement this Tuesday he can’t turn a blind eye to the recent economic news which has been worse than expected. But what more can he do without further endangering the sovereign rating of the United States?

Ben Bernanke needs to fully acknowledge in his statement that economic conditions have deteriorated, no playing with words anymore. He must convince the markets he knows things are not improving. And he has to be tough and not announce additional easing measures which has up to now failed to work and has only pushed the nation further into debt. The market would probably not like that, but reality sucks.

Back to the S&P 500 chart. I am still planning on initiating short positions if the top wedge area is reached. I will have more on the market action and especially the S&P 500 chart activity in the market video which will be posted later this evening.

8 8 2010 5 37 49 PM Fridays Stock Market Action Technical Bounce Fueled by Hopes of More Quantitative Easing

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Read more on Quantitative Easing, S&P 500 (SPX), Employment Situation at Wikinvest
Filed Under: Market Updates Tagged With: , , ,

Is The United States Worthy of a AAA Sovereign Rating?

July 25, 2010 By Chuck Leave a Comment

Back on July 13th I wrote about the Chinese credit rating agency, Dagong Global Credit Ratings company, and how they had a lower credit rating of the United States then any of the big three American ratings agencies.

At this time all three of the U.S. credit rating agencies (Fitch, Standard & Poors, and Moody’s) are maintaining a AAA sovereign credit rating on the United States. But is the United States really worthy of the prized AAA status?

Way back in early 2008 I wrote to Moody’s and Standard & Poors and asked why it was they had not downgraded the mortgage insurer companies Ambac (ABK) and MBIA (MBI). As far back as early 2008 my own calculations on those two companies told me that these companies were in bad shape and their ability to meet debt payments would be impacted. It was actually not difficult to do the calculations, all one had to do was look at their balance sheets which I did at that time to see the deterioration.

I never received any reply from Moody’s or Standard & Poors, but nearly nine months later they finally downgraded the two firms. And over the course of the subsequent few months they would continue to be downgraded further.

Why did it take the credit ratings agencies so long to do what was already so obvious many months earlier? I guess we will never know.

Treasury secretary Tim Geithner has stated that the United States will “never lose its AAA status“. How can he be so sure? Does TurboTax Timmy keep in constant contact with the ratings agencies to ‘make sure’ they don’t downgrade the nation? Once again we’ll probably never know. But to make a statement that the nation will never lose its AAA status is rather bold, especially when sovereign ratings are supposed to be impartial and based solely on the raw data. Governments are not supposed to dictate what their ratings are to be, that is the job of a ratings agency that is impartial to say what they are.

With the record deficit and the alarming growth of debt to GDP (and still growing) the United States should at a minimum, in my view, be in the category of “watch negative“. A watch negative means that the ratings agencies are carefully monitoring developments and ‘may‘ issue a downgrade following a full evaluation and analysis of long term projections.

The Chinese ratings agency has already lowered the sovereign rating of the United States to AA and they maintain a ‘negative’ outlook, meaning further downgrades may be necessary. Is this a political statement by China, or is their evaluation truly based on the facts and represents the true financial conditions of the United States? Again we will probably never know. But one has to keep an open mind that it might just be possible that the Chinese global ratings agency is correctly reflecting the financial conditions and that the U.S. ratings agencies are either behind the curve or someone in Washington is behind them. We can only speculate.

A lot is at stake if the United States should ever lose its prized AAA status. I can certainly see why political pressure would be high to maintain it. But is that the right thing to do when we all seek a transparent financial system? Is the United States truly worthy of a AAA/Stable Outlook rating?

The full ratings report from Dagong Global Ratings is provided below (beginning on page 5 of this report are the ratings of the top 50 economic nations). The full report is an interesting read.

Sovereign Credit Rating Report of 50 Countries in 2010

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Filed Under: Market Updates Tagged With: , ,

Sovereign Rating of Ireland Downgraded

July 19, 2010 By Chuck Leave a Comment

Moody’s has lowered the sovereign rating of Ireland one notch to Aa2

Moody’s says the downgrade reflects “government’s gradual but significant loss of financial strength, weakened growth prospects as a result of the severe downturn in the financial services and real estate sectors, and crystallization of contingent liabilities from the banking system.”

Although Moody’s has lowered the expectations for Ireland, as reflected in their downgrade, the outlook for any further ratings action is classified as ‘stable’ for the time being.

Filed Under: Market Updates Tagged With: , ,

Portugal’s Sovereign Rating Cut to A1 by Moody’s

July 13, 2010 By Chuck Leave a Comment

Moody’s has cut Portugal’s sovereign rating by two notches to A1 from AA2.

Moody’s believes that the Portuguese government’s financial strength will continue to weaken over the medium term, as evidenced by the recent and ongoing deterioration in the country’s debt metrics. Looking ahead, Moody’s expects the government’s debt metrics to continue to deteriorate for at least another two to three years, with the debt-to-GDP and debt-to-revenues ratios eventually approaching 90% and 210%, respectively, before stabilizing once the budget has moved back into a primary surplus position.

