Moody's Thinking About Screwing With Spain Next

Moody's Investors Service said Friday it might cut Spain's credit rating soon, and few in Madrid are going to be happy with that thought. Then again, it's unclear whether the idea to cut Spain's rating can really qualify as a thought, given the "logic" behind it. Moody's has said the downgrade would come because Moody's is concerned about the rising cost of borrowing money to pay down Spanish debt. Of course, downgrading the credit rating has exactly one outcome: it raises the cost of borrowing money to pay down debt. If this is not an epic facepalm moment (ask your kids) then I do not know what would qualify as one. Spain's current long-term rating sits at Aa2, and the decrease would only bump it down one notch. Still, why cut the debt rating now, particularly when Spain has met its 2010 targets and is otherwise recovering? Cutting the debt rating would only serve to make it more likely that Spain has trouble in 2011 and beyond. What is Moody's argument? “Funding costs have been rising for some time for the Spanish government and for many closely related debt issuers, such as domestic banks and regional governments,” Moody's said. “Pressures are likely to increase still further following the announcement of the official package for Greece, which has signaled a clear shift in risk for bondholders of countries with high debt burdens or large budget deficits.” Moody's continued, “Challenges to long-term budget balance remain due to Spain's subdued economic growth and fiscal slippage within parts of its regional and local government sector.” Spain is also, officially, on the right path. Wages have been cut. Subsidies have been cut, and voila! It's still not good enough for the banking cartel. (I sincerely hope the austerity hawks here in America are paying attention to the fact that Spain cut back on social spending and drove the country further into recession, shrinking the economy...which is what will happen here if they get their way.) Either way, Moody's isn't looking to make a move for at least three months. They just figured now was a good time to remind Spain that even doing everything you've agreed to do isn't enough to keep the vultures from your still-living-torso. ACTION ITEMS:

Bullish: The continued debt saga in Europe is pushing gold prices through the roof along with other macroeconomic headwinds. There is absolutely no obvious reason why this cannot continue. Investors should have precious metals exposure through ETFs such as SPDR Gold Trust GLD, iShares Silver Trust SLV, Market Vectors Gold Miners ETF GDX, and and Market Vectors Junior Gold Miners GDXJ.

Bearish: Traders wishing to bet against Spain, could buy ProShares UltraShort MSCI Europe EPV, short iShares MSCI Spain Index EWP, or short Spanish bank Banco Santander, STD.