Tuesday, June 15, 2010

Spanish Inquisition

IMF head Dominique Strauss-Khan is flying to Spain "to discuss global economic developments with the Prime Minister, and to consult with him on developments in Spain, including the government's economic policies and reforms" according to Reuters. The last time the IMF sent a delegation to a country was on April 15th when the IMF together with representatives from the EU and ECB took a jaunt over to Athens. A month later the country was insolvent. I can't wait for the official denial that this visit has nothing to do with the frozen Spanish liquidity market.. interbank lending to the Caja's and most Spanish banks are essentially non-existant from what ZH is saying. An auction of Spanish debt yesterday underlined how fast the situation is deteriorating. Yields on one-year debt reached 2.45pc compared to 0.9pc as recently as April, suggesting that the markets do not view the EU's €750bn rescue shield as credible.
Francisco Gonzalez, chairman of BBVA, stunned investors earlier this week by admitting that "the majority of the Spanish companies and financial groups are shut out of the international capital markets". There was a tidbit (I can't find it) earlier today that someone in Brussels said that Spain and Portugal need far deeper spending cuts. The Euro and equities had it's nice run up this week; weak speculator shorts had their peepee's whacked; central bankers smiled at their pain; CNBC convinced a few more suckers into buying stocks. When news of Ms.Strauss-Khan's visit hits the airwaves, this could all crumble apart. Look towards the overnight European markets for some guidance here. In the meantime, I'm going to put in an order to "sell" one Euro contract at $1.2295 at tomorrow's open with a one cent stop loss just in case I'm wrong. My guess.. there's more to this Inquisition than "government policies and reforms". Keep an eye on the LIBOR.
5pm: The Euro started out weak, but made a small comeback, ending the day at $1.2315 and so I'm now short one Euro from $1.2295. Today was amazingly quiet given the events surrounding Spain. As many have commented, the stock markets in New York have nothing to do with reality and exist in a parallel reality ruled by computers & algorithms. Meanwhile more news of Spain: "A European Commission spokesman today “firmly” denied a Spanish press report that Spain was in negotiations with the European Union, the International Monetary Fund and the U.S. Treasury for a credit line of up to E250 billion" Uh, yeah. Tomorrow will be the auction of Spanish Government 10 and 30 year bonds.. my prediction is that it'll go off just fine, thanks to the chain smoking, shady, trenchcoat wearing dude in the very rear of the auction wearing a "Jean Claude's Friend" emblem on one lapel and "I Love Brussels" on the other. If nobody else buys at the appointed rates, this surly gent will surely snap up what remains. And here you were thinking Cancer Man was just a TV character. me

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