from Phoenix Capital Research:
Spain’s financial system is at truly apocalyptic levels.
If you’ve been reading me for some time, you know that Spain has already experienced a bank run equal to 18% of total deposits this year alone (another story the mainstream media is avoiding). However, what you likely don’t know is that an on annualized basis, Spain has experienced portfolio and investment outflows GREATER THAN 50% OF ITS GDP.
To give this number some context, Indonesia only saw outflows equal to 23% of its GDP during the Asian Financial Crisis. Spain is experiencing more than DOUBLE this.
I’ve long averred that Spain will be the straw to break the EU’s back. By the look of things this is not far off. The country’s regional bailout fund has only less than €1 billion in funding left. As the below chart shows, this will barely make a dent in the regions’ debt problems:
Indeed, things are far far worse than is commonly know. Valencia for instance owes its pharmacies over €500 billion. In some areas there is no longer insulin.
In the region of Andalusia some government workers haven’t been paid in eight months and are working for free while begging for food.
And Catalonia is pushing to secede from Spain entirely. Indeed, its pro-secessionist leader, President Artur Mas, just won the most recent election. And over 1.5 million of Catalonia’s 7.5 million inhabitants turned out for an independence rally in September.
Again, Spain as a country is finished. Things are so bad that British Airways (many wealthy Brits vacation in Spain) is putting a contingency plan for SPAIN to leave the Euro.
Worst of all, it is clear EU and Spanish leaders have no clue how to deal with any of this. Their latest plan is for the country to cut the balance sheets of three nationalized banks by 50% sometime in the next five years. How will they do this? By dumping their toxic property assets into a “bad bank.”
The idea here is that somehow someone will want to buy this stuff. Spain already had to postpone the launch of the bad bank by a month because no one wanted to participate in it (despite the mainstream media claiming that the idea was popular which is untrue).
So, here we have Spain proposing that it can somehow unload a ton of garbage debts onto “someone” even though there is no “someone” to buy them. And the whole point of this exercise is to meet conditions so that Spain would qualify for another €40 billion in aid.
€40 billion in aid... when Spain has experienced portfolio and investment outflows of more than €700 billion.
Indeed, things are so bad that the ECB has put the entire Spanish banking system on life support to the tune of over €400 billion Euros. To put this number into perspective, the entire equity base for every bank in Spain is only a little over €100 billion.
Oh, and the country needs to issue over €200 billion in debt next year.
If you’re an active investor looking for investment ideas on how to play this, I’ve recently unveiled a number of back-door plays designed to produce outsized gains from Europe’s next leg down. They’re available to all subscribers of my Private Wealth Advisory newsletter.
To find out more about Private Wealth Advisory (a bi-weekly investment advisory that focuses on the global economy and outlines which investments will do best in various environments)…
Why Spain’s Unemployment Nightmare Is So Much Worse
Liberty Street has a few answers to why Spain’s job losses, when compared to Greece’s, have vastly exceeded their corresponding decrease in output:
One contributing factor is the fact that the composition of Spanish jobs made the economy vulnerable to dramatic job losses during a recession. In 2007, almost 13 percent of jobs in Spain were in construction, compared with roughly 8 percent in Greece and the euro area…Another contributing factor is the very high percentage of employees tied to temporary work contracts in Spain. Data from the Organisation for Economic Co-operation and Development show that 32 percent of employees in Spain worked under temporary contracts and 68 percent under permanent contracts in 2007. In Greece, 10 percent were on temporary contracts; the figure for Europe as a whole was 15 percent.
This suggests that structural imbalances are the reason behind Spain’s unusually high unemployment rate relative to GDP decline.
Examining the Spanish story, Liberty Street sees a lesson to be learned:
Spain’s employment experience relative to the rest of the euro area illustrates the cost to the economy of firms having such a high level of flexibility in how they manage workers.
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