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MOODY'S DOWNGRADES FRANCE'S GOVT BOND RATING TO Aa1

FRANCE MAINTAINS NEGATIVE OUTLOOK BY MOODY'S

Euro tumbling. In other news, UK: AAA/Aaa; France: AA+/Aa1... Let the flame wars begin



From the release:

Moody's decision to downgrade France's rating and maintain the negative outlook reflects the following key interrelated factors:

1.) France's long-term economic growth outlook is negatively affected by multiple structural challenges, including its gradual, sustained loss of competitiveness and the long-standing rigidities of its labour, goods and service markets.

2.) France's fiscal outlook is uncertain as a result of its deteriorating economic prospects, both in the short term due to subdued domestic and external demand, and in the longer term due to the structural rigidities noted above.

3.) The predictability of France's resilience to future euro area shocks is diminishing in view of the rising risks to economic growth, fiscal performance and cost of funding. France's exposure to peripheral Europe through its trade linkages and its banking system is disproportionately large, and its contingent obligations to support other euro area members have been increasing. Moreover, unlike other non-euro area sovereigns that carry similarly high ratings, France does not have access to a national central bank for the financing of its debt in the event of a market disruption.

RATINGS RATIONALE

The first driver underlying Moody's one-notch downgrade of France's sovereign rating is the risk to economic growth, and therefore to the government's finances, posed by the country's persistent structural economic challenges. These include the rigidities in labour and services markets, and low levels of innovation, which continue to drive France's gradual but sustained loss of competitiveness and the gradual erosion of its export-oriented industrial base.

The rise in France's real effective exchange rate in recent years contributes to this erosion of competitiveness, in particular relative to Germany, the UK and the US. The challenge of restoring price-competitiveness through wage moderation and cost containment is made more difficult by France's membership of the monetary union, which removes the adjustment mechanism that the ability to devalue its own currency would provide.

Apart from elevated taxes and social contributions, the French labour market is characterised by a high degree of segmentation as a result of significant employment protection legislation for permanent contracts. While notice periods and severance payments are not significantly higher than they are in other European countries, some parts of this legislation make dismissals particularly difficult. This judicial uncertainty raises the implicit cost of labour and creates disincentives to hire. In addition, the definition of economic dismissal in France rules out its use to improve a firm's competitiveness and profitability.

Moreover, the regulation of the services market remains more restrictive in France than it is in many other countries, as reflected in the OECD Indicators of Product Market Regulation. The subdued competition in the services sector also has a negative effect on the purchasing power of households and the input costs of enterprises. France additionally faces significant non-price competitiveness issues that stem from low R&D intensity compared to other EU countries.

Moody's recognises that the government recently announced measures intended to address some of these structural challenges. However, those measures alone are unlikely to be sufficiently far-reaching to restore competitiveness, and Moody's notes that the track record of successive French governments in effecting such measures over the past two decades has been poor.

The second driver of today's rating action is the elevated uncertainty with respect to France's fiscal outlook. Moody's acknowledges that the government's budget forecasts target a reduction in the headline deficit to 0.3% of GDP by 2017 and a balancing of the structural deficit by 2016. However, the rating agency considers the GDP growth assumptions of 0.8% in 2013 and 2.0% from 2014 onwards to be overly optimistic. On top of rising unemployment, France's consumption levels are being weighed down by tax increases, subdued disposable income growth and a correction in the housing market. Net exports are unlikely to drive economic activity in light of reduced external demand, in particular from euro area trading partners such as Italy and Spain.

As a result, Moody's sees a continued risk of fiscal slippage and of additional consolidation measures. Again, based on the track record of successive governments in implementing fiscal consolidation measures, Moody's will remain cautious when assessing whether the consolidation effort is sufficiently deep and sustained.

The third rating driver of Moody's downgrade of France's sovereign rating is the diminishing predictability of the country's resilience to future euro area shocks in view of the rising risks to economic growth, fiscal performance and cost of funding. In this context, France is disproportionately exposed to peripheral European countries such as Italy through its trade linkages and its banking system.

Moody's notes that French banks have sizable exposures to some weaker euro area countries. As a result, despite their good loss-absorption capacity, French banks remain vulnerable to a further deepening of the crisis due to these exposures and their significant -- albeit reduced -- reliance on wholesale market funding. This vulnerability adds to the government's contingent liabilities arising from the French banking system.

Moreover, France's credit exposure to the euro area debt crisis has been growing due to the increased amount of euro area resources that may be made available to support troubled sovereigns and banks through the European Financial Stability Facility (EFSF), the European Stability Mechanism (ESM) and the facilities put in place by the European Central Bank (ECB). At the same time, in case of need, France -- like other large and highly rated euro area member states -- may not benefit from these support mechanisms to the same extent, given that these resources might have already been exhausted by then.

