Friday, June 29, 2012

RAJOY apparently got a pretty  sweet deal at the Brussels summit yesterday: Europe will capitalize troubled banks directly and not through the government, thus easing the sovereign debt conundrum; the non-seniority of the funds is confirmed, and Europe is open to use the rescue funds in the future to buy sovereign bonds.

It's gonna take some time to see if this works out. So far the markets, which started sending the Spanish bond yield down remarkably this morning, seem to have changed their minds, and the spread with the German bund is again over 500 basic points.

Thursday, June 28, 2012

HOW TO save Spain's banks.

WE DON'T NEED more Europe — we need more free market.

NEW YORK TIMES: "Spanish Officials Hailed Banks as Crisis Built"

True, but the piece only mentions a handful of people; it's basically about the central bank's chairman a few years ago, Mr. Caruana and Mr. Viñals. But it leaves out Mr. Fernández Ordóñez, just ousted. And leaves out political officials, who ignored as much as the central bank chairmen the alert that a big storm was coming. After all, the 2006 report by the central bank's own analysts that the NYT article mentions was also sent to Pedro Solbes, then Finance minister in Zapatero's cabinet.

Or Zapatero himself, who bragged for years that Spain's financial system was in the "Champion's league" and would never be in trouble. Or then-Housing minister in his government, Ms Carme Chacón, who infamously walked our of a BBC interview when they had the 'temerity' of asking whether there was a real estate bubble in the country. And so forth.

SHOULD CIRCUMCISION be illegal? A court in Cologne, Germany, thinks it should.

Tuesday, June 26, 2012

A FOUR-STEP, ZERO-COST plan to fix the Spanish economy, by Daniel Lacalle at the WSJ:
According to Spanish Finance Minister Luis de Guindos, investors are not taking Spain's "growth potential" into account. There is truth in that assessment, but Spanish authorities seem resigned to the notion that they can do no more to actualize this "potential." I believe there is a lot more they could do.

Spain has failed to restore investor confidence in its ability to repay its debts predominantly because the reforms pushed by the Rajoy government so far have focused mostly on revenues, namely tax increases, while the government's bloated administration and massive subsidy culture remain in place. As such, the economy deteriorates and taxes go up, while debt continues to grow.

Spain seems stubbornly intent on restoring tax revenues that were the product of a giant real-estate bubble, and those will not return easily. Tax collections per capita increased almost 40% between 2003 and 2008 due to the housing bubble, driving a similar increase in government spending. Spain created a public sector perfectly suited for an economy that would grow 2% per year forever. It didn't. Once the bubble burst, those revenues disappeared but the spending stayed. That funding gap, which took Spain to an 8.9% deficit in 2011 from a 2% surplus in 2007, can not be tackled through taxes, but only through cuts in spending.
Read it all.

Monday, June 25, 2012

WHAT'S A TRILLION BETWEEN FRIENDS? The Financial Times' Gavyn Davies got his maths wrong on Spain and Italy's financing needs.

And he got 'em really wrong.

THIS IS what happens when you confront computerized models with reality:
Twenty-year-old models which have suggested serious ice loss in the eastern Antarctic have been compared with reality for the first time - and found to be wrong, so much so that it now appears that no ice is being lost at all.

"Previous ocean models ... have predicted temperatures and melt rates that are too high, suggesting a significant mass loss in this region that is actually not taking place," says Tore Hattermann of the Norwegian Polar Institute, member of a team which has obtained two years' worth of direct measurements below the massive Fimbul Ice Shelf in eastern Antarctica - the first ever to be taken.

Some scientific consensus, eh?

Friday, June 22, 2012

HOW MUCH ENERGY does it take to power an iPad? It's $1.36... per year!


(via FB)

SPAIN'S BANK AUDITS that the government commissioned to assess their capital needs are out:
Spain’s banks would need as much as 62 billion euros ($78 billion) in capital to withstand a worst- case economic scenario, according to two consulting firms hired by the government to conduct stress tests on the lenders. 

Oliver Wyman Ltd. estimated banks would need between 51 billion euros and 62 billion euros should Spanish gross domestic product shrink by a combined 6.5 percent over three years and house prices drop 60 percent from the peak. Roland Berger Strategy Consultants said lenders would need 51.8 billion euros under those conditions. The study didn’t consider potential losses on government bonds.

Spain hired the two firms last month to estimate the capital shortfall at the nation’s banks as investors questioned the health of lenders pummeled by a five-year real estate slump. Economy Minister Luis de Guindos has said Spain will use the results of the studies to determine how much money it might need to draw from the 100 billion euros made available by Europe after it requested funding to clean up banks.

