Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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

© 2005-2022 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