If Spain Goes We All Go ... No Kidding

Includes: DIA, SPY
by: George Wannabe

This week is another week where Spain is rattling the markets ... Just click here and you will see how often it happens. And the market is right to be concerned. If anything it is not concerned enough because we think Spain is lying. The numbers do not add up and analysts are starting to realise it ...

No, Spain is not Greece, Spain is too big too fail. The IBEX is in full crash mode, and yet once again, Europe is shooting itself in the foot. We had respite after rumours came around that the ECB would renew its bond buying program but then of course ... "ECB's Knot Says 'Very Far' From Resuming Govt Bonds Buying"

The result is that THERE IS NO MORE CORE EUROPE, IT IS ZE GERMANS AND THE OTHERS ... The chart below shows how in this latest episode of stress, the market is treating French, Italian and Spanish bond spreads equally .... The Italians being the outperformer and we think it is right.

(Click to enlarge)

In the equity land it is pretty much the same, the DAX and the euro Stoxx probably being the best long short in recent history ...

(Click to enlarge)

Now I hope our follow German citizens and others have by now learned how contagion works. It is one country at a time but gets to everyone until there is a cure. Pretty much like a Pandemic ... and even the once strong (remember the French and Italian talking about what was happening to Greece like it would never ever get to them) falter in the end ...

Consider this, the 10 largest debtors nations have liabilities exceeding $135 trillion ... and guess what, our new dominoes aka France, Italy and Spain, are all in that top 10! If confidence is truly lost there is no stopping the largest domino effect the world will have ever seen.

The ECB needs to come in aggressively and make the market understand that contrary to speculation, its firepower has NO LIMITS ... and the German should accept it until sovereigns start sorting out their finances or sweat out their assets. There is not only a liability side to the equation. Eurozone governments' financial assets only represent 25% of the zone's GDP!

The alternative is FAR WORSE.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.