“The sad reality is the market has already decided what the conclusion should have been and they’ll say this answer is too low,” said Simon Maughan, a financial industry strategist at Olivetree Securities in London. “We would have been more comfortable if these numbers had come out closer to 80 billion.”
You can read the reports here and here, if you wish (both are pdf files)

Thursday, June 21, 2012

WHAT OLIVER WYMAN really said in its report on Spain's banking system.

SUMMER'S HERE at last.

WHY 'PEAK OIL' is just a theory and not a fact —and, if it ever happens, it will be in a distant future.

Wednesday, June 20, 2012

LUIS ARROYO: "Why did the euro seem to work so splendidly after just a few years …to be about to crash now with such almighty noise? Here I suggest an explanation, which is simple and incomplete and yet, crucial."

THE DAILY TELEGRAPH says it's a done deal: " European leaders are poised to announce a £600 billion deal to bail out Spain and Italy, it emerged at the G20 summit on Tuesday night."

So far, Spain's Treasury minister Cristóbal Montoro is denying it.

Tuesday, June 19, 2012

FROM THE "Austerity? What Austerity?" department: "In 2011, total public-sector spending in Spain was 13% higher than in 2007."

People saying that austerity hasn't worked -- when it hasn't even been really tried yet.

Monday, June 18, 2012

You know Spaniards are depressed when Coca-Cola broadcasts a television commercial encouraging citizens to “go get ’em.” The spot cuts away from foreign commentators predicting Spain’s imminent collapse to showcase the country’s strengths: engineers, high-speed trains, and, of course, soccer. In the midst of a currency crisis, steep credit downgrades, and a 100 billion euro bailout of its banking system, it’s easy to be pessimistic about Spain. But there are some grounds for optimism.
Keep reading.

Friday, June 15, 2012

UNDERSTANDING the European crisis now: a nice infographic by the New York Times.

TO SAVE SPAIN'S BANKS: a bail-in, not a bail-out?

Thursday, June 14, 2012

KEEP IN MIND that the $125b figure of the Spanish bailout was not the actual amount itself. In fact, the bailout hasn't been requested yet; the agreement last Saturday was that the rescue fund would provide up to those $125b (€100b), depending on what would be the result of the two independent audits that the Spanish government had commissioned, which are due next week. Then the bailout would be formally requested. The consensus was that the actual amount would be lower than that; the EU and Spain wanted to put a figure already, with a safety margin, in order to reassure the markets that they were committed, so to speak.

We now know some more:
An audit of Spain's banks that will show the size of a European rescue should be completed by Monday, two sources told Reuters on Thursday, with one saying the figure will be 60 billion to 70 billion euros in funds to clean up a number of banks.

The audit from consulting firms Oliver Wyman and Roland Berger was due for completion by June 21, but will be moved forward because Spanish Prime Minister Mariano Rajoy wants it in hand early next week to provide details on the banks rescue at the G20 summit in Los Cabos, Mexico, said the two sources.

THE ECONOMIST on the Spanish bailout: "The €100 billion pledged to help Spain was meant to rescue the banks and calm the euro zone. Instead it has added to the drama."

Make sure you read it if you want to know what's going on, because it's superbly explained -- except one thing: when it says "The money seems likely to come from the new European Stability Mechanism (ESM), which will be a preferred creditor; that would make Spanish bonds a bit more risky for other creditors." This is not true.

As my friend Bidatzi showed, while it's correct that the funds from the ESM do have seniority, there's one exception established in the treaty (pdf) that creates it:
In the event of ESM financial assistance in the form of ESM loans following a European financial assistance programme existing at the time of the signature of this Treaty, the ESM will enjoy the same seniority as all other loans and obligations of the beneficiary ESM Member, with the exception of the IMF loans.
That means that if Spain taps at least a small amount of funds from the current EFSF, any money coming afterwards from the ESM would be on equal footing, in terms of seniority, as all other obligations. It's amazing that so many people who should know better are blowing this.

THE SITUATION in Egypt is more complicated every minute: "A constitutional court ruling on Thursday means that the whole of the lower house of Egypt's parliament will be dissolved and a new election will have to be held."

TWELVE signs of the Euroapocalypse, at Foreign Policy magazine.

Wednesday, June 13, 2012

WHY GERMANY IS CONCERNED: its potential exposure to the 'euro risk', if everything goes down in flames, would reach around €671 billion, that is, 25% of its GDP.

Tuesday, June 12, 2012

FORGET SPAIN OR GREECE: it's the signs of German weakening what really spell trouble for Europe.

