Ibex 35 nears 10,000 as Brussels cuts GDP forecast to 0.5%

Ibex Nears 10,000 with Unemployment at 26.4% and Brussels Cutting Forecasts

The Ibex 35 touched 10,000 points in November 2013. In the same month, Brussels lowered its Spanish GDP growth forecast for 2014 to 0.5%, with unemployment stuck at 26.4%. Both at the same time. The index spent weeks oscillating between 9,800 and 10,200, with every dip seen as a buying opportunity and every rise as proof that things were "going up." The "green shoots" label had already been discredited for years.

The interesting question isn't whether the Spanish stock market was rising—it was—but who was putting up the money and how the ride was being financed. The answer that recurs in the most skeptical analyses is hardly patriotic: a good part of the rally was not Spanish.

How Much Will Spain Grow in 2014? Brussels Says 0.5%

In November, the European Commission cut its growth forecast for the Spanish economy to 0.5% for 2014, with the unemployment rate standing at 26.4%. These are figures rarely discussed in trading rooms, because the market doesn't price in 2014: it prices in 2015 and beyond. This is the argument of those who saw the rally as discounting future recovery, not present conditions.

Discounting a cycle that hasn't even started yet is, however, the classic mistake. With GDP growing half a percent and unemployment above a quarter of the active population, the Spanish stock market behaved as if the crisis were a bad memory. Some argue that the market anticipates; others retort that, at times, it simply gets it wrong with punctuality.

Banco de España Sells Off BME Stake; Companies Reduce Treasury Stock

One of the warnings that circulated widely was about treasury stock. Heavyweight Ibex companies had minimized their buybacks, and even Banco de España had divested its stake in BME, the stock exchange operator. Were they preparing for a fall? At what price would they buy back what they were selling, 10% or 20% lower?

The dominant interpretation was yes, they were loading up ammunition for a correction, and the year-end rally had backfired. When a central bank makes a move, technical analysis loses its arguments. That's the trap: charts work until someone with firepower decides otherwise.

Turning Point at 9,828: The Tug-of-War Between Chart and News

Levels were trinc meticulously. One participant set 9,828 in spot as a probable turning point, with confirmation at the close above 9,738 and a short-term target at 9,460. Others warned that the S&P session could yield profits on the short side and that the last hour would be ugly. All this, while cautioning that in such scenarios, technical analysis is of little use when exogenous decisions are involved.

The recurring practical conclusion was always the same: don't put all your eggs in one basket. Decide how much you are willing to lose, divide your entry into two or three lots, and let the price dictate the next step. A stop-loss isn't an obligation; it's a tool.

Sacyr, Zeltia, and the Sweep of Small Caps: 4.00, 3.13, and Back to 3.85

Sacyr's performance over four days summarized the month's schizophrenia: it went from 4.00 euros to 3.13 and then back to 3.85. Small-cap stocks—Tecnocom, Zeltia, Natra, Codere, Ezentis, Quabit, Colonial—suffered a thorough rout, with drops that left portfolios clean for a season. Those that held on did so due to support levels, not fundamentals: Faes, Solaria, Bio, and Fersa barely held their ground.

Illiquidity deserves special mention. Bodegas Riojanas gained 10.41% to 5.41 euros, and the general comment was that such a percentage could easily be lost on the downside: with so little volume, a single investor can move the price more than a results report.

Bankia Closes Offices Two Years Early; Popular Trades at 4.28 Euros

On the banking front, Bankia confirmed it was completing the office reduction process agreed with Brussels—cutting from 3,100 to 2,000—two years ahead of schedule. The Minister of Economy, Luis de Guindos, took the opportunity to praise the entity's president, José Ignacio Goirigolzarri, with the phrase that he had "the principles that banking should never have abandoned." A curious compliment for an entity that had undergone nationalization.

Meanwhile, prices dictated. Banco Popular was bought at 4.28 euros with a first target at 4.50 and another at 5.00. Bankia traded around 1.025. The bailed-out and the survivor banks moved with the same wind, despite their vastly different histories.

The Spread with the DAX: 2,000 Points the Rally Doesn't Close

A recurring and little-discussed fact: the differential between the German DAX and the Ibex had been around 2,000 DAX points since the summer. All of Europe ended the session in the green, and the Ibex was left out of the rally. "The index nobody wanted to brag about," they called it those days.

That spread didn't close on its own. It suggested that the risk premium had shifted from debt to equities, or that foreign investors were still eyeing Spain warily. The Ibex was rising, yes, but less than others. In relative terms, that also means losing.

The Fed Prints $80 Billion a Month, and the Rally Isn't Spanish

A currency trader clearly explained the underlying mechanism: the Federal Reserve was injecting $80 billion per month, and that liquidity ended up in stocks and bonds. Leveraged funds borrowed yen at 0.25% plus spread and invested it in US assets, putting downward pressure on the yen and supporting the dollar. With strong GDP data, tapering—the withdrawal of stimulus—was considered imminent.

In other words: the Ibex wasn't rising because Spain was doing well, but because there was excess money globally. A less-than-telegenic argument that debunks the "green shoot" epic. Meanwhile, major US tech companies were viewed with suspicion: Netflix seemed overvalued even with a global monopoly, and Zillow, Pandora, and LinkedIn showed technical ceilings that invited preparing short positions without pulling the trigger yet.

VJET and the 120% That Was Actually Collected

Not everything was smoke. Someone sold 500 shares of VJET with a 120% return and reported it without drama, warning that the problem isn't entering, but holding on. Bubbles are only fun if you get in from the bottom, and the pressure to realize gains is enormous. Their forecast for the December 14 results: a drop of between 10% and 15%. Never underestimate how great others' stupidity can be when it comes to doing business.

From Berkshire to Kondratieff: $100 Becomes $820,000

As a long-term counterpoint, one of the most cited calculations: $100 invested in 1965 would have become $800 trinc the CPI, $6,500 replicating the S&P 500, and $820,000 if invested in Berkshire Hathaway in 2012. Patience, measured in the market in blinks, is the asset with the best track record.

And then there was the bearish current, a minority but noisy one, which set the cycle's bottom in 2017, relying on Kondratieff's fourth long wave. Their thesis: central banks are printing money non-stop, and all they're achieving is making the eventual crash bigger. On that basis, they recommended accumulating physical silver. Conspiracy theories, yes, but conspiracy theories that also make money when they're right.

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Given these circumstances, prudence suggests that the 2013 Ibex was less a green shoot and more a transplanted cutting watered with foreign funds. It could continue rising for a few weeks, even marking a Friday afternoon 10,000 for vanity's sake. But as long as growth remained at 0.5%, unemployment didn't fall below 26%, and liquidity depended on the Fed's decisions, the rally's roots would remain where they were. And not precisely in Spain.