And, so it begins....

I predict another couple years of can-kicking, a la Greece.

Let me know when they're on the road to 1000% yields. That was fun to watch with Greece.

ZH--One of the more peculiar developments this morning was the odd divergence between the Spanish stock market, which was down over 3% at last check, and Spanish 10 Year bonds (that catalytic instrument to get LTRO 3, as all they have to do is rise to 7.50% and all shall be well), which had been green on the day all day, until now. As of seconds ago, the Spanish benchmark bond just crossed back into red territory with the yield spiking from an intraday low of 5.717% early to 5.89%, finally catching up with Spanish CDS which have been wider for a while, now that CDS is once again more liquid and credible than cash bonds... At least until ISDA is called upon to decide if and when a credit event has (never) occurred with respect to Spain. And since contagion feeds on itself, tomorrow's Spanish auction is starting to look more and more concerning.

I would argue that the can kicking timeline gets shorter than it was with Greece.

The cans are now getting larger and larger.

I agree, Eli. As Christopher Walken said to Dennis Hopper in "True Romance."

"That's as good as its gonna get and it won't EVER get that good again."

Does that mean the rally monkey finally takes the fatal hit from his crack pipe?!

Say it ain't so Zara!

To keep getting high, you must smoke more and more, or so I'm told...

From Mark Grant, author of Out Of the Box

Devoured By Snakes

“'Tis an old saying, the Devil lurks behind the cross. All is not gold that glitters. From the tail of the plough, Bamba was made King of Spain; and from his silks and riches was Rodrigo cast to be devoured by the snakes.”

- Cervantes



Spain’s GDP $1.295 trillion

SPAIN’S NATIONAL DEBT

Admitted Sovereign Debt $732 billion

Admitted Regional Debt $183 billion

Admitted Bank Guaranteed Debt $103 billion

Admitted Other Sovereign Gtd. Debt $ 72 billion

Total National Debt $1.090 trillion

SPAIN’S EUROPEAN DEBT

Spain’s Liabilities at the ECB $332 billion

Spain’s Cost for the EU budget $ 20 billion

Spain’s Liabilities for the Stabilization Funds $125 billion

Spain’s Liabilities for the Macro Fin. Ass. Fund $ 99 billion

Spain’s Guarantee of the EIB debt $ 67 billion

Spain’s Total European Debt $643 billion

---------------------------------------------------------------------------

Spain’s National and European Debt $1.733 trillion

Spain’s OFFICAL debt to GDP Ratio 68.5%

Spain’s ACTUAL Debt to GDP Ratio 133.8%

These are the figures that I compiled and printed on March 29, 2012. They are not the opinions of Mark Grant but just the cold and hard facts that I was able to pull together from Eurostat and from the Bank for International Settlements. It is a long slog to find the truth but it is there if you look long and hard enough. Unfortunately the data for Spain’s GDP is deteriorating rapidly. The IMF is now projecting at 6.00% contraction in the Spanish GDP for 2012 which changes the numbers dramatically putting their GDP at $1.217 trillion. This then provides a debt to GDP ratio of 142.3% and likely to escalate further given the very serious problems with the Spanish banks and the Spanish Real Estate market. The question now in my mind is one of “when” and not an “if” any longer of when Spain hits the skids and requires European intervention. The problem of course here, unlike Greece, Ireland and Portugal, is that the needed amount of capital will overcome the present resources of the Stabilization Funds and require substantial additional funding which is likely to lower the credit ratings of every nation in Europe. If one of the two major Spanish banks hits the wall then the problem becomes magnified further as it would be catastrophic for the other major banks in Europe. Already we are seeing a sort of run on the Spanish banks as money is fleeing each day from their coffers. Any assumption that “muddle through” will be the outcome here is a mistake in my opinion and I would begin to prepare for that which is almost inevitable now as the crisis worsens.

