Tyler Durden's picture

It will come as no surprise that the Spanish 'experiment' with the euro is not going well. Spain now relies more heavily on the ECB than at any time and today's bill auction sums up all that is wrong about our financial markets when an event that absolutely should be expected to be a non-event (a sovereign nation selling a small amount of short-dated debt) becomes a catalyst for algorithmic excess. In perhaps the greatest analogy for today's auction, Micheal Cembalest pronounces "throughout my career, central banks having to buy or finance sovereign debt to avoid a debt crisis was like going to the prom with your sister: there’s something very unnerving about it, even though it looks normal from a distance." It did not take long for the honeymoon following LTRO2 to end and despite today's exuberance, Italian and Spanish equity markets (as well as financial credits) have collapsed as Spain's sovereign risk has skyrocketed. While Spanish bank holdings of Spanish govvies, ECB lending to Spanish banks, and Spanish credit risk are surging so is one other much more worrisome fundamental trend - that of corporate non-performing loans. Dismissing the dichotomous relationship between consumer and residential delinquency calmness relative to unemployment's explosion (much as the market has in its pricing of bank stocks), the JPM CIO remains underweight Europe arguing that while contrarian calls are often the most profitable, this time being underweight European equities is the gift that keeps on giving.


The 'explosive' moves in Spanish risk and reliance on the central bank...

And the relative collapse in Spanish and Italian equity markets post-LTRO...

But, just as we have the BS BLS and the Census Bureau to deliver non-sensical data to confound the logic of what is going on in markets, the residential and consumer loan delinquency data in Spain seems questionable at best while corporate loans are tracking unemployment in their surge higher...


The other thing that’s rocketing higher in Spain: non-performing corporate loans (see chart). Interestingly, as my friends at Hamiltonian pointed out to me recently, consumer and residential delinquencies are flat, despite a surge in unemployment. I recommend taking this data with a giant grain of salt, given what one would normally expect. Markets are doing exactly that, which is why Spanish banks trade at less than tangible book value; a bit less than 1.0x for BBVA and Santander, around 0.5x for the domestically-focused Cajas. Note: Caixabank recently purchased Civica at around 0.35 times book value.

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Scalaris's picture

Jackson Hole bitches. 

navy62802's picture

The "periphery?" When the hell did Italy become "the periphery?"

Jason T's picture

Everytime I pay my electric bill here upstate NY, which goes to NYSEG, which is owned by Iberdola, a spanish utility company, with $43 billion in debt.. which means basically that a Spanish Bank owns my electric company, which has a monopoly mind you... regulted to make sure it's profitable at least.. I am transfering a bit of my household earnings to a Spanish bank and some executives of Iberdola in Spain.


When banks can issue money and buy assets like this, you do have to question what the deal is with this kind of system.  

Ideally, I would prefer my retired neighbors, who may have worked for NYSEG durnig their working years, owned shares of NYSEG them selves and collected nice dividends.  But nope.. the bankers want to own everything.  TJ you were so right.

slaughterer's picture

Mario has developed other ways to LTRO the periphery without calling the BuBas attention to it.   

carbonmutant's picture
Egan-Jones downgrades Spain
navy62802's picture

Not even front-page news anymore.

ekm's picture

Something that is created out of nothing, that is rejected to be exchanged with real goods and services, will inevitably go back to nothing.

In other words, Flow is what matters, not Stock.

Paul Atreides's picture

Dear Spain,

Stop selling bonds and issue government created money.....oh excuse me I have a knock at the door...

Thamesford's picture

Yo hablo LRTO?

No, soy habla Q-ease


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Ideally, I would prefer my retired neighbors, who may have worked for NYSEG durnig their working years, owned shares of NYSEG them selves and collected nice dividends. But nope.. the bankers want to own everything. TJ Ideally, I would prefer my retired neighbors, who may have worked for NYSEG durnig their working years, owned shares of NYSEG them selves and collected nice dividends. But nope.. the bankers want to own everything. TJ you were so were so right.........Soccer Balls | Soccer Jerseys | soccer shoes | Soccer Cleats | Football boots

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