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Credit Monitors Remain on Center Stage

Once exposed to the glare of the spot light on the center stage, the notoriety is addictive and it is hard to make your exit. Continuing in the spot light, the S and P reduced the Greek credit rating, on the day after the Greek's sold 2B euro bonds to European banks.  This Greek problems has weighed on the euro  for the past several sessions.  The S and P continued.  They alerted that there were 1.6T worth of Euro "covered bonds" that might be subjected to rating downgrades.  Covered bonds are bonds with the backing of assets, and the maturity of the bonds is often shorter than the life of the assets.  Refinancing these assets during changed credit markets may prove a daunting task, especially when dealing with over a trillion euros.  This news weighed on the euro, and several layers of stops were uncovered on the way down.

The Euro banking problems were not the only concerns of the credit police.  Japan also was a target for concern as observed by Moody's and reported by Bloomberg:    "Japan needs clear debt reduction goal, Moody's says (Bloomberg)
    Japan needs a "well-articulated" target to reduce the world's largest government debt, Moody's Investors Service said after conflicting statements between Prime Minister Yukio Hatoyama and his finance chief over next year's bond sales target. Hatoyama has indicated that he may allow debt sales to exceed a 44 trillion yen bond-sales cap to support economic growth, while Finance Minister Hirohisa Fujii said the ceiling must be adhered to.


For the time being the rating authorities are ignoring the latest proposals of the present US administrations efforts to spend their way back to prosperity. The US House approved a $155B jobs bill today.    Reuters reports:

"By a vote of 217 to 212, the House approved additional spending for "shovel-ready" construction projects and money to avoid layoffs of teachers, police and other public employees.

The Senate is expected to consider the measure early next year."

The public sector's employment has been growing nicely in the US and these people are well paid, better than the private sector.  Most of this money will go to pay the police teachers and public employees as the many states lack funds to meet their payroll.  The US Treasury does needs to borrow an estimated $150B per month so this will just be a small portion of their needs.

Concern for bank stocks and their dubious loans is weighing of the US equities market as well as the euro.  This has caused US Treasury rates to appreciate a bit,  and reducing the yield.  With the voracious appetite the Treasury has for money, we doubt that Timmy G and Benny Bernanke will be real anxious to drain liquidity or raise rates.  This would only exacerbate a very difficult situation.   At the moment the euro is being crushed by the dollar which is not blemish free.  We doubt that this will not continue much longer.  Picking bottoms is usually a fruitless endeavor, but we wonder  if the momentum has been overdone.


Disclosure: no stock positions