Spanish banks hold 400 billion euros in mortgage-backed securities (MBS), but the value of those securities is diminishing fast. The bailout of 100 billion euros might be sufficient if Spain’s economy grows again and the housing market stops falling.
Past News ReleasesRSS
New York, NY (PRWEB) July 22, 2012
In a recent Investment Contrarians article, editor Danny Esposito comments on how the southern countries in Europe do not have any money to pay their debts, but also the global economic slowdown is reducing government revenue, moving up the timetable of the European debt crisis to today. Esposito believes Spain’s bailout, which currently stands at 100 billion euros, is not going to be enough, as the European debt crisis deepens.
“Spanish banks hold 400 billion euros in mortgage-backed securities (MBS), but the value of those securities is diminishing fast,” notes Esposito. “The bailout of 100 billion euros might be sufficient if Spain’s economy grows again and the housing market stops falling.”
The unemployment rate in Spain is currently just over 24%. That is one-in-four people in the country who are unemployed. Youth unemployment is over 50%: one-in-two young people are unemployed, reports Esposito. Just-released figures showed that the poverty levels in Spain have continued to worsen. Twenty-five percent of the population lives below the poverty line, as the European debt crisis prevents job creation and growth, according to Esposito.
With this backdrop and the continued European debt crisis, home prices are still too high, believes Esposito. In his opinion, they have just begun to fall and should continue to drop further.
Standard & Poor’s (S&P) has conducted studies surrounding the European debt crisis and the Spanish housing market. It believes Spain’s housing market has another 20% more to drop, which Esposito suspects is conservative, given the high unemployment rate and high poverty level.
If housing prices drop another 20%, then Spanish banks lose another 80 billion euros (400 billion euros in MBS multiplied by 20%), according to Esposito.
The Investment Contrarians editor states that while the central government in Spain attempts to deal with all of these problems, the country’s own debt-to-GDP is starting to exceed 100%. With the European debt crisis, revenues are falling, putting the country deeper and deeper into a black hole, he says.
“This reprieve for Spain will not last long. With no job creation due to the European debt crisis, the housing market will continue to fall and Spanish banks are going to need at the very least another 100 billion euros, and that is just for starters,” concludes Esposito.
To see the full article and to get a real contrarian perspective on investing and the economy, visit Investment Contrarians at http://www.investmentcontrarians.com.
Investment Contrarians is a daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”
The editors of Investment Contrarians believe the stock market and the economy have been propped up since 2009 by artificially low interest rates, never-ending government borrowing and an unprecedented expansion of our money supply. The “official” unemployment numbers do not reflect people who have given up looking for work and are thus skewed. They believe the “official” inflation numbers are also not reflective of today’s reality of rising prices.
After a 25- to 30-year down cycle in interest rates, the Investment Contrarians editors expect rapid inflation caused by huge government debt and money printing will eventually start us on a new cycle of rising interest rates.
Investment Contrarians provides unbiased research. They are independent analysts who love to research and comment on the economy and investing. The e-newsletter’s parent company, Lombardi Publishing Corporation, has been in business since 1986. Combined, their economists and analysts have over 100 years of investment experience.
Find out where Investment Contrarians editors see the risks and opportunities for investors in 2012 at http://www.investmentcontrarians.com.