on Portugal and Spain

Earlier this week, we learnt about the Portugal bailout and the Finnish giving sufficient leeway.
I think that most of the people / parties with a good understanding of the issue argued that Portugal needed a hawkish IMF bailout, not a dovish EU bailout.

By proceeding with the latter, Portugal and the EU decision-makers are buying time and procrastinating on must-to-do measures that would be a win-win for the Portuguese and for all its euro-partners. Some of these measures would include the privatization of stated-owned companies, economic liberalization (winding down subsidies, cutting red tape), deregulation of the labour market, and many more measures aimed to improve Portugal's competitiveness under a no-depreciation monetary system like the euro.

Elsewhere, Spain gave a pretty bad piece of news regarding the employment / unemployment measures. Surprisingly, the former were worse than the latter. Let me explain myself: 7110 people were added to the unemployment list in April (cyclically adjusted) adding up to 4,746,552 unemployed people in Spain ... which is 'rumbo a los cinco millones'.

But to make things worse, the number of employed people by the public administration rose significantly.

Take a look at these figures:

+ Pasive population: 23,5m
- Under 16: 7,900,000

- Above 64: 7,800,000

- in between, not listed / not searching: 7,700,000

+ Active population: 23m

- Civil servants / funcionarios: 3,185,900 (12 months before they were 3,088,000)

- Unemployed: 4,746,552

- Self-employed: 2,830,000

- Employed by private corporations: 11,935,000 (12 months before: 12,165,000)

It is quite clear that the Spanish workered is being cornered, suffering the heavy toll of the worse-ever political class seen in this country. This load, and the anticipation of heavier future loads as the deficit is reduced draws a rather ugly painting both for employers and especially for employees.

In the meantime ... the EUR is soaring and Spain, despite its dozens/hundreds of international pro-trade offices around the world (ICEX for Spain, IVEX for Valencia ...), is still unable to export anything but sun.

How is this translated to the stock markets?

... keep shorting Spanish-based assets like real estate.

JPM gave a call earlier this week about some peripheral-countries companies.

The buy list included these companies:

Spanish: abengoa, bbva, campofrio, inditex, tecnicas reunidas, telefonica,

Portuguese: cementos de portugal, semapa

Elsewhere: BIOX GA, DCC ID, GLB ID, ICON ID.

The sell list included:

Spanish: ACCIONA, ALMIRALL, SABADELL, B. VALENCIA, B. POPULAR, BANKINTER, BME, Corp Fin Alba, FCC, Gas Natural, Prisa. Sol Melia.

Portuguese: BCP PL, GALP PL
Elsewhere: TPEIR GA, EUROB GA, OPAP GA, TT GA, GCC ID,

My favorite 'buys' are
1) Santander (san.mc) at around 8+eur/share. It has a very diversified business portfolio; a stable Tier 1 capital (9+%), and very attractive dividend yield (7 / 8%)
2) Grupo SOS (sos.mc). Now suffering selling pressure from the 'cajas', which became shareholders at 50cent/share in the last debt restructuring deal and seem to be selling their stakes. I want to believe (and have some info to back it up) that the price is depressed below its fair value, reflecting that supply/demand imbalance.

3) Telefonica, good dividend yield, international exposure (including LatAm, WE, ...

On the sell side, during the last year I was a keen short-seller of ...
1) Popular (pop.mc) based on the previous arguments regarding the spanish labour market, and its consequences over the purchase power of society overall, and of the real estate prices in particular. Now that euribor is higher I would keep short-selling at around 4.5eur/share; and the same for the rest of national banks (not international).
2) BME seems cornered: the electronic venues will probably prove to be quite harmful in the long run; no international or diversification opportunities ... so keep collecting dividends but I also see a sell when it's lurking / hovering around its previous peaks.

3)Prisa is in this list for 'meritos propios'. Imo, a firm candidate for the worse company in the spanish investment market.