Thoughts from the Frontline

All Spain All the Time

By John Mauldin

March 31, 2012

Choose your language

All Spain All the Time
Structural versus Cyclical Dilemmas
The Mother of All Housing Bubbles
Spanish Banks en Bancarrota
Meanwhile in the Rest of Europe
And Two More Leaked Documents
The Fat Lady Has Not Sung
San Francisco, New York, and Philadelphia

Last Monday I was in Paris and was asked to do a spot on CNBC London. I arrived at the studios an hour early due to a misunderstanding of the time zones, so while trying to catch up on the news I listened to CNBC. I had just written about Spain in last week's letter and guessed that was what they wanted to talk to me about, but for the full hour before I got on it seemed like every guest wanted to talk about Spain. When I had my turn and indeed got the Spain question, I smiled and noted that we were now in a period when it would be "All Spain All the Time," for at least the next year. I should have noted that there would be brief interruptions where we glanced at Portugal and perhaps Ireland, but the real focus would be on Spain.

I fully intended to write about something other than Europe this week, but the events of the last 24 hours compel me to once again look "across the pond" at the problems that not only plague Europe but will be a drag on world growth as well, as Europe goes through its continued painful adjustment as a consequence of trying to adopt a single currency. Since Spain is going to be on the front page for some time, it will be useful to look at some of the problems it is facing, to put it all into context. And what I heard while in Europe in private meetings is troubling.

All Spain All the Time

Spain is in a recession, though only down an estimated 1.7% in 2012, if things go well. Unemployment is at 23%, which is higher than Greece for the latest Greek data that I can find. But more than half of young Spaniards (over 51%) are out of work, creating a lost generation that has been hardest hit by Spain's economic woes. The total number of unemployed has climbed above…

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Russ Abbott

April 3, 2012, 12:01 a.m.

You wrote, “In an open market, the large majority of jobs are created by small businesses.” I hear that so often that I suspect it’s simply repeated without merit. Would you provide data to support that claim.  Thanks.

Joseph Moffa

March 31, 2012, 8:03 p.m.

The most worrying thing about Spain is that private debt exceeds government debt. The way to get back on a positive economic scenerio is savings rates need to increase and production needs to grow. I do not see this happening in Spain. All I hear is how the policy makers and government are going to do something and magically growth and income might ensue. The reason the country is in the problem they are in is because of the government in the first place.
Now if Spain was the USA then would have a printing press and just start printing money, but fortunately the Germans handle all that. (Of course that would kick the can down the road). (Then they would monetize the debt) Every egotistical politican and policy maker thinks they have the answer to the problem but they are the problem. Just witness the USA. When you have malinvestment it has to go away and then the healing can start. In the USA we are putting malinvestment on top of malinvestment. It will be a bloodbath down the road.
In answer to Jack above. Remember Spain does not have a printing press so they cannot inflate like the US. I agree if you are talking about the US because they have been printing like crazy. As for what caused the housing bubble it was not the banks. The good old Federal Reserve kept interest rates low and the wonderful politicians(more so Barney Frank) decided that anyone could get into a house. Fanny and Freddy were the guarantee to the banks that were basically forced to give these loans. When you put people into homes that can barely afford an apartment then you have problems. The US housing bubble still has not cleared because the government keeps on trying to prop it up. It will some day clear. Once you pop the pimple then it will start to heal. This pimple is turning into a boil and when it does burst Katie bar the door.

Michael Gorback

March 31, 2012, 2:46 p.m.

In followup to my previous comment, I’d also mention that I think Dr. West’s primary talent is hype and that you have unfortunately fallen under his spell.

For example, Dr. West published a highly favorable article about the potential use of stem cells in the treatment of the aging process in the journal “Regenerative Medicine” in 2010.

Please note the following:

1. Dr. West was on the editorial board of this journal.

2. The editor of the journal was Dr. Robert Lanza.

3. Dr. Lanza works for Advanced Cell Technologies where Dr. West was CEO from 2004-2007 (during which time ACT stock went from $7 to 30 cents).

4. Biotime licenses technology from ACT.

Does this pass the smell test? Only if you like the aroma wafting from a stockyard.

Michael Gorback

March 31, 2012, 1:03 p.m.

