Which Sovereign Nation is Next to Default?

[SillyWilly]

After Greece's default a month ago people are looking around to find the next default candidate.
Which sovereign might it be, and why?

My money is on Spain.

Here's why: http://www.munknee.com/2012/04/graham-s ... heres-why/

[b]Demographics
Spain’s demographics alone are setting Spain up for a sovereign debt Crisis. [Take a look:]
• Currently there is 1 person of non-working age (65 or older) for every 4 people of working age (15-64) in Spain.
• This is expected to worsen to 1 person of non-working age for every 3 people of working age by 2025 and
• an astounding more than 1 person of non-working age for every 2 people of working age by 2040.
Banking System
[As bad as Spain's demographics are] it is its banking system that really sets it apart. Let’s consider the following facts:
• Total Spanish banking loans are equal to 170% of Spanish GDP.
• Troubled loans at Spanish Banks just hit an 18-year high of over 8%.
• Spanish Banks are drawing a record €316.3 billion from the ECB (up from €169.2 billion in February).

[Believe it or not], even… [the above statistics] don’t paint the real picture. Thanks to a property bubble that dwarfed [that in] the U.S. in relative terms, Spain’s economy and corporate arena are now literally saturated with debt. Consider the following:
• Spanish non-financial corporations’ gross debts outstanding are equal to 196% of Spain’s GDP (this is worse than that of Greece, Portugal [and] even Japan)
• Spanish non-financial corporations sport debt-to-equity ratios of 152% (only Greece and Japan are worse here)
• Spanish household debt is equal to 90% of the country’s GDP [which is] much higher than the EU average of 70% and roughly inline with that of the U.S. which has been running a credit bubble for 30+ years.
Conclusion
• In simple terms, Spain is like Greece, only bigger and worse. According to the Bank of International Settlements (BIS) worldwide exposure to Spain is…[in excess] of $1 TRILLION (the U.K. is at $51 billion, the U.S. at $187 billion, France at $224 billion and Germany on the hook for a whopping $244 billion).


If Spain chooses…to stage a default or a messy debt restructuring, we’re going to see:
• systemic crisis that would make Lehman look like a joke,
• the breaking up of the EU and
• a bear market in bonds (which we have not seen in roughly 30 years)

[GuyInTaiwan]

So, I take it you're heavily shorting Spain then?

[SillyWilly]

So, I take it you're heavily shorting Spain then?

Wish I could. But shorting the Euro doesn't make much sense since Spain is only one of many countries using the currency. When Italy stands to default, shorting the Euro might be smart.

Any suggestions on how to short Spain, other than currency?

[headhonchoII]

My opinion on Spain is that it had a property bubble that was equivalent to Ireland's in terms of madness but

a) The banks have not even started recognising the bad debts from this bubble yet in Spain (because as soon as the banks start foreclosing , they kill themselves since they must recognise the REAL value has dropped by as much as half!). This is a really big problem, because what really caused Ireland to need an IMF loan was the failure of the banks due to property speculation and the government making the private debt public and surpassing the ability to pay back the national debt. Now the national debt in Spain does not even include the debts from the property bust!
b) Spain's economy is not very productive, it's got huge structural problems. With 25% unempoyment and 50% youth unemployment it's in dire straits. Regional govenrments have loaded up on debt too. Ireland has a pretty good economy in parts and good demographics.

So yes, Ireland still went bust with many cards that Spain doesn't even have. Spain is in big doodoo. The argument some make is that Spain's banks and companies have extensive assets in South America. Hmm, didn't seem to go well for them in Argentina recently when the Argentines nationalised a Spanish oil company.

If Spain could devalue it's currency it would be okay. Inflate away the debt and gain competitiveness again. Can Spain stay in the Euro? The Euro is a disaster for Spain, Greece and Portugal. They should drop out. The British would be in a bad situation too except that they have the GBP. Ironic that the Eurosceptics were right about that one.

However I still think it is the Greeks that will default next, again!


PS- Spain is going to get a bailout plan just like Greece. You can see the ECB and IMF increasing their pot of gold to get ready. The Germans have no choice but to agree with this and in fact it will be a bailout of Germany at the same time, as per those 244 billion Euro that is owed to German banks. Italy has had much of the focus but Italy is not in as bad a state as Spain and most of the debt there is based locally.

[GuyInTaiwan]

Wouldn't you short Spanish bonds in particular, and maybe even Spanish companies?

[GuyInTaiwan]

[SillyWilly]

Wouldn't you short Spanish bonds in particular, and maybe even Spanish companies?

Again, would love to, but logistics not that easy. Opening a Spanish bond/equity trading account? Wouldn't know where to begin.
Any thoughts on how to do that?

[SillyWilly]

Hilarious !

[SillyWilly]

PS- Spain is going to get a bailout plan just like Greece. You can see the ECB and IMF increasing their pot of gold to get ready. The Germans have no choice but to agree with this and in fact it will be a bailout of Germany at the same time, as per those 244 billion Euro that is owed to German banks. Italy has had much of the focus but Italy is not in as bad a state as Spain and most of the debt there is based locally.

Is it even possible to bailout Spain? The ECB would have to turn on the spigots again and print like the madmen they are.

http://www.telegraph.co.uk/finance/fina ... Rajoy.html

[headhonchoII]

The Prime Minister doesn't want it to look like they need a bailout, as that will just precipitate it faster. None of them admit they need a bailout right up to the last minute. Anyway, I don't like the word 'bailout', as it is a bit unfair and the money is still owed back to the central bank while the private bondholders get paid off.