http://prudentbear.com/index.php/creditbubblebulletinview?art_id=10713
Submitted by Tyler Durden on 09/28/2012 11:24 -0400
It's All Greek To Me
- September 28, 2012
The focus of analysis this week shifts back to Europe. My thesis remains that the unfolding European debt and economic crises provide a potential catalyst for a bout of problematic global de-risking/de-leveraging. An argument can be made that the recent rally and short squeeze throughout global risk markets actually heightens market vulnerability.
I have expected that policy would have little success in halting the bad debt cancer spreading methodically from Europe’s periphery to its core. I have also posited that with core country Spain enveloped in Credit tumult, crisis momentum had passed a critical juncture. It is worth recalling that Spanish 10-yr yields reached 7.5% in late-July, as Italian yields surged to 6.6%. An important part of the thesis, as well, has been that the European crisis would expose Bubble fragilities fermenting in the “developing” economies, especially in China, Brazil and India. There has been important confirmation in the thesis, both from financial and economic perspectives.
Not unexpectedly, global policymakers have responded to heightened systemic risk with extraordinary vigor. In Europe and the U.S., central bankers have introduced the world to the idea of open-ended liquidity creation and market intervention. Global risk markets have responded strongly to the latest iteration in New Age monetary management, only widening the gulf between securities prices and fundamental prospects. Markets now anxiously anticipate the implementation of the Draghi Plan and Bernanke’s big monetization. At the same time, there is justified caution with respect to the impact all this liquidity is going to have on already problematic economic imbalances.
Last week’s CBB focused on the premise that “economic structure matters – and it matters tremendously.” This is one of those “master of the obvious” comments, yet one sees essentially no attention paid to such analysis these days. The evolving European crisis has provided important confirmation of this analysis. We’ve watched how Greece’s tiny little economy evolved into a formidable financial black hole. Why? Well, years of Credit excess fomented deep structural maladjustment – maladjustment that remained largely concealed so long as ample Credit/spending power was forthcoming. Post-Bubble, the Greek economy is just not capable of creating sufficient real economic wealth to support its population – not to mention its debt load. Greece’s economy remains in a steep downward spiral – and in desperate need of bailout #3 and ongoing outside assistance. Meanwhile, the social fabric badly frays or worse.
A critical question today – for Europe, for international markets and for the global economy - is whether Spain is following in Greece’s footsteps. According to IMF (2011) data, Greece ranks just below Venezuela as the world’s 35th largest economy (GDP of $303bn). About five times the size of Greece, the Spanish economy ranks #12 in the world at $1.494 TN. While not as debt-ridden as Greece, Spanish federal and regional government debt now exceeds 100% of GDP – and is rising rapidly.
Spain will require enormous financial support. It has both a substantial economy and substantial banking system – both today in serious trouble. Similar to Greece, a prolonged Credit boom has resulted in a terribly maladjusted economic structure. Literally hundreds of billions of euros will be required – and I fully expect the bailout tab will, in Greek fashion, expand on an annual basis. Fear for Spain and Italy was the impetus behind the creation of large bailout facilities (ESM joining the EFSF) and, more recently, commitments for open-ended bond purchases from the Draghi ECB – Outright Monetary Transactions (OMT). In a sign of the times, global markets to this point have viewed Spain largely in a positive light, as a likely catalyst for hundreds of billions of governmental and central bank market interventions/liquidity operations.
Developments this week provided a hint that complacency might be unjustified. With an unemployment rate of almost 25%, social tensions have reached the boiling point. Public protests that had been peaceful turned violent this week – recalling a critical crisis inflection point in Athens. At least Greece has not had to deal with regional governments calling for independence.
