Last week we saw continued volatility in global stock markets. However, the more interesting story is that investors basically affirmed that they don’t really care about Moody’s credit ratings. After the market closed on Thursday, Moody’s came out with “big news” that they were downgrading 15 major global banks. Surprisingly, global stock markets were up slightly on Friday and borrowing costs (i.e. bond yields) on those banks remained unchanged. In the past, a credit downgrade would have been market moving news. However, that was before Moody’s along with S&P lost credibility when they completely missed the 2008 global credit crisis and were giving out AAA ratings to sub-prime debt months before the loans became (basically) worthless. Last August, S&P downgraded the U.S. Govt’s credit rating from AAA to AA. Instead of paying a steep penalty, investors have ignored the downgrade and borrowing costs (on a 10 year bond) for the U.S. have dropped from 2.5 to 1.6 percent.
Markets were on edge over the weekend and central banks around the world were on full alert for what many thought could be a bank run and a stock market swoon if Greece’s pro-bailout party were to fall, meaning a rejection of budget cuts and much needed EU capital. On Sunday, Antonis Samaras, the pro-bailout candidate won and markets breathed a sigh of relief.
Don’t get too excited because the market has quickly turned its focus to Spain, whe
Posted in Weekly Insight | Posted on 19-06-2012|
The big news of the last week was that Spain’s banks got a bailout from the European Union. You may recall that the Fed bailed out the large U.S. banks in 2008. Many people were critical of that move. Europe on the other hand has not done large scale bailouts for a whole variety of reasons. As a result, we have seen several smaller, piecemeal bailouts which have been ineffective and are generally perceived as “kicking the can down the road”. This latest bailout is no exception.
Posted in Market Commentary | Posted on 15-06-2012|
Stocks capped a dismal month of May by starting June (last Friday) with their worst day of 2012. Bonds, which were already overvalued, have become more overvalued and stocks which were undervalued have gotten more undervalued. It is impossible to tell if this trend will turn around tomorrow, 6 months from now or a year from now. However, when it does, it will likely turn very quickly.