Ahead Of Major October Redemptions, Spanish Treasury Cash Slides To Two Year Low
A month ago, when we first presented the dwindling Spanish treasury cash position, we wrote: "once the next Spanish State Liability update is posted, we wouldn't be surprised to see this number plunge to a new post-Lehman low. Yet what is scariest is that all else equal (and it never is), at the current run rate Spain may well run out of cash by the end of the year even assuming it manages to conclude all its remaining auctions through year's end without a glitch." The August cash balance update was just released by the Banco de Espana, and there's good news, unsurprising news and bad news.
The good news: the new number, which came at €19 billion (compared to July's €23.2 billion) is not a now post-Lehman low. Yet. That number is still the €16.3 billion from August 2009.
The unsurprising news is that the August cash balance is the lowest it has been since August 2010, a time when Spanish banks were not openly insolvent, and when Spain did not openly need a bailout.
The bad news, is that as we expected last month, the burn rate, of over €4 billion per month, is one which still would mean that absent a major cash injection, Spain will run out of money by the end of the year.
Actually, there is even worse news: while in September, which is now over, there were no material cash needs that we know of (aside from the endless budget deficit), October is a very different story.
As we wrote in "The Chart Spain's Mariano Rajoy Wishes Could Be Swept Under The Rug", Spain has a major net cash outflow in the month that has just started, an outflow which unless some magical source of cash is promptly procured, then Rajoy will need a real bailout, as opposed to the faux ECB-mandated one, which buys the country some time to fund itself for a few more weeks, before that can kicking exercise too fades.
As is quite obvious on the chart above, and explains Goldman's urgency with a formal Spanish ECB activation request, the closer we get to October, the closer Spain gets to running out of cash. And in that particular case none of the currently implemented reality countermeasures will do anything to hide the fact that Europe's emperor was naked from the very beginning.
The flowchart then becomes as follows:
1. Find out what the Spanish cash balance was as of August. If the economy indeed contracted far more than expected, which it likely did, this number should dip below €20 billion for the first time since August 2011.
2. The September number will not be known until a month later. However, it is safe to assume that it will not be a blockbuster cash surge.
3. If the total cash balance extrapolated going into October is close to the ~€15 billion needed to satisfy the Net Cash Requirement, watch out below, as "Plan Silvio" comes into play.
3.5. What is "Plan Silvio" you may ask? Simple - in November 2011, the ECB made it very clear it would no longer purchase Italian bonds as long as Berlusconi was in charge. In essence, this was the first act of the now totally political ECB, courtesy of its then-brand new president Mario Draghi, who had replaced JC Trichet days earlier. End result: Italian bonds soared to their post-Eurozone highs, and Silvio was promptly replaced with a Goldman technocrat. Just as was planned from the beginning.
4. Of course, Plan Silvio will be called Plan Mariano in its 2012 version. It will, however, manifest itself in identical terms to its prior iteration: a bond curve inversion which forces the current administration to do the biddings of the market. Should the Spanish bond curve, however, invert, it would mean that the 2 years will literally implode, as the matched yield will soar by 300-400 bps.
5. Next steps: in 2011, one firm that literally bet the farm that the ECB would not allow a curve inversion in Italy (it did), as a catalyst to replacing the current government, was everyone's favorite client money vaporized: MF Global. Should Plan Mariano be a "go", we can only wonder how many other hedge funds and prime brokers will suffer the MF Global fate, now that buying the Spanish short end is the "no brainer" trade of 2012.
Naturally, all of the above assumes that the Spanish economic contraction has continued, and its funding needs are over and above those budgeted at the beginning of the year when the Treasury bond issuance schedule was announced.
Ironically, now that Silvio Berlucosni is being groomed by Mario Monti to reenter Italian politics, this time properly educated in the unconditional requirements of the global banking syndicate (never tell the truth; always do as your Goldman superiors tell you to; sit; smile; don't assume for a moment you are in charge and just play with the underage girls), it is Spain's Mariano Rajoy that is increasingly becoming a globalist headache, something which every other technocrat in Europe, and its banks, is becoming aware of.
Unless Rajoy changes his ways and very quickly, and by this we mean the next 47-72 hours, and demands a bailout, except the ECB to pull "Plan Silvio" on Monti, and quickly and quietly replace him with yet another Goldman field agent, currently getting his debriefing and ready to act unless Rajoy finally does as he is told...
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