Rumor Mill: Is a Spain Downgrade Coming? (EWP, STD, BBVA, TEF)

The market has not proven to be a price stability mechanism nor has it proven effective in being a price discovery mechanism.  In a world where headlines out of lands of the PIIGS and now out of the European Union dominate the markets in the United States, what about the rumor mill’s place?

The rumor mill now has it that one of the ratings agencies is set to downgrade Spain again.  Is it true? Who knows.  Should it happen or will it happen?  We have said over and over that more downgrades either for sovereign ratings and/or the banks in the lands of the PIIGS are more likely than not.  Some ratings seem excessive when you consider that S&P already downgraded the United States and many of the other “AAA” ratings feel so manipulated.

So, how real (or relevant) is this rumor?  Maybe it is real and maybe it isn’t, but the iShares MSCI Spain Index (NYSE: EWP) is still trading here in New York even though European markets ate closing down for the weekend.  That ETF is still up just over 1% at $32.95.  while this was trading at $33.40 earlier, the volume is light.

Elsewhere in Spanish ADRs trading in New York, the gains are still there as well.  Banco Santander, S.A. (NYSE: STD) is up 2.5% at $7.66. Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA) is up 3.2% at $8.61.  Elsewhere outside of banks in Spain, Telefonica, S.A. (NYSE: TEF) is down 0.2% at $18.62.