Editor’s note: This article was first published in September 2012 as market commentary from 26 September. The IBEX 35’s fall of almost 4% that day, the debate over whether Spain would request a bailout, Mario Draghi’s statements calming debt markets and the forecast that 2013 would not improve are all outdated.
The IBEX 35, along with the rest of the stock markets, opened in the red and kept extending its losses throughout the morning. A few weeks ago we warned of a crash in the stock markets, although honestly I didn’t expect it so soon. Among other things, this shows that the European Union’s “bosses”, together with national governments and especially the Spanish government, have chosen the worst of all the bad ways of doing things.
Last night several indicators that predict a market fall were flashing red. Together with the recent low trading volumes, and with October coming up, historically one of the most bearish months, this leads us to predict that this drop of almost 4% in the Spanish benchmark index is only the start of the fall we had already warned about. It’s often said that the stock market anticipates good and bad times for the economy, which is why I still don’t understand these latest rises, as there is absolutely no sign of economic recovery, quite the opposite. Then again, the fact that the markets have risen without good reason could make them fall for very good reason, and in that case we’d be talking about a massive drop.
Despite the successes of technical analysis, fundamental analysis wins out in the end, and the markets end up being governed by the macroeconomy, which, looking for a gentle way to describe it, is pretty screwed worldwide. Nevertheless, Spain’s prime minister, Mariano Rajoy, says we’re better off than a year ago. That optimism is appreciated, but it doesn’t reflect reality: Spain (meaning the Spanish people) is going through an extremely precarious economic and employment situation, and worst of all, there is still nothing to suggest the situation will improve in 2013.
Spain’s image
Spain is sometimes compared with Greece, although in the end people say Spain is not Greece. The thing is, we’ve adopted the same measures that didn’t work in Greece (austerity, adjustments, cuts…), and obviously any economics expert will tell us those measures won’t work in Spain either. (Let’s remember that Greece still has a lower unemployment rate than Spain.)
Meanwhile, some images from last night’s protest are going around the world, showing blood in the streets and violence by both protesters and police. That looks like Greece and doesn’t inspire confidence among investors, since it is the indicator of the Spanish people’s confidence and mood.
The uncertainty the Spanish government is creating over whether or not it will request a bailout is once again pushing up borrowing costs and erasing the effect of Mario Draghi’s magic words, which had calmed the debt markets. Merkel and other EU countries aren’t helping much with their latest comments either.
Bailout or no bailout, the markets will fall
We’re at a point where if we get bailed out, it’s bad, and if we don’t, it’s worse. Either way, the expense or cost (the noose) will be passed on to Spanish consumers, who, let’s remember, already have some of the lowest purchasing power in Europe, generating more unemployment and causing more businesses to close throughout 2013. There are two scenarios:
1. If Spain doesn’t request the bailout, the markets will collapse and we’ll probably see the IBEX even below its historic lows (around 5,900 points).
2. If Spain requests the bailout, we’ll see an extremely bullish surge in the markets, and you’d need to take profits from it quickly, before the real situation is reflected: without jobs and without purchasing power, there is no economic growth.
The good news in all this is that those who weren’t able to take advantage of the recent stock market rebounds will probably get another chance, being able to buy in at levels similar to before.
Featured image: Nemo, CC BY-SA 4.0, via Wikimedia Commons.
