IBEX 35 in April 2012: 2009 Lows and a Market That Stopped Caring

April 2012's IBEX: 2009 Lows and an 1,800-Point Drop

In April 2012, someone described their portfolio as a house where a freeloader had moved in. The freeloader had a joke name – Pandoro – and a very specific habit: he wouldn't leave, he brought his friends, and he grew at the expense of those watching. The joke circulated as the IBEX 35 plunged towards its 2009 lows. The index had touched 7,800 points, and some expected a rebound to 8,350. It never came. The month closed with the selective's futures below 7,000 and an accumulated drop of nearly 1,800 points, which, through sheer repetition, ceased to be news.

The striking thing wasn't the crash. It was the silence.

Why Did the IBEX at 2009 Lows Stop Being News?

Because the press had better headlines. The debate was about Argentina, Repsol, Cristina Fernández, and her mother, while the money of Spanish families bled out in silence. An analysis circulating summarized it bluntly: in a bankrupt country, a 3% or 4% drop in the index 'is no longer news, unfortunately.' The statement holds more truth than it appears.

Some argue that a daily 10% drop in a heavy stock isn't an opportunity but a collective failure: the stock market isn't an abstract casino; it's savings. The perennial argument against this is that equities haven't been a 'buy and forget' investment for years. Translated: those who bought at 10,700 with a long-term view had already learned their lesson the hard way.

Repsol and the Argentine Standoff: 6 Billion Dollars at Stake

The diplomatic clash infiltrated every chart. A calculation at the time estimated 6 billion dollars in non-Spanish investment channeled by Spain into Argentina through ETVEs (Spanish holding companies). The logical conclusion suggested was severe: simply withdrawing those tax advantages would be enough to strike back. The problem, others countered, was that Spain had much more to lose in the standoff.

While diplomacy was debated, the stock market reading was colder. Repsol was trading near 19 euros, and some pointed to it as a bearish bet with a potential three-euro drop per share. The headline's 'expropriation' had become, for the trader, just another technical level.

Iberdrola Below 4 Euros and the Trail of Broken Supports

Iberdrola fell below 4 euros, setting off all structural alarms. The story behind it was sleep-depriving: if the stock traded below that threshold, the bank could seize the shares or demand from Florentino Pérez the difference between the current price and the 7.1 euros he had paid for them. Either outcome was painful.

The rest of the selective wasn't faring any better. Santander had support at 5.28-5.29, and if it lost that, it was 'full estimulante ilegal ahead to hell,' according to the ironic phrase circulating. Acciona had completed its double top at 70 euros with a target of 52, and then pointed lower, towards 49.6. Sacyr maintained a second bearish trend with problems down to 0.666. The list of stocks closing below their relevant minimum was longer than those respecting them: of the large caps, almost all were failing.

109 Million New Lent Shares

The most unsettling data didn't come from a chart. Someone reviewed the public registry and found that 109 million new shares had been declared lent that day, an increase of over 15% from the shares lent the previous day. The reading was direct: those shares were going to be dumped on the market, even if below 5 euros. A lot of capital betting that the bottom was still far off.

Against this, the bulls' defense had a reasonable point: at some point, those short positions would have to be bought back, and the rebound could be as violent as the fall. The Easter rebound theory – crashing the index and resurrecting it afterward – was just that, a theory.

Expirations: The Last Hope for Longs

With Friday's expirations just around the corner, the only certainty was volatility. The next IBEX contract was already trading below 7,000, about 200 points from the German DAX, and the acid comment was quick: 'We're adjusting to be competitive.' The Spanish selective was approaching lows with hardly any bearish participants and loaded with bargain hunters. The majority view: better to wait and see what the carnage looked like.

"Spain Goes All In" and the Background Noise

The most circulated report that April 14th was authored by John Mauldin and bore a title that left no room for doubt: 'The War for Spain.' The scenario painted was grim: massive transfer of public debt to Spanish holders while foreigners unloaded stock; an unpayable portion to be paid by tax hikes until the body could stand it; and another portion to be settled by handing over national companies. The real value of the IBEX, it implied, would end up in foreign hands.

On top of that, political noise. The government had raised taxes immediately upon taking office, so any official promise was read as a lie, and the Tax Agency itself would see its budget cut while inspectors lost purchasing power. Plenty of ingredients for the market not to believe a single word.

Not Even the Germans Could Withstand It

The final blow came from a comparison with Germany's major utility companies, serving as an uncomfortable mirror. E-on, with 73,000 employees, had revenues of 113 billion euros in 2011, a gross margin of 15 billion, spent 5.4 billion on personnel, and reported 2.2 billion in losses. It had 23 billion in debt and 6.8 billion in cash. RWE wasn't much better: 49 billion in sales, 1.8 billion in profit, 15 billion in debt. The energy model had changed, and not even the efficient were safe.

And here's the dislocating fact. The month closed without a rebound, with the index in 2009 territory, and with the feeling that the worst wasn't the fall anymore. The worst was having gotten used to it.