Here’s What’s In Citi’s Gloomy New Report On The Crisis In Spain


spain storm in extremadura

Earlier we mentioned how Citi top economist Willem Buiter had a big warning about Spain.

We’ve now seen a copy of the report, and get tell you some more details.

Here is our bullet-pointed summary of the report:

  • Spain’s public finances are worse than officially stated. Already there have been upward revisions to debt-to-GDP, and the number could rise as high as 90% when all the various categories of debt are added together.
  • The fact that GDP assumptions are badly missing estimates makes this all worse.
  • Although Spain’s banks get a lot of attention for being ugly, the non-financial sector is doing badly as well. Households are overleveraged.
  • The new government delayed reform legislation too long, missing the ‘honeymoon period’.
  • Spain’s PM Rajoy is alienating partners in Germany and France by announcing revised deficit targets without consultation.
  • The decline in Spanish land prices is not over.
  • The spending problems in various autonomous regions are big, and the central government cannot control them.

Buiter’s Conclusion:

Spain is likely, in our view, to be pushed into a troika (EC, ECB, IMF) programme of some kind during 2012, possibly by losing access to market funding on affordable terms, but more likely by the ECB making a programme for the Spanish sovereign a condition for continued willingness to fund the
Spanish banks, which are currently the main buyers of newly issued Spanish sovereign debt. The existing and likely near future EFSF/ESM and IMF financial facilities are unlikely to be sufficient to both fund the Spanish sovereign fully and leave enough financial ammunition in reserve to deal with
possible sovereign financial emergencies in Italy or in the ‘soft-core’ of the euro area. The Spanish sovereign would therefore likely continue to fund itself at least partly in the markets even if it comes under a programme. To ensure market access by the Spanish sovereign, the same combination of cheap ECB funding for periphery banks and financial repression of periphery banks by their national authorities that has been effective in lowering sovereign yields since the first LTRO is likely to be required.

For more on the impact of regional politics, and how that is exacerbating the crisis, see here >

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America’s Massive ‘Free’ Energy Source


At some point, there might come a day when America has the infrastructure for the bountiful volume of natural gas that comes out of the ground here, but that day is not yet here.

Thus at a time of soaring oil prices, natural gas continues to plumb comically low levels.

Click to enlarge this multi-year chart via FinViz:

Natural Gas

Of course, if you want a real laugh, look at the ratio of natural gas to oil.

chart

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WILLEM BUITER: Spain Is Likely To Enter Into Some Kind Of Troika Program This Year


Willem Hendrik Buiter

Citi’s top conomist Willem Buiter has been warning about Spain a lot latley, and in a new client note he reiterates the worries he has.

MarketWatch:

The risk of a Spanish debt restructuring is higher now than it’s been since the beginning of the crisis, said Citigroup Inc. chief economist William Buiter in a research comment published Wednesday. “Spain looks likely to enter some form of a troika program this year, as a condition for further European Central Bank support for the Spanish sovereign and/or Spanish banks,” said the former Bank of England Monetary Policy Committee member.

This is a reiteration of comments he made elsewhere in the media. See here for mroe on his recent pronouncements >

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UK Q4 GDP Revised Worse Than Expectations


From Bloomberg’s Michael McDonough:

*U.K. GDP FELL 0.3% IN FOURTH QUARTER; FORECAST 0.2% DROP -Bloomberg

— Michael McDonough (@M_McDonough) March 28, 2012

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European Markets Are Bouncing Back, US Futures Now Heading Higher


At first it seemed like a rough night in Asia would carry through to the west, but at the moment, things are looking fairly positive.

US futures are now modestly higher, and Europe is green across the board.

Italy is leading the way.

chart

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GOLDMAN: BUY GOLD


gold bar / ingot

There’s a fresh note out this morning from Goldman Sachs urging traders to buy gold.

Under our gold framework, US real interest rates are the primary driver of US$-denominated gold prices. However, after being remarkably strong in the first half of 2011, this relationship broke down last fall, with gold prices falling sharply in the face of declining US real rates, as tracked by 10-year
TIPS yields. While gold prices have returned to trading with a strong inverse correlation to US real rates since late December, at sub-$1,700/toz they remain below the level implied by the current 10-year TIPS yields.

We believe that despite last fall’s decline in 10-year TIPS yields, the gold market may have been expecting that real rates would soon be rising along with better economic growth, leading to a sharp decline in net speculative length in gold futures. Accordingly, a simple benchmarking of real rates to
US consensus growth expectations suggested a level of +40 bp by year end. Our models suggest this higher level of real rates would be consistent with the current trading range of gold prices. As we look forward, our US economists expect subdued growth and further easing by the Fed in 2012, which should push the market’s expectations of real rates back down near 0 bp and gold prices back to our 6-mo forecast of $1,840/toz

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The Chinese Market Got Crushed Again Last Night


China trade

US futures are roughly flat, but there’s a pretty solid amount of negativity out there, following the US’ late-day selloff yesterday.

Asia had a down session, with China in particular getting clobbered, losing 2.65%.

In Europe, France is off 0.4%. and Germany is down 0.22%.

Meanwhile, Italian yields are ticking higher again, as the 10-year now yields 5.12%. Definitely a trend to keep an eye on.

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The Chinese Market Got Clobbered Again, And Markets Are Sliding In Europe


China trade

US futures are roughly flat, but there’s a pretty solid amount of negativity out there, following the US’ late-day selloff yesterday.

Asia had a down session, with China in particular getting clobbered, losing 2.65%.

In Europe, France is off 0.4%. and Germany is down 0.22%.

Meanwhile, Italian yields are ticking higher again, as the 10-year now yields 5.12%. Definitely a trend to keep an eye on.

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Look What Happened To Healthcare Stocks While The Supreme Court Was Savaging Obamacare

Remember: Big healthcare companies like Obamacare and the individual mandate since it guarantees a huge new pool of customers (including a lot of low-risk, young customers that aren’t expected to cost much).

So while the Supreme Court was savaging Obamacare today (at least according to the snap judgment) look what was happening to shares of big insurers like Aetna and UnitedHealth.

You can click the chart to enlarge.

chart

 

Read more on today’s Supreme Court action here >

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