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: Hoping for the best - (Asia-Pacific markets rose with futures for Europe flat and those for the US up) – Asia-Pacific markets rose on hopes for a moderation in the Fed rate increases and improved US-China relations. Futures for Europe were flat and those for the US moderately up.

Response to the crisis: Post hoc ergo propter hoc - (Worker rotation rises despite the increase in fixed contracts) – A higher worker rotation despite a rise in the weight of fixed contracts should be a positive, especially if it is driven by the availability of “better” jobs, as this would increase US-style labour market flexibility and lead to improved employment terms for all. What is not clear is the direct connection between a higher weight of fixed contracts (largely mandated by law, due to the new requirements for temporary contracts) and the higher rotation. In Spain, dismissal compensation depends on seniority with the current employer. Newly “fixed” employees have little to lose in moving.

Banks: It’s no fun to be Cassandra - (The vice-president of the ECB warns about the exposure of banks to the real estate sector) – The ECB seems to be setting a record for stating the obvious. It is at risk of being renamed “Cassandra”. Provisions should rise ahead of an expected slowdown. And, in a rising interest rate environment, the real estate sector is likely to be a significant part of the problem. As I have been saying recently, investors in banks have been mostly focused on the positive impact on NII of rising rates while ignoring the negative impact of the same rates on their debtors. Cassandra was not the most popular person in Trojan parties. But she was right in the end.

CAF/Talgo: Coming home for Christmas? - (The Basque Nationalist Party (PNV) pressures the Government to merge CAF and Talgo to create a rolling stock champion) – This would not be the first time that such a deal is talked about. From the business point of view, it seems to make sense, given that their product offerings are complementary (CAF – commuter, Talgo – high speed) and there could be industrial cost synergies. The problem, as highlighted in the headline may be politics, as CAF (the presumed “active” player) is clearly a Basque company (and one to a large extent controlled by its workers) and would likely demand that the merged entity remain so and that most of the required sacrifices be made outside its region of origin. For Talgo shareholders those issues might be eased via an attractive merger equation. For the rest of stakeholders this might not be much consolation.

Macro: That’s how the cookie crumbles - (The ECB warns that 80% of public aid does not go to vulnerable households and that boosts inflation) – The ECB is not happy to be cast in the role of bad cop (higher interest rates/tighter credit) to the governments’ good cop (subsidies) stance. The problem here is the definition of “vulnerable households”, especially to the extent that it differs from that of “average CPI basket buyer” or, more importantly, “voter”. It is not really that useful when monetary and fiscal policy work at cross purposes as this is likely to prolong the crisis. But that is how the cookie crumbles.

*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.?