Every move of the market is by now turning into a war between the rating agencies and the central planners. While the news of an modified EFSF reached the news yesterday evening, the S&P came out with some severe downgrades of the biggest banks. Yes, many have pointed out the under performance of the financials prior to the downgrade, and yes somebody will look into the information flow (but as we have learnt over the past days, what is insider trading, is not that clear cut), but where this conflict of interest between the central planners and reality will eventually take us is still to be seen. From Bloomberg;
Bank of America Corp. (BAC), Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) had long-term credit grades reduced to A- from A by Standard & Poor’s after the ratings firm revised criteria for dozens of the largest global lenders.
Standard & Poor’s made the same cut to Morgan Stanley (MS) and Bank of America’s Merrill Lynch unit. JPMorgan Chase & Co. (JPM) was reduced one level to A from A+. S&P upgraded Bank of China Ltd. (3988) and China Construction Bank Corp. (939) to A from A- and maintained the A rating on Industrial and Commercial Bank of China Ltd., giving all three lenders higher grades than most big U.S. banks.
S&P does it again. The race towards the downgrade of core Europe is on. With Belgium about to issue bonds on Monday, it might actually turn out to become a Black Monday. After Hungary’s downgrade earlier today, Belgium this Friday evening, Austria is not far away. It will be another looong weekend. Stay tuned, and watch what Dagong says.
“Belgium downgraded by S&P because of risk that government will be forced to take on more liabilities of weak financial sector”. We wonder exactly what government…?
As we have posted over the past months, the fiat system is falling apart. The one chart says it all, click here.
S&P is joining Fitch and downgrades Hungary. Hungary is not such a big country, nor economy, but there are important factors that could spread to the rest of the region. Austria has many interests in Hungary, so when Hungary now is downgraded, there are possibilities of contagion spreading to other Eastern European countries, and also spreading to Austria. With the Med countries under attack, core Europe might get attacked from Eastern Europe too. Contagion spreading to Austria, could start spilling over to other nations, such as Germany. That would lead to bigger consequences than many realize. Europe is experiencing some real pressure….What about the “stable” US?
Well, China is now warning US of another downgrade. Remember last time, it was Dagong who downgraded the US first, followed by S&P later. With Dagong’s track record, we should be getting nervous, as we all remember what happened last time S&P downgraded US. The Guardian reports;
In an interview with Talk to Al-Jazeera, Guan agrees that it is almost inevitable that his agency will cut America’s debt rating once again, arguing that the only solution open to the US economy is further quantitative easing.
“The measures available to them [the US] cannot be effective so they have another way out which is to depreciate the US dollar, to print more money,” he says. “And that will also make it a lot worse, this has affected their credit and it is negatively affecting their credit prospects – so that their overall ability to pay back their debt will continue to go down.
Asked directly if he believed another ratings cut was inevitable, Guan replies: “I think so.”
Full article here.
We downgrade European equities to underweight to reflect fears over inadequate policy response, weakening economic growth, falling margins and less constructive readings from our market timing indicators. We take more money out of financials and add more to defensives.
Four reasons to downgrade European equities
Post a double-digit rally from the lows, we take the opportunity to downgrade European equities to underweight to reflect the following four points.
#1 – Policy response not yet sufficient – We do not believe that the ongoing policy response is yet at a level where it can stabilize equity markets. QE from the ECB would be the key positive game changer for stocks in our opinion.
#2 – Economic growth deteriorating – Key economic indicators suggest that the Euro-zone economy is slowing with the prospect of additional austerity and bank deleveraging to come. We doubt the recent improvement in US newsflow is sustainable into 2012.
#3 – Corporate margins are falling – In addition to weak economic growth, corporate profits are coming under increasing pressure from deteriorating margins.
#4 – Market timing indicators now less constructive – We have seen a meaningful rise in our key market timing indicators and, although not particularly high, they are no longer in ‘buy’ territory.
Full must read report MS Downs Equities.