February 2010 Ibex: Greece Tightens the Screws, Market Stands Firm

Greece, the Fed, and an Ibex No One Dared Touch

February 2010. The Ibex 35 starts the month hovering around 10,250 points, a floor tested and broken day after day, with one idea firmly lodged in the market's mind: Spain and Greece are the only two European markets in the red. Ejpain & Grecian 2000, one of the most repeated jokes of those weeks, summarizes it wryly. Behind the joke lies an uncomfortable truth. While Frankfurt and Paris hold steady, the Spanish stock market has become an asset almost no one wants to own, only lend.

The levels traded throughout the month confirm this. The Stoxx hovers around 2,682 points and threatens 2,696. The S&P 500 flirts with 1,103 and 1,105. The Eurostoxx futures debate ranges between 2,740 and 2,780. And at home, 10,550 and 10,850 act as resistances, tested repeatedly without conviction. Almost everyone is short. Almost everyone expects a crash. And the index refuses.

The Fed Raises the Discount Rate, and the Market Turns

One of the moments that breaks the month's calm is the Federal Reserve's decision to raise the discount rate from 0.5% to 0.75%. The announcement comes mid-session, and US futures plunge. For a few hours, the soft landing thesis seems confirmed: if money stops being cheap in the United States, capital will flee peripheral economies before the bell rings.

It doesn't last. Hours later, the market turns around, and many of those who were short are forced to close their positions. The explanation circulating is the usual one: a strong hand holding the price just when it should fall. "There's tremendous manipulation in the market forcing it to rise," argues an analysis focusing on the Stoxx, the mini-S&P, and even the eurodollar as proof of movements that defy rational explanation.

It's the first time in the month that the narrative of a crash cracks. And it won't be the last.

The Greek Bailout That Arrived Via Bloomberg and Was Immediately Denied

The Greek episode is the other major focus. At 4:48 PM, a Bloomberg dispatch suggests that the German public bank KFW might buy Greek bonds as an emergency measure. The market surges in minutes. The reaction comes with built-in skepticism: "They'll deny it later, and it'll fall again. They play with Greece's rescue however they want."

It's not cheap paranoia. It's the pattern of the month: rumor, rally, denial, and back to square one. One day the stock market rebounds on unattributed information; the next, it collapses for no explained reason. In the meantime, short-term traders try to snatch a hundred points from each swing, convinced the market moves on headlines, not fundamentals.

The consequence is structural distrust of any unsigned news. The February 2010 market doesn't believe the media. It believes the charts.

Ariad, Dilution, and the Yacht No One Wanted to Let Go

The other main protagonist has a name: Ariad Pharmaceuticals. The stock trades around $2.77 after a volatile month. Under scrutiny is a capital increase of between 20 and 30 million shares registered with a reference price of $2.45 per share, taken from the previous day's closing price. "No one can stop dilution," concludes one of the most cited analyses.

The battle lines are drawn. One side argues the maneuver is a play to negotiate face-to-face with Merck, the pharmaceutical partner Ariad needs. Another recalls that the stock was once at 2.60 and dropped to 1.9x in a few days, and those who sold in time were grateful. Long-term holders, with the September 2009 chart in hand—opening at 2.92, high at 2.94, low at 2.70, closing at 2.75, and 12.6 million shares traded—warn that this volatility is nothing new.

And there's always the bitter consolation of those who exit and see it rise: "Now that we've all sold Ariad, it'll go to $20.00 USD." The quick reply: maybe to 3.00, but first comes the discounted offer at 2.45.

The Bank of Spain and Provisions: The Blow Is Coming

If there's one issue that runs through the entire month, it's real estate assets on bank balance sheets. The news that the Bank of Spain is considering raising provisions for real estate assets lands like a lead balloon. "The hit is going to be massive," one reads. It's not an isolated opinion.

The recurring diagnosis is that banks will have to reveal the hole sooner or later. "The day they want to sell them, they'll have to cut the balance sheet price by 50%," calculates one trader amid the discussion. What's being debated isn't if it will happen, but when and at what cost. Entities making gradual provisions is seen as logical: better to acknowledge the problem in installments than all at once.

Meanwhile, results are plummeting. NH Hoteles reports losses of 97 million euros in 2009. No one is surprised. Tourism and real estate are the two indicators that have been pointing downwards for months, and the stock market is starting to price them in.

How to Trade When You Know Nothing: Hyenas, Lions, and Cheetahs

The most interesting aspect of the month isn't the news, but the methods. One trader develops what he calls the hyena approach: hyenas feed on what lions leave behind or what they can steal from cheetahs. Cheetahs are the jumpy ones, opening and closing positions in minutes. Lions are the strong hands, the market makers who cannot be challenged. "In short, I don't predict trends; I trinc them."

Others divide the week into key days. The 16th as a bearish trend change. The 18th as a minor rebound. The 19th as the futures expiration high. And some simply accept that this is a chart-based casino: "Guessing this is little more than statistically impossible; if you add up the probabilities, you lose." They say this in reference to betting sites that pay for predicting the Ibex closing price before 2:30 PM.

The underlying conclusion is uncomfortable for those seeking certainty: no one knows what will happen, and anyone who claims to know is selling something.

The Commission That Eats Profits Before They're Made

Amidst the headlines, practical issues emerge that rarely appear in analyses. The most useful: the impact of commissions on small trades. With €1,000 per trade and a 0.1% commission on the underlying with a minimum of €5, you pay 1% between buying and selling. With €5,000, that cost drops to 0.2%.

The conclusion is simple and devastating: below the commission minimum, every trade starts with a structural disadvantage. It doesn't matter if you guess the direction correctly. You start losing.

The classic question from beginners also arises: how much to trade with? €1,000 per entry, €10,000 total? The underlying answer is that it depends on the product. An Ibex futures contract moves much more than any stock, and leverage cuts both ways.

The 80% Playing with the "Bank Friend's" Money

There's no shortage of digs at the average investor. "80% of Spaniards bet their money on what their bank friend tells them, who knows half as much and has twice the interest in the investment." The phrase summarizes a widespread suspicion: that banks push their own products over the best ones.

The response is not long in coming. "Why do you think we're going to lose everything?" The person who warned that this is a roulette wheel backs down: it was hyperbole, a way of speaking. And that's where it stays, with the eternal tug-of-war between those who believe it's a market and those who believe it's a casino with screens.

Underlying it all is a figure not found in any official report but recognized by anyone who has set foot in a bank branch: the gap between what is known and what is sold.

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February ends with no one having won the bet. The Ibex remains standing, short-sellers are still not collecting, and fundamentals continue to point to a hole that the Bank of Spain acknowledges only drop by drop. Every morning, someone looks at the chart again with the same hope. Every afternoon, the market returns the same uncomfortable data. Someone, somewhere, is willing to buy everything everyone else is selling. Who and why remains unanswered.