Posted in the Day Trading Forum
Ho Chi Minh City, Vietnam
#1 Jan 18, 2012
Last Friday the European continent was (essentially) completely downgraded. Standard & Poor’s slammed the region with NINE downgrades – some one notch and others two notches.
S&P cut the ratings of Italy, Spain, Cyprus, and Portugal by two notches while the ratings of France, Austria, Malta, Slovakia and Slovenia were each cut by one notch. In its statement S&P said the following “Today's rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone.”
Since the market is rigged by policymakers and central bankers, the market rallied on the news. We heard the normal excuse of “it’s priced in” and “it wasn’t a surprise” all day. It surely wasn’t a surprise because S&P warned of this move about six weeks ago; but was it really priced in?
When the market first learned of the potential mass downgrades, it was trading at 1255.00. If the damaging downgrades were indeed “priced in,” wouldn’t that have led to an overall market decline from which a reasonable excuse would have been “it is too low now and we saw this coming; it wasn’t as bad as expected; and it’s priced in?” Clearly nothing was priced in because Friday’s market was already trading 30-points higher before the news even hit the tape.
When an individual stock is expected to lose money in a quarter it often declines in share price; however, when the news is released that it wasn’t worse than some may have feared, the price often rallies. But in this scenario, it is rallying from a much lower starting point; so to say that the “bad news was priced in” is true. In our recent real life example above – it is a farce to claim such a thing.
It sure was “lucky” that the market was all a flutter with near guarantees of QE3 coming from the Federal Reserve on the very same morning that such a bomb would explode on Fraud Street. Coincidence? Uh-huh, sure.
But that was only part of the story Friday. JPM missed earnings and although it closed lower, it rallied from its open. Greece was back in the news too. Fears of it defaulting very soon are reaching new heights along with its bond yields. On Monday Greek 1-YR Notes yielded a 415% interest rate.
Yields that high are a default but as mentioned above, the markets are now rigged daily by political hacks and central banksters. No CDS instruments have been paid out because bondholders are said to have accepted a 50% haircut. Of course, everyone knows that 50% is higher than 0%, which is what Greece will pay when it finally pulls out of the EU…and yet not a single cent of this insurance (CDS) has been paid. Why? Because the market is rigged by politicians and central banksters, who have told the agency that decides what a “default is” refuses (read: has been told) to declare a default.
Now Greece is demanding an 80% haircut and bondholders are fighting back. Some say this needs to be resolved by the end of THIS WEEK in order to keep from a total default. I say – get it over with already!
In other “bullish” news, Standard & Poor’s downgraded the actual slush fund facility that is bailing out Greece, Spain, Ireland, Italy, and Portugal from AAA to AA+. S&P says "if we were to conclude that sufficient offsetting credit enhancements are, in our opinion, not likely to be forthcoming, we would likely change the outlook to negative to mirror the negative outlooks of France and Austria. Under those circumstances we would expect to lower the ratings on the EFSF if we lowered the long-term sovereign credit ratings on the EFSF's 'AAA' or 'AA+' rated members to below 'AA+'."
In other words if S&P keeps downgrading the individual countries, the bailout facility will also be downgraded. But no matter – it’s “priced in” 4evvvaaaaahh!! It’s all bullish. It’s all rigged.
Founder & President- Trading Advantage
Since: Jan 12
#2 Jan 27, 2012
The bottom line is - as always - that if you lend carelessly, be prepared to write off the loan. This unwavering financial truth will prevail, and ultimately show up on balance sheets.
When the tide went out, we saw which countries were naked - soon we'll see the lenders also in their denuded misery.
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