Spain just endured a two-notch rating downgrade for Spain by Standard & Poor’s from BBB+ to BBB-, placing the nation’s debt just one grade above “junk” status.
Forgive me if I just yawn and get myself a sixth cup of coffee.
This is old news to investors. And frankly, if you need the ratings agencies to warn you that Europe is in trouble, then you haven’t been paying attention. Spain has been borrowing at interest rates north of 5% on its 10-year debt since the euro crisis got ugly this spring. Furthermore, just a few short months ago, 10-year debt for Spain peaked at a staggering 7.66% rate.
Next you’re going to be surprised that Greece has a 25% unemployment rate. I guess those riots all around the country haven’t really gotten your attention, huh?
I don’t mean to imply that Spain’s debt is not a problem — it is. But you should have taken the risks of the eurozone into account long ago. That includes not just Spanish debt, but troubles in Greece and Italy, and the resulting impact on stronger nations like Greece and France.
And while we’re at it, how the EU affects the global picture vis-a-vis multinational stocks.
Consider that General Motors (NYSE:GM) is pushing to close a plant in Germany as its European operations continue to post losses there thanks to the downturn. Other automakers like Ford (NYSE:F) are also seeing soft Europe sales.
In short, Wall Street has already taken Spain’s risks and the overall EU picture into account. And by now, you should have too — downgrade or not.
My biggest beef with the Spain debt downgrade isn’t that it’s obvious — it’s that it’s obvious and late. A gutsy, forward-looking call would have been for S&P to downgrade Spain’s debt to borderline junk two years ago … but this is simply piling on. That spike to over 7.5% for 10-year debt in July didn’t prompt the move? Why now?
And don’t give me that malarkey about ratings firms being judicious and responsible, warning of a downgrade with ample time for research and for the markets to take a move into account. Have we already forgotten S&P abruptly warned of a U.S. debt downgrade in 2011 and then pulled the trigger less than a month later?
In all honesty, many investors probably have forgotten the downgrade. Because at the time of the downgrade, the 10-year T-note was commanding a yield of around 2%. Now we are around 1.7% after bottoming at a hair under 1.4%. So much for spooking investors and sending them scurrying from U.S. debt, huh?
Which brings me to another important point: In addition to frequently being late, S&P ratings downgrades aren’t market movers or some kind of omen of things to come. So it’s hardly like this Spain downgrade is some kind of indicator that things are about to get worse. After all, the U.S. didn’t fall apart.
And in case you forgot, S&P also gave tip-top marks to subprime mortgage debt … how’d that turn out?
I will continue to watch Spain’s debt picture — along with the rest of the EU — and you should too. Sovereign debt, austerity, unemployment and economic growth are all huge issues to investors right now. But the downgrade in Spain is just a speck in the big picture.
So keep your perspective, and don’t read too much into this.
- More importantly than the downgrade, where does Spain stand on a another bailout? (US News)
- IMF head Christine Lagarde is trying help Europe to walk a thin line between a hand up vs. a handout, and harsh austerity vs. necessary cuts … particularly in Greece. (FT.com)
- Speaking of Greece, it’s probably in poor taste for protesting Greeks to call Germany’s Chancellor a Nazi, right? (RT.com)
- Commentary: Why Merkel might not be able to keep Greece in the EU. (Christian Science Monitor)
- And, of course, my (humbly) classic rant about why Wall Street “experts” always seem to be a day late and a dollar short. (InvestorPlace)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.