Ratings agencies are trying to get ahead of the next problem in Europe, and they're running the risk of spoiling this Christmas rally. Standard & Poor's warned that 15 eurozone countries -- including France and Germany, both of which are hanging on to that vaunted AAA rating -- could see their credit ratings downgraded.
Only two eurozone nations, Cyprus and Greece, have been excluded. Cyprus is already in junk status, and Greece -- well, Greece is still Greece, and is probably going to default anyway, so why waste the man hours?
In any case, a reminder: In the days leading to the U.S. debt ceiling, S&P warned about a potential downgrade, and then actually did cut U.S. debt to the second-highest level of AA+.
I have a two-pronged question here: First, did it really come as a surprise that Congress could not come to an agreement? Second: Why did it take a debt ceiling, and then the formation of the Joint Select Committee on Deficit Reduction, or Super Committee (which we all know eventually failed) to bring about an actual downgrade? As a follow-up, do people out there really believe France is a better investment than the U.S.? Even after the downgrade, investors flocked to U.S. Treasuries. Go figure.
That's the problem I have with all these ratings agencies. They are always very late to the party and, no matter what they say, their pronouncements become self-fulfilling prophecies. How could subprime mortgages, which entailed people owing more money than what their homes were worth, be taken into account and still have resulted in an AAA rating? Think about what this means -- eople in Las Vegas living in multimillion dollar homes on dealer's salaries were given the same ratings as those of France and Germany and, until recently, the U.S.
Again, I really don't like the ratings agencies. But I do believe S&P, while late to the party yet again, is doing more than anyone else to try to fix, or at least contain, this European contagion. The agency also issued a CreditWatch negative announcement for the European Financial Stability Fund (EFSF), which doesn't come as much of a surprise, considering the negative watch on all countries that would be be ponying up cash for the rescue fund. Apparently S&P has learned something from the housing meltdown. I guess that's a good thing.
The U.S. averages are fighting to stay positive today, with healthcare and industrial stocks leading the way. But all eyes are still on the European Union summit set for later this week, which will decide the fate of the euro and of the 17 eurozone nations -- as well as others around the world.