November 2012's IBEX: The Plunge Many Expected

November 2012's IBEX: The Plunge Many Expected

Halloween 2012. While half the country was looking for costumes, a handful of investors took for granted that the IBEX was heading for the precipice. "Road to the abyss," one of them summarized on October 31st. The plunge didn't happen that month. Nor, they said, in September or October. And that November, against many forecasts, the index didn't plummet as had been widely predicted.

A forum user put it crudely: the selective's levels did not reflect the reality of most Spaniards. The dilemma seemed binary. Either the IBEX would end up discounting the harshness seen on the street, or that harshness wasn't as significant as the official narrative portrayed. Time, during those weeks, did not fully resolve the doubt. Reluctantly.

CNMV Shuts the Door on Shorts Until January

The first cold shower came from the regulator. The CNMV extended the ban on short positions until January 31st, a measure that was being prolonged without a clear return date. The most discussed effect: leaving those who wanted to bet against the market without a tool precisely when they were most inclined to do so.

"If shorts are allowed tomorrow," one of the forum users repeated. Tomorrow never came. The sector most hit by the ban was precisely the one with the most problems. Covering the thermometer instead of lowering the fever: that's how some saw it.

Bankia or the Art of Diluting Shareholders

If anything stirred things up that month, it was Bankia's capital increase. The figure being discussed was 8.408 million shares, theoretically capitalizing around 5.8 billion euros. Previous shareholders had the right to buy new shares in a proportion that made more than one person feverish: rights at 0.533 euros, shares at 0.401. The accounting became tangled.

"It's about diluting current shareholders," stated the most common calculation. And some were timing it: Monday or Tuesday, the market would collect its toll by destroying value. The comparison hung in the air: Bankia was worth a third of what Popular was worth. Banking, for many, was not something to buy, but to observe from afar until a reverse split occurred. It had already peine with Jazztel and Colonial.

Santander: A Dividend That Didn't Align with Profits

The focus shifted to the Santander giant. The circulating calculation was uncomfortable: Santander's real earnings per share would be around 0.3 to 0.5 euros, while the bank committed to distributing about 0.6 euros through a scrip dividend. The numbers didn't add up. If all shareholders requested the dividend in cash—with the bank repurchasing the rights—the situation could get complicated.

Across the pond, Wall Street lost its 200-day moving average at the close, and the Dow Jones dropped 50 points in ten minutes. The VIX, the antiestéticar index, rose 6%. The ghost of the fiscal cliff—the fiscal abyss threatening the world's leading economy—loomed over every session.

Capital Flight and the Manual of the Knowing

With the IBEX reeling, the conversation turned practical: how to get money out of Spain. And not metaphorically. The data that came to the fore stated that in September 30.997 billion euros entered, leading to the question of whether capital flight was slowing down or just changing hands. Manuals circulated: accounts in Switzerland or England, transfers in packages of 50,000 euros without commissions at some British banks, platforms that made currency exchange cheaper.

Some, already settled in Northern Europe, warned of the cold. And some boasted of foresight: an account in Luxembourg for euros, one in Britain for pounds, two domestic entities as headquarters. The 1,000 euro cash limit—above which identification is required—became the technical detail of the month.

Moody's, the Fiscal Cliff, and a European Budget at Dawn

The international scene offered no respite. Moody's withdrew the triple A rating from the Eurozone's rescue funds, a move some considered more symbolic than real. In parallel, an agreement on the European budget was announced, according to one of the forum users, in just 24 hours. As if the charade that "it couldn't be approved" had suddenly broken.

The Japanese Nikkei rose 5.64% in three days. Wall Street lost its 200-day moving average and the next day seemed to have recovered it without breaking a sweat. The conclusion of the most skeptical: bad data was met with a headline about the fiscal cliff, and everyone bought.

An anecdote for the archives: Google closed a trading day at 666 dollars. The number, read as the mark of the beast, delighted those looking for any sign in the price tape.

The Roadmap: Fall to 7,200 and Then Rise to 8,700

The most repeated route had two stops. First, a fall. 7,580 points as a "pre-hell level", with a target in the 7,200–7,208 zone initially. Then, if everything aligned, a rally towards 8,400 and, in the most optimistic scenario, a year-end close above 8,700.

Some pointed to a low near 6,975 points, with stop-loss recommendations bordering on a survival manual. There were those who, looking at the chart, saw Santander directly below 2 euros. Telefónica, in the background, didn't help either: with broadband reports frozen since August, some took quarterly earnings as a given to be bad.

Deflation or Inflation: The Drug of Cheap Money

One of the most cited arguments of the month arose regarding stimulus policies. A forum user defended it with an image: inflating is like giving drugs to an addict who revives after the hangover and seems cured, when in reality he's still hooked and on the way to the cemetery. The alternative was to deflate until price levels were recovered to allow a restart.

Conversely, the argument for cheap money and its timing. It was argued that periods of weak dollar and expensive commodities coincide with adjustment phases in Europe, while periods of strong dollar and cheap commodities coincide with expansion and credit. With Spain unable to devalue, the only way was to tighten belts through prices.

Expensive Nuclear Power, Broadband, and the Dividend Debate

In the energy chapter, a forum user advocated for an uncomfortable review: nuclear energy, cheap on paper, was proving very expensive in practice, especially when utilities were asked to shut down plants prematurely and also manage waste. Major German and French companies had relied too heavily on the atom and were already seeking refuge in offshore wind power.

And in telco, a very ground-level analysis focused on churn, the customer churn rate. Retaining a customer now cost a fifth of acquiring one, and the entire business of operators had been reorganized around this obsession. With widespread portability, the Holy Grail of telecommunications had become elusive.

Why the Plunge Everyone Expected Never Arrived

There is one explanation that circulated and that no one could fully refute. A note from Bank of America Merrill Lynch pointed out that hedge fund exposure to equities was at 40%, the highest in many years. And it recalled the pattern: when this exposure exceeded 35%, the S&P 500 fell on average between 4% and 5% in the trinc four weeks. In July 2007, with exposure at 40%, the S&P lost 40%.

Translated: the market was loaded with borrowed optimism, and historically, that doesn't end well. But the abyss didn't arrive in November. The doomsayers were left with their scythes peine and no work. "Patience," said those who had predicted the rebound. And patience, this time, paid off.

And here's the data that throws things off. While half the world bet on collapse, someone wrote that the best approach was to enter "with the precision of a surgeon or stay out," because in a few months, prices would be much lower. The stock market, for once, did not side with either those who expected the great collapse or those who were looking out for their own interests. Only with those who didn't lift a finger.