Monday, January 12, 2009

So Begin The (Serious) Sovereign Downgrades…?

A possible downgrade of Spain.......Shocking..... But i doubt we will see some serious action to under AA- ( besides minor countries ) on this front ( just watch the table with regulatory risk weitghtings & the impact on bank´s balance sheets) UPDATE: S&P lowers Greece rating to A- & an excellent Interactive graphic: Europe on credit alert ...... Why numerous countries are still able to get away with an AAA rating is beyond me. Main reason in my mind is the political pressure ( especially when it comes to the US )..... Too bad that countries like Greece, Italy and Spain cannot stimulate their economy with a weak currency like in the past before they joined the €.... It´s a safe bet that the Euro in the current form won´t last ( see also from the FT Could the eurozone actually split up? )? No wonder Gold in € is hitting new highs almost on a daily basis ( see Daily gold price in a range of currencies since January 2000 ) ?



Ein mögliches Downgrade von Spanien.....Schockierend.....Aber ich denke das wir von dieser Seite nichts richtig drastisches auf unter AA- ( abgesehen von einigen unbedeutenden Ländern ) sehen werden ( man braucht dazu nur einen Blick auf die Übersicht mit den risikowichteten Bilanzpositionen zu werfen um zu erkennen welch desaströse Auswirkungen das auf Bankbilanzen hätte ) UPDATE : S&P lowers Greece rating to A- & sowie eine erstklassige Karte der FT Interactive graphic: Europe on credit alert ..... Man muß sich ernsthaft fragen ob die Ratingagenturen überhaupt was aus dem kollosalen Versagen während des Kreditbonanzas gelernt haben..... Wie anders ist es zu erklären das noch etliche Staaten mit AAA bewertet werden? Schon bald peinlich wie noch immer behauptet wird das Ihre "Bewertungen" jenseits von politischen Einflüssen erfolgen ( ist besonders auf die Boni der USA gemünzt )..... Habe noch gut das Hohelied der "Unabhängigkeit" bei den Bewertungspraktiken der implodierten strukturierten Produkten in den Ohren ...... Für Staaten wie Griechenland, Italien, Irland und Spanien ist es natürlich nicht gerade hifreich das Sie sich nicht wie in der Vergangenheit über die Währung etwas Linderung verschaffen können. Ich denke die Aussage das dem € noch turbulente Zeiten ins Haus stehen dürfte untertrieben sein ( siehe auch aus der FT Could the eurozone actually split up? )...... Sicher kein Zufall das Gold in € momentan nahe der historischen Hochs notiert ( siehe Daily gold price in a range of currencies since January 2000 ) .





So begin the (serious) sovereign downgrades…? FT Alphaville

Not just developing world sovereigns either. From S&P today (emphasis ours):



Jan 12 - Standard & Poor’s Ratings Services today said it had placed its ‘AAA’ long-term foreign and local currency sovereign credit ratings on the Kingdom of Spain on CreditWatch with negative implications. A CreditWatch listing signals a potential but not inevitable change in a rating over the short term.



The ‘A-1+’ short-term ratings were affirmed.



“The CreditWatch placement reflects our view of the significant challenges facing the Spanish economy as it traverses a period of very weak growth, and a sustained period of deleveraging, which we expect to lead to a rebalancing toward traded sectors requiring real exchange rate depreciation,” Standard & Poor’s credit analyst Trevor Cullinan said.



In our opinion, the credit-driven nature of Spain’s strong growth performance in recent years has led to a build-up in imbalances, as evidenced by the sizeable current account deficit (around 10% of GDP in 2008).



> For more insights read Why Spain’s Economic Crisis Is Something More Than A “Housing Slump” from A Fistful Of Euros / Edward Hugh. Cleary worth a AAA rating.......



> Deutlich mehr Details bitte Why Spain’s Economic Crisis Is Something More Than A “Housing Slump” von A Fistful Of Euros / Edward Hugh lesen. Klarer AAA Kandidat.......

[spain+income+account.png]

Due to the need for the private sector to restructure and deleverage balance sheets, we believe that the unwinding of the deficit increases the probability of a protracted economic slowdown… Despite a relatively strong starting position, we expect the Kingdom’s public finances to deteriorate markedly, with the general government deficit rising well above 3% of GDP until 2011, and peaking above 6% in 2009.



Now this is only a ratings watch action. No downgrade is necessarily forthcoming. It’s just a distinct possibility.



The spectre of which might go some way as to suggesting why CDS on a triple-A-rated sovereign should be a possibility. Something which has been discussed on FT Alphaville before.



Downgraded securities carry more onerous regulatory risk weightings under the Basel II ratings-based approach:









… unless you have a hedge in place. Such as a sovereign CDS.