The Centre for European Policy Studies published their own findings this week and they estimate that the Real Estate accumulated overhang is actually almost $500 billion which equates to 59% of the IMF revised projections for Spain’s GDP. The EU and the ECB may not mandate that the Spanish banks have to mark-to-market in the normal fashion but a quick calculation indicates that the equity of the major Spanish banks is well into the red and past the blood line of any sustainable position. In my opinion, I would state, that the Spanish banks are in fact bankrupt and are only still alive given the financial shenanigans of how Europe allows the numbers to be calculated. I am well aware that many in Europe do not like to be confronted with the truth and that the stock market in the United States is so myopic that they wish to ignore the truth but the numbers are right in front of your nose if you care to look and reality has a funny way of catching up with the markets and reminding them one still equals one in the end. I am an adherent of the Greater Fool Theory and the trick is to let the other guy be the Greater Fool and not one of us. The “when” is unknowable but the “if” is behind us now and I suggest great caution.

What time tomorrow are the Spanish auctions?

If my pal Jubber sees the thread, he'll keep us updated. I relied in him to carry me through the Greek debacle.

ZH--Heading into the auction saw spreads and yields rallying to around 403bps and 5.77% respectively for 10Y and the EUR rallying solidly over 1.3150 (helping to push the USD down and implicitly S&P futures up). The 2Y started to leak back wider heading into the auction at around 3.37% (perhaps on rotation to bid for the 10Y?) and as the 430ET deadline passed, yields and spreads shifted higher in the 10Y too by 2-3bps. Spain 5Y CDS was 490bps (-5bps) and 10Y a smidge wider at 470bps. The total sold met the hoped for EUR2.5bn with both seeing a rise in bid-to-cover (which we already noted is useless as a statistic given this was the second highest bid-to-cover ever for a 10Y bond). It was the all-important yield that told the tale of the fail which came at its highest in 5 months and almost 35bps cheap to the previous auction and the 3rd highest ever.

•*SPAIN SELLS EU1.12 B 2014 BONDS
•*SPAIN SELLS EU1.42B 10-YEAR BONDS
•*SPAIN 2014 BONDS BID-TO-COVER 3.28
•*SPAIN 10-YEAR BONDS BID-TO-COVER 2.42 VS 2.17 AT JAN. AUCTION
•*SPAIN 2014 BONDS AVG YIELD 3.463%
•*SPAIN 10-YEAR BONDS AVG YIELD 5.743% VS 5.403% IN JAN.


Spain 10Y bond auction yield - highest in 5 months and 3rd highest ever...



UPDATE: 10Y yields are now +8bps from pre-auction and spreads +10bps and 2Y yields are popping even more according to Bloomberg as ES is -8pts off its pre-auction highs and EUR -40 pips from pre-auction. IBEX and broad European equities are off but credit (financials lagging) is deteriorating

Charts: Bloomberg

From MSM...

Spain lurching further toward bankruptcy

There is an increasing amount of speculation in the press that Spain, or at least its entire banking system, is going to need a bailout. This would not be so worrying if a bailout were possible, and there weren't quite so many official denials. When it comes to sovereign debt, an official denial means it's time to head for the bomb shelter.

On Wednesday, Klaus P. Regling, chief executive of the euro zone's current bailout fund, told The New York Times: "I don't foresee the need for Spain to come, but there is a lot of money available." Perhaps even more disturbing, he then added that there were "lots of positive elements in Spain that are ignored at the moment but that, no doubt, over time will become clearer to everybody."

Those positive elements are being ignored because the rest of us are looking at what is usually referred to as "reality."

Also on Wednesday, the Bank of Spain announced the nation's banks were holding more bad loans than at any time since Bill Clinton's first term in office. Between January and February of this year, the amount of non-performing loans held by Spanish banks increased by $5 billion. They now make up 8.2 percent of the banks' credit portfolios.

That number will almost certainly increase. Most of those loans are mortgages, and Spain's housing prices dropped by 7.2 percent during the first quarter. Additionally, the nation also has the highest unemployment rate in the EU, which takes some doing when you consider that Greece is also in the running.
Bad mortgages are not the only thing in the banks' portfolios. They also have an increasing amount of Spanish government debt. These are still technically worth something. From December to January, Spain's financial institutions increased the amount of government bonds they are holding by 26 percent. The total face value of those bonds was $289 billion at the end of January.

That is pretty much the only reason for Tuesday's "successful" auction of Spanish bonds. It was deemed a success because the nation sold all of the bonds it wanted to. However, Madrid had to promise to pay nearly twice the interest rate it paid at the last bond auction, which was less than a month ago.