This week, Artur Mas, President of Catalonia, called early elections for November 25. Catalonia is the wealthiest of Spain’s 17 regions, accounting for about one-fifth of Spanish GDP. From the Financial Times: “Catalonia has a proud tradition of self-rule dating from the Middle Ages… In recent times a decisive moment came in 2010 when Spain’s constitutional court largely rejected a new statute of autonomy for Catalonia approved by the national parliament in 2006. The statute was favoured by Spain’s former Socialist government but opposed by the centre-right Partido Popular, which now holds power in Madrid.”
There’s no love lost between Mr. Mas and President Rajoy. In recent meetings, Rajoy rejected Mas’ request for more financial independence (including control of local tax receipts) from Madrid. Catalonia’s economy has faltered badly, and the heavily indebted region was forced to seek bailout assistance from the federal government. The Rajoy government has been seen as using the crisis backdrop to wrest control from the regions, something that has inflamed latent animosities – especially in independent-minded Catalonia. Catalonians resent paying significantly more to Madrid than they received in services, essentially subsidizing other regions. They blame Madrid for their problems. Catalonian officials have been determined to take control of their own purse strings, a right enjoyed by the nationalistic Basques region. On September 11, an estimated 1.5 million protested in support of “Catalonia, a new European state” in the streets of Barcelona.
There has been some concern that Spain’s military may be forced to respond to Catalonia’s move to independence. This further complicates an already complex economic, social, political and historical backdrop. Spain on Friday afternoon announced the results of an “independent audit” of the country’s 14 largest banks. As expected, the government reported a $76bn (euro 62bn) short-fall in bank capital. While the EU would like to believe these stress tests are a “major step” in restoring confidence, few analysts believe the results accurately reflect the size of the rapidly expanding hole in Spain’s banking system. It takes a major leap of faith to believe that half of the banks tested are today adequately capitalized. And from the UK Telegraph: “The audit was based on an assumption that the economy would shrink 0.3% in 2012, but this already looks outdated as conditions quickly deteriorate.”
And while we’re on the subject of economic deterioration and incredulous assumptions, Spain Thursday released its 2013 budget. The Rajoy government plans to use spending cuts, tax increases and $3.9bn of pension reserves to reduce its budget deficit to the agreed upon 4.5% for 2013 (in the face of an expected 30% increase in debt service costs). This budget assumes economic contraction of 0.5% next year, when some forecasts now call for growth to sink at least 3.0%. Tuesday, Spain reported that its deficit for the first eight months of 2012 had already increased to 4.77% of GDP (vs. year ago 3.81%), with spending rising 8.9% and receipts declining 4.6%. It’s all Greek to me.
And while Spain’s budget and “stress test” results have limited credibility, it hasn’t much mattered. Some go so far as to recommend holding Spanish debt on the view that it’s good to own what governments are about to buy (holds true, as well, for U.S. Treasuries and MBS). It’s now a matter of ironing out the timing and details of an ESM bailout and, presumably, ECB purchases in the secondary market. And, to this point, it is a case where the more rapidly things deteriorate the more confident market operators become in the imminent arrival of the liquidity onslaught.
Here’s where things get more interesting. The original plan for Spain to tap the ESM for funds to recapitalize its banks has hit road blocks. Earlier in the week, ministers from Germany, the Netherlands and Finland (the Northern AAAs) argued against direct bank recapitalization, while also stating their view that problem bank assets must remain the responsibility of the sovereign. Besides, there is supposed to be a European-wide bank regulator in place before recapitalizations are considered. The whole scope of a single bank supervisor has become a source of heated debate, with Germany strongly opposed to the idea of the ECB attempting to supervise all 6,000 European banks.
And it is worth noting that the Bundesbank’s Jens Weidmann was out in force again this week, in one instance in support of the Northern AAAs: “In order to keep liability and control in balance, only risks that have arisen after common supervision is established can be taken under joint liability. The legacy burdens on bank balance sheets have to be underwritten by the countries under whose supervision they have arisen… Mutualization of risks can’t be the primary purpose of a banking union.” Spain has made a disastrous mess of their banking system – and market hopes that they were about to offload some of this risk to the EU/ESM is at this point little more than wishful thinking.