In light of the liquidity risks and banking sector risks in non-core countries, Moody's perceives an elevated risk that at least part of the contingent liabilities that relate to the support of non-core euro area countries may actually crystallise for France. The risk that greater collective support will be required for weaker euro area sovereigns has been rising, most for notably Spain, whose economy and government bond market are around twice the combined size of those of Greece, Portugal and Ireland. Highly rated member states like France are likely to bear a disproportionately large share of this burden given their greater ability to absorb the associated costs.

More generally, further shocks to sovereign and bank credit markets would further undermine financial and economic stability in France as well as in other euro area countries. The impact of such shocks would be expected to be felt disproportionately by more highly indebted governments such as France, and further accentuate the fiscal and structural economic pressures noted above. While the French government's debt service costs have been largely contained to date, Moody's would not expect this to remain the case in the event of a further shock. A rise in debt service costs would further increase the pressure on the finances of the French government, which, unlike other non-euro area sovereigns that carry similarly high ratings, does not have access to a national central bank that could assist with the financing of its debt in the event of a market disruption.

Today's rating action on France's government bond rating was limited to one notch given (i) the country's large and diversified economy, which underpins France's economic resiliency, and (ii) the government's commitment to structural reforms and fiscal consolidation. The limited magnitude of today's rating action also reflects an acknowledgment by Moody's of the French government's ongoing work on a reform programme to improve the country's competitiveness and long-term growth perspectives, with key measures expected to be outlined in the National Pact for Growth, Competitiveness and Employment. Moreover, on the fiscal side, the European Treaty on the Stability, Coordination and Governance of the Economic and Monetary Union (TSCG), known as the "fiscal compact", will be implemented through the Organic Law on Public Finance Planning and Governance.

RATIONALE FOR CONTINUED NEGATIVE OUTLOOK

Moody's decision to maintain a negative outlook on France's government bond rating reflects the weak macroeconomic environment, and the rating agency's view that the risks to the implementation of the government's planned reforms remain substantial. Moreover, Moody's currently also holds negative outlooks on those Aaa-rated euro area sovereigns whose balance sheets are expected to bear the main financial burden of support via the operations of the EFSF, the ESM and the ECB. Apart from France, these countries comprise Germany (Aaa negative), the Netherlands (Aaa negative) and Austria (Aaa negative).

WHAT COULD MOVE THE RATING UP/DOWN

Moody's would downgrade France's government debt rating further in the event of additional material deterioration in the country's economic prospects or difficulties in implementing reform. Substantial economic and financial shocks stemming from the euro area debt crisis would also exert further downward pressure on France's rating.

Given the current negative outlook on France's sovereign rating, an upgrade is unlikely over the medium term. However, Moody's would consider changing the outlook on France's sovereign rating to stable in the event of a successful implementation of economic reforms and fiscal measures that effectively strengthen the growth prospects of the French economy and the government's balance sheet. Upward pressure on France's rating could also result from a significant improvement in the government's public finances, accompanied by a reversal in the upward trajectory in public debt.

COUNTRY CEILINGS

France's foreign- and local-currency bond and deposit ceilings remain unchanged at Aaa. The short-term foreign-currency bond and deposit ceilings remain Prime-1.

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Mount Doom is about to blow!

A New Zealand volcano that featured as Mount Doom in The Lord of the Rings movies is in danger of erupting as pressure builds in a subterranean vent, officials have said.

The Department of Conservation warned hikers to avoid the summit of Mount Ruapehu, saying that temperature readings by scientists indicated there was an increased risk of eruption at New Zealand's largest active volcano.

'The current situation can't continue, Ruapehu is so active that the temperatures have been going up and down a lot,' DOC volcanic risk manager Harry Keys told Radio New Zealand.



Set to erupt: Mount Ruapehu volcano in the Tongariro National Park, New Zealand

'They generally haven't gone up as we've expected for some weeks now and sooner or later that situation will be rectified, either in a small, relatively passive way, or with a significant eruption.'

Official monitoring body GNS Science said the temperature a few hundred metres below a lake in the crater of the North Island mountain was estimated at 800C (1,472F) but the temperature at the lake itself was just 20C (68F).

It said this indicated a vent was partially blocked, leading to increased pressure that made eruptions more likely 'over the next weeks to months'.

The 2,797m (9,177f) mountain last erupted in 2007, sending a lahar - a fast-moving stream of mud and debris - down the mountain but causing no injuries.