Spain is Europe's fourth largest economy, with a GDP of $1.4 trillion. This makes it impossible to bailout. If you "just" want to bailout the nation's banks, the news is even worse. Spain's three largest banks have combined assets of about $2.7 trillion, or just a little bit less than twice the country's GDP.
credits link--> http://www.cbsnews.com/8301-505123_162-5....

Related/Dated... (4/13)

Spain is worse off than Greece two years ago

Spain's economy is in the worst shape of any European nation and it still has a lot of falling left to do. Its condition is at least as bad as Greece's was two years ago when the debt crisis began. There is one critical difference between the two though, and it is not a good one. As Spanish Prime Minister Mariano Rajoy said Thursday:

Quote:

"It's not possible to rescue Spain."

Quote:

The nation is in a recession, has an unemployment rate of 23 percent, and most of its banks could be cast as extras in "The Walking Dead." That is basically what the head of Spain's central bank said earlier this week. "If the economy worsens more than expected, it will be necessary to continue increasing and improving capital as necessary in order to have solid entities,"

Miguel Angel Fernandez Ordonez told a conference Tuesday. The most optimistic forecasts have the nation's GDP shrinking about 1.7 percent this year.

credits link---> http://www.cbsnews.com/8301-505123_162-5....

JEF looked a little weak yesterday, from late morning through early afternoon. It may be worth monitoring under the circumstances.

(No position.)

can't short that with IG, do you think they are long Spanish bonds?

Right, Jubber. There's been a lot of fanfare over their announced reduction in PIIGS exposure (which came back in November) and (earlier this month) their declared net-short position on Spanish debt. Granted, JEF was under attack over PIIGS exposure back in October, but, for me, this fanfare draws suspicion in a the-lady-doth-protest-too-much-methinks sort of way.

Jefferies certainly made an effort to spell-out (as they see it) their PIIGS exposure in their latest 10-Q:

http://www.sec.gov/Archives/edgar/data/1....

Here's what Jefferies had to report in their prior three 10-Qs about their PIIGS exposure:

Quote:

Our market risk exposure to Portugal, Italy, Ireland, Greece and Spain was small at February 28, 2011.

Quote:

Our market risk exposure to Portugal, Italy, Ireland, Greece and Spain was modest at May 31, 2011.

Quote:

Our market risk exposure to Portugal, Italy, Ireland, Greece and Spain was modest at August 31, 2011.

If everything was "small" and "modest," then why the need for the fire brigade last fall? Of course, if they are being disingenuous presently, as they were apparently last year, timing when exactly their lies get exposed could be tricky.

All dog and pony show. After creating panic and fear they will save Spain. End of the world happens only once folks. Can't believe we are wasting time even discussing this.

So not saving Spain would end the world? Interesting theory. Have you back tested that with the history books?

Infidel--Sounds like he thinks its...................

They're trying the bad bank thing... and saying it shouldn't be called a bad bank.

http://www.cnbc.com/id/47225410

No, it should be called a financial nuclear bomb, because it is.

Let it ****ing blow - PLEASE. I abhore this slow scab-removal bull****. Let's just rip it off and move forward.

STD and BBVA both down some 6% in the US premarket.

One lot of 2M shares for STD at 8:42AM.

(No positions.)

Headline: Spain moves reluctantly to save major bank

http://ca.news.yahoo.com/spain-swoops-re....

Excerpt:

Quote:

Spain will swoop in with public money this week to clean up huge bad loans at the nation's fourth-biggest listed bank, Bankia, the government said Monday.

As news emerged of the impending rescue of Bankia, created in 2010 from a merger of seven savings banks, its executive chairman Rodrigo Rato announced his resignation.

Shares in the bank, which has the industry's largest exposure to the property market at 37.5 billion euros ($49 billion), closed down 3.26 percent at 2.375 euros on a day which saw Spain's main share index rise 2.72 percent.

Spain's banks are still struggling to emerge from a 2008 property bubble collapse, which eliminated millions of jobs and left the financial sector buried in risky assets.

Investors fear the unknown cost of rescuing the industry could derail efforts to stem a rapid rise in Spain's sovereign debt and avert a bail-out.

"We are finalising a plan to clean up the bank," said an economy ministry official, referring to Bankia, adding that the scheme would use public money and was likely to be announced by Friday.