Assigning Blame

Tracing back through a comment left by a local reader, we have found a Spanish website offering a number of good photographs of our town and its surroundings.

For readers desperate to assign ultimate responsibility for the babble that appears in IBEX Salad, image number 45 from Abraham's excellent slideshow of old photos of Cazorla features the writer's mother, Elena Mackay Moreno, c. 1915. Taken in the town park she is second from the left - the one sucking her thumb.

Abraham - los mas probable es que esté en Almería este fin de semana. Gracias de todos modos.

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Slightly Less Similar

Pretty much coinciding with our June 2nd observation that the returns from most investment options were a touch too correlated, the well-subscribed curve steepener went upside down*. Betting the long schatz/short bund spread (naive margin requirement equalizing ratio of 4:1) had netted, from early March through the end of May, 496 basis points. Since then, it has given back about 30% of those gains.

The relatively good news here is that this reversal appears to have not resulted in any contagion to other markets - implying that deleveraging and cascading margin calls and the like might no longer be as serious a risk as it was last autumn.

With the usual caveats about doing one's own homework, we suspect that the British pound (pictured on the left) might be the next to abandon the bull cartel. The, in the end inconsequential, 9-cent shakedown of a couple of weeks ago looked ominous to this farmer.

*As if our own, typically auto-contrarian, timing were not sufficient indication of where the probabilities lay, what are we to make of Bloomberg picking up on the theme, ummm, yesterday?

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The Bailout

On Friday, the BBC's news website published a short piece on the Spanish bank bailout fund - the FROB. For those who take an interest in this kind of thing, the piece is a touch inadequate.

1). The 9 billion euros of bailout money referred to is the initial funding for the program. In extremis, this amount could be levered to 90 billion.

2). The FROB will, in fact, begin with 36 billion to be dedicated primarily to the salvation of various cajas de ahorros. This figure is what the BBC should have reported.

The money will be dished out as a purchase of non-voting participaciones preferentes on the part of the Banco de España, with the condition that they be redeemed by the issuer within seven years. That not being achieved, they convert to voting shares - a circumstance never before faced by the non-profit, non-public and highly region-affiliated cajas.

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Lamarck Rocks

Coinciding nicely with the recent death of Mr. Jackson, ABC News has run a story on a 16 year old girl in Maryland who remains stuck, physically and mentally, at an age at which she has yet to master walking - still with baby teeth and all.

Similarly, our buddy Chris - who dedicates some of his time to promoting concerts - will be bringing to stages throughout Spain over the course of the summer Burt Bacharach, John Fogerty, Jerry Lee Lewis and the New York Dolls. In a slightly more modern vein, Depeche Mode will be making a reappearance and Seal will do right to all of our Stax-Volt favourites.

One could be forgiven for seeing Brooke as the triumph of the Lamarckian hypothesis.

An Aside

Readers will note that this week's eurospreads chart (on the right) shows an abrupt widening of the Irish ten-year yield. This coincides with the apparent bringing to market of a new issue of this duration. Seeing as we get this information from the Irish Times, whereas the rest come from the Financial Times, we're not exactly sure that there might not be some sort of misunderstanding here.

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Branch Banking

As the caja de ahorros at which the writer does most of his banking continues to insist that he should be investing in their participaciones preferentes, he has made up a list of the pros and cons of moving himself further out on the branch of the tree of risk in search of those tender green shoots of yield.

Against...

1). The perpetual term;
2). The clause that says that if they lose money in a given year, they don't have to pay the dividend for that year, ever;
3). That they are only showing profits at the indulgence (or insistence) of the governor of the Bank of Spain;
4). That if the above governor gets bored with the reluctance of the cajas to merge with others, he may suddenly not accept their book keeping fictions at some point in time;
5). That rating agencies are generally classifying these securities as 'junk', implying that a fair yield would be upwards of double what is usually being offered.

For...

1). The 7.5% coupon for the first two years, if compared with the 3-ish that government guaranteed term deposits are currently paying;
2). The free chainsaw with every subscription.

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Serendipity

Recent optimistic news emanating from Madrid's administrative sphinctres is that the Minister of Finance, Elena Salgado, and the governor of the Bank of Spain had reached agreement that any caja de ahorros that finds itself saved by the now-being-assembled bank rescue fund, the FROB, would find itself exempt from the dubious benefits of the legislated right to veto extra-regional fusions and takeovers of cajas enjoyed by the governments of the autonomous communities - with the BE taking the political flak for such an eventuality.

