Kingdom of Pain
Market Commentary
By Charles Payne, CEO & Principal Analyst
"I'm an average nobody... get to live the rest of my life like a schnook"
Henry Hill

The inspiration for the book Wise Guys turned movie "Goodfellas," Henry Hill passed away on Tuesday. The movie is a cult classic with a number of famous lines and scenes. It's the story of the rags to riches to rags ride of a guy that always wanted a piece of the glamour and prestige that came with being a part of the mob. In the end he goes on the run and enters witness protection where he informs on his old pals and bosses. For all its warts and danger knowing he would never be a part of that life led Hill to his crestfallen reality of life as a "schnook."

There were many classic lines in the movie along with memorable scenes including one of the craziest beat-downs in cinematic history.

Yesterday, Spain's credit rating got the equivalent beat down of the made guy who made the mistake of offending Joe Pesci's character. Ratings agencies kicked and stomped Spain with murderous intent. The message to Spain is I guess you ain't heard...

Standing in the Pouring Pain

I have stood here before inside the pouring rain
With the world turning circles running 'round my brain
I guess I'm always hoping that you'll end this reign
But it's my destiny to be the king of pain
Sting

Eagan Jones lowered its sovereign rating four spots to CCC+ (why the heck would they have a plus at the end of such a rating?) and later Moody's dropped its rating to Baa3 from A3. The Moody's cut was the same as beating someone to an inch of life as its just one notch above junk status which it kept in reserve as it continues to review the situation and will come back in three months with the coup de grace or maybe thinks enough is enough. The concerns aren't new but the sense of urgency has gone beyond lip service.

By entering into a €100.0 billion bailout of its banks the Kingdom of Spain admitted it has limited access to financial markets. Moreover, this bank-only bailout is woefully insufficient for banks and that (still) proud nation. Sure, there was gloating over the terms of the deal but Merkel & Co aren't that dumb and know it's like handing out samples in front of a cupcake store. Spain took a bite and declared victory but not so fast. The deal can't even be called bittersweet as their bond yields are surging and stock market plummeting.

Moody's has little expectation of success in the Kingdom of Spain which feels more like the Kingdom of Pain these days. After botching the housing debacle in America ratings agencies have been aggressive and see their role as not only watchers of financial risk but also town criers for action. Eagan Jones and Moody's sent out an SOS on behalf of Spain which has been too proud to grovel the way it should and ultimately will have to in order to get the kind of bailout they crave and need.

The noose is getting tighter and tighter. Arrogance and gamesmanship only drag out the problem and make beat downs inevitable and more painful. At this point, these proud debtor nations with no money are going to have to take some form of medicine. For them there is no avoiding an existence as a schnook. It hasn't anything to do with how they proceed from here and everything to do with how they proceeded in the past. A mobster going into witness protection or a nation slipping into irrelevance is the same thing- an awakening.

Of course we play now the violin for the thug but we weep for the nation. It could have been avoided and the day to day beat downs are avoidable as well. Spain will need to get back to the table soon and cut a deal that involves more skin in the game and even, dare I say it, national embarrassment.

The Stock Market

Stocks tried to hang onto Jamie Dimon's coattails for as long as possible but the gravitational pull of European drama and deteriorating economic data sucked stocks down. It was a moral victory the major indices climbed off the canvas into the close. One capitalist standing up to government bullies that continue to waste and spend without regard is a great scene but in the end it only helps Dimon and JP Morgan and maybe Wall Street to a lesser extent. Our market is dealing with dual problems. There is the debacle in Greece and growing evidence our economy is slipping fast.

Technically the Dow has begun to make a series of lower highs and lower lows. On the upside resistance begins at 12,540 with the breakout happening with a close north of 12,600. It's critical that the index holds above 12,000.

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