Featured StoryThe Spain bailout package has a steep price, but still might not be enough to save the country's banking sector.
Spanish economy minister Luis de Guindos formally asked Eurozone partners for up to 62 billion euros ($77.4 billion) to recapitalize his country's ailing domestic banks. The financial institutions are weighed down by bad loans to property and construction companies, and by an ongoing Eurozone debt crisis.
In a letter to the Luxembourg Prime Minister Jean Claude Juncker, who serves as head of the 17-nation Eurozone finance ministers, Guindos explained he wanted to settle on details and conditions of the loan before the next euro group meeting on July 9.
Juncker acknowledged receipt of the letter and said that the ministers expect to give a go-ahead to the European Commission, the European Central Bank and the European Banking Authority to negotiate terms of the bailout.
The request was anticipated after the results of two independent audits were released last week. Financial consultants Oliver Wyman and Roland Berger made the first step in a two-part audit of the Spanish banking system.
Wyman found that worst-case scenario, Spain's banking sector would need a bailout package of between 51 billion euros ($63.6 billion) and 62 billion euros ($77.4 billion). Berger estimated on the lower end with 51.8 billion euros ($64.6 billion).
The formal request for a Spain bailout has made investors more nervous, and is driving the bond yields higher, making it increasingly likely Spain will need more money to try and resolve its debt crisis.
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spain bailout package
- 5 Ways to Avoid the “Spailout” and Sleep Soundly at Night It's unlikely the euro will survive what I'm calling the Spailout... meaning, the bailout of Spain, and the contagion to Italy, etc.
I'm going to explain everything about the Spanish situation in a moment - probably more than most people care to know - but first, let me share something with you that's worth your attention.
You don't have to repeat the fears and frustrations of this financial crisis, let alone see a huge drop in profits.
So take a deep breath and think about these five things you can do right now that will help you protect your money, build your future despite this madness and sleep soundly at night.
- Take advantage of stimulus-induced rallies to sell into strength and rebalance your portfolio. Many people think you want to sell your losers and let your winners run but that's not quite right. What you actually want to do is sell as the markets are rising (and demand is strong) and use the proceeds to shore up underweighted segments of your portfolio. Over time, this can dramatically improve your returns because it forces you to harvest winners and constantly capitalize upside potential.
- Raise cash using your trailing stops to prune those holdings that do roll over - you are running them, right!! This is closely related to Item #1. Here, too, many investors make a classic mistake. They assume trailing stops are used only to protect against losses. What they fail to realize is that trailing stops are one of the most effective means available to capture gains. To use them properly, you want to ratchet them up constantly as stocks (or any investment, really) runs higher. You never reduce them. So, for example, if you buy a stock at $5 and it runs to $12.70 as NetQin (NYSE: NQ) recently did for my Strike Force readers, a 25% stop means you'd sell out at $9.52 and realize a healthy 90.50% gain...with no emotional turmoil, no hesitation and no fear of letting a healthy winner turn into a loser as so many investors do.
- Confine new money to "glocal" choices put on sale. Focus on yield because it helps solidify your portfolio and hold down risk. Fragile markets and an unsettled future mean that quality matters more than ever before. I prefer big multinationals with fortress-like balance sheets, growing earnings and solid dividends right now because they're more stable than the broader markets and, indeed, entire countries at the moment. The key is not so much the diversification of risk in the classic sense, but the concentration of potential. I'd rather bet on savvy business leaders than feckless politicians any day.
- Include specialized investments like the Rydex Inverse S&P 500 Strategy Fund (RYURX), the Rydex Inverse Government Long Bond Strategy (RYJUX) and gold in whatever form you prefer. The takeoff may not be immediate, but that's not the point. Hedges work over time, not just in the immediate moment. What you are doing is adding holdings like these to stabilize your upside and give you the chance to stay invested when times are tough.
- Try not to overthink this mess no matter how ugly the headlines get. Believe it or not, the markets have seen far worse over the years, including the panic and depression of 1869-1873, the economic collapse of 1893, and, of course, the rout in 1929 that lead to the Great Depression. All proved to be tremendous buying opportunities for those who had the courage to go on the offensive and the knowledge to invest selectively.
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Following the announcement of a $126 billion (100 billion euro) bank rescue package, markets rose briefly. But the relief was short-lived as investors hastily refocused and remembered that the struggling Eurozone still faces a number of key obstacles.
The Dow Jones Industrial Average lost 142.97 points, or 1.14%, to close at 12,411.23.
Spain's bailout package was assembled swiftly as EU officials attempt to stave off suppositions about the country's sickly banks with crucial Greek elections just a few days away.
But it falls short of resolving what the Eurozone as a whole is up against.
Banking analysts at Societe Generale summed up in a note to clients, "The plan looks like a classic Eurozone fudge."
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