Reality Check... Will S&P or Moody's Downgrade France First?

We have already seen the woes around the United States losing its prized “AAA” rating and then the attention focused elsewhere.  The question became, who are the weakest Triple-A ratings out there which should not be Triple-A rated if the United States is no longer Triple-A?  France is at the top of that list but there are still others at risk as well.

Reports are out today that Moody’s has warned that France’s sovereign rating is at risk for a downgrade in the credit rating agency’s outlook. What is interesting is that this does jeopardize the Triple-A rating today nor does it mean that a downgrade is imminent.  This is an instance where it should be taken as a “warning of a warning.”

Where this all gets murky is in the recent action (or fake action) out of S&P in recent days.  S&P issued a notice on November 10 that it was clarifying an erroneous message and that a technical error allowed a message to be disseminated to some of its subscribers that France’s “AAA” rating had been changed.  How credible does that sound?

If you have even a certain degree of mistrust in the financial markets, what is the writing on the wall?  If you really have no trust after all of the games and intentional havoc in the markets, what is the writing on the wall?

Our take… Moody’s and S&P are both considering a downgrade of France and the two agencies are giving enough fair warning this time to avoid capturing the market off guard.  The agencies may have even already downgraded France’s Triple-A rating had it not been for the handling of the U.S. downgrade (and of course that whole mess about missing the credit and mortgage crisis).

Hopefully this is not the case, but it is hard to really take some of these ratings comments seriously anymore.

JON C. OGG