Take 5 and come back tomorrow

First of all, let’s be clear. The following is not investment research/advice. And, as such, it involves no investment recommendations. These are my thoughts on Spanish equity issues, which I find relevant. I share them freely (and not just as regards price). As always, I am only trying to help. Please read the rest of the “discomplainer (*)” at the end of the article.

Market environment: Don’t fight the China Fed - (Markets look stronger today, as Chinese Central Bank promises trump less positive Covid developments) - Markets look more positive today, as promises of greater support for the economy on the part of the China Central Bank offset bad economic figures. And less positive ones on Covid, with some countries reporting relapses in progress. China saved the day in the Great Financial Recession. And given the decline in credibility of western central banks (O Mario, Mario, wherefore art thou?) this may be a positive, at least in the short-term.

Response to the Covid-19 crisis: Hold your fire until you see the whites of their eyes - (The government will extend the temporary lay-off plan beyond the summer, with employers who are at risk of bankruptcy being able to lay-off workers) - Extending the temporary lay-off plans beyond summer (i.e. presumably beyond the end of the state of alarm, although there is still a book on that) makes sense. The idea was to allow corporates breathing space while their revenues vanished, so that they could take back the employees when conditions improve, and everyone would be happy. The main risk for employers was that if they applied a temporary lay-off, and conditions did not improve after reopening, they would not be able to lay-off workers for 6 months, without having to pay back the amounts collected by workers (or foregone by Social Security) during the period. Accepting that employers should be able to fire some workers in order to avoid bankruptcy, and therefore save the rest of jobs, should be obvious. But apparently not. However, in the end it will all depend on the definition of “at risk of bankruptcy”. No doubt the situation will have to be assessed by a labour inspector, by which time it will be too late. By the way, I believe the strategy reflected in the title is stupid. Especially if your guns have a longer range. And can be reloaded quickly. Which should currently be the case.

Takeovers: He who pays the piper calls the tune - (Takeovers will have to have an independent expert report justifying that the price is fair and be paid in cash over the next two years) – I will come clean. I am an unredeemable free marketeer. If someone wants to sell (or even worse, needs to sell), they should be allowed to. The only limit should be full disclosure of information involving the relevant deal. But do not worry. If the “independent expert” always says that the price should be higher than the acquirer wants to pay (and the potential seller want to accept), they will soon talk themselves out of a job. In my experience, fair values are usually 20-30% above the last weighted average price. And you can always play around with the average pricing period (especially if you bring “undisturbed” considerations into the equation).

Hotels: Be our guest! - (Hotel operators do not plan to open in “Phase 1” of the de-escalation as they believe they would not be profitable) – Phase 1, as far as I can tell, only allows travel within the same province or between provinces which have achieved the grade. If you live in the same province, why would you want to use a hotel? (except under certain circumstances, which I will not go into). And getting from one province to another might not be that easy. One of the problems that hotels face is zooming on the situation, if you get my meaning. Opening, and taking back most of the costs, with less of the income, does not make much sense. The real issue is how long this can continue before they give up.

Real Estate: Spring is sprung - (Coastal properties will see a 5-20% decline in price due to the coronavirus) – Beachfront (or close to) properties are clearly discretionary spending. Discretionary spending tends to be seriously cut when discretion dominates economic decisions. Now would seem to be one of those times. I would be less positive on coastal property prices, except, maybe, for the very high-end. Still, it is spring. And hope springs eternal.

*The above information has been read/understood/summarised/evaluated/copied as well as I could to provide a guide to Spanish equities, given available timing/intellectual constraints, and I accept no liability for misreading and/or mistranslating the original copy as set out in my previous article (which I urge you to check, as I am only trying to point you in the right direction, I hope). As for what you may decide to do, after reading the above, please contact your legally approved provider of investment advice on Spanish equities.