Europe remains an unfolding disaster, although the region’s bonds and stocks remain speculating vehicles of choice under the assumptions that Draghi is about to lend hundreds of billions of support and, at the end of the day, the Germans will backstop the European debt markets. As for the Draghi Plan, I’ll presume many on the governing council hope that the ECB is never called upon to use its bazooka. Indeed, the true capacity of the Draghi Plan is much in doubt. The Bundesbank is adamantly opposed to the OMT, while questions remain as to its legality. And in Germany, it appears there is mounting political opposition to the ECB and other transfer mechanisms.
I know, when the faltering markets place the barrel of a gun to Ms. Merkel and others’ heads, mouths open and market-friendly utterances pop out. Yet, once again, we’re witnessing how it is incredibly difficult to go from talk to actual bailout program implementation. Meanwhile, the politics seem to only get more difficult by the week – if that’s even possible. Right now, markets are focused on the inevitability of a Spain bailout and the unleashing of the vaunted ESM and OMT programs. I’m not sure whether it will be weeks or months, but I do expect we’re heading in a direction where the markets will turn attention to sinking Italian and French economies and worry that these bailout programs are not going to be up to the task.
*****
Global Credit Watch:
September 26 – Bloomberg (Emma Ross-Thomas and David Tweed): “Spanish Prime Minister Mariano Rajoy’s dispute with the leader of his country’s richest region became the newest front in Europe’s effort to quell the debt crisis while tension over street protests escalated in Madrid. Spanish bond yields rose the most since Aug. 31 after Catalan President Artur Mas called early elections. His bid for greater autonomy came five days after Rajoy rejected his demand for increased control of the region’s revenue. Mas yesterday set the vote for Nov. 25, saying the time has come to seek ‘self- determination.’ Mas’s gambit risks plunging Rajoy into a constitutional crisis amid a recession that has sent unemployment to 25%. He’s struggling to persuade Spaniards to accept the deepest austerity measures on record and stoking frustration in Germany over his foot-dragging on whether to seek a bailout. As police clashed with protesters in Madrid yesterday, Rajoy didn’t respond to their demands or to Mas’s defiance. ‘It’s the very last thing Rajoy needed right now, and the last thing Europe needed,’ said Ken Dubin, a political scientist who teaches at Carlos III University…”
September 25 – Bloomberg (Jana Randow and Rainer Buergin): “European Central Bank President Mario Draghi defended his bond-purchase plan and took a swipe at Germany’s Bundesbank, saying choosing to do nothing would have been dangerous. ‘Either you do nothing -- nein zu Allem,’ or no to everything, and ‘allow the singleness of monetary policy to be undermined, or you take action,’ Draghi told an audience of German business people… ‘The greatest risk to stability is not action, it’s inaction.’ The comments risk widening the rift between the ECB and the Bundesbank, which says bond purchases are tantamount to printing money to finance profligate governments. Draghi on Aug. 2 named Bundesbank President Jens Weidmann as the only ECB policy maker to vote against his bond-buying plan, breaching the established practice of keeping ECB deliberations confidential. Since then, Weidmann has sharpened his criticism of ECB policy, warning that central bank funding can ‘become addictive like a drug’ and eventually hurt the currency through inflation.”
September 25 – Bloomberg (Angeline Benoit and Ben Sills): “Spain said it needs to know how much the European Central Bank intends to spend buying its debt to decide if it should seek outside help as its borrowing costs rose at a bill auction in Madrid… Prime Minister Mariano Rajoy has held off seeking aid since ECB President Mario Draghi last month said he’ll buy Spanish debt if Rajoy accepts conditions. ‘There are many fronts we have to tackle,’ Deputy Prime Minister Soraya Saenz de Santamaria told radio station Cadena Ser… ‘We need to know to what extent the ECB will intervene in the secondary market. To take decisions you need to have all the elements on the table.’”
