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Forget It Draghi, Spain is Finished... Here's Why.

Phoenix Capital Research's picture




 

 

As I’ve outlined in earlier articles, Spain will be the straw that breaks the EU’s back. The country’s private Debt to GDP is above 300%. Spanish banks are loaded with toxic debts courtesy of a housing bubble that makes the US’s look like a small bump in comparison. And the Spanish government is bankrupt as well.

 

Indeed, in the last two weeks alone we’ve seen:

 

  1. Spain request a €300 billion bailout from Germany (the original bailout was only €100)
  2. The regions of Catalonia, Valencia, and Marcia (and three others) hinting at needing or requesting bailouts.

 

Indeed, the following story reveals more than I think Spain would like… but it’s clear that EU political leaders are prepping for something VERY nasty.

 

Spain in crisis talks with Germany over €300bn bailout

 

Germany's finance minister, Wolfgang Schäuble, will meet his Spanish counterpart, Luis de Guindos, for crisis talks on Tuesday amid fears that spiralling bond yields in the eurozone's fourth biggest economy will force it to seek a €300bn bailout from the European Union and the International Monetary Fund.

 

Interest rates on Spain's 10-year borrowing rose to 7.59% – the highest since the euro was created – and the stock market in Madrid fell by 5% in morning trading following fresh bad news about the financial health of the country's regions.

 

Hints from politicians in Berlin that Germany is preparing the ground for Greece to leave the single currency also unsettled markets, with hefty falls in equity prices on European bonuses and the euro under pressure on the foreign exchanges. London's FTSE 100 index was down 100 points at midday, at 5551.

 

Dealers were unimpressed by de Guindos's claim that Spain would not become the fourth eurozone country to require a formal bailout, after Murcia on Sunday became the second Spanish region to request financial assistance from the government. The Spanish finance minister categorically denied that a bailout was imminent, but media reports from Spain suggest up to six regions could require financial aid, with Catalonia next in line.

 

http://www.guardian.co.uk/business/2012/jul/23/spain-crisis-talks-germany-bailout-eurozone

 

This story tells us several important items:

 

  1. Germany IS the money for the EU (Spain went to Germany, NOT the ECB or IMF)
  2. The original bailout request for €100 was an outright lie or a covering up of the facts (why does Spain now need €300 billion only one month later?)
  3. Spain as a country is broke. As in BROKE. Its sovereign Debt to GDP of 70% is not the issue, the issue is the hundreds of billions of Euros worth of debt hidden amongst the various regions and its banking system.

 

If you need more info on Spain, the bullet items from them that you need to know are that:

 

  1. A huge portion of Spain’s banking system (representing over 50% of mortgage loans AND deposits) was totally unregulated up until just a few years ago.
  2. Spanish banks are drawing €337 billion from the ECB on a monthly basis to fund their liquidity needs.
  3. Every political figure and bank in Spain is HIGHLY incentivized to lie about the true nature of the Spanish banking system (a private text message from the Prime Minister claimed the REAL capital needs were closer to €500 billion… which is assuming he knows what he’s talking about/ the banks were honest with him… which I HIGHLY doubt).

 

Indeed, the markets have figured out the Spain is DONE.  After all, if the IMF and ECB are refusing to fund Greece anymore, how on earth could they fund Spain whose problems are many multiples of the size of Greece’s?

 

Indeed, the yield on Spanish ten year bonds is now well above the “we need a bailout” 7% level. Moreover, Spanish Credit Default Swaps (bets that Spain will default) are at record spreads.

 

And Spain’s Ibex has broken its 15-year bull market and is now on the verge of confirming a Head and Shoulders pattern with a downside target of nearly ZERO:

 

 

European political leaders can play their little games, but the markets have a way of figuring out the truth sooner or later. And the truth is that Spain is in as bad a shape as Greece if not worse. Expect things to get very, very ugly soon.

 

The reason for this is that: Spanish banks need to roll over (meaning renew terms on) more than 20% of their bonds this year.

With interest rates spiking throughout Spain (meaning Spanish corporate, bank, and sovereign bonds are falling in value), Spanish bank bondholders are going to be demanding much higher rates of return when it comes time to renew their positions.

 

With Spanish banks already under severe funding stress (again, they drew €337 billion from the ECB last month), they’re in no position to start paying out higher interest payments to bondholders.

 

And with investors realizing that Spain’s banks are all lying about the state of their balance sheets (remember, Bankia was talking about paying a dividend just one month before it collapsed and revised its €41 million 2011 profit to a €3.3 billion LOSS), we’re going to be seeing plenty of bank failures this year.

 

Remember, Spain’s initial request was for the EU to bail out its banks NOT the country itself. However, with some six Spanish regions (probably more) looking for bailouts Spain is now facing both a sovereign debt AND a banking crisis.

 

On that note, we’ve recently published a report showing investors how to prepare for this. It’s called What Europe’s Collapse Means For You  and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.