BULLS RETREAT: "Investors gave a thumbs down to Spain's planned bank bailout, setting off a global market rout that puts the country and the euro zone in a dire position."

As I said yesterday at Silvio Canto Jr.'s radio show, the bailout proposal still leaves too many aspects open, particularly interest, maturity, amount, and most notably, whether it'll have seniority over current debt issued. That is, whether current bondholders would have to wait in line until the bailout is paid back. If it does have seniority, current and future bondholders are screwed and therefore the debt problem will continue: no one will want to take more bonds, and those who have them now will try to offload them faster than you say "adiós". That's why yesterday, when authorities realized of this, they tried to calm investors saying it'd be pari passu, with equal preference, but the damage was done and they didn't completely believe it.

It all shows that this bailout was agreed in haste especially because the international community wants to contain the possible damage of an anti-euro party win in Greece next Sunday. In that regard, the Spanish bank bailout announcement was a firewall, announced when it only was a proposal: it was basically saying that both Spain and the Eurozone agreed that Spain would ask for it, but it wasn't a bailout in itself yet. That will happen after the two independent auditors that Spain hired to assess the financing needs of the Spanish banking system deliver their reports next week. Only then the actual figures on interest, maturity and so forth will be decided. Until that moment comes it's basically uncertainty, and this is what investors are refusing. We'll see whether they'll change when the actual terms are decided, but I wouldn't bet too much on it.

Monday, June 11, 2012

IF YOU READ just one thing on the Spanish bailout it should be this, by my good friend Bidatzi.

Of course, you can also hear me in a little over 2 hours...

THIS AFTERNOON at 1pm Eastern I'll be on Silvio Canto Jr.'s show, talking about the Spanish bank bailout; you can listen live, or recorded afterwards, at this link.

SPAIN'S BAILOUT: Rajoy's best chance to fix the banking system. It's yet unclear whether he'll manage to pull it off, but it's a first step. And the alternative as way worse.

Saturday, June 09, 2012

WAS RAY BRADBURY RIGHT? Does paper really burn at 451 degrees Fahrenheit? Not exactly...

[Updated] THE IMF has released its report on Spain's financial system: you can read the press release of the full report (pdf).

Having read it diagonally, my impression is that what it says shouldn't surprise anyone, really: it states that the Spanish banking system is resilient but faces important vulnerabilities (duh), with financing needs between 25 and 40 billion, which is big but at the same time it's at the lower range of the estimates that several organizations, ratings agencies, and international banks have been issuing this week.

The report was supposed to be out on Monday. Why did they release it sooner? The plausible speculation is that it allows the Spanish government to ask for a 'soft bailout' (for the banking, not the sovereign, debt) during the Eurogroup emergency conference call scheduled for this afternoon at 4pm Central European Time (10am Eastern).

Stay tuned.

UPDATE. Minor typos fixed. Oh, and welcome Instapundit readers!

UPDATE III. Done deal, with some uncertainties. Here's the Eurozone statement (pdf)

Friday, June 08, 2012

WILL the Eurozone fall apart as the 'ruble zone' did when the USSR collapsed?

BUSINESSWEEK: How Chinese immigrants are helping the Spanish economy.

Thursday, June 07, 2012

HAPPY BIRTHDAY, DINO! Dean Martin would be 95 today.

Wednesday, June 06, 2012

IT'S THE SAME everywhere you look: "Britain's banks are sitting on a £40bn black hole of undeclared losses that are preventing them from making vital loans to businesses and households."

Tuesday, June 05, 2012

32 INNOVATIONS that will change your tomorrow. Awesome content, superbly presented.

IS IT REALLY true that half of young Spaniards don't have a job? Allan Beattie at the Financial Times says no, since that figure doesn't take into account those who don't work because they're still in education or training. He has a point, but Beattie doesn't take into account those young Spaniards who stay in education or training because they can't find a job...

HARRY EYRES at the Financial Times: " Spain has been getting bad press, but we should not forget that we owe the country."

Monday, June 04, 2012

A SMALL ANNOUNCEMENT: let me introduce you to BarceMusic, a new music Tumblr that I'm experimenting with to share the music I'm listening (as the guys I'm connected with on Facebook and Twitter know I often do). Last Saturday I was killing time waiting for my date to end her workday and thought it would be fun, and I hope not too much time-consuming for me.

It's going to be very eclectic (I like listening to all kinds of music, really), some of it with a short commentary, thought not always; it'll mostly be links to Spotify, but also to other services like Groovshars, and in all kinds of formats: videos, links to files, even articles. I hope you enjoy!

Friday, June 01, 2012

MORE DATA against the idea that Spanish (and Greek) capitals are leaving the country.