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Monday, June 11, 2012

100 Billions to save the World

The announcement, on Saturday, that Europe will save Spanish banks with 100 billions Euro is the catalyst markets where waiting for to bounce from depressed prices we've seen lately.
Finally European Community is taking her destiny into her hands and, with determination, announces is willing to do something concrete; of course such statement couldn't come without some protests from previously bailed out countries (the magic trio Greece,Ireland and Portugal) with Ireland asking why she had to pay such an high price (in terms of austerity) when Spain is getting it for "free".
The answer might be founded in the austerity measures Spain already took with Zapatero first and Rajoy lately, measures that Ireland wouldn't have taken if not obliged by European Institutions.

Spanish house market is heavily depressed from the old days of the subprime crises dating back in 2008 and never recovered, things started to get worse when private debts where taken from the private sector (banks who paid mortgages with carelessness to people who would have never been able to pay them back) and spread it over the public sector.

Image courtesy of FreeDigitalPhotos.net

How else would you define the big efforts Governments put in the past years on saving banks? Let's just think that if the same money spent on banks would have simply gone to Governments, Europe could have saved not only the magic trio but probably Spain, Belgium and at least half of Italy. What certainly couldn't miss was the disapproval of Germany that apparently is working against Europe and seems like it doesn't miss opportunity to talk markets down. What was said yesterday by Bundesbank was just another broadside, they basically said Germany's patience is limited and if they agreed once to help it doesn't mean they will always do. The Bundesbank probably realized that German Banks are the most heavily exposed to Spain after French Banks and come just before British Banks, so there was no way they could have let any of the Iberic Institute fail without provoking something probably much bigger than the collapse of Lehman was in 2008.

The result of this announcement was a jump in market indexes during the Asian session with Tokyo closing 2% higher followed by the Kospi, the Hang Seng and the Strait Times and Oil jumping $2 higher in the first minutes of trading.
On the chart below you can see how oil bounced right at the beginning of the trading day, the dotted line represent the closing of  New York on Friday afternoon, a similar movement was seen in most commodities from Gold to Copper and is a clear sign of risk appetite.

We should also mention much better than expected data coming from China; imports and exports rose in May  more than double of what was expected but on a day like this when Europe finally gives a sign of life nobody will pay attention to the Asian giant.

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