Spain May exports - new record

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Spain's current account balance under 3%

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German goose, Spanish gander

From Bloomberg's Euro Crisis blog...

'...the 1975 annual report of Deutsche Bank AG notes that between July and October of that year, the central bank spent 7.7 billion marks (equal to 3.9 billion euros or $4.8 billion at today’s exchange rates) buying German government bonds to prevent "a looming, economically undesirable rise in effective interest rates."'

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Death of a franchise

Ireland...

Government debt/GDP - 108%

Government deficit - 10%+

Unemployment rate - 14%

Mortgage delinquency rate - 15%

4-year bond yields...

Spain - 5.90%

Italy - 4.99%

Ireland - 4.90%

This, the aftermath of earlier successful Irish bond auctions.

We've noticed a comment or two that would have it the results were contrived - a publicity stunt. A more reasonable assessment, in our opinion, would be that real money - pension funds, insurance companies and c. - are finally coming to terms with the risks inherent in the current situation. Buy Spain and it goes wrong - you lose your job. Buy Germany - no matter what happens your employer can't meet its future obligations.

Hundreds of billions waiting for the word.

Gut-wrenchingly conscious of this is the noise-o-sphere. A very successful disaster franchise dies with some resolution of this issue and they're fighting tooth and nail to keep it alive, with Spain being the last stand. Here's a recent beauty in which the writer utilizes a couple of standard issue hack techniques to produce the largest number possible.

Multiple counting of short-term debt refi needs and

Refusing to graphically show the portion of 2012 requirements that are already covered (although he does mention it, in passing, in the text - like the reader's going to ignore the chart and do the calculations).

*Irish yields via Owen Callan.

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PIIGS and dodos meet the centrifuge

As to whether, as we maintain, a good degree of what is hysterically referred to as 'capital flight' by that contingent chronically craving attention would be better described as 'repatriation' we think the chart on the left, at least to some degree, provides some justification.

Showing cross-border claims within the euro zone, via the ECB, and foreign claims on the Spanish economy, from the BdE, for the categories of deposits, loans and bonds, the evidence is that the EZ itself is undoing a portion of its financial integration*. Yes, foreign deposits have been leaving Spain at a faster rate than for the EZ as a whole. But foreign holdings of Spanish bonds, the other noise-o-sphere armageddon poster child, have decreased slightly less, on a percentage basis, than cross-border claims of this type in general. Foreign loans to Spanish entities speak for themselves.

Considerably more interesting, to our eyes, are the figures portayed in the second graphic. They show the percentage of EZ cross-border claims that are actually claims on Spain. Bonds we can understand. The majority are corporate and the Spanish economy - as any quick survey of the components of the Ibex 35 will reveal - is dominated by heavy users of this type of credit. Banks, telecommunications, energy utilities and infrastructure builders and operators. But that cross-border deposits in Spanish banks, despite recent reversals, are nearly double Spain's share of eurozone GDP?

The change in total claims show a very slight preference for other EZ countries.

*Readers should take a look at this very short DB Research piece on the proportions this centrifugal phenomenon has reached.

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When short bans work

Aug 11, 2011 - Spanish short sale ban announced. Close +6% from intraday low.

July 23, 2012 - Spanish short sale ban announced. Close +5% from intraday low.

As for the collection of mindless blanks that immediately start shouting that short bans accomplish nothing - the low on August 11, 2011 came shortly before the CNMV announcement, as it did today. Buying on the news then and selling on its cancellation would have netted about 12 percent - one of the few opportunities for longs to make money in recent history.

There is a difference between capital flight markets and speculative froth.

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Refi-fo-fum

To celebrate the fact that the Comunitat Valenciana* (all of whose domiciled banks are officially insolvent and nationalized) has put an end to what was threatening to become a relatively peaceful sovereign debt summer by announcing that it will be seeking financial aid from the central government in order to meet debt redemptions, Expansión has published a table showing the 2012 refinancing needs of Spain's multiple regional governments.

Combining these figures, totaling about 35 billion euros, in various ways with regional GDP's, we've come up with the above chart.

The wide variation makes it mostly illegible, so we'll assist the reader a bit here.

1). The blue bar shows each region's percentage contribution to national GDP.

2). The red shows the percentage of total 2012 regional refinancing that falls on the shoulders of each comunidad autónoma. Red > blue = bad.

3). The orange bar shows 2012 refi as percentage of regional GDP. Tiny La Rioja on the far right certainly steals the loser's limelight from Cataluña, Valencia and Castilla-La Mancha.

