As Spain battles high unemployment coupled with a recession on top of a debt crisis they seem to have forgotten a golden rule when you dug yourself a hole: Stop digging! Spain is in a severe liquidity crisis and the last thing any semi-intelligent individual would want to do is drain what little liquidity remains from the system.
Spain’s financial regulator announced today that it will ban short-selling in all financial markets until October 23rd and is open to extend the ban. Yes, you read that right. The government steps in and forces you on what they think is a one-way road to higher equity markets. They ban you from making money. ‘Screw open markets!’ is the message they send.
Does this sound familiar?
It should! The U.K. as well as U.S. banned short selling on bank stocks for a certain time period as one of their completely idiotic responses to the financial crisis in 2008. They thought it would halt a decline in financial stocks and restore some sort of confidence among investors.
Did it work?
Of course it did not work. Financial stocks decline even further and faster than before the ban as investors and traders headed for the exits on their long positions and did not want to be part of this government induced stupidity which forced them to only enter long positions. Politicians and regulators never gotten the message, don’t get the message and will never get the message. The more they push and force the more they will be pushed and forced and they will always end up holding the bag, or the taxpayers will.
What should you expect from Spanish Equity Markets now?
The same thing that happened to financial stocks after the ban of short selling was enforced by the regulator. Expect an exodus out of Spanish Equity Markets. Cut your losses and run away from Spain. Show those idiotic under-informed idiots why they should not mess with free, open markets. Those of you unfortunate to hold long positions in Spain face the consequences and bite the bullet. You just successfully bought and held your way to nowhere.
This is an outright attack on global free financial markets and I call traders as well as investors to arms in a united response to this attack on our intelligence. You are not allowed to attack them by short selling, but you can exit your long positions over the next three months and force them to their knees. The longer we allow them to screw with us, the longer they will do that.
The ban on short selling is by far the dumbest move enforced by the Spanish Team of Destroyers. Kiss any recovery good bye; Spain will be amongst the first to enter a prolonged period of depression. Yes, I said depression. The more they screw with the system, the more the system will screw them back. I can only urge everyone long in Spain to head for the exits before it will be too late.
Spain just drained the last bit of liquidity from its system and will soon beg for much more money a la Greece. There is no way to avoid the unavoidable catastrophe and Spain did a hell of a job to ensure they will embrace further hardship. It is a huge disappointment that the center-right government decided to go far left with this move which will not only drain liquidity, but also kill confidence.
