Tags: skybridge | scaramucci | spanish | debt

Skybridge's Scaramucci: Be Contrarian — Buy Spanish Debt

Monday, 23 July 2012 10:02 AM

Fears that Spain will need a bailout have punished the country's debt to the point that Anthony Scaramucci, managing partner of SkyBridge Capital, says the time to invest may be now, while everyone else flees.

The yield on the Spanish 10-year note has repeatedly spiked above 7 percent in recent weeks, a threshold largely deemed by markets as unsustainable and suggests the country needs a bailout.

Stomach the risk and put some money in Spain, as returns on U.S. debt are so poor they do not even keep pace with inflation, Scaramucci said.

Plus, Spain's economy is too big to ignore and will likely receive rescue funding from its eurozone neighbors if it comes to that.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

“You've got to understand that U.S. Treasurys are at 1.6, 1.7 (percent), or pick a number on a given day, you’re getting five times the risk-free rate of return for a sovereign [that] does have taxing power and does hold hostage the northern European countries,” Scaramucci told CNBC.

Investors should not put too much money into Spanish debt, although some exposure will generate nice returns.

Eurozone policymakers recently approved $122 billion in bailout money for Spain to use to prop up its banks and regional governments, though markets remain convinced the country itself will need a financial lifeline, as evidenced by sky-high yields.

The yield on a bond moves inversely from its price.

Calls in Europe have been growing for all eurozone countries to underwrite and finance one single bond to prop up debt-ridden member states, though the wealthy Germany has balked, arguing such a move unfairly asks it to shoulder debt burdens of other countries, adding it would send borrowing costs rising at home as well.

Eventually, Germany will likely give in and back the issue of a so-called Euro Bond, as the alternative of seeing messy exits from the eurozone would damage its economy worse, Scaramucci said.

Meanwhile, European countries will also take steps to achieve greater fiscal integration, which would give some member states more say-so regarding taxing and spending policies in other states.

“(I’m) making a bet now, and digging in a little bit if yields get higher, with the understanding that over a three-year period of time, we are going to look back and say, oh my god, they actually unified Europe from a fiscal integration point of view,” Scaramucci said.

Spain remains mired in a recession that is expected to rage on for another year.

The country's Treasury Minister Cristobal Montoro said recently that gross domestic product will shrink 0.5 percent in 2013, far worse than a previous forecast for growth of 0.2 percent, The Associated Press reported.

Monetary policy officials have said the country needs to stick with austerity measures despite the painful downturn.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

"(Current market problems) reflect problems in Spain as well as the eurozone," said Fernando Restoy, the central bank's deputy governor, according to Reuters.

"We need to continue further along the same line. We need more cuts, more reforms which will restore market confidence and mechanisms, which will strengthen the monetary union," he noted.

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Monday, 23 July 2012 10:02 AM
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