September 26 – Bloomberg (James G. Neuger): “European governments are still debating the role of the planned permanent rescue fund in recapitalizing banks, the European Commission said. ‘It will be for the member states to come to an agreement on this future design,’ commission spokesman Olivier Bailly told reporters… Bailly said Germany, the Netherlands and Finland made a ‘contribution’ to the discussions yesterday by calling for national governments to take care of ‘legacy’ debts of their banks before they come under European oversight. ‘Some elements” of the bank-aid system were laid out by euro government leaders in a June 29 statement and ‘the rest is indeed to be defined,’ Bailly said. He called on the governments to ‘implement quickly” those promises.’”
September 26 – Bloomberg (Jana Randow and Stefan Riecher): “Bundesbank President Jens Weidmann rejected European Central Bank President Mario Draghi’s jibe that he says ‘no to everything’ on the ECB council. ‘This is certainly not my impression, that I’m saying no to everything,’ Weidmann said… ‘The central bank has acted in the crisis’ and ‘taken a lot of measures to prevent an escalation of the crisis with the support of the Bundesbank… I don’t relate this comment to me, despite it being said in German.’”
September 28 – Dow Jones: “It’s too soon to judge Spain’s raft of new austerity measures announced Thursday in Madrid, a European Union spokesman said… ‘We will not be immediately commenting [on the Spanish budget],’ Simon O'Connor, spokesman for EU economics chief Olli Rehn, told reporters… ‘We will be issuing our forecasts on November 7 and in that context we will assess the various budgetary measures in all member states and in this case, Spain’s too,’ he added… But it will be the assessment of the new Spanish budget that will determine whether the country--increasingly under market pressure to request a sovereign bailout after being granted a banking-sector rescue package--can meet agree deficit targets in 2013.”
September 27 – Financial Times (David Gardner): “Spain has entered a constitutional crisis. The decision of Catalonia’s nationalist government to call a snap election in November – which in practice will amount to a referendum on independence – has opened the way to Catalan secession. That decision, in turn, may give a lift to Basque separatists, now running neck and neck with mainstream nationalists in regional government elections due next month, after winning the largest number of Basque Country seats last year in local and general elections. As a Spain trapped in the eurozone crisis tries to battle its way through a wrenching recession, it must now contemplate the real possibility that its plurinational state, which replaced the suffocatingly centralist Franco dictatorship with highly devolved regional government, may break up.”
September 28 – Bloomberg (Emma Ross-Thomas and Ben Sills): “Spanish Prime Minister Mariano Rajoy’s unprecedented raid on a decade-old pension reserve fund to finance increased benefits comes less than a month before before regional elections as his popularity slumps. As the Cabinet approved a 2013 austerity budget demanded by the European Union, Rajoy’s ministers also agreed to use 3 billion euros ($3.9bn) from the 67 billion-euro reserve for the first time. It approved a 1% rise in pensions for 2013, the same as in 2012, and said retirees may also be compensated for inflation above that rate.”
September 27 – Dow Jones (Tom Fairless): “Consumers and companies continued to pull money out of banks in Spain, Greece and Cyprus in August, and even French banks saw sizeable outflows, despite a pledge by European Central Bank President Mario Draghi to do ‘everything it takes’ to defend the euro zone. In Spain… private bank deposits fell 1.1% from the previous month… That marks the fifth straight month of outflows and takes Spanish bank deposits to their lowest level since April 2008. Still, the exodus moderated from a whopping 4.7% drop in July. Deposits in Greek banks also fell 0.3% on the month, while deposits at Cypriot banks fell by 0.9%, the data showed."
September 26 – UK Telegraph: “The European Central Bank will not fill potential financing gaps in Greece's budget, Governing Council member Jens Weidmann said… Asked about whether Greece might need another bail-out, the president of Germany's Bundesbank told reporters after a meeting with Italian Finance Minister Vittorio Grilli that he did not want to comment on rumours and would rather wait for a formal assessment of Greece's financial state. ‘This is a question we should ask finance ministers. They are responsible for setting up the programmes and also for deciding on potential financial gaps. Those are not to be filled by central banks. This is a clear position I have,’ Weidmann, who also heads the German Bundesbank, said.”
