With IBEX still going strong since bottoming out early this summer, one could think the economy is getting better. Quite the opposite, the Spaniards are getting more desperate by the day. People are withdrawing cash from the banks, like never before.
The new trend though, is Spaniards following the money, ie moving abroad as the Spanish economy is continuing the free fall. From NYT,
“The macro situation in Spain is getting worse and worse,” Mr. Vildosola, 38, said last week just hours before boarding a plane to London with his wife and two small children. “There is just too much risk. Spain is going to be next after Greece, and I just don’t want to end up holding devalued pesetas.”
Mr. Vildosola is among many who worry that Spain’s economic tailspin could eventually force the country’s withdrawal from the euro and a return to its former currency, the peseta. That dire outcome is still considered a long shot, even if Spain might eventually require a Greek-style bailout. But there is no doubt that many of those in a position to do so are taking their money — and in some cases themselves — out of Spain.
With the markets at delicate levels, one shouldn’t get too optimistic. Many of the under performers reversed early this summer, and have put on a stellar performance since the lows we saw earlier. Spain’s Ibex has been ove of the “leaders”. With IBEX; MIB and a few others hitting resistance levels, make sure to watch these indices, as they risk leading us lower short term. We agree with Biderman, don’t lose money while you wait for the market correction.
Today, my overall market strategy is to not lose money while waiting for the stock market to plunge. I have been providing unique investment research to professional investors since 1990 and what is more I am proud of my results. Originally a short seller, I started Liquidity TrimTabs in 1995 when I realized my shorts were no longer working because lots of corporate buying plus huge mutual fund inflows had been booming stock prices. Then at the end of 1999 I said stocks had to crash because there was not enough cash to buy all the new shares from IPOs and option conversions that would come to market in 2000. I was a few months early. In the summer of 2002 we called the ultimate market and economic bottom. From 2004 through October 2007 we were almost continuously bullish.
Eurozone members of the Group of 20 leading economies have committed to driving down borrowing costs across the single currency area, according to the communiqué from the summit in Mexico. On the day that Spain was forced to pay more than 5 per cent to borrow money for one year, the need for action to stem the spiral of rising government bond yields was accepted on Tuesday by Germany, France and Italy, the G20’s three eurozone members. http://www.ft.com/intl/cms/s/0/44c211c0-ba34-11e1-84dc-00144feabdc0.html#axzz1yIzGTwQi
Leading hedge fund managers are betting on a significant sell-off in German government bonds in the coming months after a sharp fall in yields on the debt paper driven by a flight to safety in the eurozone. More than 50 per cent of managers polled at an industry conference in Monaco on Tuesday said they expect Bund yields to double within a year. http://www.ft.com/intl/cms/s/0/fcde12c6-ba35-11e1-aa8d-00144feabdc0.html#axzz1yIzGTwQi
Faltering global growth has pushed UK inflation to its lowest since 2009, raising expectations that the Bank of England will restart quantitative easing to stimulate the economy. Falling commodity prices helped to lower the UK’s annual consumer prices index inflation rate from 3 per cent in April to 2.8 per cent in May as food price inflation slowed and fuel prices dropped.http://www.ft.com/intl/cms/s/0/6d0d7e3a-b9ee-11e1-aa8d-00144feabdc0.html#axzz1yIzGTwQi
Blink and you’ll miss it. As this month’s brief rallies in the wake of Spain’s bank bailout news and Sunday’s Greek elections show, wait too long to tap public bond markets and you might miss your opportunity altogether. Six months after the European Central Bank first offered hundreds of banks across the eurozone access to cheap loans, and with the Europe’s debt crisis far from resolved, bank funding markets are dysfunctional. According to Dealogic, European banks have issued just $40bn of senior unsecured debt since the start of April, well below the same period in previous years. Covered bond issuance for the quarter so far stands at just $27bn. http://www.ft.com/intl/cms/s/0/30221076-b921-11e1-9bfd-00144feabdc0.html?ftcamp=published_links%2Frss%2Fmarkets%2Ffeed%2F%2Fproduct#axzz1yIzGTwQi
