Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19
It’s Not Technology but the Fed That Is Taking Away Jobs - 16th May 19
Learn to Protect your Forex Trading Capital - 16th May 19
Gold Ratio Charts Offer The Keys to the Bull Market - 16th May 19
Is Someone Secretly Smashing the Stock Market at Night? - 16th May 19
Crude Oil Price Fails At Critical Fibonacci Level - 15th May 19
Strong Stock Market Rally Expected - 15th May 19
US China Trade Impasse Threatens US Lithium, Rare Earth Imports - 15th May 19
Gold Mind Reader's Guide to the Global Markets Galaxy: 'Surreal' - 15th May 19
Trade Wars and Other Black Swan Threats to Your Investments - 15th May 19
Our Long-Anticipated Gold Momentum Rally Begins - 15th May 19
Defense Spending Is Recession Proof - Defense Dividend Stocks - 15th May 19
US China Trade Issues Will Drive Market Trends – PART II - 14th May 19
The Exter Inverted Pyramid of Global Liquidity Credit risk, Liquidity and Gold - 14th May 19
Can You Afford To Ignore These Two Flawless Gold Slide Indicators? - 14th May 19
As cryptocurrency wallets become more popular, will cryptocurrencies replace traditional payments? - 14th May 19
How US Debt Will Reach $40 Trillion by 2025 - 14th May 19
Dangers Beyond a Trade War with China - 14th May 19
eBook - Greatest Tool for Trading? - 14th May 19
Classic Pitfalls for Inexperienced Traders - 14th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

Why Investors Must Keep an Eye on Spain

Economics / Spain Jun 25, 2010 - 05:09 AM GMT

By: Money_Morning

Economics

Jon D. Markman writes: Greece is not the big story of Europe anymore - just a smoke screen.

The big story is Spain and the United Kingdom, and the news is getting worse.


In the past week, Spanish officials acknowledged to reporters that the country's banks and companies were having difficulty obtaining credit. The credible website EuroIntelligence reported that Spain is now effectively cut off from international capital markets, which is a major new development.

It has had to turn to the European Central Bank (ECB) for funding, which is not exactly brimming with money itself. The newspaper El Pais reported that Spanish banks now account for 16.5% of direct ECB borrowing, about double their normal shares. That represents a 26.5% increase over May.

The Financial Times chimed in with the view that the Spanish government's austerity plan is undermining investors' confidence in the potential for the country's recovery. With the Spanish banking system reliant on the ECB, the country's 10-year bond yields rose to 4.67%, which is a whopping two percentage points more than the coupon that Germany pays.

Spain's economy is five-times the size of Greece, so the fact that its banks are reeling is a big deal. This is not something that is likely to go away quietly. Spanish unemployment is north of 20%, its government is slashing spending to get its deficit under control, and public workers are striking in protest - thereby exacerbating the slowdown in output. It's going to be a rocky summer, and most likely not friendly to European stock prices.

Meanwhile, over in Great Britain emerged a story that did not seem to get much play here, but is important. The London Telegraph reported that the Bank of England (BOE) has determined that investors have made a massive options bet on a 20% decline in the FTSE 100, which is the United Kingdom's version of the Dow Jones Industrial Average.

The Telegraph noted that this coincided with a report from the Bank for International Settlements that showed the United Kingdom has major exposure to the Irish and Spanish banking systems, which many fear could be at risk in the next round of the financial crisis.

Moreover, we have just learned that German investor confidence plunged in June on concern that the sovereign debt crisis would undermine export prospects and crimp growth in Europe's largest economy. The ZEW Center for European Economic Research said its index of investor and analyst expectations, which aims to predict developments six months ahead, slumped to 28.7 from 45.8 in May, according to Bloomberg News. Economists had forecast a drop to 42.

This is a surprising development because the German economy is actually quite strong. Unemployment is down to just 7.7% due to an increase in production to meet booming orders.

"The debt crisis continues to spook investors [because] while the German economy is doing well at the moment, the austerity measures across Europe will hurt exports and growth later in the year," an ING Groep NV (NYSE ADR: ING) economist told Bloomberg.

My view is that we're now in an environment in which there seems to be a real lack of understanding in the United States and Asia about how serious the European funding crisis could become. It reminds me of the way that subprime loan losses were dismissed in late 2007 as too small to worry about - not just by investors and brokerage analysts, but the U.S. Federal Reserve.

If investors are ever made to starkly face the blow-up of a major Spanish bank due to an inability to meet short-term obligations, after blithely ignoring the issue for months, the shock value could indeed create a big 10%-plus dislocation in pricing, otherwise known as the "c word" that rhymes with flash, trash and bash.

Source : http://moneymorning.com/2010/06/25/spain/

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules