Spain's Unemployment Is Crazy-High

The big macro can cause big moves in the market. What does today's headline macro news mean for your portfolio?

What's happening: Think U.S. unemployment is high? Today Spain's National Statistics Institute said that joblessness in the country rose to 21.5% in the third quarter.

In plain English, please: Though the country has almost continually struggled with high unemployment, the current rate is at a 15-year high. The issues that Spain is facing may highlight the debate over how Europe should best tackle the debt problems in countries such as Spain, Greece, and Italy. The approach thus far has been for the overly indebted countries to impose austerity measures to reduce spending in an effort to reign in budget deficits. However, some economists point to those austerity measures as a further trigger for joblessness and economic contraction. During the third quarter, 40,200 jobs were cut from public administrations in Spain.

Stocks to watch: Obviously, companies based in Spain could feel a pinch from higher unemployment and a softer economy. For U.S. investors, the major stocks to watch would include Telefonica (NYSE: TEF  ) , Banco Santander (NYSE: STD  ) , and Banco Bilbao (NYSE: BBVA  ) . However, other businesses and banks in the region that do significant business in Spain, such as Vodafone (NYSE: VOD  ) , could also be at risk.

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  • Report this Comment On October 29, 2011, at 12:50 PM, MajorBob04 wrote:

    As you indicate in the article, Spain's unemployment has always been high. I've been going to Spain almost every year for 30 years, and I lived there for 5 years back in the early '90's, when unemployment peaked at over 20%. That's one of the reasons I came back to the US - it's hard to get a work visa in a country where unemployment is so high.

    A few comments on the article:

    1) The current high unemployment is tied to the lack of tourism and the real estate bubble that is slowly unwinding. When tourism picks up, unemployment will drop. But the real estate bubble will take 5 - 10 years to unwind. There is a significant glut of housing and commercial real estate, so the construction industry, which drives a lot of employment, will not recover for many many years. So I agree that their is a lot of risk in teh Spanish economy, and it won't get better for many years.

    2) There is still a significant "underground" or unofficial economy, though the weak economy has eroded a lot of it. This economy employs a lot of people, so the unemployment numbers are somewhat misleading. But the economy is still bad. Real unemployment is probably in the teens . . .

    3) The Spanish government has typically been more conservative with spending than Greece and other PIIGS countries, so they do not have such a big debt problem. But it's worse than the US. And their population is aging, not growing like the US. So unless their increase immigration, they will have more and more older people to support. On the other hand they have socialized medicine for the entire population, which costs much less than the US system. Service is slow for non-urgent medical issues, but it's cheaper and yet still effective. Especially for emergencies for people who can't afford insurance or their company doesn't pay for insurance.

    4) The companies based in Spain have the Latin American (and even North American) economies to buoy their growth. Telefonica (TEF) and Banco Santander (STD) are two Spanish companies that derive significant revenue from Latin America; I own both stocks and expect them to continue to do well even though the Spanish economy struggles. I think a lot of people and the stock markets overlook this fact, so I believe they will continue to surprise the markets.

    5) BBVA is the parent company for BBVA Compass Bank, the largest bank in the US Sun Belt, and the 25th largest bank in the US. They sponsor the Compass bowl and now the NBA. While Spain is the biggest risk for them, that is somewhat mitigated by the anticipated growth in the US and Latin America. I don't own BBVA, but I'm seriously considering them after their stock dropped.

    6) Like many European countries, the labor market is not very flexible compared to other regions in the world. Many companies are reluctant to hire people because it's harder to reduce the workforce when necessary. This makes it harder to remain competitive with other countries / regions of the world.

    Thanks for highlighting this issue and the impact on the Spanish stocks. I recognize that this is a short article, but there's a lot more to the story than you've highlighted here.

    MajorBob

    Long STD, TEF

    Undecided on BBVA

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