Chomping at the bit

We were going to suggest that a fitting way to celebrate today's lifting of the ban on short positions on Spanish financials would be to put on some sort of long German industrials/short Spanish banks spread - be it through individual names or the indexes. We still think the trade has legs, but this morning's action has momentarily rubbed a bit of the lustre off the idea of taking immediate action. Ibex 35 component banks off between 3 and 8 percent. Eurostoxx 50 industrials biased towards the negative, but we're talking a tad over 1 percent on average.

Gotta wonder about the CNMV's timing here, by the way. Might have been a better idea to do this in the midst of the generalized relief euphoria of a month ago than into the teeth of the widening sovereign spreads and agency downgrades of the moment. Giving the impression that there was a touch of pent up desire for short positions is the fact that the two July IPO's - Bankia and Banca Cívica* - were hardest hit at the open. The latter has since recuperated half its losses. Rodrigo Rato's baby is another story, as the chart testifies.

In any event, it's worth noting that the wheels didn't fall off markets themselves in the wake of the short sale prohibition - as some were insisting would happen.

*The writer has a long position in BCIV.

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Filling the breech

The anonymous wag who compiles the 'Strange Bloomberg Headlines' seen on the left sidebar seems to have found him- or herself involved in some sort of misadventure. In their absence we volunteer to keep the flame a-burning.

Appearing on Monday morning...

Gorman Embracing Vegemite in New Wall Street’s 15% Bogey at Morgan Stanley

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The Prince

Recently appearing in one of the family in-boxes was a series of jpeg's of well-known paintings - reconfigured to suit the present political panorama in the country. First up is PSOE leader-elect, Alfredo Pérez Rubalcaba, in the guise of Niccolò Machiavelli.

Even this writer was positively taken by the seemingly selfless manner in which this veteran socialist pol stood alone on the beach to face the PP tsunami in last November's Spanish general elections. Turns out that he was merely setting the stage for his taking over of the party apparatus. The winner by a slim margin of last weekend's PSOE leadership vote, Rubalcaba wasted no time in battening down the hatches.

Outstanding among those excluded from the new party executive was Madrid socialist, Tomás Gómez. Apparently, fresh air was not to be permitted to enter into the smoke-filled rooms of the Calle Ferraz.

The disappearance of Manolo Chaves, however, from the party's public face might be considered a plus - except for the fact that the career bag man of this ex-president of Andalucía, Gaspar Zarrías, finds himself front and centre and in charge of municipal relations. It was through control of the myriad towns and villages of the writer's home turf that Panzarías* (as he's known around here) turned the province of Jaén into his personal fiefdom. That he even continues to hold a party membership card is a blot on the PSOE.

Polls are calling for a PP victory in Andalucía next month. It's an outcome that we'll believe when we see it, but we doubt that Rubalcaba will survive such an eventuality with ease.

*In English, 'belly full of laughs'.

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Daily dose of nonsense

Nomura (via FT Alphaville), with respect to the Chinese economy:

...We retain our one-in-three likelihood of a hard economic landing commencing before the end of 2014, but now have a bias to think it less likely....

And the likelihood that the likelihood of the likelihood...

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The other shoe drops

It hasn't taken long for the man now at the helm of Spain's finance minstry, Luis de Guindos, to reveal his investment banking heritage. Various sources, including Bloomberg, have it that future contributions to be made by the state bailout fund, the FROB, will come in the form not of convertible preferreds, as has been the case up to now, but via contingent convertibles. These are essentially loans that convert to equity in the event that things don't work out as planned. Often associated with the maintenance of a minimum share price, in the case of these CoCos they will trigger if prescribed capital ratios are not maintained.

As if the threat of finding one de Guindos' minions in a seat on your board of directors weren't enough, it seems that the ex-head of Lehman Brothers in Spain (stifled laughter permitted) is also telling most of the country's financial institutions that they aren't big enough to survive and that their share of 50 billion euros of new FROB money will not be forthcoming until after they have merged themselves down to a considerably smaller number. How many could survive the new 80 percent provision for raw land, for example, without some help from the guv?

First out of the gate, as has been the case throughout the caja debacle, is Banca Cívica. Mentioned by the writer most recently here, bciv.mc* went on a tear the week before last as it went public with the news that it was seeking partners.

In general terms, by the way, the smaller listed banks have been outperforming both BBVA and Santander in recent months. Bankinter and Banco Sabadell stand out.

*Long a favourite of ours for its management's consistent volunteering to do what they will sooner or later be told to, we own a small thwack of this stock. Their chart heads this entry.

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Farmer's almanac

If the beginning of the olive harvest marked the high point in Spanish government yields, the last day also showed its mettle. Expansión reports that, on Wednesday, Banco Santander successfully flogged 2 billion euros of 3-year mortgage covered bonds. Bid-to-cover was 4.5 and yield turned out to be 20 bps below the bank's original guidance.

It was the first time since May that they were able to turn to public markets for their funding needs.

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While we were out

Having been long ago proved erroneous any hypothesis that the efforts indulged in by this writer were to any avail in the real world, we now have had the opportunity to test its opposite - that the lack of Ibex Salad would prove itself crucial to the grander outcome.

The chart on the left shows the progression of Spanish sovereign bond yields since November 25th, the day on which they peaked and we excused ourselves from active service in order to start the (finished yesterday) olive harvest.

Perhaps we should just shut up and quit while we're ahead.

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You can't make this stuff up

FT Alphaville treats us to a bit of analysis from Rabobank. The absolute high point of the piece...

Both France and Austria now form a peripheral core...

Coming up next week - the coral periphery.

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Not open for business

The chart on the left - also a permanent fixture in the right sidebar - shows the monthly number of residential mortgages registered in Spain as a percentage of actual house sales. It's our proxy measure of credit availability in the Spanish economy.

Calculating from the November mortgage report from the INE, this figure currently stands at 98.71%. Almost inconceivably, fewer mortgages than sales as banks shore up balance sheets by not lending money.

A five-year moratorium on the implementation of Basel III might be a thought.

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Closet economics

Oh good!!! Edward's back... and just in time for Christmas.

After a seemingly endless absence, Edward Hugh has started pumping them out again at A Fistful of Euros (as well as all the usual slew of content farms, we suppose). In his latest he has it that Finland, rather than being a card carrying member of the Hanseatic League, is in fact a Closet Peripheral.

Readers may wish to slog through the usual several thousand words on just about everything under the sun - including the apparently astonishingly high 19-point spread of government bonds over 10-year Dutch debt. Others might want to save themselves the bother.

The above chart may assist this latter group.

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