28 Banks Downgraded, Yields Double

It's not raining, it's pouring in Europe. This was all expected, in spite of the flowery stock market on this first half of the year,

Moody's downgraded 28 Spanish banks yesterday, just when Spain formally requested loans to bail out its banking sector. Moody's said the downgrades were driven by the Spanish government's "reduced creditworthiness", which impacts its ability to bail out the country's banks.

They also said that the banks will sustain further losses in Spain's moribund real estate market.

The auction of Spanish bills resulted in yields that were more than double the previous auction.

Big Bad Banks Downgraded

Yesterday Moody's downgraded 15 banks by one to three notches to reflect "the risk of losses they face from volatile capital markets activities".

Banks of course criticized the move as backward looking.

Morgan Stanley had its long-term debt rating lowered by two notches. The downgrade left Morgan Stanley more highly rated than Bank of America Corp and Citigroup Inc., but a step below Goldman Sachs Group.

Barclays PLC, BNP Paribas SA, Royal Bank of Canada, Citigroup, Goldman Sachs Group Inc, JPMorgan Chase & Co., Credit Agricole SA, and Deutsche Bank AG were also cut two nothces.

HSBC Holdings plc, Bank of America, Royal Bank of Scotland Group plc and Societe Generale SA were cut by one notch.

Euro Bailouts: A Giant Ponzi Scheme; At the End of the Day The Whole Thing is Going Bust

I have been saying this for years. These bailouts don't do anything to fix the underlying causes, it's just can-kicking and a Ponzi scheme.

"The Whole Thing is a Giant Ponzi Scheme".

European Bailout Drawing From From ESM, What ESM?

These events in Europe are not going away, they simply can't until the real issues are dealt with. How is lending more money going to solve anything?

From Phil Davis today:

 "From what we know, the eurozone's leaders aim to deploy the European Stability Mechanism (ESM) to cap borrowing costs for Spain and Italy by purchasing sovereign bonds on the open market.  Unfortunately, the ESM fund does not yet exist. It has not been ratified by Germany and Italy. When it does come into being, it won't have much money.  It has a theoretical limit of €500bn — a nice wish — but its paid up capital will start at just €22bn.

Britain's George Osborne cautioned against exuberance. "One thing we have learnt is: don't expect a single summit to solve the eurozone's problems, otherwise you are going to be disappointed. The eurozone is inching towards solutions."

They are promising, yet again, to fix the problem.

The Great Bailout Dellusions: Gone faster and Faster; Spanish Bank Bailout Turns Sour

The markets jumped at the open, but The Wall Street sums it up:



Bailouts have been great delusions, or illusions, but their effects are dissipating faster and faster. As if a bailouts would fix anything!

Spanish bond market has been very unimpressed: Spanish 10 year bonds fell all day long, closing with yields up 30 basis points from Friday's close, to 6.5%.

Like A Broken Record: Spain Downgraded Again, Near Junk

This looks like broken record, well, that's because they have so many countries in bad shape over there. Fitch downgraded Spain's sovereign debt rating not by one but by three notches today, and warned that the nation is at risk of being downgraded into junk bond status.

The nation's debt rating was cut from "A" all the way to "BBB," the lowest rating that is considered investment grade, with a negative outlook.


"Fitch pointed to the estimated cost of a Spanish bank bailout, which it said is likely to cost between €60 billion to €100 billion, as well as a prolonged recession that Fitch now expects to run throughout 2013.
"Spain's high level of foreign indebtedness has rendered it especially vulnerable to contagion from the ongoing crisis in Greece," the agency said in the note. "The much reduced financing flexibility of the Spanish government is constraining its ability to intervene decisively in the restructuring of the banking sector and has increased the likelihood of external financial support."

The firm said that part of the reason for the downgrade was "policy missteps at the European level that in Fitch's opinion have aggravated the economic and financial challenges facing Spain.
"The absence of a credible vision of a reformed [eurozone] and financial 'firewall' has rendered Spain and other so-called peripheral nations vulnerable to capital flight and undercut their access to affordable fiscal funding," said the report.

Fitch said Spain is helped by a relatively high value-added and diverse economy, one that is competitive enough that it might have a trade surplus this year". (CNN)

Investing in 2012: 6 Months Later... Back to Square One

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Eurozone Unemployment Hits All-Time High

The bizarre recent market optimism has gone down the drain  today.  On top the dreadful U.S. employment numbers, the eurozone's unemployment rate reached the highest level since the Euro was created 13 years ago.

The rate has risen to 11% in April. Employers cut 110,000 jobs.

In the larger 27-nation area that makes up the European Union the rate also rose to 10.3% in April, the highest EU unemployment rate on records that go back to 2000.

Staggering Figures. There were 24.7 million unemployed in the EU in April, 17.4 million in the eurozone.

Unemployment Ticks Higher Again Sinking Silly Markets

Jobs creation abruptly hit a stop in May, with the economy adding just 69,000 new jobs. Unemployment rate climbed to 8.2%,  rising the first time in nearly a year. 

The Bureau of Labor Statistics reported that job creation missed economist estimates for 158,000 new positions (where did they get that from?).

The actual figures may be much worse as labor force participation remains near 30-year lows though incrementally better than last month, rising to 63.8%.

The number unemployed for 27 weeks or more jumped from 5.1 million to 5.4 million. The average duration of unemployment moved from 39.1 weeks to 39.7 weeks.

All bad news, not really unexpected, but the silly markets react negatively.