Fiery chasm: Director Peter Jackson used Mount Ruapehu and the neighbouring Mount Ngauruhoe to depict Mount Doom in The Lord of the Rings movies



The last time: A blanket of ash lies over the upper area of Mount Ruapehu about 143 miles) north of New Zealand's capital, Wellington, in 2007



Mount Ruapehu, which also erupted in June 1996, sent plumes of steam, ash and debris into the sky which towered an estimated eight miles above its crate

In 1953, a massive lahar from the mountain caused New Zealand's worst rail disaster when it washed away a bridge at Tangiwai and a passenger train plunged into the Whangaehu River, claiming 151 lives.

Director Peter Jackson used Mount Ruapehu and the neighbouring Mount Ngauruhoe to depict Mount Doom in The Lord of the Rings movies.

Another nearby volcano, Mount Tongariro, erupted in August this year, sending a plume of ash 20,000ft (6,100m) into the atmosphere, showering the North Island and disrupting domestic air travel.

Read more: http://www.dailymail.co.uk/news/article-2235108/Volcano-New-Zealand-used-Mount-Doom-Peter-Jacksons-The-Lord-Rings-movies-set-erupt.html#ixzz2CgQ1W8Es

Partial list of the layoffs and job losses since November 6th...

Can you hear that sound? It is the sound of the air being let out of the economy. Since the election, there has been a massive tsunami of layoffs and business failures. Of course the company that is making the biggest headlines right now is Hostess. On Monday, Hostess will be in a New York bankruptcy courtroom as it begins the process of liquidating itself. Needless to say, Twinkie lovers all over America are horrified. Many are running out to grocery stores and hoarding as many as they can find, and some online sellers are already listing boxes of 10 Twinkies for as much as $10,000 on auction websites such as eBay. Well, there is really no reason to panic. It is very likely that another company will purchase the Twinkie brand and continue to produce them. In fact, it is already being rumored thata Mexican company may have the inside track. But even though the Twinkie may survive, the failure of Hostess is yet another sign of how weak the U.S. economy has become. Approximately 18,500Hostess workers will be losing their jobs, and even if some of them are rehired by the company that takes over the Twinkie brand, the truth is that those workers will almost certainly be looking at greatly reduced pay and benefits. Sadly, we are seeing this kind of thing happen all over America. Large numbers of once thriving businesses are either shutting down or laying off workers. Overall, the failure of Hostess is not that big of a deal for the U.S. economy. But we may look back someday and remember Hostess as a symbol of the economic problems that were unleashed by the election of 2012. Since November 6th, a wave of pessimism has swept over the economy and we are now seeing some of the worst economic numbers that we have seen in more than a year. Many fear that we may have reached a tipping point and that things are only going to get worse from here.

Sadly, the reality is that Hostess is not the only iconic American company that is in a huge amount of trouble right now. Sears just announced a loss of nearly 500 million dollars in the third quarter. Sears has been bleeding money like this for a couple of years, and if they continue to do so it will just be a matter of time before Sears is headed for liquidation as well.

Can you imagine trying to explain the Sears catalog and Twinkies to future generations in a world where those things no longer exist?

Our world is changing at mind blowing speed, and the pace of change is only going to keep accelerating.

A few days after the election, I wrote an article about the huge number of layoff announcements that we saw after Barack Obama won.

Well, it has gotten even worse since then. The following is a partial list of the layoffs and job losses that have been announced since November 6th...

