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The Eurozone Sovereign Downgrades Yesterday Muddy the Waters Even More.....

Heard from trading desks this morning.........

Back to the drawing board. S&P potential downgrade of the Eurozone’s 6 AAA rated nations puts a damper on the EFSF (European Financial Stability Facility). Bailout funds that are not AAA rated are not exactly in vogue in the current environment especially for Asian investors. No AAA rating and you lose a large investor base. If they are downgraded they will still have AAA ratings from Moody’s and Fitch, but given the uncertainty of the credits, it’s a much tougher call. Like it or not, since the US issues debt in their own currency, as long as we don’t run out of paper and green ink, we can pay it back. It may be in tremendously devalued dollars, and you’ve got to get Congress to agree to pay, but paper & green ink means repayment. For Euroland countries it’s not so simple, there are restrictions.  For better or worse, S&P has put pressure on governments’ to address financial issues. Claim you’re serious about debt reduction and then don’t deliver, downgrade. Claim that you have a deal to fix the Euroland? You have been warned, you better come through. The clock was ticking, S&P just sped it up a bit.

For some reason, stocks haven't dropped on the news.