Greece moves closer to default as S&P lowers rating for nine eurozone countries and France loses triple-A
Posted on 14 January 2012 with 3 comments from readers
France lost its much coveted triple-A credit rating yesterday and eight other eurozone countries saw their debt downgraded, while the private sector creditor group negotiating with Greece suspended talks due to a failure to agree on the so-called haircut losses for the banks.
The latter brings the long anticipated disorderly Greek default and exit from the eurozone a step closer. Some commentators argue that to compartmentalize the Greek problem and deal with it in this way might be the best solution, although it is hard to see how markets would accept that Greece was a special case with so many other countries so deeply in debt.
Bank losses
In reality a negotiated solution to the Greek debt problem is still the most likely outcome but the losses to the banks could end up being rather larger than currently assumed. The ECB last week appeared to demonstrate its ability to step into bond markets behind the scenes and magically move yields lower, but they rebounded by the end of the week.
But the charming Mario Draghi is playing a dangerous game and one miscalculation and he could lose. Last week the euro ended at $1.26 and looks to be heading a lot lower.
US not triple-A
It is very hard for individual investors to know which way to jump or even what currency to hold. US equities took the news from S&P late on Friday badly and even gold lost ground. The irony of a shift to US treasuries is that the US lost its triple-A rating almost half-a-year ago and is no safe haven either.
You could say the same for investors buying up UK debt at a negative yield. It remains triple-A alongside Germany albeit with the highest debt mountain in the world (click here). Curiously the pound lost value on the week, a trend we expect to continue.
We are still teetering on the brink of a major credit event in Europe with an unpredictable contagion impact for the rest of the world. It does not make sense to be over-exposed in any market at the moment because the upside is very limited and the downside risk looks considerable.
3 Comments posted by readers:
Keep an eye on Hungary. I saw a surprising piece, I think it was on CNN, about how the leader of the country is becoming a virtual dictator. He is starting to censor the TV and radio stations, etc. There is even an anti-Semitic movement starting. For a second, I thought I was in a time warp while watching it. I was like. “What the f… ! In present day Europe ?”
I can’t see a person like that taking orders from foreign bankers. But you never know. The powers that be in Berlin might be able to put the squeeze on him. Or he may do what they say financially, in exchange for being able to remain in power, and set up his little political dictatorship, running Hungary as he sees fit, with guarantees of no interference from Berlin, I mean Brussels. We shall see if the pesky concept of human rights gets in the way of protecting the wealth of the bond owners.
Be very weary of the slant CNN puts on its ’stories’.
@ Jason: Very true!
But the same can be said of All US and UK news media, which are totally controlled by the Anglo-American Elite.
Here in the US, one can almost never get the “real” truth on global events from the traditional sources of US news media.