Egan-Jones Ratings is just the latest ratings agency to hit the PIIGS today.  The ratings agency lowered the Kingdom of Spain’s ratings down to “CCC+” from “B.”  What is perhaps more important is that the outlook remains negative.  The ADR and funds around Spain seem to be holding up as sovereign downgrades are beginning to sound a lot like echo-chamber comments.

Spain can get all the bailout funds it wants, Greece can argue about staying in the Euro all it wants, and the French can keep claiming that their reason for being is to still get a leftist politician to tax the rich so that 100,000 to 140,000 workers can still qualify for retirement at age 60 rather than 62.  The downgrades in Europe are still going to hit the PIIGS.

We continue to expect that Portugal, Italy, Ireland, Greece, and Spain will continue to face more downgrades.

We also no longer even count Greece as a Euro-Zone nation permanently.  Greece has passed the point of no return and they are going to have to go back to selling olive oil, feta cheese, and living off of summer tourism again.  Oh, and they will have to start paying some taxes.  Either way, more downgrades are coming…

Again, today’s cut was just on Spain.  This was not the last downgrade of the sovereign ratings of the PIIGS.  The major economies of Europe better start preparing for more cuts too.

Here is how the two largest Spanish banks are holding up:  Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA) is still up 0.7% at $6.52 in New York ADR trading against a 52-week range of $5.57 to $12.13.  Its larger rival, Banco Santander, S.A. (NYSE: STD), is still up 0.7% at $6.10 in New York ADR trading against a 52-week range of $5.19 to $11.89.  iShares MSCI Spain Index (AMEX: EWP) is still up 0.3% at $23.35 and even the large Telefonica SA (NYSE: TEF) is down only 0.55% at $12.24 against a 52-week range of $10.90 to $24.82.

Unfortunately, the markets in the U.S. still have sold off.  It is interesting that U.S. valuations care about Spanish downgrades more than Spanish investment vehicles care.

JON C. OGG

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