The French Ratings 'Surprise'

Just when things in the euro zone were getting a little too quiet, Standard & Poors proved the rumors true late on Friday by downgrading the sovereign-debt rating of nine euro-using countries at one go.

By Dees Stribling, Contributing Editor

Just when things in the euro zone were getting a little too quiet, Standard & Poors proved the rumors true late on Friday by downgrading the sovereign-debt rating of nine euro-using countries at one go, especially France, a long-time AAA country that lost a notch to AA+ (which puts it on par with the United States). Also, Austria, Malta, Slovakia and Slovenia were down a notch, while Cyprus, Italy, Portugal and Spain lost two notches.

And as if that wasn’t enough, on Monday the ratings agency went ahead and downgraded the euro-zone bailout fund—the European Financial Stability Fund—though that wasn’t much of a surprise, since France is one of the main backers of the fund. On the other hand, some countries kept their current S&P ratings. Euro-zone bastion Germany was one. But so did Belgium, Estonia, Finland, Ireland, Luxembourg and the Netherlands.

Investors seemed sanguine about the downgrade, which is likely a case of “Been There, Done That” for many. But more fodder for a possible panic lies ahead.

For example, Greek debt talks are wobbly–what, again?–about the issue of how much of a haircut the nation’s creditors are going to take, an issue that only seemed to be settled last year. Talks between the Greeks and their creditors ground to a halt last Friday, but will resume on Wednesday. If the parties involved can’t come to some terms, such an impasse might cause Greece’s next bailout payment to be canceled, which might in turn cause a hard default of Greek debt, with unpredictable results for the euro.

Investors also seem to be worrying about a slowdown in the Chinese economy. Of course, “slowdown” has a different meaning in China, namely less than double-digit growth. According to official statistics released by the Chinese government on month (something always to take with a little salt), the country’s economy grew 8.9 percent in the third quarter of 2011, a little more than expected, but not at the previous breakneck pace.

Home prices finally hit bottom?

Reuters reported on Friday that a poll of 23 economists taken recently by the news agency found “a consensus for no change in the S&P/Case-Shiller home price index in 2012,” with a modest gain of 1.5 percent expected for 2013. That isn’t particularly good news, if it happens, but it’s hopeful in one way: at least home prices won’t go down any more.

Most of the respondents–15 economists–also said they expected foreclosures to slow down in 2012, while five respondents thought that would happen in 2013. Whenever it does happen, a decrease in foreclosures will be a critical factor in supporting higher home prices, since the volume of foreclosed properties on the market has been an anchor for valuations for many moons now.

Wall Street was off for the Martin Luther King Jr. holiday on Monday, but ended the day on Friday moderately down. The Dow Jones Industrial Average lost 48.96 points, or 0.39 percent, while the S&P 500 was down 0.49 percent and the Nasdaq declined 0.51 percent.