September 28 – Bloomberg (Stefan Riecher): “European Central Bank Executive Board member Joerg Asmussen said Greece may need more aid, joining the International Monetary Fund in expressing doubt that the two existing bailouts will suffice. Even if Greece meets its budget goals, ‘there could be additional need for external financing because, for example, growth is worse than was initially anticipated,’ Asmussen said… Such financial aid can only come ‘from the member states of the euro zone,’ he said, ruling out ECB involvement because that would be ‘prohibited monetary state financing.’”
September 25 – Wall Street Journal: “Bundesbank President Jens Weidmann said he isn't the only member of the European Central Bank Council to doubt the wisdom of its bond-purchasing plans and that others also share his concerns, according to an interview to be published in the Neue Zuercher Zeitung Wednesday. ‘Despite broad support for the (bond-buying program) I have the impression others share my concerns,’ Mr. Weidmann told the Swiss daily newspaper. Mr. Weidmann has repeatedly argued the ECB is acting beyond its mandate to keep bond yields stable by effectively printing money to finance government deficits in the crisis-plagued euro zone. By contrast, ECB President Mario Draghi said earlier this month the plan is ‘strictly within our mandate.’ Mr. Weidmann, who is also a key member of the ECB's rate-setting governing council, said the central bank's financing ‘cannot be seen as a comprehensive problem solver’ for the region, the NZZ reported. ‘If the ECB measures relieve the pressures on the euro-region politicians to solve their problems, then they are not advancing the reform process in the region,’ Mr. Weidmann said.”
September 28 – Bloomberg (Andrew Davis and Andrew Frye): “The European Central Bank should not impose extra economic conditions on nations using its bond- buying mechanism, and the International Monetary Fund shouldn’t have an oversight role, said Italian Prime Minister Mario Monti. Countries such as Italy and Spain are reluctant to request the bond buying they championed because of uncertainty about what conditions the central bank would seek to impose, he said. The program is only available to countries that are already taming public finances and conditions should not go beyond European Union recommendations made in June, Monti said. Oversight should be limited to establishing ‘checks so the countries continue to behave in that positive way,’ Monti said… ‘If this is the conditionality that will be finally delivered, should a country be in a market situation suggesting its use, there would be nothing dishonorable.’”
September 28 – Reuters (Steve Scherer): “Two of Italy’s biggest unions marched through Rome on Friday to protest against Prime Minister Mario Monti's cuts in public spending as opposition grows to austerity policies aimed at steering the country out of its economic crisis. The strike followed clashes between anti-austerity protesters and police in Madrid and Athens this week and coincided with labor unrest at the ILVA steel plant in southern Italy.”
September 28 – Bloomberg (Mark Deen and Helene Fouquet): “President Francois Hollande’s first annual budget raised taxes on the rich and big companies and included a minimum of spending cuts to reduce the deficit. The 2013 blueprint relies on 20 billion euros ($26bn) in tax increases, including a levy of 75% on incomes over 1 million euros… Hollande aims to reduce spending by 10 billion euros, bringing the deficit to 3% of output from 4.5% in 2012. The budget predicts growth of 0.8%.”
September 28 – Bloomberg (Joao Lima): “Portugal’s budget deficit will reach 5% of gross domestic product this year after it narrowed to 4.4% in 2011… Portugal’s debt will increase to 119.1% of GDP this year from 108.1% in 2011… Prime Minister Pedro Passos Coelho is battling rising joblessness and a deepening recession as he cuts spending and raises taxes to meet the terms of a 78 billion-euro ($100bn) aid plan from the European Union and the International Monetary Fund.”
