The Bad judgement of the Rating Agencies!

So ... another powerful Friday with the downgrade from S&P of many European countries. France gets hit with a full notch. Rather than just the usual half a notch, the French get downgraded from AAA to AA. Austria bumped to AA+. Cyprus, Italy, Portugal, Spain also got hit by two notches.

The question is: what is happening with all the rating agencies? From the time they decided to downgrade the USA, and consequently the president of the S&P Mr Sharma conveniently resigned, they’ve attacked almost everything they have been able to.

One thing is for sure, and that is that the ratings of all these agencies have no more value for us. Zero! The more they lower the ratings of countries, banks, etc, the more they prove that they are wrong. At least in their timing.

Let us remember the time when the rating agencies approved of all the subprime mortgages and other toxic assets funds, granting a good view on them. Now, there is silence on that side.

Let´s follow a simple logic here: when the situation was really not that good, the rating agencies were giving a green signal (end of 2006 – 2007), and now that they have decided to red flag almost every financial entity and country in the world, shouldn’t we understand that things are actually going well or maybe turning around?.

It is true that Europe needs to get their act together. And so far they are working hard at it. Their bond auctions are going off not that bad. The Euro is a currency that needs to devalue a little bit and be under the level of 1.20 vs the USD, hence all this correction is healthy too. What we like the most is the timing of the rating agencies. At least this time they’ve waited for the beginning of the long weekend. This way, the markets can squirm off the negative effect by Tuesday.

Remember that Monday is Martin Luther King day and only GLOBEX and Europe will be operative.

See you Tuesday and have a great weekend.


-Amar.