Spain and Italy, the awful nightmare disguised by Draghi's LTRO's

No added comment is needed here from this blogger, just a quote of two consecutive paragraphs from the Acting Man blog of today linked here:

We would point out here: although the market is currently cutting Spain some slack in the wake of the ECB's LTRO's, Spain's debt situation is not any better from what it was in November of last year when the market panic was at its height. On the contrary, the situation is clearly worse now, as the government had to admit that last year's deficit was higher than advertised and that this year's will again be higher than originally planned. In short, if the market was in panic in November, it would actually have even more reason to be in panic today. This underscores that the main determinant of short term financial market action are perceptions and sentiment. Facts like those cited above work to alter these perceptions over time. Just wait for the LTRO effect to dissipate, and we will likely be back at square one.

Italian Shenanigans

Last week it was revealed that Italy had to pay Morgan Stanley some $3.4 billion in January that it owed on account of a derivatives trade that has blown up (more precisely, an interest rate swap that went exactly the wrong way – for Italy, that is). It seems that this is only the tip of the iceberg however: Italy is in the hole by $31 billion on its various outstanding derivatives bets.