Having made public reference to this as recently as last Monday, Ms. Salgado was probably surprised by yesterday's press reports. Apparently, according to El País, one of the outcomes of Wednesday's meeting between prime minister Rodríguez Zapatero and Andalucía's president, José Antonio Griñán, was a promise on the part of the former that the veto would remain inviolate.

That we have ended up with an idiot governing the country at the least auspicious moment imaginable is a testimony to the role of serendipity in human affairs. Zapatero assumed the position of PSOE number one in the long and chaotic period following the dimission of Felipe González and as the PP won two consecutive elections. That this man, chosen for being the least contentious of all contenders (and certainly not for his leadership abilities or electoral prospects), ended up being prime minister is exclusively attributable to the backlash vote over Aznar's Iraq policy that came out in force in the wake of the Atocha bombings. The PP was, according to all polls, heading for victory in 2004. Even if the PSOE had managed to win in 2008, it is very unlikely that it would have been with Zapatero at the helm.

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Bait And Switch

A few weeks ago, the writer underwent the humiliation attendant upon renewing a certificate of deposit at a local bank. Specifically, the expiring six percent rate was to be renewed at three, then three and a half. More recently, we received a phone call from the same branch offering to extend us a lifeline. Unfortunately, this consisted of the much to be avoided participaciones preferentes that, despite warnings from the market regulator and reams of bad press, are being lapped up right, left and centre for their seven percent nominal yield by income starved widows and orphans.

Recently classified as junk by Moody's, these certificates come with no promise of redemption (although an option for the issuer to do so after five years, typically), a fixed coupon for, at most, three years before reverting to a euribor-plus arrangement, and the fantastic condition that allows the issuer to not pay the coupon in the event that they lose money in a given fiscal year - being non-cumulative, this amount is not to be made up when the good times return. Adding to the appeal, they stand one spot ahead of common stock in the event of the bankruptcy of the institution. In the case of the cajas, which do not issue stock, claimants will find themselves fighting for space on the doormat with the local fleet of panhandlers.

Not to claim that these are new inventions in the aftermath of recent events (this 1999 Caixa Catalunya offering is indistinguishable from current issues), but the matter of bank profitability weighs heavily. Already manicured at the insistence of the Banco de España, as we noted here, it is hard to imagine the profitability clause not being availed of by some institution or other before some sort of normalcy returns.

Last we noted, junk credit was yielding around 18%. That number might have some appeal.

*For readers less familiar with the English language, the title of this post refers to the retail marketing practice of advertising a computer, say, for 200 euros. The reader rushes down to the store to grab the great deal only to find that they are all sold out, and that he or she is stuck with a high pressure salesperson virtually forcing the 400 euro model down their throats.

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Musho Beti

It is said that when a male child is born in Seville, three ritual acts take place. In order, young Pepe is:

1). Signed up in a Holy Week cofradía;

2). Registered officially as a Betis or Sevilla supporter;

3). Baptized.

Any reader wondering about the societal priorities that come to fore in the wake of a financial crisis might observe that, following Real Betis Balompie's recent relegation to the second division of Spanish football (a triumph of sorts, given the recent mediocrity infesting La Liga), 60,000 demonstrators yesterday took to the streets of the Andalusian capitol demanding that the club's majority shareholder, Manuel Ruiz de Lopera, sell the club to more serious interests.

Economic and social progresistas will be able to draw a small bit of satisfaction, if not actual hope, from the event's offical slogan... For your dignity and your future, Betis.

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Green Shoot Found!

The union which represents two of this writer's cousins, and all other national tax inspectors working for Hacienda, has made the most interesting claim with respect to the current economic situation in the Andaluz province of Jaén. Reported in the June 5 edition of El Ideal (but not yet on their own website), Gestha - as it is known - is claiming that the underground economy in this province has grown by some 4 percent over the last year. According to them, keeping in mind their vested interest in that there be more tax collectors, there are three main routes into fiscal obscurity.

Heading the list are large numbers of self-employed workers who have opted to drop out of the social security system (and off the tax map) in order to save the fixed monthly charges associated with being legal - three hundred and some euros a month, regardless of income, this not to mention graduated income tax and value-added tax calculations.

