Greece will default, and effect of S&P rating downgrade of 9 Euro Zone country

EU summit was a failure and inspite of that US stock market rallied 184 point on the day summit was over. http://www.freefdawatchlist.com/2011/12/dow-likely-to-fall-500-700-points-eu.html After that US stock market dropped by 500 points and Euro dropped to 1.29 Standard & Poor (S&P) rating placed Euro zone country on negative outlook after sighting nothing was done during EU summit.

Today, S&P lowered the long-term ratings on Cyprus, Italy, Portugal, and Spain by  two notches; lowered the long-term ratings on Austria, France, Malta, Slovakia, and Slovenia, by one notch; and affirmed the long-term ratings on Belgium, Estonia, Finland, Germany, Ireland, Luxembourg, and the Netherlands.  Eur/Usd fell below 1.26500 as predicted on Jan 10th. http://www.freefdawatchlist.com/p/new-prediction.html and USD/CAD rallied above 1.02500 level.  

S&P gave this reason for downgrade: (1) tightening credit conditions, (2) an increase in risk premiums for a widening group of eurozone issuers, (3) a simultaneous attempt to delever by governments and households, (4) weakening economic growth prospects, and (5) an open and prolonged dispute among European policymakers over the proper approach to address challenges. 

EFSF has now 4 AAA rated countries, Germany, Finland, Luxembourg and Netherlands. Total combine economy of Finland, Luxembourg and Netherland is smaller then Spain. Italy is more then twice the economy of Spain. With Euro zone in recession and France losing AAA rating, it will be difficult to raise new  capital for EFSF which can help Spain, Portugal, Ireland, Italy, Cyprus and Greece. 

Many people have argued that US lost AAA rating yet, its interest rate went low. US is largest economy and it has ability to print unlimited $ at any time. While France has restriction, and it cannot print unlimited Euro. ECB can lend money only to Euro Banks and not to the Government. The deposit level in ECB has been increasing everyday and banks are not willing to take risk by lending to company or people. Banks are unable to get money from the market at this time as the lenders have no confidence in Europe. ECB is digging even bigger hole for Europe by lending free money to the Bank. The problem with this strategy is  people are losing trust in Euro in this market. Euro has dropped from 1.42 level to 1.26  in last 3 month.

ECB can lend unlimited money but with no trust in the market, it will always get money at high interest rate. Since, Bank are not willing to lend money to the people which in turn is shrinking the economy further. ECB saved Europe by lending unlimited money to bank in December, which has saved the Europe banking system for major crash.  With high job cut, high unemployment, low wage, and recession the situation will only get worse for the Europe.With Spain unemployment rate at 23%, France unemployment rate at 12 year high, it's just few more week when we'll see big disaster. 

Country	Old Rating	New Rating	Cut
Austria	AAA	AA+	One notch, loses top rating
Belgium	AA	AA	None
Cyprus	BBB	BB+	Two notches to junk
Estonia	AA-	AA-	None
Finland	AAA	AAA	None
France	AAA	AA+	One notch, loses top rating
Germany Greece	AAA CCC	AAA CC-	None Default
Ireland	BBB+	BBB+	None
Italy	A	BBB+	Two notches
Luxembourg	AAA	AAA	None
Malta	A	A-	One notch
Netherlands	AAA	AAA	None
Portugal	BBB-	BB	Two notches to junk
Slovakia	A+	A	One notch
Slovenia	AA-	A+	One notch
Spain	AA-	A	Two notches

Greece rating is in junk status.  Cyprus, Portugal, Italy, Ireland are just a step away from Junk status. 

As per dictionary, Default - means failure to fulfill obligation. But the definition of Default in Economist and Wall Street dictionary are bit different, they think its not default. Greece needs 50% write off on their debt, in order to get next chunk of bailout cash from IMF and EU. The talk has been stalled as some of the lender are unwilling to take 50% loss. Even with 50% loss Greece will need additional money to fulfill its obligation. Greece PM has already warn that it will default in March 2012 and it will exit Eurozone. This is perfect example of blackmailing after taking so much money. Greece will default by next week if the talk fails with private bond holder on Wednesday, Jan 18th. Troika inspector is visiting Greece on Monday to resume talk for the next bailout. 

US will be voting on raising debt ceiling on Jan 18th. Tighten your seat belt for a roller coaster ride on Jan 18th. Volatility is likely to spike and stay up after Jan 17th as there is no more holiday and Vix becomes less expensive.

I'll show two scenario:

Individual investor: would short this market, as the problem from Europe and China can turn ugly anyday and so they don't want to loose money and hope that Dow will crash 700 point, S&P500 will drop below 1200. So they would buy VXX, TVIX, TZA, FAZ, ERY, SDOW with their cash.

Manipulator: would give money to popular media to promote QE3 to avoid market crash.  Since they know many have shorted this market, so they will buy DIA, SPY, XIV, TNA, FAS, ERX or any bullish stock and try to move the market up by 100 point in futures, to get some short squeeze.

An individual investor cannot fight this manipulator in low volume market who are big investor firm and always lose against them.