Europe's impact is diluted

Why France's downgrade doesn't resonate as it would have several years ago.

By Jim Cramer Nov 20, 2012 9:55AM

Photodisc SuperStockWhat matters? Does a French bond downgrade matter?


At one point we would be down 2% in Europe and that would send us down 2.5% here because somehow our financials would get hit heavily, which would cause losses across the board. We would then spend all of our time fretting about it and what it means for the banks that own French paper. We would be focused on the prospects of Societe Generale to make it through this crisis and we would be speculating on which French banks wouldn't be able to meet their obligations. We would then focus on the money funds that have French paper and how this downgrade would send money out of French banks into Germany. It would then be the proximate cause for major handwringing about how France is going to go into recession and join Spain and Italy on the periphery.


Instead, we get a yawn. The French stock market is barely down. The big break-ins about the downgrade don't resonate.


What's happened?


First, many of the institutions that were teetering last year at this time have raised a lot of capital.

Second, the ratings agencies don't have the clout they used to. The idea, for example, that if we miss our fiscal cliff by extending the cuts and taxes into a phase-in period will most likely bring a downgrade here. But the last one was followed up with huge bond buying, so the threat of skyrocketing interest rates didn't happen. It might happen, but it didn't. Same with France.


Third, at least when it comes to spillover to here, many of the companies that were perceived to be hostage to Europe at one time or another, beginning with the banks, have cut their exposure. The industrials have distanced themselves. The auto companies are cutting back. The whole thrust of the last year of international development was to make Europe a smaller piece of the pie. It's been working.

Finally, the sheer length of time that this crisis has unfolded over has made it so people are ready for it. That, per se, makes it less of a crisis. Last year I was arguing for a kick-the-can strategy simply because kicking the can is the opposite of Lehman, which was a sudden end to the can kicking when no one expected it and look what that got us.


A lot of conventional wisdom has been stood on its head. France may ultimately slip into Spanish status. I don't know why not as it's a socialist country. But when it does, it won't pull us down. Our companies have had a chance to see it coming.


So have others.


The impact? It's been diluted. Not lost, just diluted. And that's enough to make it so that those who were short our markets off of a possible downgrade will not have much to show for it in today's trading.


Cramer's face



Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust.




More from

Nov 20, 2012 3:52PM
Stock go south on Bernanke's comments ! Helicopter Ben with grand Quantative Easing Scheme could not stop us going off the Fiscal Cliff ! The Fed and Mr. Ben have done nothing to help the economy or the citizens of this country ! The Fed has given the Criminal Banking Cartel Trillions of dollars to keep them solvent at the cost of a coming Depression ! DISMANTLE THE FED AND GET RID OF BERNANKE !
Nov 20, 2012 2:13PM

" I don't know why not as it's a socialist country."


Sssshhhhhh..... your supposed to say it's part of Socialist Europe.

Nov 20, 2012 1:27PM

Cramer, this is a peek at the US future with Obama at the helm.  We have already experienced a credit downgrade so let's be like France and tax hardworking successful families.  The Obama nightmare continues.

Nov 20, 2012 12:53PM
It is funny that France is sinking fast considering the massive tax increases on their wealthy.   The funny part is their revenue is off dramatically.   They recently had their credit downgraded again, and are likely to see further downgrades.  Their debt is skyrocketing out of control.

Within 2 years they will be in the same shape as Spain.   They continue to borrow and SPEND with reckless abandon.  

It is clear France choose the wrong path.   How can they fix their problems?   They can try more massive tax increases.   They can raise their rates from 75% to say 100%...  But I doubt it will generate any more income.  They can slash spending 55% and balance their budget, not likely.   They cannot PRINT their way out of the mess...

In short expect France to sink like a rock.
Nov 20, 2012 12:40PM
One would hope that US financial firms have positioned themselves not only to AVOID European  contagion but to come up with a way to make money off of it, given 3 + years of advance notice
Nov 20, 2012 12:32PM

  Simply start from scratch in January with NEW tax cut bills separated by income level- one for the Upper Class and one for Everybody Else--and let the votes they will be responsible for in 2014 go where they may
 Then divide the Budget into sub budgets -- one for each cabinet position- and vote on each SEPARATELY. Ditto for 2014-- let the votes go where they may
Nov 20, 2012 12:26PM
One would THINK that what is proposed for Europe as a financial fix would be good for the US as well. The Fiscal cliff was a COMPROMISE that  both sides agreed upon so that one side got increased revenues and the other gets decreased spending. So the Glorious Compromise day is almost here and you get cold feet? Non Sequitur
 IF you now say oh no  we can't do that, then you are too stupid to have much of decision making ability gong forward because nobody knows what the hell you actually want anymore
 I say it's the best compromise we will ever get so just do it
Nov 20, 2012 11:58AM

Ah France, we saved their asses twice now, and still had to fly around them to bomb Libya.....

Of course they don't matter.

Nov 20, 2012 11:57AM

 "France may ultimately slip into Spanish status. I don't know why not as it's a socialist country. But when it does, it won't pull us down."

And...we're not? Aus jeder nach seinen fahigkeiten, jedem nach seinen bedurfnissen--Karl Marx and Karl's disciple, BO. 

Nov 20, 2012 11:46AM
Market Rally ? Don't think so ! Smart Money/Big Boys have left the House ! Small Investors take your money out or LOSE IT=FRAUD STREET=SCREW THE INVESTORS !
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