European officials are weighing up a bailout programme for Spain that would aid its fragile domestic banking sector while imposing only “very limited conditionality” on Madrid, a concession that could make a reluctant Spanish government more willing to accept international assistance. Unlike earlier bailouts for Greece, Portugal and Ireland, the proposed Spanish rescue would require few austerity measures beyond reforms already agreed with the EU and could even dispense with the close monitoring by international lenders that has proved contentious in Athens and Dublin, according to people familiar with the plans. http://www.ft.com/intl/cms/s/0/81e1c8ec-afe5-11e1-ad0b-00144feabdc0.html#axzz1x51pZngY
The pattern is now all too familiar and has been a regular feature since the financial crisis. Fears of systemic stress and weak US economic data spark dramatic declines in Treasury yields, followed by the Federal Reserve launching a new round of bond purchases, confirming the pre-emptive positioning of bond investors. Against the backdrop of the eurozone crisis and a poor US jobs report for May, the big drop in Treasury yields and record low mortgage bond rates suggest this pattern may repeat itself and that a third round of quantitative easing, or QE3, looms when the Fed meets later this month.http://www.ft.com/intl/cms/s/0/5a158b8a-af1a-11e1-a8a7-00144feabdc0.html#axzz1x51pZngY
The US Federal Reserve is set to propose new capital rules on Thursday, including a provision that will reverse a policy that has helped shield US bank capital levels from volatility, people familiar with the matter said. US banking industry groups and lenders, including Citigroup and Wells Fargo, have been trying to persuade lawmakers that the measure, which is among a batch of proposals to implement the Basel III accords, will hurt them relative to overseas competitors. They also say that they may have to curtail purchases of long-term US Treasuries and municipal debt.http://www.ft.com/intl/cms/s/0/738bc31a-b026-11e1-ad0b-00144feabdc0.html#axzz1x51pZngY
Two of the best-known business dynasties in Europe and the US will come together after Lord Jacob Rothschild’s listed investment trust and Rockefeller Financial Services agreed to form a strategic partnership. RIT Capital Partners is to buy a 37 per cent stake in the Rockefeller’s wealth advisory and asset management group for an undisclosed sum, giving Lord Rothschild’s London-listed trust a much sought-after foothold in the US. The transatlantic union brings together David Rockefeller, 96, and Lord Rothschild, 76 – two family patriarchs whose personal relationship spans five decades. http://www.ft.com/intl/cms/s/0/efe93494-a9a3-11e1-a6a7-00144feabdc0.html#axzz1w8XyzKzt
A Spanish plan to recapitalise Bankia, the troubled lender, by indirectly tapping the European Central Bank for cash, was bluntly rejected as unacceptable by the ECB, European officials said. News of the rejection came as Spain faces elevated borrowing costs in the bond markets, tries to persuade investors it can contain problems in a banking sector weighed down by €180bn of bad property loans and, on Tuesday, saw its central bank governor stand down early. Madrid had floated the unorthodox idea over the weekend of recapitalising Bankia by injecting €19bn of sovereign bonds into its parent company, which could then be swapped for cash at the ECB’s three-month refinancing window, avoiding the need to raise the money on bond markets. http://www.ft.com/intl/cms/s/0/7730ca10-a9b4-11e1-9772-00144feabdc0.html#axzz1w8XyzKzt
The decline in Facebook’s market value since its initial public offering earlier this month increased to 24 per cent as the social network’s shares dropped a further 9.6 per cent on Tuesday to a new low of $28.84. Facebook’s stock options, which traded for the first time on Tuesday, indicated that the stock’s volatility is expected to continue. The stock options were already among the most heavily traded in the US market, demonstrating the frenzy around the eight-year-old company and its May 18 IPO. http://www.ft.com/intl/cms/s/0/6769765c-a9a2-11e1-a6a7-00144feabdc0.html#axzz1w8XyzKzt