Next in line is the small business strategy of exaggerating to the downside the number of hours worked by employees. In these cases, SS employer contributions are tied to income earned. Workers, in lieu of accepting layoffs or being relegated to real part-time, agree to accept part of their compensation in cash.

Lastly, and funding this informal 'social safety net', is an even more pervasive than usual evasion of taxes on the part of empresarios, the tax department being last on the list behind employees, suppliers and creditors.

Not to claim that they were ever of much use in the 'northern' macro sense, heading the parade of victims of the current crisis might be the utility of Spanish economic statistics.

Yahoo! Watch

To continue the recent series of peevish references to Yahoo! Finance data, on Friday morning they had once again reverted to the old, and fully functional, ^IBEX symbol for the IBEX 35. This happy situation continues today.

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Durable Change

Today at about 2 PM, here, Yahoo assigned yet another symbol to the IBEX 35. It now seems be called ibex.mc and has no historical quotes on record. The old ticker, ^IBEX, and its database going back to 1992 have once more disappeared off the face of the earth.

Would it be too much to ask...?

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The End Of History

Some fifth column counter-revolutionary running dog lackey, infiltrated within the Yahoo! rank and file and operating under the cover of darkness, has changed the IBEX 35 symbol from BFIE.MC back to ^IBEX, with historical data intact.

Should there be repercussions, the IBEX Salad safe house is at their disposal.

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Absolutely Relative

It is probably stating the obvious to remark that an experienced, but currently unemployed, Wal-Mart greeter in Blaine, Washington is not going to head down to the bus depot and grab the first Florida-bound dog upon hearing that just such a post is available in Delray Beach. It is self-evident truths like this that cause the full employment unemployment rate to be non-zero. The floor for this number seems to be around four percent in the United States and, with its almost one-dimensionally long and narrow populated zone, seven percent in Canada.

The case of Málaga province, which can take as long as two hours to traverse by car from corner to corner, was one of the epicentres of Spain's recently demised building boom, sees ten or fifteen million tourists poaching themselves on its beaches and drinking in its bars every year and needed a few hundred thousand undocumented immigrants to take up the slack up until 2007, bears a bit of scrutiny, however - starting with the graph of its unemployment rate from 2002 forward, posted on the left.

Evidently, barriers to entry into the labour force there - such as the vast distances to be travelled and the rarified skill set required to be a construction worker or waitress - took their toll, leaving a full ten percent of its active population without work at the height of the Costa del Sol mania.

What, then, to make of its current league-leading 27 percent figure? The obvious is to call 10 percent 'full employment' (and all that might imply as to the sheer size of the informal economy, not to mention what question people think they are answering when the EPA survey knocks on their door) and see how the ratio of the current number to this latter stacks up against similar American stats, for example. Málaga - 2.7:1. USA - 2.25:1. That is the equivalent of an 11.34 percent UR in the US - not completely unexpected, given the generally more rigid European labour market.

Extend this, to one degree or another, throughout the country and the reader might understand why no one, to date, is panicking.

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Guard Neuron On Duty

Starting with a 2:10 PM hit via a Yahoo! search for the term 'ibex symbology bfie', but coming directly from a Yahoo France server, the rest of the day looked like the screen shot on the left as our prior entry was e-mailed throughout the Yahoo empire.

Certainly a testimony to how quickly Yahoo search picks up new posts, we'll see how long it takes them to fix the problem now that they know about it.





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Yahoo!

Yahoo! has changed the symbol for the IBEX 35 from ^IBEX to BFIE.MC. Excellent! A much needed improvement! Unfortunately, aside from giving an error message when one tries to enter the page with the old ticker, they have totally cut off access to historical data. The old one doesn't exist and the new one doesn't have it.

This might be neither here nor there except for the fact that we changed the symbol in our software package without checking whether the new symbol delivered the goods and, in the process of updating this morning, deleted all the quotes we had from 1992 onward - and us with a month old backup.

Knowing Yahoo!, it will likely be months before this is rectified. Any reader with OHLCV for the index since May 8 of this year that might want to share a csv or metastock file could send it to capra.iberica(at)gmail.com. We would be forever in their debt. Suggestions as to other sources (BME does not include Open or Volume) could go to the comments section.

