Britannia Radio

I sit here bemused by the seemingly illogical surge in the stock markets which seem to have little basis in facts.  Indeed that the surge should feature the two banks most involved in the whole banking crisis seems little short of the mass hysteria which caused the surge in the stock market and house prices in the first place and which proved to be nothing more that an instantly deflatable bubble.  

I give below as caustic comment from a firm of Anglo-American analysts on the Spanish banking sector  whose whole existence seems to be built on a puff of smoke! 

As a leading stockbroker tells me (and I concur, because I’ve been saying this for months!)  ---  “to my mind the Government (of whatever hue) will have to come up with plans pretty soon for repaying the massive borrowing undertaken to stave off a major economic collapse.  In the short term, I think we are going to see continuing redundancies and company bankruptcies, while bank lending to companies has continued to fall off – we are not going to see companies leading a recovery through capital expenditure.  To maintain the Government’s credit rating, either public expenditure must be cut or taxes must be raised, but either alternative would strangle any incipient economic recovery.   My expectation, therefore, is of a fall in the market in the short term and a hesitant and anæmic recovery over the next few years. ”  

Note we agree that we have no alternative but to repay the borrowind AND THAT this will stifle any economic recovery!  Not much of a choice.    

Of course there are - and always will be - some technical aspects to stock price movements as traders having gambled on banks recovery then have actually to own the shares they have bet.  So they are forced to ‘Buy’ to ‘cover their short p;ositions’ .  This temporarily drives the price up!  

It does throw the sanity or rationality at least of the markets into question!  

Christina

TELEGRAPH  29.8.09

CITY DIARY  Dreams of Spanish banks go up in smoke

The general view is that the Spanish banking industry has dodged the worst of the credit crunch. That's the general view. Economic analysts at Variant Perception take a different approach. A note on Spain this week started off with this line: "Dives sum, si non redo eis quibus debeo."

For the less classically educated, like me, the analysts then offered these two translations.

- "I am a rich man as long as I don't pay my creditors," is the strict translation. 

Or as the analysts state further into the report:

- "Investors are smoking crack if they believe Spanish banks are among the strongest in Europe."