That might go some way towards explaining why CDS contracts on Spain are some of the most heavily traded - and have the highest net notional levels - $13,489,091,873 according to the latest DTCC data.

Also up there with Spain: Italy. $158,198,385,126bn gross, $18,283,028,951 net.



If there are downgrades in the Eurozone, there could be some other rather nasty effects.

Country Default Risk Rises Across the Board Bespoke

Ireland, Austria, Greece, and the UK have seen default risk rise the most over the last month. All have risen close to or more than 100%. US default risk has risen the 8th most at 68%.

Countrydefault

> Compare the table above from November 2008 with the latest news from last Friday and it looks like the "market" is once more way ahead of the agencies.....

> Vergleicht man die obrige Tabelle für den November 2008 mit der aktuellen Meldung von letztem Freitag sieht es ganz so aus als wenn die Märkte einen deutlich besseren Indikator als die Ratingagenturen abgeben..... Mal abwarten wann auch hier das Shorting verboten wird........:-)

FT Alphaville

On Friday, Greece and Ireland were also warned by the agency that their ratings could be downgraded as economic conditions worsen

> More evidence example that the market has lost total confidence in the rating agencies....

> Hier ein weiterer Beleg das der Markt zum Glück einiges an Vertrauen in die Methodik der ratingagneturen verloren hat

Credit-Default Swaps on Ireland, Spain Surge on Ratings Threat Bloomberg

Yields on the bonds of smaller European economies, such as Spain, Italy and Greece, have risen to the highest relative to German bunds since before the ECB was established a decade ago. Spanish 10-year notes yield 99 basis points more than bunds, up from 17 basis points one year ago. For Italian notes, the gap almost quadrupled to 141 basis points from 36 basis points.

> Needless to say that the US is of course a rock solid AAA..... For more AAA facts & charts read Deficits, Debt and Looming Disaster: Reform of Entitlement Programs May Be the Only Hope from the St. Louis Fed. I´m with Bill Gross ( see Ponzi meets treasuries bubble ) but am not willing to bet against bonds yet . Here is another very good summary on this topic ( On return-free risk and the bond bubble )It will be fascinating to see what happend to the bondmarket & the $ if the foreigners are finally waking up ( see Who Will Be Left To Buy US Treasuries...... ) I´m still fascinated how the US has manage to finance this ponzi game for years ( NO SARCASM!)....... UPDATE: Another must read via The Mess That Greenspan Made A deflationary spiral?? Not likely in the U.S

> Wie man bei den nachfolgenden Aussichten längerfristig ein AAA der USA rechtfertigen will wissen wohl nur die Ratingagenturen...... Für mehr AAA würdige Fakten und Charts bitte Deficits, Debt and Looming Disaster: Reform of Entitlement Programs May Be the Only Hope der St. Louis Fed lesen. Bin hier klar der Meinung von Bill Gross ( siehe Ponzi meets treasuries bubble ) traue mich aber noch nicht schon jetzt gegen die Bonds zu setzen. Hier kommt eine weiter sehr gute Zusammenfassung zum "Sratus" der US Staatsanleihen (On return-free risk and the bond bubble ) Ein Katalysator für den Shorteinstieg könnte sein wenn die Ausländer die ja den Großteil finanzieren sich aus den Auktionen zurückziehen oder was ja anscheinend keiner auch nur auf dem Radar hat aktiv anfangen Positionen zuverkaufen.Denke dann werden alle von einem "Black Swan" sprechen.( siehe Who Will Be Left To Buy US Treasuries.......) Bis dahin muß man den USA ehrlich Respekt dafür zollen das Sie es bisher geschafft haben Ihre Defizite zu diesen fast beispiellos günstigen Konditionen zu finanzieren. Das meine ich ausnahmsweise mal nicht sarkastisch. UPDATE: Hier noch ein echtes Sahnestück via The Mess That Greenspan Made A deflationary spiral?? Not likely in the U.S

Quote of the Day: S&P is Cool with U.S. Debt HT Infectious Greed

Quote of the day goes to S&P credit analysts for this comment while keeping U.S. credit at a “AAA” rating:

The rating (for the U.S.) was affirmed despite our judgment that fiscal risk has noticeably increased as we expect that the fiscal deterioration will be temporary.

Words to remember

Update / Hat Tip Credit Writedowns

New Zealand’s AA+ Credit Rating May Be Cut, S&P Says -

Bloomberg.com (The article sys “nations that have been downgraded from AAA previously include Japan, Sweden, Finland and Denmark. The rating company today affirmed Australia’s AAA rating.”)

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