Russian billionaire Mikhail Fridman has resigned as chief executive of BP’s Russian joint venture TNK-BP, plunging relations between the UK oil group and its local partners into fresh turmoil. A person close to Alfa-Access-Renova (AAR), the consortium of Russian shareholders that owns 50 per cent of the company, said Mr Fridman quit due to a “breakdown in governance at TNK-BP”. “The Russian shareholders have lost faith in BP as a partner,” the person close to AAR said. “This partnership appears to have run its course and we are most likely heading towards some kind of disengagement.” http://www.ft.com/intl/cms/s/0/f334b2e4-a8aa-11e1-a747-00144feabdc0.html#axzz1w8XyzKzt
Spain’s prime minister has insisted his country will not need an international rescue for its banks as investors recoiled at a €19bn rescue of Bankia, sending the country’s borrowing costs over Germany’s to the highest level since the start of the euro. Bankia, Spain’s second-biggest bank by local deposits, would have collapsed if Madrid had not agreed to the rescue last week, Mariano Rajoy warned, adding that this would have risked bringing down Spain itself. http://www.ft.com/intl/cms/s/0/27f29710-a8a3-11e1-a747-00144feabdc0.html#axzz1w8XyzKzt
Steep declines in the euro symbolise the woes of Europe’s monetary union but could have a silver lining: the boost to exporters may offer some much-needed support to economic growth across the 17-country region. Last year, even as the euro crisis escalated, the currency’s value remained remarkably steady. In recent weeks, however, financial market sentiment towards the euro has turned decisively for the worse. http://www.ft.com/intl/cms/s/0/269aa5b8-a7dd-11e1-b8a9-00144feabdc0.html#axzz1w8XyzKzt
Germany refused to share the debt burden of stressed eurozone peers on Tuesday, ignoring two of the most influential international economic bodies which offered support for proposals championed by Paris, Rome and Brussels ahead of a summit. Angela Merkel, Germany’s chancellor, has argued that any co-mingling of eurozone debt would remove incentives for southern economies to adopt structural reforms. The calls from the International Monetary Fund and the Organisation for Economic Co-operation and Development came on the eve of Wednesday’s EU summit.
Asian shares retreated as hopes of fresh measures to tackle Europe’s debt crisis faded ahead of a meeting of European leaders while weak trade figures weighed on Japanese exporters. The MSCI Asia Pacific index slid 1.2 per cent with Japan’s Nikkei 225 Stock Average 1.2 per cent lower, Australia’s S&P/ASX 200 index down 1 per cent and South Korea’s Kospi Composite index off 1.3 per cent. Hong Kong’s Hang Seng index fell 1.5 per cent while China’s Shanghai Composite index slipped 0.2 per cent. http://www.ft.com/intl/cms/s/0/b71e7fe0-a2ee-11e1-826a-00144feabdc0.html#axzz1vfG4GISL
Western powers are prepared to offer Iran an “oil carrot” that would allow it to continue supplying crude to Asian customers in exchange for guarantees it is not building an atomic bomb. As the five permanent member of the United Nations Security Council, Germany and the European Union prepare for talks with Iranian officials in Baghdad on Wednesday, diplomats and oil executives said Washington and Brussels were likely to hold out the prospect of a possible suspension of an EU insurance ban on ships carrying Iranian oil. They added that the US and EU are not prepared to lift other sanctions – including an EU import ban on Iranian oil – and also cautioned that a deal is unlikely to be agreed at the meeting. http://www.ft.com/intl/cms/s/0/149b7962-a433-11e1-84b1-00144feabdc0.html#axzz1vfG4GISL
As frequent readers of The Trader know, we have been rather bearish on the markets over the past months. The formation we wrote about during the “topping” out phase, all broke down, and have now reached crucial support levels. We are not suggesting this is the all in bottom, but from a trading point of view, many European indices are reaching support levels and we are probably looking at an aggressive boune to the upside. Our long term view is still with a bearish bias, but in the short term time frame, we expect the support levels to hold.
Essential chart update below.