Ibex 35 at 6,500 points: Bankia drops 17% in one session

Ibex 35 hovers around 6,500 points as banks bear the brunt

In mid-May 2012, the Ibex 35 trades around 6,500 points, and the Spanish stock market has ceased to resemble a market, becoming a settling of scores. The paradox of the week: banks rebound the day after Moody's downgrades them and default rates hit an 18-year high. They aren't rising due to good data. They're rising because of speculation that short-selling on banks might be banned again. A rebound that depends on being allowed to stop being attacked isn't a sign of strength; it's being held hostage.

The figure that best captures the moment is Bankia, which drops 17% in a single session, while its parent company, BFA, announces losses of over 3 billion euros in 2011. With Santander losing €4.50 and Repsol heading towards €12, the discussion is no longer about how much further it can fall, but who will pay for the hole.

Why is Bankia collapsing if the State has rescued it?

Because no one knows the true value of the assets within. The operation was presented as a public investment, and some describe it with a sneer: the State hasn't provided any formal aid, it has simply bought shares, become a banker, and hopes to divest them at a profit. The problem is that this investment has had no valuation, hasn't passed any suitability review, and it's unclear if the market will ever absorb it at a decent price.

The cost is the other side of the coin. Some argue that if the ECB doesn't back the plan for Bankia, the adjustment won't be gradual; it will be sudden: immediate tax hikes and a higher VAT from now on. If it does back the plan, those billions will be paid slowly, possibly into the next generation. It's the difference between bleeding out drop by drop or all at once.

Ibex 35 Levels: 6,356, 6,550, and the Ghost of 6,700

Technical analysis agrees on the pattern but disputes the details. Breaking the sideways channel from 6,750 to 7,200 pointed to 6,300, and the index went there without anyone putting a brake on it. From 6,356, it bounced to 6,612-6,614, corrected around 61.8%, and rose again to the 6,550-6,652 zone with another minor bearish impulse corrected by the same proportion. Translation for those who don't draw charts: the market is taking a breather before deciding.

The references for the coming sessions are surgical. Above 6,550-6,552, go long, increasing positions from 6,615, with targets at 6,650-6,680 and 6,710. Below 6,550, get out: wait for it to break 6,450 to go short down to 6,395 and, from there, try a long at 6,356 with a stop at 6,350. All very neat on paper. And all very fragile when the country's leading bank drops 17% before lunch.

There's a curiosity that explains the obsession with these figures. The floor of 6,700 on the Ibex, back in 2009, wasn't set by any report from a major analysis firm. It was set by a sporadic intervention from someone who appeared, stated where the floor was, and disappeared. Since then, every time the index approaches that zone, the prediction returns like a mantra. The move was jokingly nicknamed the pepón.

Argentina, Repsol, and the Lock on Dollar Purchases

Across the Atlantic, the picture isn't any brighter. In Argentina, dollars haven't been available for purchase for days, construction is down around 20% compared to last year, and Brazil is devaluing its currency at a pace that its neighbor is starting to imitate. The feeling conveyed is that a 'corralito' (currency controls) isn't a future hypothesis, but a mechanism already operating at the corporate level: withdrawing money is a struggle even when paying taxes.

For Repsol, trading around €12, the Argentine situation isn't an anecdote: it's a country risk added to the rest. And underlying it all is the suspicion that everything is connected and that a problem in one market replicates in others, because no one invests by looking at just one country anymore.

Shorts, the ECB, and the Official Rescue Narrative

The most uncomfortable detail is that the flagship measure to contain the attack on banks is the same one used before: banning short-selling. It's the formula that financial sources acknowledge as the way to curb the rise in country risk while waiting for the ECB to step in. In other words, prohibiting others from betting on a downturn while politicians look the other way.

What's sustaining the market is uncomfortable: many people are making money betting against Spanish banks, and those people don't disappear by decree. With default rates at 18-year highs and agencies downgrading ratings one after another, the question isn't whether more money will be needed to cover the hole, but where it will come from.

What Peine to the Sale of Canal de Isabel II?

Optimistic accounting has its own chapter. They spoke of raising €30 billion from privatizations, and that €2.4 billion was offered for 49% of Canal de Isabel II without oversight. Those who do the math warn that this percentage is worth, generously, about €800 million. If all calculations were made with the same enthusiasm, the crash will be historic. Meanwhile, a tax audit on a compliant region is peine for €1.7 billion: even those doing well have a deficit.

Germany, Greece, and the Unsupportable Grievance

Some summarize the German partner like this: they hate inflation, love saving, and want a strong currency. The euro, largely, is the German mark with another name, and that hasn't stopped them from being the leading exporter of high-value-added goods. Translated into daily politics: Germany won't rescue anyone out of sympathy.

The phrase that summarizes the comparative grievance is devastating: Greek salaries and Swedish taxes. And at home, the catalogue is on display: empty airports, stations for six travelers, petty kingdoms with half a million officials. The very country complaining about being suffocated has been suffocating itself for years.

Where to Seek Refuge When You Don't Want to Look at Spain

The search for refuge has become a sport. Statoil is compared to Repsol and comes out better; people look at the Norwegian stock market, where the star stock, Denmark's Maersk, has never done a stock split and each share costs €5,000. The underlying idea is simple: if the currency devalues, serious companies with strong brands and gross margins above 40% will benefit, because the world will continue buying their products. It's not patriotism; it's hedging.

Meanwhile, the manual for the chastened investor. The trick that repeats with Facebook's IPO: if you get all the shares you ask for in a public offering, sell in the first minute; if you get few, buy the shares you want on the market. And the new shiny thing someone asks about: bitcoins. The immediate answer they receive is the usual one. Another bubble.

Resignation, Savings, and the Emigration Option

Beneath the chart, there's an underlying discussion that charts don't resolve. Some argue that what's truly important isn't having more or less money, but having enough to subsist and preserve what fills you: that in the eighties, people lived with less, and nothing peine. Others respond that this thesis has an ugly name: resignation. Resigning oneself when the situation wasn't caused by you, when it's not a drought or a natural disaster, is swallowing it.

In between, a twenty-five-year-old with passable English, a brother in Germany for a decade, and the door to London ajar, explaining that he wants to try here first. His plan B isn't a fantasy: it's what many others are already doing.

And in real estate, the classic mismatch. Those looking for an affordable apartment in Barcelona still encounter impossible elevators, lobbies with steps, and kitchens without doors since the fifties. Prices aren't falling at the same pace as everything else.

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With the Ibex at 6,500, banks rebounding on the back of a potential short-selling ban, and the State becoming a banker through the back door, one question remains that no one fully answers: if the bailout is paid in installments, who gets the bill first?