The future collapse of the Spanish IBEX 35 index

IBEX 35 stock index quoting 3000 points?

 

Many years ago, by 2007, while talking to a known financial adviser of my region I told him that I expected the IBEX to fall below 3000 points someday in the near future. The man was puzzled and said to me that it could not happen because it would be a complete disaster. And he was right, it would me a mess. He actually was quite leveraged expanding his business; just like everybody at that time in Spain.

Who would think the IBEX would be quoting 6 thousand points some years later? After, thing looked rosy when it was at 15000.

After the bottom of 2012 debt crisis the index has recovered quite a lot, although is still far away from the 2007 top. But, has the Spanish economy recovered?

The reality is that the current social and economic situation is a disaster. But anyone who still goes to the clubs and restaurants will find them quite busy, and the trips to the Caribbean shores are in full demand; for now.

For those reasons, I think that, despite all the “crisis” talking last years, the real crisis has not yet started. For when it truly starts the trips to the Caribbean will be over.

The Spanish balance sheets are so terrible that if Spain was a company and I was its CEO, I would sell all of my shares in what would be a notorious case of insider selling. The fact that international agencies quote Spain AA or BB, or whatever, is a cruel, because the truth is that, in my opinion, Spanish bonds are junk.

The debt situation is even worse now than before. The public debt to GDP ratio is 130 %; the unemployment is 24 %, and the youth unemployment is 50 % (and we are meant to be recovering). And the politicians spend their time arguing about if Spain will have a 4.2 % or a 4.6 % deficit next year (as if it was something significant). The problem is that the Spanish society does not want to pay what it owes; it cannot anyhow. But not paying has consequences.

So, I think that it is not unlikely that we could see the IBEX quoting below 3000 points in the near future, and not ruling out the 1000 level.

That is in a simple way, my fundamental view of the IBEX for the long term. But as we should now, fundamental analysis and opinions and the stock market behavior differ quite a lot sometimes. Despite the sorrowful state of the Spanish economy, it is still possible that the market keeps on its bullish trend, and even makes it to the 20000 points. If that happens, I welcome it.

I do not know when the next phase of fear will happen in this long crisis, and that is why I do not know when the Spanish bond market risk premium will rise. I just know that it will happen someday.

Looking at the medium term chart of the IBEX, we can see a very important point at the 10000 point level. The market is in a congestion area that is pivoting around that level since the beginnings of 2014. And, that pivot level is a critical point for us, if we want to know whether a bear market will start or not. In October, there was a warning when the markets went down that level. So let´s see what happens next time we have that warning. In fact, the 150 days moving average is signaling weakness.

 

We will see what happens. But I am sure that independently of the fact that the bull market can still last for a while, some day we will see the IBEX at the 3000 points level. And who knows, maybe even 1000.

 

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P.S. This is a personal translation from my spanish blog www.brokerparacompraracciones.com.

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