The table below outlines the credit ratings for US states along with individual and coporate income taxes for each state:
Source: Bloomberg
What a day, I wake up to the news that Fitch has downgraded Portugal, leading to a strong sell-off in Euro–reaching a ten month low against the dollar. This news was not tremendously surprising, and I expect the situation in Europe will get far worse before getting better, especially if Greece doesn’t find a funding source before its first massive debt payment on April 20th. Aside from Greece I am also very concerned about several of the other so-called ‘PIIGS’ as well as the UK. Pending how this situation unfolds if risk is rebalanced across Europe (to Germany), other more ’secure’ European nations could come under the scrutiny of worried investors.
Greek Monthly Debt Payment Schedule:
Source: Bloomberg
The day progresses, its then announced new home sales unexpectedly tumbled -2.2% on a monthly basis in February (compared to a consensus forecast of +1.9%). The sales number was actually the lowest in the series recorded history, which tracks back to 1963. As I highlighted in a column last month on TheStreet.com titled ‘Housing Recovery Starts to Buckle’, I do not believe last year’s budding recovery, fueled by a then effective first time home buyer tax credit, will provide enough force to navigate the headwinds facing the sector. A now impotent stimulus combined with the likelihood of higher mortgage rates over the near-term, as the Fed stops purchasing MBS on March 30th, should prove too much to bear for the sector making any future recovery modest as best. The sector is still being besieged by foreclosures and now rapidly growing inventories of existing and new homes for sale.
Inventory of New & Existing Homes:
Source: Bloomberg
EU Commissioner Joaquín Almunia Mira recently said that he believes the current situation is the most difficult situation the EU has ever faced, and that Thursday’s meeting will be critical. He also said EU leaders have indicated that they will support Greece. Fitch anticipates that a Greek plan is ‘achievable’, but not ‘a given’. Fitch’s analyst said, “A bailout for Greece is not completely out of the question but the likelihood of it happening is not strong enough for Fitch to base its ratings outlook on.” Reuters is also indicating that in principle German government officials are ready to help Greece, and along with other CBs and governments are studying support plans. German press is reporting that German officials are working on a support plan for Greece.
Fitch also highlighted that Greece could come under some serious pressure in April/May when the bulk of its debt outstanding is coming due. Fitch also believes the UK is the most vulnerable AAA rated sovereign, stating the credit needs a ’strong exit strategy’. Fitch went on to say that the default probability for Portugal is close to 0.
