Standard & Poor’s just hit the brakes on the markets, a day after cutting Greece and Portugal.  The PIIGS are taking another toll, with the cut today being the long-term rating of the Sovereign Kingdom of Spain.  S&P’s cut its rating to “AA” from “AA+”and the “A-1+” short-term sovereign credit rating was affirmed. The outlook is negative.  S&P’s transfer and convertibility assessment is unchanged at ‘AAA’

We are seeing moves in the main stocks and funds which track Spain: The Ibero-America Fund, Inc. (NYSE: SNF), iShares MSCI Spain Index (NYSE: EWP), Banco Bilbao Viscaya Argentaria (NYSE: BBVA), Banco Santander, S.A. (NYSE: STD), Repsol YPF SA (NYSE: REP), and Telefonica SA (NYSE: TEF).

S&P notes, “Spain is likely to have an extended period of subdued economic growth, which weakens its budgetary position…”

Stock/Fund	Price	Chg$	Chg%	52-Week
Ibero-America Fund, Inc (The)	$5.88	Down 0.19	Down 3.13%	4.40 – 8.07
iShares Trust (Barclays Global	$39.08	Down 0.01	Down 0.02%	32.43 – 52.67
Banco Bilbao Viscaya Argentaria	$12.49	Down 0.50	Down 3.85%	9.88 – 19.78
Banco Santander, S.A. Sponsored	$11.79	Down 0.25	Down 2.08%	8.03 – 17.89
Repsol YPF S.A. Common Stock	$22.11	Down 0.87	Down 3.79%	18.03 – 28.65
Telefonica SA Common Stock	$64.55	Down 1.25	Down 1.90%	56.14 – 89.62

The negative outlook reflects the possibility of a downgrade if the nation’s budgetary position underperforms more than is currently expected.  The move away from a credit fueled economy will now result in longer-term growth from 2010 to 2016 is what S&P thinks will now be about 0.7% rather than 1.0% previously expected; and S&P expects that the nominal GDP will regain the 2008 level by 2015 rather than 2013 previously forecast.

S&P also sees private sector debt at 178% of GDP, above many of Spain’s peers.  Also noted is an inflexible labor market, where unemployment is expected to reach 21% in 2010.

You know the rest.  High debt, lower GDP, deleveraging, and on and on…

JON OGG

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