Another Black Swan spotting!
Greece’s credit rating was cut three steps to junk by Standard and Poor’s, the first time a euro member has lost its investment grade since the currency’s 1999 debut. The euro weakened and stock markets throughout the region plunged.
Greece was lowered to BB+ from BBB+ by S&P, which also warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. The move, which puts Greek debt on a par with bonds issued by Azerbaijan and Egypt, came minutes after the rating company reduced Portugal by two steps to A- from A+.
Wait a minute, hasn’t the financial media reported that Greece was saved, bailed out, etc about 20 times in the last month? Anyhow, you may recall that I suggested going long dollar a few months ago, back when the Euro was around $1.45. Needless to say, the few people who noticed at the time said I was crazy. Again.
On a tangential note, don’t you enjoy the way the ratings services always helpfully let you know that a bond is worthless well after it becomes completely freaking obvious? I don’t often agree with Paul Krugman, but I thought it was impressive that 93% of the AAA-rated mortgage securities are now downgraded to junk. Ex post facto, of course. It would appear that an AAA rating doesn’t mean what so many investors thought it meant.