The Portuguese economy’s growth prospects are likely to remain relatively weak unless recent structural reforms bear fruit over the medium to longer term. The rating outlook is now stable, with the upside and downside risks evenly balanced. Today’s rating action concludes the review for possible downgrade that Moody’s initiated on 5 May 2010.

Filed Under: Market Updates Tagged With: , ,

Chinese Ratings Agency Cuts United States Sovereign Rating

July 13, 2010 By Chuck 1 Comment

China has stepped into the sovereign ratings arena with the Chinese company Dagong Global Ratings Co. going global and now issuing sovereign ratings. Tonight we learn that Dagong Global Credit Rating company drops the United States to an ‘AA’ rating.

Dagong Global Credit Rating Co used its first foray into sovereign debt to paint a revolutionary picture of creditworthiness around the world, giving much greater weight to “wealth creating capacity” and foreign reserves than Fitch, Standard & Poor’s, or Moody’s.

  • US is rated AA
  • UK AA-
  • France AA-
  • Belgium A-
  • Spain A-
  • Italy A-
  • China AA+
  • Germany AA+
  • Netherlands AA+
  • Canada AA+

China rises to AA+ with Germany, the Netherlands and Canada, reflecting its €2.4 trillion (£2 trillion) reserves and a blistering growth rate of 8pc to 10pc a year. {…}

Dagong rates Norway, Denmark, Switzerland, and Singapore at AAA, along with the commodity twins Australia and New Zealand.

“The reason for the global financial crisis and debt crisis in Europe is that the current international credit rating system does not correctly reveal the debtor’s repayment ability,” said Guan Jianzhong, Dagong’s chairman. {…}

The agency, known in China for rating companies, said its goal is to “correct the defects” of the existing system and offer a counter-weight to Western agencies. {…} (Source: UK Telegraph)

The full article goes on to briefly describe the ratings methodology and how it differs from ratings agencies in the United States. Could Dagong’s models be more accurate than those of S&P, Fitch, or Moody’s?

One might think China was simply trying to put themselves on top but they rate themselves lower than Norway, Denmark, and others. So who do we believe when it comes to sovereign ratings?

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Read more on Investing in China at Wikinvest
Filed Under: Market Updates Tagged With: ,

Spain on Review for Sovereign Downgrade

June 30, 2010 By Chuck Leave a Comment
MOODY’S PLACES SPAIN’S AAA RATING ON REVIEW FOR POSSIBLE DOWNGRADE
.
Decision to initiate this review was prompted by:
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(1) the deteriorating (short-term and long-term) economic growth prospects.
(2) the challenges the government faces in achieving its fiscal targets.
(3) concerns over the impact of rising funding costs over the medium term.
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If at the conclusion of the review, Spain’s ratings are lowered, it would most likely be by one, or at most two, notches. The rating agency intends to conclude its review within a three-month period.
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From a longer-term perspective, it will take several years for the economy to adjust to the fallout from the collapse of the real-estate boom, to reduce the high level of private sector indebtedness to levels more in line with other EU countries, and to find new, internal sources of economic growth. Accordingly, Moody’s now expects GDP growth to average just slightly above 1% over the entire 2010-2014 period.

The outcome of the review could be affected if the costs of recapitalizing Spain’s banking sector, which Moody’s currently believes to be manageable, were to turn out to be much larger than expected.
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Read more on Investing in Spain at Wikinvest
Filed Under: Market Updates Tagged With: , ,

Greek Island For Sale – Yes, Really

June 25, 2010 By Chuck Leave a Comment

What does a nation do when they have cut public wages, cut public service jobs, cut social programs, and received tens of billion Euro’s in emergency bailout money and you still don’t have enough to pay your debts?

Sell parts of your country!

{…} Greece is making it easier for the rich and famous to fulfill their dreams by preparing to sell, or offering long-term leases on, some of its 6,000 sunkissed islands in a desperate attempt to repay its mountainous debts.

The Guardian has learned that an area in Mykonos, one of Greece’s top tourist destinations, is one of the sites for sale. The area is one-third owned by the government, which is looking for a buyer willing to inject capital and develop a luxury tourism complex, according to a source close to the negotiations.

Potential investorsalso looking at property on the island of Rhodes, are mostly Russian and Chinese. Investors in both countries are looking for a little bit of the Mediterranean as holiday destinations for their increasingly affluent populations. Roman Abramovich, the billionaire owner of Chelsea football club, is among those understood to be interested, although a spokesman denied he was about to invest.

Greece has embarked on the desperate measures after being pushed into a €110bn (£90bn) bailout by the EU and the IMF last month, following a decade of overspending and after jittery investors raised borrowing costs to unbearable levels. {…} (Source: Guardian)

I wonder how long it will be before the old joke “I have a bridge to sell you” becomes a reality in the United States. Coming soon:  “Brooklyn Bridge – for sale”.

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Read more on Investing in Greece at Wikinvest
Filed Under: Market Updates Tagged With: , ,
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