The economy of Spain may be edging towards something pretty ugly. A 23+% unemployment rate, negative GDP growth, and upwards of Debt/GDP of 133% (about 70% if excluding European liabilities) is a recipe for an implosion, in my view. The cherry on the top may come tomorrow when the government is expected to announce deeper cuts in government spending. For an economy heavily reliant on government spending, which accounts for approximately 40% of GDP, and the 12th largest economy in the world, this is something to take seriously. While Greece was significant, Spain could actually pull down some other economies should it implode.
My suspicion is that the markets may downplay the risks for a few months until investors can no longer ignore the potential damage. The level of bullish commentary in the media has been quite high lately and it may take some time to remove the froth. That said, this week I increased my short exposure and trimmed some of my corporate bonds. Currently my portfolio is as follows:
Short S&P 500 (ETF ticker SH) ~ 30%
Corporate Bonds ~ 28%
Commodities (Gold and Agriculture) ~ 8%
Equity ~ 7%
Cash ~ 27%
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