We thank all in advance.

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Video On Demand

The latest must-quote statistic for pundits intent on resisting the rising waters of the monotony that so characterizes recessions is the BLS U6 American unemployment statistic - the more commonly considered U3 number apparently not giving enough bang for the buck in this regard. U6 is currently at about 16% and the latter at 9.5. This gives us not only a far more exciting number to bandy about, but a 6.5 point spread and a ratio of 1.68:1 between the two. At the unemployment trough in the year 2007 (if anyone were to think that they were, somehow, independent assessments), these calculations were, respectively and approximately, rates: 8% and 4.5%, spread: 3.5, and ratio: 1.77:1.

In line with this evident general consensus within the noise-generating class that the best relief for ennui is to find and watch the scariest movie available on the net, we ask the reader to compare two Google blog searches for the term 'U6 unemployment'. The first, stretching back a week from this morning, renders 3,110 hits. The second, dated to coincide with with the release of the paradisiacal March, 2007 figures, turns up 7 (seven) references in the blog funhouse.

Spread: 3,103, ratio: 444.29:1.

Statistical video-on-demand.

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Seventh Day Afterthoughts

Seeing as the writer's main purpose in life is to create miniature utopias, we present two narratively conceived and well enacted spread trades. Assume that life was breathed into these depression era characters - and that they were unceremoniously hustled out of the Garden - on January 2nd of this year.

1). Personified by, respectively, bottler SOS and sausage casing maker Viscofan, the short olive oil (wine that you drizzle on salads and then talk about over the ensuing meal, at least in the moments that the marvellous performance of your Madoff investment begins to bore) - long baloney, turkey loaf and other cheap meat proxies turned 38.45% to date.

2). In confirmation of the interesting human design feature that all, real and imagined, past sins are repented for and rued simultaneously in times of duress, the combination of economics and a suddenly (and suspiciously) resurgent sense of environmental responsibility give us long locomotive manufacturer, CAF, and short toll road operator, Cintra. Return to date: 24.5%.

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On The Good News Front

A note to announce that our friends at Carter & Cavero Old World Olive Oil have opened a second venue for their excellent selection of olive oils from around the world - this beachside in Long Branch, New Jersey's Pier Village. The store address is 8 Ocean Ave.

As usual, mention IBEX Salad to Chris and be complimented on your literary tastes.

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Apocalypse Past

Despite the continuing efforts of various deep-pocketed and gullible pundits (some of whom suffering from the after-effects of having capitalized quite nicely on predictions of the worst) to prop up a zombie narrative by buying up, in the fine tradition of central banks, whatever B-minus nonsense comes across their computer screens, the apocalypse angle seems to be officially dead - and the true face of economic recession can reveal itself.

Instead of being world-ending, dear reader, downturns are merely intensely and insufferably... boring. Testifying to this, one can not only point to the fact that the corporate bond market has been the place to be invested for the last while, but also to the very sudden and precipitous drop in both blog readership and blogger output.

Among the advantages accruing to us under the new regime of dull ennui are the following:

1). We might never have to be submitted to the notion that the price of credit default swaps on sovereign debt specifies the mathematical probability of default occurring;

2). It is possible that no one will ever again tell us, without at least providing some kind of proof, that Goldman Sachs program daytrades have a directional bias;

3). That the European Monetary Union will crumble might never be splashed across a front page again;

4). Etcetera.

Investors, on the other hand, may be able to squeeze a bit out of the apocalypsists' refusal to go down without a fight. Simply, that would be playable ranges on the U.S. dollar and anything linked to its fate - at least until the truth sinks in. Just don't forget that they are all the same trade.

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Would You Like That In Black, Or White?

If the reader believed that the realignments, theoretically product of recent financial and economic distress, were to reopen that door to investment security - diversification, he or she would be advised to note that:

1). The euro, cable, the loonie, the yen, zinc, tin, copper, lead, and every equity index that we lay eyes on are currently trading at the disaster prone levels of last October;

2). The exceptions would be silver and gold, which are changing hands at the no less portentous levels of July past and crude oil and long bonds which are merely repeating December's moments.

Given that virtually all of the above also passed through a flexion point in March (approximately), one could argue that participants might be setting themselves up to have that evil binary switch thrown, yet again.

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