World shares fall on credit fears

[gothicform]

according to the OBR a permanent cut in VAT has a GDP multiplier of 1.3. that means that it would cause a 3.6 billion rise in GDP in the first year of the cut, a total of £15.6 billion. it would as a result raise £1.33 billion in tax revenue on the growth, for a total of £5.91 billion. you'd be borrowing £6.09 billion for £15.6 billion of GDP as a result which is a 39% debt to GDP ratio. all the other labour tax cuts planned have a GDP multipler of greater than 1.5 and so are in effect revenue neutral in terms of adding debt.

[Octoman]

Nice little rally developing in Spanish government bonds this afternoon. Mainly safe haven flows from equities.

[T. Bear]

@AmericanExpress Fucking fuck #latepaymentfee

[odlum833]

Originally Posted by Octoman

Nice little rally developing in Spanish government bonds this afternoon. Mainly safe haven flows from equities.

Spain's economy minister Luis de Guindos has confirmed that the Spanish government is planning to create a 'bad bank' to hold some of the most devalued assets lingering in its financial sector.

Seems like they are going the NAMA style route. But where are they going to get the money to buy the loans off the banks at a discount? What is the average discount going to be? They don't even know the true extent of the junk the banks are holding.

[gothicform]

no one knows the value of it so the problem is hard to quantify. is there a problem? yes. will it result in an irish style collapse for spain, or a british style bail out? that's the question. well managed it should be the latter, not least because the losses aren't as deep as ireland's, but if it is badly handled (this is the euro, anything can happen!) it could very easily be the former.

[odlum833]

Feeling is this can't work seemingly.

The government of Mariano Rajoy, the prime minister, after floating, then scrapping, the idea of a Nama-style “bad bank” when first elected, has begun again to discuss the possibility of placing problematic property loans into one or more specialised asset management companies, officials say.

While no further details have emerged of the structure of such a troubled asset fund, officials have been at pains to stress that the term “bad bank” is a misnomer, as no state money would be used, as in other examples seen in Europe.

Analysts have been quick to point out that, while Nama used state money to take assets from banks at a discount, a Spanish equivalent that did not use state money would struggle to enforce the write-downs required, because to do so would risk forcing the weakest lenders into needing vast amounts of additional capital.

“If the idea is to avoid the ignominy of an IMF bailout, then, without an alternative funding source, this is pure fantasy,” said James Ferguson of Westhouse Securities. “The proposal seems to illustrate just how absent of ideas the Spanish authorities have become.”

Financial Times

Spanish yields were reigned in today presumably because growth of -0.3% beat expectations of -0.4% but that is surely brief. One would imagine that before Thursday's bond auction yields will spike between now and then.

The lesser ratings agency (and some would say more realistic) Egan Jones downgraded Spain to BB+ today. That's 1 notch below Ireland. But check this out

Synopsis: KINGDOM OF SPAIN EJR Sen Rating(Curr/Prj) BB+/ BB Rating Analysis - 4/30/12 EJR CP Rating: A3 Debt: EUR643.1B, Cash: EUR95.1B EJR's 1 yr. Default Probability: 3.0% Miserable trend - over the past three fiscal years (i.e., from 2008 to 2010), Spain's GDP declined from EUR1.09 trillion to EUR1.07 trillion. Meanwhile, its debt mushroomed from EUR381 billion to EUR563 billion. The recently-reported quarters are of little comfort since the debt has risen to EUR 641B while GDP has been more or less flat resulting in a 61% debt to GDP and will continue to rise. Increased social benefits are a major problem; while payments to the govt have been more or less flat over the past four years (up EUR 8 billion), payments from the government have been up EUR 44 billion). As a result, Spain is short about EUR50B per year for social payments, EUR20B per year for interest, and an additional EUR 30B for asset growth; hence the EUR100B per annum increase in debt. Unemployment is near depression levels of 23+% while adjusted wage rates have declined. In addition to its social payment/ unemployment problem, Spain is likely to be faced with payments to support a portion its banking sector and for its weaker provinces. Assets of Spain's largest two banks exceed its GDP. We are slipping our rating to " BB+ " ; watch for requests for support from the banks.

This is shaping up to be the disaster of the Eurozone.

[WatcherZero]

UK Business confidence back down to 50.5

Australian Dollar at 10 week low ahead of bad US April manufacturing data.

[Octoman]

If an tries to underwrite its banks nobody in their right mind will lend them money. It could be Ireland all over again.

[WatcherZero]

Bloomberg US; For the first time since 2008 no investment made in April other than bonds would have made money.

[pricemazda]

Positive news the EU bonds were 3 times over subscribed.

[Octoman]

Big moves in the Aussie Dollar today. A suprise rate cut by their central bank of 50bp to 3.75% has caught the market with their trousers down. Aussie is down around 1% versus most other currencies. Australia looks to be in the early stages of a fairly standard cyclical downturn but the central bank has plenty of room to cut rates and they have a warchest of cash in a sovereign wealth fund for countercyclical spending so they should avoid recession.

[pricemazda]

Spain is the problem at the moment, but there is enough resource to bail them out. The moves to get rid of Berlusconi was in preparation for when Spain needs the bailout. Italy needed to have demonstrated strong actions to sort itself out and Mario Monti (goldman sachs) is doing that.

PS seems another Goldman man is in the running to the next BoE governor.

[Octoman]

I think Brussels need to work closely with the Spanish government from this point forward to prevent the kind of confused message that exacerbated the Greek situation. The last thing Spain needs right now is for its government to be whittering on about underwriting losses of unkown magnitude in its banking sector and denying they need a bailout. They clearly need to be bailed out as evidenced by half a trillion Euro borrowed through the LTRO.

If they are to make this work the European leaders need to give an unambiguous message of support and SPain needs to be realistic.

And the chance of that happening is about as high as a zombie apocalypse in Bury St Edmonds.

[pricemazda]

They could have thrown Greece, Portugal, Ireland to the wolves and still carried on, but Spain won't be allowed to collapse the consequences are too severe to think about.

And I'm not talking about the eurozone or the EU from a pro-european point of view, But the global economy would implode with one bank after another and country after another. It simply won't be allowed to happen.

The Chinese for example would be sitting on a pile of worthless debt and suddenly look very dodgy as well.

[Kampflamm]

Spain should be excluded from this summer's European Championship.

[pricemazda]

^ I blame the Teutons.

[Stairz]

...

[pricemazda]

^ they don't use that verse anymore.


No more Germany before all others. Just Germany will be nice to everyone.

[Octoman]

Originally Posted by pricemazda

They could have thrown Greece, Portugal, Ireland to the wolves and still carried on, but Spain won't be allowed to collapse the consequences are too severe to think about.

And I'm not talking about the eurozone or the EU from a pro-european point of view, But the global economy would implode with one bank after another and country after another. It simply won't be allowed to happen.

The Chinese for example would be sitting on a pile of worthless debt and suddenly look very dodgy as well.

Sure, I agree. Spain is at the front of the queue now and right behind them is Italy. Fail to stop to rot here and who knows where it will end.

I'm worried that they have known this for a long time and been unable to put together an effective response. Right from the first signs of Greek stress it was always a risk that it could end up on the doorsteps of the biggest nations. What are they going to do differently this time that they couldnt or wouldnt do before?

[gothicform]

it's always been because merkel's coalition partners wouldn't accept what was needed... which was simply to bung 20 billion euros at greece. they've paid up how much now?