IN FOR A PENNY...

...in for a pound I guess.  Spain got 2x coverage for it's 10 year auction today at a yield of 5.74%.  It was a considerably better performance that many people had expected including yours truly at least insofar as the raw numbers, but if one looks at what happened right after the results were announced a somewhat different perspective emerges.

The yield on what we would in this country we would refer to as the "on the run" paper, i.e., that auctioned today blew out to 6.17%.  Assuming that none of the bidders who were undoubtably the Spanish banks or institutions close to the banks or the government immediately tried to turn around and unload their allotments (or maybe they did), a hell of a short developed in the blink of an eye telling us two things; there was no real demand at the price level and the Spanish banks have taken a big hit on their underwriting.  Nevertheless, the Spanish got a good deal of their borrowing needs for the year covered, albeit at a price, and the opportunity to present a positive spin on what otherwise could have been a nasty situation.

Unfortunately, the spin is just that...spin.   For Spain and for Euroland today's actions simply reinforce the truth that the entire Euro Banking business has become nothing more that a depository for sovereign paper, and what is worse a depository for the debt of the country of incorporation only.  Italian banks do not hold Spanish paper; all they own is Italian issuance.  Same for Spanish banks; same for all the banks in Euroland.  The business of banking has ceased to exist; the business of deficit funding rules.  We are right back to where we started.  It is all about the banks.  Which of course means that we are looking at the biggest recap operation of all time coming to your neighborhood theaters sometime in 2012...at best.  We are also looking at economic numbers that are probably going to be far worse than the most recent projections, which pretty much forcasts a global slow-down which...well, you get the picture.  I hate to keep pounding the same drum but round one of the French elections takes palce this weekend and Greece goes to the polls in a month or so.  Forget about focus on the problems of Euroland; nothing moves until June unless it is a gradual and haulting approach to the abyss that is surely in front of them.

A really good friend who knows as much about this as anyone around said to me the other day,  "The Europeans will look into that abyss and I'm afraid their reaction will be, 'I wonder how deep it is'?'  And try to find out."  I'm afraid he may be right and I can't see anybody standing around with their pants on who can talk them out of it.  We are at a point in history where there is absolutely no leadership anywhere primarily because there are no leaders.  This is truly a sorry lot.  I suppose I am required to stop complaining and try to come p with a few serious idea but right now I'm stumped.  Time for a few consults.  Don't mind saying I'm depressed as hell.