September 26 – Bloomberg (Stephen Morris): “Corporate defaults have risen in Europe and may climb further because of economic and political uncertainty, deteriorating growth and looming debt maturities, Standard & Poor’s said… S&P’s speculative-grade default rate rose to 5.3% at the end of the second quarter, from 4.7% at the end of March… The trailing 12-month default rate will increase to 6.3% by the end of June 2013 and could surge to more than 8% if Europe’s recession is worse than expected…”
*******
Germany Watch:
September 27 – Bloomberg (Jeff Black): “European Central Bank Governing Council member Jens Weidmann said the proposed banking union can’t take responsibility for existing bad debts. ‘In order to keep liability and control in balance, only risks that have arisen after common supervision is established can be taken under joint liability,’ Weidmann, who heads Germany’s Bundesbank, said… ‘The legacy burdens on bank balance sheets have to be underwritten by the countries under whose supervision they have arisen.’ Weidmann’s comments come after finance chiefs from Germany, the Netherlands and Finland said this week that direct recapitalization of banks by the euro area’s permanent bailout fund should be a last resort and that legacy debts should remain the responsibility of national authorities. European leaders agreed in June that, as part of a prospective banking union, banks would qualify for direct aid once an ECB-led supranational supervisory mechanism has been established. ‘Mutualization of risks can’t be the primary purpose of a banking union,’ Weidmann said. Allowing the euro-area bailout fund to help ease the existing debts of banks would amount to ‘financial transfers,’ he said… Weidmann, in a speech titled “Trust -- Prerequisite for Success of a Stable Currency,” also made veiled criticisms of ECB President Mario Draghi’s bond-purchase plan. Speaking of how the Chinese invented paper money around 1,000 A.D., he said the emperors of the time ‘knew the importance of this invention and used it richly.’ ‘They produced more and more banknotes, but unfortunately without withdrawing the old ones. The result wasn’t surprising: Inflation.’ Weidmann said central banks mustn’t take on fiscal tasks, and voiced concern about the side-effects of ‘ultra-expansive monetary policy.’”
September 27 – Dow Jones (Tom Fairless and Todd Buell): “National authorities should bear the cost of losses in their banking industry suffered prior to the establishment of a European banking regulator, Bundesbank President Jens Weidmann said…, weighing into a debate about the extent to which Europe's rescue fund should pay for legacy bank debts. ‘To maintain a balance of liability and control, only risks acquired after the establishment of a common [banking] supervisor can fall under shared liability,’ Mr. Weidmann… said… ‘For legacy debts in banks' balance sheets, those countries under whose supervision the liabilities were generated’ must still vouch for them, he said. ‘Anything else would be financial transfers.’ With the comments, Mr. Weidmann appears to be throwing his weight behind… the finance ministers of Germany, the Netherlands and Finland, in which they said the region's permanent bailout fund, the European Stability Mechanism, should assume only a limited burden in bank recapitalizations. National governments should retain responsibility for issues arising from banks' bad lending decisions before they fall under a common supervisor, the ministers said. Mr. Weidmann stressed that the Bundesbank ‘fundamentally welcomes a European banking regulator,’ and that a banking union can be an ‘important building block’ for a stable currency union. However, creating a banking union will take time…, adding that its primary purpose mustn't be to mutualize risks. Mr. Weidmann also warned that it will be ‘difficult’ for the ECB to separate monetary policy from banking supervision if it becomes Europe's single banking regulator. The ECB has pledged to keep its monetary policy responsibilities strictly separate from its future regulatory role.”
September 27 – Bloomberg (Rainer Buergin): “German coalition lawmakers called on Chancellor Angela Merkel’s government to ensure that big euro-region banks are compelled to pass checks before coming under European supervision, with any restructuring needed carried out at the home country’s expense. ‘Banks that pose systemic risks are to be subjected to a stress test and restructured or liquidated at the expense of the national restructuring fund before they are included in the direct supervision mechanism,’ said the motion sponsored by Merkel’s Christian Democratic Union and their Free Democratic Party coalition partner.”