 

This report is 100% FREE. You can pick up a copy today at: http://www.gainspainscapital.com

 

Good Investing!

 

Graham Summers

 

PS. We also feature numerous other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s a US Debt Default, runaway inflation, or even food shortages and bank holidays, our reports cover how to get through these situations safely and profitably.

 

And ALL of this is available for FREE under the OUR FREE REPORTS tab at: http://www.gainspainscapital.com

 

 

 

 

 

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Mon, 07/30/2012 - 13:26 | 2662713 FedBunny
FedBunny's picture

On March 12 I commented, "Graham is an idiot and should be barred from Zerohedge." I got one up vote and two downs votes. Convinced yet??

Mon, 07/30/2012 - 14:05 | 2662883 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Agree, nothing new here. Chicken Little, the sky is falling, oh, oh, then sells his newsletter. At least Reggie has amusement factor and some trade recommendations. Maybe Tyler can track whether people even bother to read these articles anymore, they're all the same. C'mon Tyler up your game, more like Bruce K and Wolf Richter please.

Mon, 07/30/2012 - 13:22 | 2662696 Snakeeyes
Snakeeyes's picture

Agree wiith Phoenix Capital.

Look at chart of the Spanish debt and rollover dates. And then Spanish GDP growth.

http://confoundedinterest.wordpress.com/2012/07/30/sovereign-debt-rollover-can-the-ecb-and-fed-resolve-the-debt-crisis/

Mission impossible!

Mon, 07/30/2012 - 12:52 | 2662587 Jack Sheet
Jack Sheet's picture

No comment.
Signed Robert Brusca.

Mon, 07/30/2012 - 12:24 | 2662498 ElvisDog
ElvisDog's picture

And how is Spain going to repay (or even pay the interest on) $300 Euro in additional debt on top of its current debt load?

Mon, 07/30/2012 - 12:12 | 2662442 Joebloinvestor
Joebloinvestor's picture

Spain will not "break the back of the EU".

That will happen when France requires a bank refunding.

Of course it will not be defined in french as "le bailout", but a liquidity shortfall.

 

Mon, 07/30/2012 - 12:10 | 2662431 Assetman
Assetman's picture

Does Graham Summers actually answer anyone on this site?

 

Mon, 07/30/2012 - 12:19 | 2662474 Winker
Winker's picture

I am actually a paying Phoenix client and I gotta tell you that I am having a VERY hard time geting any responses from the direct email address I was given.  I guess the joke is on me?

Mon, 07/30/2012 - 13:15 | 2662667 itisthetimethis...
itisthetimethisistheplace's picture

Ouch.

Graham has to be the biggest joker that contributes to ZH. He is interested in nothing but trying to bottom feed for new subscribers. His commentary is nothing but a concoction (plagiarism if you will) of other news that has been talked about weeks before he puts ink to jet.

Anyway, Graham gets bashed all the time here. 

I expect Graham lovers will flame this post but here are a few email address for you. I have seen the likes of Graham Summers all too often so be careful where you put your money.

You can not con an honest man.

grahamcsummers@gmail.com

graham.summers@gmail.com

graham@gainspainscapital.com

 

Mon, 07/30/2012 - 13:07 | 2662637 Jack Sheet
Jack Sheet's picture

"phoenix" is probably a program like the Train Master in the Matrix part 3.

Mon, 07/30/2012 - 12:53 | 2662590 bank guy in Brussels
bank guy in Brussels's picture

If you are a paying Graham Summers client and not getting minimally acceptable service, you should - seriously - let Tyler and ZeroHedge know about it with a complaint to one of their addresses on the right sidebar.

Mon, 07/30/2012 - 12:06 | 2662413 Moe Howard
Moe Howard's picture

I cannot afford any more of these free reports.

Mon, 07/30/2012 - 12:06 | 2662408 Carl Spackler
Carl Spackler's picture

If "done" means past the tipping point, where the math no longer works, then I can see that.

Otherwise, I think Spain still have some abiity to drag things out before total default or Euro exit.

The Spanich question has moved from the realm of economic to political question.

Nobody, Germany included, wants to be labeled as "the straw that broke the camel's back" when the history books are written.

The remaining moves in this game are about "saving face" and not being blamed, and the broke Southern Euros know this, but they try to hang on.

Consequently, it's a big game of chicken with everyone hoping the other guy will be the one to blame for starting the contagion and cascading effects on the path to collapse.

It will break, but it is very hard to say exactly what the breaking point will be, Graham.  Remember, this is a political question, now.

 

Mon, 07/30/2012 - 11:34 | 2662332 digitlman
digitlman's picture

Hrmmm....I seem to recall the same headline with Greece in the place of Spain.

You haven't been right yet.

 

Mon, 07/30/2012 - 11:31 | 2662320 LawsofPhysics
LawsofPhysics's picture

Maybe, but by "done", what do you mean?  Where is the physical state that is "Spain" going exactly?  Mars?  Uncharted waters indeed and all things physical.  All eCONomies are local and getting more so by the second.

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