Pain in Spain is Only Beginning

Spain’s housing prices will fall by an additional 35%

Read it at The Big Picture
The Pain in Spain
By Carmel Asset Management (from John Mauldin)


Yields on Spanish sovereign debt are once again lower today following ‘successful’ auctions for short-term bills. The last two weeks have seen strong rallies following these Tuesday bill auctions, only to witness further selling after Spain fails to meet expectations selling longer-term bonds later in the week. There is no reason to believe this week will prove any differently although there does appear to be resistance around the 6% level for 10-year bonds, possibly from ECB pressure.

While Spain has already rolled over a significant amount of maturing debt in 2012, the large percentage of short-term debt only pushes the timeline out a small amount. Based on the recent PMI data and weakness throughout Europe, chances are high that Spain will miss already revised budget deficit expectations for 2012. I also continue to expect that GDP expectations for 2012 and 2013 will prove overly optimistic. Given the positive start to 2012, Spain may be able to avoid an EU bailout in 2012. However, the pain in Spain will continue to get worse and unless there is a big policy shift in the EU or ECB, a bailout in 2013 appears increasingly likely.