Spanish Bailout – more questions than answers, more risk, not less.

Market direction early this week is hard to predict, we would have said down….but with the Spanish bailout, the MSM (mainstream media) are likely to try and spin a bullish yarn, so an early pop in risk is entirely possible. If so, we will fade the rally and look to short. With the Greek elections looming and an almost guaranteed victory for the anti-austerity factions, what the Spanish bailout will mean is everyone will want the same terms, from Athens to Dublin to Lisbon. And attention will soon focus on Italy, and then when they eventually get a bailout, they’ll look for better terms than the Spanish,….and so on. Then France?

If Bernanke does not print large, US$ 1T or more in proper QE3 (no, sterilization wont work, so Twist 2 is a no no for markets) the last 2 weeks of Q2 could really set world markets up for a good 8-10% decline.
The Spanish bailout is equal to 10% of GDP. We are 100% confident however that they’ll be back by more, because the real shortfall is closer to Eur 400bn, and that’s just for the banks. Add the sovereign and the regional debt, Spain alone has a Eur 1 Trillion shortfall. We believe the banks are marking their property assets at mark to magic, and in fact their losses are far higher than reported.
The Greeks now know there are better deals being given by the ECB, and they’ll want one too. Spain has just handed the Greek left victory next week. Ireland and Portugal wont be far behind, so to us the key is just how long before stocks realize the issues ahead? A few hours maybe, a day? Not long. Risk is high and for long only stock markets cash is the best place to be for the most part.


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