Speculation that EZ offerered financing to recap Spanish banks – officially denied – mmmmh

It looks as if the BRIC summit (which includes S Africa) in Delhi will agree to setting up a development bank between the 5 countries;

The WSJ reports that the economic problems in Greece has resulted in a deterioration of support for the major parties and an increase in popularity of fringe parties, including the communists and neo fascists. Great, that’s all we need. However, I can fully understand why Greeks are not enamoured by their politicians, who are corrupt, useless, loonies – no point going on. The next Greek election is thought to be in April/May – it has not been scheduled as yet;

Spain’s budget deficit for Jan/Feb came in at 1.94% of anticipated GDP, higher than the 1.29% in the same period last year. Spain has agreed with the EU that it will reduce it’s budget deficit to 5.3% this year, as compared with the deficit of 8.5% last year. Based on the 1st 2 months, this looks like being a bit of a problem.

Spain has denied reports that it was asked by EU officials to accept bail out funds to recapitalise its banks. As I have kept banging on for well over a year, Spain’s bank bail out fund, the FROB, does not have the necessary cash – it needs to BORROW it. An official denial is always followed by the very action that was denied, on most occasions, by the way.

Spanish banks have increased their holdings of Spanish Sovereign debt by 29% in Jan/Feb to E230bn, the latest available data. This carry trade (Spanish banks have borrowed approx E250bn of cheap money from the ECB’s LTRO and other programmes) is great short term, but looks suicidal in the medium/longer term, given Spain may well have to restructure.

Citi is becoming uber bearish on Spain – they say that the country may require some kind of bail out by the end of the year. A bit late in their call, but what can I say but I agree. I remain seriously short Spain and, indeed, will increase my short if the markets pop on some EZ bail out fund news;

March Italian business confidence rose to 92.1, from 91.7 in February and expectations of 91.5. Interesting as it’s one of the 1st positive numbers I’ve seen so far;

Interestingly French consumer sentiment rose to 87 in March from 82 in February and well above the forecast of an unchanged reading, according to the French National Statistics Office. The rise was the largest since May 2007, following Sarkozy’s win in the Presidential elections;

The French newspaper (Le Monde) reports that Sarkozy is in touch with Obama and Cameron to get an agreement to release some oil from strategic reserves. The high oil price is clearly politically negative, not only in the US, but also in France. There is no impending general election in the UK this year (Source Reuters);

EZ bank lending to corporates declined in Feb by -0.7% YoY (+1.1% in Jan). However, the 2nd LTRO was disbursed at the end of Feb, so March numbers should be more revealing. However, based on the US experience a few years ago, don’t expect a surge in lending. Bad news as the EZ is far more dependent on bank lending (70%) than the US (approx 30%), where the capital markets remain the main source of finance. M3 grew by +2.8% in Feb, (+2.5% in Jan), higher than the +2.4% expected, but should be compared with the +5.9% growth since the Euro was launched. However, at the end of the day, its the velocity of money rather than supply which remains more important in my humble view;

UK 4th Q GDP was revised lower to -0.3% from -0.2% previously and worse than the unchanged expected. However, the 1st Q 2012 GDP should rebound and post a modest positive number. Real household disposable income declined by -0.2% in the 4th Q and -1.2% for 2011, putting more pressure on retail spending. The savings rate declined to 7.7% from 7.9% previously. Better news on the current account deficit, which declined to -£8.5bn (-£10.52 in the previous Q). Sterling weakened on the news;

It is widely rumoured that officials at the IMF and the EU promised to come to Ireland’s aid if they played ball with their bank rescue/austerity cuts.Well, Ireland wants to defer a payment of E3bn in respect of promissory notes payable to the Central Bank in respect of the rescue of Anglo Irish. The repayment is due on 31st March. To date the EU/ECB has stated that Ireland should pay up. Whether this position remains the case or not is debatable, but there is no question that both Portugal and Ireland will be offered some deals in due course, in recognition of the fiscal austerity measures they have undertaken to date;

US consumer confidence came in at 70.2, down from an upwardly revised 71.6 in February (70.8 previously) and slightly better than the forecast of 70. The current conditions component rose to 51, up from 46.4 in February and the highest since September 2008. Respondents who stated that jobs were plentiful rose to 9.4, from 7.0, also the highest since September 2008. However the component for future expectations (6 months ahead) fell to 83, from 88.4 in February, though expectations of earnings (also 6 months ahead) rose to 15.8, from 15.5. Respondents expecting better business conditions in 6 months time rose to 19.2, the highest since April 2011;

NewsCorp is back in the headlines – this time involving hacking of rivals in Australia. Its problems in the UK intensifies as well. This stuff is not going to go away. Cant see how NewsCorp will remain unscathed;


Asian markets closed lower, with the Chinese market down -2.84% due to weak earnings.

Australia closed higher, as the market responded to a report by the RBA which stated that the Australian banking system was in pretty good condition and hinted that they would cut rates. However, the Australian economy dependence on Chinese demand for its commodities does not bode well, given the Chinese slowdown and less reliance on fixed asset investment. The non mining sector has been facing increasing problems for quite a while and the property sector looks seriously over valued. Not a good outlook generally and I will continue to be short A$, against the US$ – indeed, will look for opportunities to increase the short.

EZ politicians and officials are claiming victory in respect of the debt/financial crisis. Well, they are EZ politicians/officials, so what can you say !!!!. Some would suggest that they lay off the wine and brandies at lunchtime – I, off course, cant possibly comment.

The spread between spot Brent and oil for delivery in 5 years (2018) has soared to a record of US$30. Basically, in my humble opinion, the spread suggests that the current US$125 is absolute and total madness and fundamentally unsustainable. However, higher oil prices is going to result in a shift to gas, which in turn will place further pressure on oil in due course.

A number of you are getting really bearish on the Euro – well, so am I, as you know. However, I intend to wait until the announcement of the size of the EFSF/ESM, together with likely IMF support to boost the EZ bail out funds before acting, as I believe the Euro should pop on the news.

European banks have been under pressure the last few days – will any announcement re EZ/IMF bail out fund be positive for the sector. The EZ has a remarkable propensity to disappoint, but I may well play this time – insurers, in particular.

Whilst the VIX was up near 10% yesterday, it remains below 16 (15.33). Complacency rules.



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