Spain: Double Barrel Disappointment

The fact that Spanish bank shares have rallied today (3.1% at pixel time) and have easily outperformed the market (IBEX up 0.3%) following Moody’s downgrade of 16 Spanish banks should be understood as a bit of a fluke. Some observers will use this price action as evidence that rating agencies are laggards. While there can be little doubt that the epithet is true, it is also true that today’s correction comes despite some other bad news as well. This was in the form of the Bank of Spain’s latest assessment that bad loans in the banking system rose in March to 8.37%

[Premium] What developments in Spain and the Netherlands mean for European policy outcomes

I have a number of links coming up in today’s daily commentary. The likely topic will be US interest rates. But there is a second topic I wanted to riff on so I am posting here separately about fiscal woes in Spain and the Netherlands

On Spain’s coming under the watchful eye of the Troika in 2012

This is a thematic post, I am also putting outside the paywall because there is a lot of chatter today about Spain needing to tap EU bailout funds this year. The messaging in the analyst community follows the thematic prediction I made in October 2010 about periphery countries missing targets and this creating a renewed crisis in the euro zone. While Greece, Ireland and Portugal are already in IMF programs, the worry now is that Spain will follow. Let me break down the different threads briefly. Here are the principal stories I am hearing

On Spain, Spanish banks and Spanish local elections

The LTROs may have helped ease this year’s roll-over risk (Spain has met almost 50% of this year’s refinancing needs). But they have not substantially altered the market’s views of the risks of an eventual restructuring

On Homeric Similes And Spanish Debt

Spain is on a bad course, with recognised debt about to surge rapidly, while investor confidence in the current administration is slipping. Time for another “game changer” I think, since otherwise this car is about to crash

Miserable Wants Company

For entities not awarded illusory funding by the ECB, U.S. Treasury Department, or the State of California, reality pounces like a thief in the night, sometimes literally

Richard Nixon: 1971 Annual Message to the Congress on the State of the Union

I have highlighted some of the state of the union addresses by Herbert Hoover in the past because I see the Great depression as a time with certain parallels to the present economic hardship. Let’s look at the 1970s instead now.

Here’s Richard Nixon from 1971, with what was considered a conservative agenda in 1971 based on balancing the federal budget and rolling back centralised governance. However, regarding details, Nixon proposes small government ideas on welfare reform and big government ideas in almost all other aspects of his State of the Union Address.

I have bolded what I consider the most important parts

Spanish government doubts it can achieve deficit target

I have been saying for a few months now that all of the periphery would miss their targets as depression took hold. Belgian newspaper De Standaard reports that the new Spanish government is fearful. My translation from Dutch below

Mosler: I advocate tax relief and jobs, but forecast muddle through at best

Warren Mosler proposes a full FICA suspension, a $150 billion one time distribution to the states and an $8/hr federally funded transition job for anyone willing and able to work. However he believes these proposals will likely not be followed and predicts muddle through at best as a result

Why Spain may be More Worrisome than Italy

At the end of last year, Italian 10-year yields were more than 200 bp on top of Spain. The spread has narrowed in recent days, but is still well beyond the euro era average of about 10 bp and the late 2008 extreme near 65 bp. There is more room for Italy to outperform Spain

The Rain In Spain Falls Mainly On The Journalists, It Seems

Nothing in Spain is exactly as it appears to be, and that few of the arguments politicians and so called “experts” advance are entirely innocent. Most “information” circulating in Spain is highly politicised. Really “independent” analysts are virtually unknown

Footnote 2011: Being cautiously optimistic was right

In January, I wrote my prognosis for 2011. The title was “Cautiously Optimistic Into 2011″. I intend to write another post like this early in 2012 with asset allocation and market calls for the new newsletter. But right now I just want to review the basic outlook I presented.

I had seven major conclusions. Here’s what I said and how well it has stacked up