Those that regularly follow me know that although I'm quite the mediocre short term trader, I have uncommon strengths that lie in the realm of medium to long term strategy and macro-fundamental valuation. Unfortunately, with the advent of free money and perpetually whirring inkjets splashing that Frankiln hue of green all over the place, the value of longer term strategy and analysis has taken a back seat to buy it today and flip it tomorrow wannabe mo-mo enthusiasts who do nothing more than chase leveraged beta with a 2/20 toll to those foolish enough to part with their lesser educated funds. It's downright disheartening to hear so many lament that fundamental analysis doesn't work. My dear friends, if fundamental analysis doesn't work, then math doesn't work! If math doesn't work, exactly how is it you can measure whatever gains you have made while trading? Oh yeah, that's right! Fundamental analysis doesn't work until its time to positively value your operation, then all of a sudden math is the new sexy, right?

Listen up, math never, ever went out of style. The Fed and its cartel of global central planners, AKA central bankers, did an unprecedented job of pushing capitalism to the side for the benefit of the financial oligarchy, but truly implemented capitalism is like unto a force of nature that constantly fights to reassert itself, and like the actual forces of nature - it never gives up and ultimately, never loses.

So, all of you mo-mo trading, fair weather arithmeticians, I'm bringing sexy back!

Back in January of 2009, I warned on Spanish banks. Take note that that was nearly 3 years ago...

BBVA's valuation at... Register (for free) and download the full report  Banco Bilbao Vizcaya Argentaria SA (BBVA) Professional Forensic Analysis 2009-01-28 16:04:04 439.80 Kb

I also warned on the entire country a year later, which was still 2 years before the sell side truly got serious about the departure port of the Santa Maria, reference The Spain Pain Will Not Wane: Continuing the Contagion Saga.

Professional subscribers can now actually download the original Spanish Bond Haircut Model that we used to calculate loss scenarios - Spain maturity extension_010610 (The Man's conflicted copy). Despite the fact I was probably the most realistically bearish out of the bunch, things have actually gotten materially worse since this model was constructed two years ago, hence it can use a refresh. Alas, it is still quite useful.

In the general subscriber document Spain public finances projections_033010, the first four (or 12) pages basically outline the gist of the Spanish problem today, to wit:

Spain_public_finances_projections_033010_Page_01

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Spain_public_finances_projections_033010_Page_03

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The stress caused by Spain breaking the central bank will bring to full fruition the theory behind our European Banking and Insurance research from the last few quarters.

 A Review of the Spanish Banks from a Sovereign Risk Perspective – retail.pdf

 A Review of the Spanish Banks from a Sovereign Risk Perspective – professional

On that note, this entire week the MSM has been on Spanish kick - Spain Is Crying for Help; Is Berlin Really Listening?

Crisis is the watchword in Madrid. Take your pick - liquidity crisis, debt crisis, banking crisis, economic crisis, confidence crisis, investor crisis, jobless crisis.

Spain, the ailing euro zone's latest problem child, has them all. As the problems pile up, Prime Minister Mariano Rajoy's five-month-old conservative administration feels like a government under siege.

Nervy top officials are reluctant to speak on the record for fear of slipping up. Policymakers contradict one another. Plans keep changing. Financial markets reel amid the uncertainty. The gloom in ministry corridors is palpable.

The latest gaffe: after weeks insisting that one of the country's biggest banks, Bankia, did not need fresh funds, ministers dropped the bombshell last Friday that there was a 23-billion-euro hole in the accounts.

Damn! That's one helluva rounding error, eh???

They have yet to explain clearly how they will find the money when they are already struggling to finance a spiralling national debt.

The effect of the Bankia news on fragile financial markets was devastating.

Spanish shares dived to 9-year lows, the euro sank and investors fled Spanish government debt, pushing the yield towards the 7 per cent level at which fellow eurozone members Ireland and Portugal were forced to seek national bailouts from Brussels.

To hear the government tell it, outsiders have got it all wrong: Spain has lived beyond its means for too long and is now going through a painful but necessary period of adjustment to shrink its state sector, cut spending and boost competitiveness.

All the right things are being done.

Rajoy's government is serious, committed and enjoys a comfortable parliamentary majority.

Officials say foreigners don't understand that Spain has boosted its exports more than any other European country in the past three years, that it has reformed its labour markets, cut its costs of production and come clean about the problems in its banks, which lent too enthusiastically to finance a huge property bubble that has now burst.

Now, ministers say, Madrid just needs time and some help and support from its European partners to get through the most acute phase of the crisis and give the reforms time to work.

As I said yesterday, there's no way in hell the EU will be able to bail out its banking system -The Eurocalypse Has Arrived...

Subscribers, be ready. When/if Spain cracks, these two short positions will explode:

Subscribers reference:

•  Report_122511 - Professional/Institutional edition (Insurers, Insurance & Risk Management)
•  Report_122511 -Retail edition (Insurers, Insurance & Risk Management)

Bank Haircuts, Derivative Risks and Valuation10/20/2011

Of course, in today's environ of mega banks, mega marketing, mega investment returns, white hot IPOs, it may be hard for many to appreciate the words of an entrepreneurial investor and blogger. Then again, just remember that this also coming from the same man that called Bear Stearns, Lehman, GGP, CRE, RIM, housing, the entire Pan-European Debt crisis, etc. See Who is Reggie Middleton for more.