Bankrupt Spain is Beyond Saving
Interest-Rates / Eurozone Debt Crisis Oct 25, 2012 - 12:15 PM GMTBy: Graham_Summers
My prediction regarding the breakup of the EU was obviously way early.
However, the fact remains that the EU will break up in time. And it will likely be Spain that brings this about.
The reasons? Among other things:
- Spain’s private Debt to GDP is above 300%.
- A huge portion of Spain’s banking system (representing over 50% of mortgage loans AND deposits) was totally unregulated up until just a few years ago.
- Spanish banks are drawing over €400 billion from the ECB on a monthly basis (up from €377 in June) to fund their liquidity needs.
- Spanish banks are now net sellers of Spanish sovereign bonds (leaving the ECB as the only buyer in the market)
- Spain’s banking system has lost 18% of its deposits in the last 10 months due to a staggering bank run.
- The economy of Spain is a disaster with total unemployment over 25% and youth unemployment above 50%.
- Spain is now facing a constitutional crisis with various regions looking to secede if they don’t receive bailouts from the Federal Government “without conditions.”
- Spanish banks need to roll over (meaning renew terms on) more than 20% of their bonds this year.
So Spain will suffer a collapse, most likely of its banking system resulting in a sovereign default (barring a bailout). When this happens, some €1 trillion+ worth of collateral (still rated AAA by EU banks) will be sucked out of the system.
This in turn will spur margin and collateral calls on tens of trillions of Euros’ worth of derivative trades.
And the EU Financial System collapses.
This is reality, regardless of who wins the US election. It may take a few months before it hits… but it will hit.
On that note, if you are not preparing for a bloodbath in the markets, now is the time to do so. The reality is that the Central Banks are fast losing their grip on the markets. They’ll never admit this publicly, but I can assure you that Bernanke and pals are scared stiff by what’s happening in the banking system right now.
Those investors looking for actionable investment ideas could also consider our Private Wealth Advisory newsletter: a bi-weekly detailed investment advisory service that distills the most important geopolitical, economic, and financial developments in the markets into concise investment strategies for individual investors.
To learn more about Private Wealth Advisory… and how it can help you navigate the markets successfully…Graham Summers
Chief Market Strategist
Good Investing!
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I call it The Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a wealth of information about portfolio protection, which investments to own and how to take out Catastrophe Insurance on the stock market (this “insurance” paid out triple digit gains in the Autumn of 2008).
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Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.
Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.
© 2012 Copyright Graham Summers - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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