Are the embolden bulls going to continue their torrid rampage through the narrow streets of Pamplona, skewering every petrified bear that stands in their path? Is the energizer bunny going to simply hop, skip, and jump directly to Dow 15,000 by Easter Sunday? Will the mad mad mad market mavens, falling all over themselves, calling for the traditional, pitiful, end of quarter window-dressing ramp, be proven correct once again? Is our future so bright, that we will always have to wear shades from now on?
Other then being an Idiot Savant, something must be seriously wrong with me, because no matter how hard I look, I just don't see the bright lights at the end of the tunnel, or should I say Chunnel. In fact, it looks more to me like those spendthrift Eurocrats that built the grand Chunnel, an underground rail tunnel that runs below the English Channel and connects Great Britain and France, may well be about to derail this runaway bullet train, sending it plunging to the bottom of the sea into a steaming pile of a bull crab dung.
So where is the bull crap going to hit the fan this time, you ask? Well, I suppose you all know that the rain in Spain falls mainly on the plain, or should I say drain. But, I bet you don't know Andalusia! (hint: photo above) Spain’s most populous region votes today in an election that may give Prime Minister Mariano Rajoy’s People’s Party free rein to enact his drastic deficit-cutting policies. Andalusia is the last state under Socialist control since the party was ousted from its traditional strongholds of Extremadura and Castilla-La-Mancha. The left leaning province has obstructed efforts to curb the nation’s debt load, as its deficit was more than twice its fiscal target last year. Andalusia, Catalonia and Valencia are the three regions big enough to undermine Rajoy’s efforts. As per Bloomberg, "The regions, which spend more than a third of their budgets on healthcare and hire half of Spain’s public workers, need to reduce their overall shortfall to 1.5 percent of gross domestic product this year from 2.9 percent. Spain’s total gap last year was 8.5 percent, overshooting the 6 percent target mainly because of slippage by the regions. Euro finance chiefs agreed March 12 to ease this year’s overall goal to 5.3 percent from an initial 4.4 percent. Rajoy wanted backing for a target of 5.8 percent."
The lame stream media is pimping polls on the ground, as proof positive, that Rajoy's Peoples Party (PP) will win hands down. They confidently proclaim that once the vote is over, Rajoy will be able to risk unpopular austerity policies without any further electoral concerns. Not so fast my friends. Although this week’s polls by El Pais and ABC newspapers indicate the PP may win an outright majority on March 25, another survey by El Mundo suggested it will fall short of a majority. The latter outcome may allow the Socialists (PSOE) to remain in power in coalition with the United Left party (PCE).
As per the article in El Mundo, “A defeat of the PP at the Andalusia election could fuel fears that Spain will miss its deficit targets again this year,” said Georg Grodzki, who oversees $515 billion as global head of credit research at Legal & General Investment Management in London. “The jury is still out on the regions’ willingness to belatedly share the consolidation burden.” And, as the WSJ points out, "A narrow victory by the PP or an unexpected defeat would indicate serious discontent, not a great sign given that Spain faces at least two more years of deep cuts." So you see, Andalusia is Spain’s Greece, to some extent. A land of picturesque traditions, one of the poorest regions of the country, the one with the highest unemployment, and massive ongoing fiscal deficits. Spain risks triggering a fresh eruption of the euro zone debt crisis if it fails to match Italy's success in winning investors' confidence in its reform drive.
Have you seen the yields on Spanish bonds lately, or the CDS prices for that matter? That may be the real tell on Andalusia. Spanish bond yields continued to march higher Thursday, as growing concerns over fiscal slippage in Spain and depressed economic data from Asia and Europe weighed on demand for lower rated euro zone government bonds. The weakness in Spanish bonds pushed yields to their highest levels since January, promptly eroding the impact of the European Central Bank's second long-term refinancing operation. As Recently as February, the ECB's LTRO poured over half a trillion euros into the financial system. On Friday morning, Spanish 10-year bond yields were hovering around 5.47 percent while Italian bond yields were around 5.07 percent.
The economic situation in Spain is perilous, which leaves the Iberian peninsula most vulnerable to a further rise in yields that could revive concerns across the region. "Assuming that matters deteriorate further for Spain for both macroeconomic as well as market pricing, we would expect systemic euro area concerns to surface quickly," said Peter Schaffrik, head of European rates strategy at RBC Capital Markets. The weakness in Spanish bonds has spread across its borders, with Italian bonds also beginning to show signs of stress again. "The whole Spanish situation has just deteriorated so quickly. We're pretty much looking at Spain as the next point of stress, the next point of weakness," said Peter Allwright, head of absolute rates and currency at RWC Partners, which manages assets worth $4 billion.
Equities in Spain are also flashing a bright red warning. As the SPX 500 & EU STOXX 50 Indices have continued to tare higher for the past 3 months, the Spain 35 Index curiously has not joined the party at all, and in fact it has headed lower during this very same period. Spain's businesses are still struggling to survive, the country is entering its second recession since the start of the global financial crisis in 2008. About 5.3 million people are unemployed, nearly a quarter of the work force. And, even more unsettling, over half of the country’s eligible young people cannot find work. Experts warn that an alarming combination of escalating fiscal austerity and a worsening real estate bust threatens to set off a vicious economic cycle in Spain, just like the one that brought Athens to its knees.
Let's not forget that both National elections in France & Greece will be upon us before the Easter bunny melts away, and the dodgy incumbents already have chocolate egg all over their faces. Hollande & Samaras are not as enamored with the bank mob muppet masters, who so cleverly pulled on the puppet strings of their EU technocrat predecessors. Both of these artful pandering politicians, have boldly pledged to their elated supporters, that they fully intend to renegotiate the terms of the recently signed European Union Fiscal Compact. France’s Socialists, comfortably ahead in the polls, are furious over a reported “boycott” of presidential candidate François Hollande by the leaders of Germany, Britain, Spain and Italy. Apparently, Angela Merkel, David Cameron, Mariano Rajoy and Mario Monti have agreed not to meet Hollande during the French presidential campaign. They clearly aren't as keen to undo the EU's recently established rigorous budgetary rules, which were so eagerly drafted by their bad ass bankster buddies.
So you see my fellow Slope-a-Dopes, all is not hunky dory on the old Continent. Evil plan 47.0 will take down the EURO, and the fractured ZONE with it………BADADOOM!
p.s. Should PM Rajoy's Party win an outright majority, the EURO could catch a temporary bid, and I will be wrong again in the short run;-(