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We have written extensively recently that the markets are overvalued and just looking for a reason to sell-off.
Well, looking at futures this Monday morning, it seems the markets found a reason over the weekend.
The massive pro-democracy protests in China and the push for succession by Catalans have roiled the equity markets around the globe. Catalonia has long been a thorn in the Spanish government’s side. Franco mercilessly shelled the city in the twentieth century during his fascist reign. There are long memories and old hatreds in the region. Barcelona was the heart of the Spanish empire, but the residents do not consider themselves Spanish. You see Catalan flags hanging everywhere when you visit the port city.
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Over the weekend, the Catalan government outlined a planned to conduct a referendum on secession in November. The Spanish government is preparing a lawsuit to stop the action. This uncertainty, reminiscent of the Scottish uncertainty for the United Kingdom, is what the markets do not like–hence today’s sell-off.
As in most disagreements, money is the main issue. Barcelona and the surrounding region attract many tourists. The central Spanish government takes a large percentage of this income and redistributes around the country.
Spain likes to talk about the economic and security benefits Catalan receives from being part of the greater nation and says Catalan has sufficient self governance already. The lawsuit being readied by the Spanish government could delay a vote for months. Or, the Catalan administration could push the vote ahead in defiance of Spain.
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Either way, there will be continuing uncertainty, which is what markets hate.
Not all Catalonians want the vote to proceed. Many see this act as one of desperation by a Catalan government mired in scandal, an attempt to change the subject. The Wall Street Journal reports that the Catalan Civil Society, an anti-independence group, called the effort “an abuse of the law since its intention is to lend an appearance of legality to acts that are clearly contrary to the Spanish Constitution.”
Spain has been been one of the European PIIGS for sometime now. The overly indebted countries of Portugal, Ireland, Italy, Greece, and Spain have been battling the consequences of unsound financial decisions and a cradle-to-grave welfare society for years. This uncertainty will not help Spain pay its debts.
This will lead to more uncertainty and more financial unrest. Adjust your portfolios accordingly.
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Photo credit: Iakov Filimonov / Shutterstock.com
The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by WesternJournalism.com.
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