Here's a curious insight. Florida might indeed be Spain. And the funny thing about this is that no one really knows or cares!
You see, Florida had a huge real estate bubble, much like Spain's. And if Florida had a huge real estate bubble, in all likelihood it also ran a huge current account deficit - that is, it imported and consumed greatly in excess of what it exported and produced. But, then again, we don't know it. Because nobody really cares or does the math.
What we do know, though, is that investors don't discriminate against equities based off Florida! They don't care that Autonation (AN), Carnival (CCL) or Harris (HRS) are based in Florida. Indeed, they don't even mind whether BankUnited (BKU) or Raymond James Financial (RJF), financial companies, are based off Florida! Now, imagine investors acting likewise with Spanish banks. For sure you won't find many not caring if the banking stock they're about to buy, such as Banco Santander (SAN) is or isn't based in Spain.
And yet, for all purposes, it's very likely that Florida's economy behaved every bit the same as Spain's. That it took on huge debt to buy all those houses and condos, and that the debt fueled a huge excess in consumption that brought about a large current account deficit.
But since nobody cares or keeps tabs on this external disequilibrium that certainly took place in Florida, two things happen:
- Nobody considers the Floridian origin of the businesses he's about to invest in; or
- The economy is left to its own devices to regain equilibrium. Consumption is slashed by those that have over indebted themselves, banks continue to loan but only to those proving themselves credit-worthy. And the (local) banks that have to fail, do. And there's few bailouts - except those dictated by Federal decisions. And what's more, it works and barely anyone complains!
Isn't it funny, when we realize that Florida might be exactly like Spain and yet we don't care? This also shows us another thing - investing in Spanish equities will work in the long term; this too shall pass. Because of this, I will continue my "Blood in the streets" series, which began with the Portuguese equities, by looking at Spanish equities next.