Making Money Off of Europe's Mess: Spain

There is no question that the Euro Zone is troubled right now and will be for some time to come. Greece, Portugal, Ireland, Spain, and possibly Italy are all going to be in the soup for several years. In Greece, nominal GDP is not expected to recover to pre-crisis levels until 2017. Spain and Portugal probably aren't quite that bad, but Spain is clearly still reeling under the collapse of their massive property bubble. Portugal is more troubled than Spain, but it is harder to play Portuguese stocks from here due to relatively few Portuguese ADRs. Sure, there is Portugal Telecom (PT), but that is a stock that is neither good to short or long. It's just not particularly dynamic.

As far as Spain goes, this is an interesting one to watch. The worst of the real estate crisis is making its way through the banks now, though there will be heavy residual damage for a few years to come. The continued malaise of the real economy in Spain will lead to escalating consumer/business defaults and delinquency rates, putting pressure on profits. Additionally, if a major financial crisis befalls Portugal, Spain would likely suffer some collateral damage in both financial markets and real economic activity with reduced exports.

All of the problems both specific to Spain and general to the Euro region have caused Spanish stocks to languish while the rest of the world continues to erase the losses from 2007-2008 very rapidly. The iShares Spain ETF (EWP) is off from a 52-week high of $52.67 a share and is now muddling around $39.62. Similarly, major Spanish banks such as Banco Satander (STD) and BBVA (BBVA) are at very depressed levels. Compared to other regions of the world that have had nice recoveries in their financial markets, this presents a major opportunity.

However, I am not sold on the idea that it would be wise to get involved just yet. It is not at all clear that the debt crisis is anywhere near resolution yet. Also, with Moody's and S&P continuing to downgrade all of the suspect European countries' debt, who knows what might happen.

What do you all think?