September 26 – Bloomberg (Rainer Buergin): “Former ECB Chief Economist Otmar Issing tells German newspaper Die Welt the bank risks losing its credibility after Draghi’s announced bond-buying program. Issing doubts ECB will soak up liquidity in time… says ‘unthinkable’ ECB would stop bond-buying if troubled states fail to meet conditions… says ECB is trapped between politics and markets… says ECB is prescribing more of the wrong medicine…”
September 26 – Bloomberg (Rainer Buergin): “German Deputy Finance Minister Thomas Steffen says euro region government bond spreads are close to a ‘normality’ that existed before the year 2000. While the euro region is returning toward a more realistic pricing of risks, there are ‘exaggerations’ euro region governments have to fight together, Steffen says in a speech in Berlin…”
*****
European Economy Watch:
September 26 – Reuters (Daniel Flynn and Brian Love): “The number of unemployed in France topped the 3 million mark in August for the first time since 1999, its labor minister said…, adding to President Francois Hollande’s woes as he seeks to revive a stalled economy and his tumbling poll ratings. Michel Sapin said August's unemployment data… would show a 16th consecutive monthly rise… ‘It’s bad. It's clearly bad,’ Sapin told France 2 television.”
September 24 – Bloomberg (Stefan Riecher): “German business confidence unexpectedly fell to the lowest in more than two and a half years in September as the sovereign debt crisis clouded the economic outlook.”
September 28 – Bloomberg (Svenja O’Donnell): “Euro-area inflation unexpectedly accelerated in September… Consumer prices in the 17-nation euro region increased 2.7% from a year earlier after a 2.6% gain in August…”
September 28 – Bloomberg (Emma Ross-Thomas): “Spanish consumer prices rose the most in 17 months in September after the government increased the sales tax to help plug the budget deficit. Prices rose 3.5% from a year earlier…, accelerating from 2.7% the prior month…”
September 27 – Bloomberg (Neil Callanan and Sharon Smyth): “Angel Fernandez used to travel to the Netherlands to buy equipment for Spanish homebuilders when they were powering Europe’s third-biggest construction market. Now he watches as buyers come to take diggers, excavators and trucks to countries where they won’t just gather dust. Standing in a sunburned field in Ocana, a 90-minute drive south of Madrid, 41-year-old Fernandez looks on as never-used construction equipment is sold at discounts of as much as 20% through Ritchie Bros. Auctioneers Inc. Business is brisk for the world’s largest industrial-equipment auctioneer, a sign that time has run out for Spanish builders that were propped up by banks for years after the machines fell silent… Almost half of Spain’s 67,000 developers are insolvent but not bankrupt after getting additional financing from banks, according to R.R. de Acuna & Asociados, a property consulting firm. Extending the lives of companies is becoming harder for banks…”
September 26 – Bloomberg (Johan Carlstrom): “Swedish consumer confidence fell more than predicted for a second month in September after unemployment rose as Europe’s debt crisis weighs on export demand in the largest Nordic economy.”
and as for the shrinking spanish bond market......
http://www.zerohedge.com/news/2012-09-28/charting-death-europes-bond-markets
Charting The Death Of Europe's Bond Markets
From the financial repression and encumbrance of the central banker to the wild speculators and their angry 'fast-money' flows, we continue to hang on every tick in Europe's bond markets (for both validation of a political leader's view or confirmation of his asininity). The sadder truth is that Europe's secondary bond trading market has shriveled. Spain's Treasury just released August's daily average Spanish government bond trading volumes and they have plunged over 40% YoY - now at levels (under EUR40bn per day)not seen since 1996 (pre-Euro-zone). It strikes us that once they lose the secondary market then the primary market will be very close behind (thanks to liquidity concerns among other things) - unless of course the ECB really does soak up all future issuance and hold-to-maturity.
Just as with US equity trading volumes, European bond trading volumes are falling inexorably...
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