Well the financial world is awash with reports that the Spanish auctions went well. They did not. And you better believe the ECB and other Central Banks were involved in the buying.
Instead, Wall Street is using the auction (and just about every other announcement) to shred and those who sold calls in their usual options expiration games. This has been the norm for years, but the mainstream financial media continues to find “fundamental” excuses for market action that is clearly just manipulation and nothing more.
Case in point, if the Spanish auction went so well, why are Spanish Credit Default Swaps widening? Ditto for Spanish yields (the ten year is back closing in on 6%).
However, ultimately this auction means next to nothing. Spain is an absolute disaster on a level that few, if any, analysts can even grasp.
How else do you describe a country for which:
- Total Spanish banking loans are equal to 170% of Spanish GDP.
- Total Spanish private sector debt is near 300% of GDP.
- Troubled loans at Spanish Banks just hit an 18-year high of over 8%.
- Spanish Banks are drawing a record €316.3 billion from the ECB (up from €169.2 billion in February).
By the way, Spanish banks need to roll over 20% of their bonds this year too. Good luck with that. I’m sure it will all work out well. After all, the ECB and IMF have the funds to prop up Spain’s €1 trillion economy.
Oh wait, they don’t. In fact no one does. The IMF’s requests for more funds have been rejected by both the US and Canada (you really think Obama will fund a European bailout during an election year?). And the ECB has already blown up its balance sheet to the point that Germany and the ECB are growing hostile to each other (I’m sure this will work out well too).
Forget the auction and the spin being thrown about. Spain is a disaster. Its banking system is a sewer of toxic debts which the Spanish Government has attempted to fix by either merging insolvent banks together or spreading toxic garbage onto the public’s balance sheet.
This might fly in the US (or at least it has so far) where the economy is more robust and diversified than in Spain. But for a country whose housing bubble dwarfed that of the US and which is already posting unemployment of 24% (the highest in the industrialized world) and youth unemployment of 50%+, it’s a tough sell.
Oh, and Spain’s King decided to take time off from hearing about the Crisis to go elephant hunting. That should go over well with the Spanish populace, which is now facing austerity measures when the country is already in a Depression.
Just wait, once options expiration ends, we’ll be back to the fireworks. In fact, smart investors should take advantage of this ramp job to prepare for what’s coming.
By Graham Summers
Graham Summers is Chief Market Strategist for Phoenix Capital Research.
Article Source: Phoenix Capital Research