A Bear Fighter in Spain
In the toppling line of dominoes that is the Eurozone, one has come out in defiance of the bears.
“I should warn those investors who are short selling Spain that they are going to be wrong and will go against their own interests”
So said Spanish Prime Minister José Luis Rodríguez Zapatero, after plungers jacked up their bond yields in speculation that after Ireland, and perhaps Portugal, they’ll be in need of a massive bailout.
The question now is, will he win?
Some quick facts about Espana:
High unemployment
Unemployment rates in Spain have worsened since 2007, with today’s rate peaking over 20%. Perhaps this explains the weird job hunting behavior there?
Banking Failures
Half of Spain's financial system are local government owned Cajas and almost half of their $1.8 trillion in combined assets are mortgages or other real estate loans from the decade's property bubble. 5% of those they lost to default in 2009 and they are expecting to lose over 7% for this year.
Debt
As of 2009, it was estimated that Spain’s Debt to GDP ratio was at 53.4%. At a GDP of $1.4 Trillion that’s $747 billion debt load. While not exceedingly high, for a nation with a higher deficit and little to no growth, this could prove to be risky.
Exposure to Portugal
Portugal is speculated to be the next country to fall and if so happens, Spain, with over $100 billion exposed to its neighbor, might be at risk as well.
Just a few variables that aren’t really indicative of the big picture, but as it is, things don’t look so sunny for the peninsula.
To make things worse, someone came out with an article on how their report books are cooked.
Wonder how this will turn out, will Zapatero be running with the bulls not needing a bailout? Or will he get maimed by the bears?
I for one am with the bears here.
Either way, I'm sure he knows that these will be dark days ahead for his country, he's probably just not expecting an inquisition.
Wow. Maybe i live in a closet, but I didnt know Spain was at 20%+ unempl.
I give the man a nod for standing up publically, but isnt his life going to be synchronized with Portugal's movement?
You've been living in a closet. It's been a pretty well-publicized fact that Spain has been experiencing incredibly high unemployment. That said -- I was in Madrid a year-ago today and the city seemed to be firing on all cylinders -- at least from an outsider's perspective.
Pretty sure Spain's headline unemployment is the same (in terms of the way it is calculated), as our U-6 rate, and not our headline U-3 rate. Therefore, its really not as high as it would seem since our U-6 rate is in the 16-17% range. I can't find a source for this but I do remember reading it in The Gartman Letter or Breakfast with Dave.
The numbers are quite mixed really depending on where you look at, some say its in the high 18s% while some say its as high as 22% so I settled for "around" 20%. Didn't come across your 16-17% figure though LIBOR, will look into it.
This is what I was looking at for our U-6 rate. Obviously Spain and US will have different ways to calculate the number, so it will have some variation. My overall point is that Spain's rate, at least to my knowledge, includes part time workers, those who gave up looking, etc, and its better to compare it to the US U-6 rate then the headline U-3 rate.
http://www.bls.gov/news.release/empsit.t15.htm
EDIT: I reread my posts, and it seems I may not have communicated my point as clearly as I should have. I do believe and agree that Spains underemployment rate is above 20%, much like the OP plus the Spaniard above me. I was saying, that rate is comparable to our U-6 rate, which is 16-17%. This is also mentioned above. Sorry for any confusion.
[Deleted! No longer relevant.]
I think that the Euro rescue mechanism wasn't thought out properly as one of the clauses stated that if a country defaults private investors lose the money, if that was changed so that if a country does default the Eurozone is liable with the defaulting country facing harsh penalties such as budget being set by the EU etc than I am pretty sure that the yields will not rise and fall as they would be backed by Germany+France
jtbbdxbnycmad, thanks for sharing that. I actually wanted to touch on some of those (budget and the debt sale in particular) but didn't want my post to be too long. How are they handling the banks that failed the EU stress tests?
Sad that the big local establishments are trying to detrench themselves from their own country, hope it get better as well.
loki276, I completely agree with you on their faulty rescue mechanism (Ireland's probably the worst), but the thing is, if that was the case Germany and France would be facing serious political and economic toxicity. I for one cannot imagine how the other countries would take being handed austerity measures, especially if they're written by others.
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