Abbott Labs 700
Activision 30
Adventist Health 48
Airlines SAS 6000
AMD 400
American Cotton Growers 110
ArcelorMittal 20
American Independence Museum 4
Ameridose 790
American Airlines 4400 + 800 leaving voluntarily
American Coal 54
Atlantic Lottery Corporation 16
Assc Milk Producers 130
Aveo Oncology 45
ATI 172
Bankia 5000
Bechtel Power Corp 277
Bigpoint Games 47
Boston Scientific 1200
Brake Parts LLC 75
Brattleboro Retreat 31
Bristol Myers 500
Career Education 900 + Closing 23 Campuses
Cigna 1300
Citigroup 100
Commerzbank 6000
Consol Energy in W.V. 145
Covidien 595
Crouse Hospital Syracuse NY 70
Cummins 150
CVPH 27
DEP in Tallahassee FL 15
DuPont, Co. 64
Eagle-Tribune, Andover 21
Emanuel Medical Cente 24
Energizer Holdings 1500
Ericsson 1550
Exide Tech, Laureldale 150
City of Findlay, OH 39
First Energy 400
Gameforge Berlin 20
Gamesa Energy 92
GenOn Energy Inc 33
Glen Falls Hospital 29
Groupon 80
GT Advanced Tech 165
Harris’ Broadcast 17
Hawker Beechcraft 400 + Facilities closing
Hill Rom 200
Hills Holdings 300
HMX Group 567
Hostess 627
Iberia Airlines 4500
ICM of Colwich 25
ING 2350
Judson University 21
Juniper Networks 500
Kaiser Permanente 84
Kinetic Concepts 427
Kratos Defense Security 125
Lackawanna County PA 11
Lightyear Network Solutions 12+
Lonza 500
Majestic Star Casino/hotel 80
Major Wind Company 3000
Martha Stewart Living 70
Medtronic 1000
Mills Manufacturing NC 68
Momentive, Inc. 150
Monitor Group 235
Montco Behavioral Health/Dev 58
NBC 500
Nebraska Medical Center 38
Neovia Logistics Services 52
New Energy 40
Ormet 200
Panasonic 10000
PayPal 320
Penn Refrigeration 40
Penske Logistics 50
Pepsi 4000
Philips Electronics 218
Pierce Mfg 325
Pratt & Whitney Rocketdyne 100
Research in Motion 200
Rheem Manufacturing 50
Sentry Foods 70
Shaw’s Supermarket 700
Shawano foundry WI 90
Smith & Nephew 770
Smithfield Packing Co. 125
Solel Solar Systems 140
Southeastern Container 15
SpaceX 100
SRA Intl Inc 222
St. Jude Medical 300
Stryker 1170
Sulake 60
Sun Media 500
TE Connectivity 620
TECO Coal Corporation 90
Texas Instruments 1700
The Providence Journal Co 23
TMX Group Ltd. 100
Turbocare 220
Turkey Point Nuclear Plant 277
Oce North America, Inc. 135
Turbocare OCE 220
UBS 10000
US Cellular 980
UtahAmerican Energy Inc 102
Volvo Trucks Pulaski County 300
Wake Forest Baptist Medical 950
Welch Allyn 275
West Ridge Mine 102
Westinghouse 50
World Media Enterprises Inc 105
WPS Health Insurance 600
Wright Patterson AFB 115
Wyodak Coal Mine 11
Xerox 2500

Sadly, the list actually keeps going. You can view the remainder of the list right here.

Even companies owned by Obama supporters are laying people off. Just check out this excerpt from a report by CitizenLink...

A corporation whose part owner gave $2 million to a group committed to re-electing President Obama announced this week that it will be forced to lay off more than 1,000 employees in lieu of the financial hardship imposed by the president’s signature health care law.

Overall, more than 100,000 job losses have been announced since the election. It is almost as if the election was the straw that broke the camel's back. Everyone in the business community that had been hoping for something different now realizes that no change is coming.

Meanwhile, Obama continues to pour on even more rules and regulations. According to CNSNews.com, the Obama administration has posted a total of 6,125 regulations on its reguations.gov website during the past 90 days. Our politicians are clueless and they simply don't understand what they are doing to the business community.

But of course this goes for politicians from both sides. For decades we have been consuming far more than we produce and spending far more money then we bring in, and most of our politicians seem to be under the delusion that this can continue indefinitely.

The other night my wife had me watch a documentary entitled "The Queen of Versailles" that followed the lives of time share mogul David Siegel and his wife Jackie. I found it to be a perfect metaphor for what America is going through right now. David Siegel built the greatest time share empire the world has ever seen on a mountain of easy money and cheap credit. At the beginning of the movie, David and Jackie were living the high life and were constructing the largest house in America down in Florida.

Well, things dramatically changed when the financial crisis of 2008 struck. Suddenly nobody wanted to lend to David's company and the house of cards started to crumble. But even though they were facing massive financial problems, Jackie found it incredibly difficult to adjust her lifestyle. She just kept spending and spending and spending.

It would be easy to pass judgment on David and Jackie, but the truth is that they are a perfect example of what this entire country is going through. Thousands of businesses are failing, our economic infrastructure is being gutted, millions of jobs are being shipped overseas, our financial system has become a gigantic casino and we keep piling even more mountains of debt on top of the mountains of debt that we already have. We have been living way above our means for so long that we don't even have any concept of what "normal" is anymore.

If you have not seen "The Queen of Versailles" yet, I encourage you to do so. Don't watch it to laugh at the downfall of David and Jackie Siegel. They are just trying to make their way in this world like all of us are. Rather, watch for parallels between their lives and what the United States is experiencing as a whole. As I mentioned earlier, I found their story to be a perfect metaphor for what is happening to this entire country. You can find the trailer for "The Queen of Versailles" right here.

As the economy falls apart, it is going to be really easy to point fingers at one another and blame one another. But what will really be needed is more love and compassion. A lot of workers at Hostess and a lot of other good companies just lost their jobs. The unemployment epidemic in this country is going to get a lot worse. These people are going to need our love and support.

In the end, we are all in this together. The coming economic storm is not going to be averted, but we can choose how we respond to it. Hopefully the crisis that is coming will bring out the best in many of us.

Economic Collapse