The regions displaying the most intelligent management of the boom that died in 2008 were, hands down, the País Vasco and Navarra. One of these days we'll get around to showing exactly how much of Spain's scant crisis-era economic growth can be attributed to these two which produce about 8 percent of national GDP.

Runner-up spots go to Aragón, Asturias and Cantabria.

*And now Murcia.

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Merchandise trade deficit

The Ministerio de Industria has just published the most recent merchandise trade figures for Spain. On a month to month basis it's a very volatile series, but May's trade deficit in goods is worth pointing out - far and away the lowest in the series. As a rolling 12-month sum, the 4.5 billion euros is the lowest since the summer of 2003. Measured against GDP, which has increased by nearly half since then, the reader can imagine.

Behind this, May's exports of goods were at record same-month levels (March, June and September are the normal local peaks) and the third highest in the whole series, while imports were kept in check by falling petroleum prices.

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PIIGS and dodos-eurozone bank deposits

Choosing as a starting point May 2010, the month in which eurozone residents' deposits in Greek banks reached their all-time maximum of 380 billion euros, the chart on the left shows the normalized changes in the same, through May 2012, for the banking systems of all of the countries classified as PIIGS.

For those commentators whose notion of context might be comparable to that of an extinct flightless bird, the large 49 billion decrease in Spanish bank deposits in April reversed one-third of the massive increase in same over February and March. How much of this money went to Greece, by the way? Up 43 billion in April

Spanish deposits were up 22 billion in May.

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Three conditions

Earlier this week, the comprehensive list of conditions upon which depends the EU bailout of the Spanish banking system was published. Three points particularly stand out from this writer's point of view.

9). '...segregation of assets in those banks receiving public support in their recapitalization effort and their transfer of the impaired assets to an external Asset Management Company (AMC).'

This is the 'bad bank' solution to toxic real estate assets. As for the implementation, three-quarters of the ground work was accomplished when Banco Financiero y de Ahorros recently outdid their 7 billion euro capital requirement with the announcement that Bankia's parent's value had been calculated to be negative 13 billion. Bad bank up and running already.

27). 'In light of the high dependence of the Spanish economy on bank intermediation, the Spanish authorities will prepare, by mid-November 2012, proposals for the strengthening of non-bank financial intermediation including capital market funding and venture capital.'

A long overdue shot at the Spanish cartel financing model.

Fundamental to the collapse of the caja system was the widespread incestuous ownership relationship between the regionals and what should only have been clients. The cajas had been functioning as venture capitalists - with the fatal drawback that decisions concerning where to invest were made on the basis of conflicted political interests, friendships, family affilations, personal economic gain... anything but actual business considerations.

Interested readers might go to the list of equity investments on page 111 of BFA's 2011 annual report and imagine the possibilities.

31). '...ensure less tax-induced bias towards indebtedness and home-ownership,...'

Uh-huh. Let's make it even more difficult to dig ourselves out of the real estate morasse. The all too typical pro-cyclical nonsense intended to compensate for decade-old oversights.

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Spain export growth since pre-crash peak

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Spain euro era export growth

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Spanish exports continue to mark new records

Yesterday's post on Spain's current account deficit proved to have, despite finding itself published on the American July 4th holiday, caught the internet's fancy. We'll take advantage of the public's (possibly temporary) disposition to be attracted by non-negative surprises and devote a few more days to the matter of Spanish external trade, competitiveness and the like.

On the left, actual Spanish export figures over the life of the euro.

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Spain's CA deficit sets record

In April, the Spanish current account deficit - calculated properly on a continuous 12-month basis and as a percentage of GDP - recorded its lowest level since the beginning of the euro era.

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Dodo sighting

From the Spanish Tesoro - figures good through the end of May.

At a more detailed level, foreigners were net buyers of t-bills and sellers of bonos and obligaciones. Domestic banks lightened exposure across the curve.

Those concerned about the level of Spanish 10-year yields might take some solace from the fact that issues to date have already duplicated this year's 8 billion euro rollover requirements. Average yield paid - about 5.2 percent. That's 100 bps higher than in 2002 on what represents 1.3 percent of total outstanding.

Net issuance of that bond in 2003 was, for those wishing to plan ahead for 2013, all of 2 billion euros.

Real analysts know that the trouble is at the short end. The 25 biilion of 3-years that needed to be rolled this year were issued at 2.11 percent. That's why, because everybody with half a brain knows at what point an intervention would take place, 2- and 3-year shorts were abandonned (and steepeners put on) to the tune of 130 basis points in the last two days. Reaching an acceptable target of 3 percent, say, will require more than threats, however.

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