Fie on stem cell cream! I’ve been practicing medicine for over three decades and am an avid medical antique collector. By both occupation and avocation I have seen dozens of medical fads come and go—and come and go yet again. Quite often these fads follow on the heels of new scientific discoveries and are simplistic misapplications of those discoveries.

Over the years, especially since the 1800s, people have been shocked, jolted, magnetized, radiated and so forth as new technologies came along. In my collection I have various devices for delivering electricity to people to treat illnesses. They range from hand-cranked magnetos to wet cell batteries to dry cell A size batteries. I have an assortment of “electric belts” sold to treat both back pain and impotence.

I have a vest with dozens of magnets sewn into it. I have magnetic combs and hair brushes from the 1800s. I have bettery-powered combs and brushes from the early 1900s. I have bottles of “magnetic” water, bottles of radioactive water (Google “Eben Byers” to read about his horrifying death due to drinking radioactive water) and all sorts of other nostrums based on poorly understood new discoveries regarding magnetism or radioactivity. There were devices called Revigators, jugs lined with low grade uranium that you filled with water and let it sit overnight. The uranium would deteriorate into radon gas which dissolved in the water and in the morning you’d press the spigot button and pour yourself a cup of radioactive water. I have several of these and having shoved a geiger counter inside them I can tell you for certain that they are “hot”.

The ultimate example of this ignorance of the emerging technologies in electromagnetism is a fine specimen claiming to be a magnetic comb. It is made of aluminum. If you don’t understand the problem with that you are probably the type who is vulnerable to such flim-flammery. 

Recently we have seen a resurgence in magnets, which has since died down but not before millions of dollars were milked from the unsuspecting public. What’s old is new again.

Now it’s stem cells. In the past it was monkey gland shots.

My wife, despite my exhortations, has bottles of creams, lotions and shampoos that contain DNA, protein, amino acids, fatty acids and vitamins. I am tempted to mix them in a bowl, run electricity through it, and see if it comes to life.

I sincerely doubt that there are any live stem cells in that cream. If there are, your body will probably recognize them and attack them as foreign. I am not contesting your personal results but I would love to see a true, scientific double-blinded study of the cream with and without the so-called stem cells. I would propose a small wager that the study will show that any results are from the carrier cream, not the alleged stem cells.

Archie Kuehn

March 31, 2012, 12:48 p.m.

As I read in this piece that Spain has 23% unemployment the question that came to me was whether Spain calculates this number the same as the US?  I doubt it, but it would be interesting to compare unemployment rates among countries using the same methodology.

jack goldman

March 31, 2012, 12:46 p.m.

I don’t see a housing bubble, stock bubble, gold bubble, bond bubble as bubbles. These are symptoms of another bubble. These are money bubbles. Inflate the currency and the result is speculation and “bubbles”. The housing bubble was the common man’s currency play, a way to hedge against inflation and the debasement of the currency. I watched the whole thing expand from 1971 when things were cheap and taxes were low to today, when things are expensive and taxes are high.

In real silver coins from the US Treasury gasoline is 20 cents a gallon, today, in 2012. In real silver coins, real lawful US Treasury money, the Dow was $700 in 1963 and is now $650, in 2012. In counterfeit bank debt notes from the private secret US Federal Reserve “central bank” the Dow is $13,000. Which is it, $650 in US Treasury lawful legal money or $13,000 in legal tender bank debt notes that inflate and debase the economy?

The banks caused the housing bubble, but also the bond bubble, cash bubble (massive inflation of 1,000% from 1971 to today), the stock bubble, and the gold bubble. This was all predictable on Sunday, August 15th, 1971, when counterfeiting bank debt notes and debasement began. Debasement benefits corporations, banks, government, brokers, and owners who have assets inflate doing nothing. Debasement harms children, families, renters, and employees who have no assets to inflate and the middle class shrinks working harder and harder to buy less and less. The 1% benefits from debasement as they become obesely wealthy. The bottom 99% lose buying power and pay more and more taxes for less and less services.

It’s not a housing bubble. It’s a money bubble. Fix the money and all the others problems are solved. Trouble is the solution, massive restructuring, is more painful then the disease, currency debasement. When the problem needs to be solved, it will be, with massive defaults and a collapse of the luxury, service sector, government, subsidized economy. It may take centuries or it may happen this year. Protect yourself.

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