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: Let a hundred flowers bloom - (Asia-Pacific markets rose and futures for Europe and the US point up) – Asia-Pacific markets rose on increased optimism regarding Chinese stimulus to offset deflationary pressures. Futures for Europe and the US point up.

Response to the crisis: Less freedom is not good - (Spain falls 9 positions in the OECD economic freedom ranking (El Economista p24) – I’m not a fan of international rankings as the criteria is almost always subjective. However, the degree of regulatory pressure on investors is a key input in the real world. In a globalised world, isolated financing and technical capacity do not count for much. But governments still have a considerable impact via the restrictions they impose on entrepreneurial freedom. Spain falling behind is not a positive.

Politics: The opposition may yet come to the rescue - (Opposition leader Feijoo demolishes economic optimism and PM Sanchez denounces his agreements with Vox) – I was not planning to comment on the one and only debate between the PM and the leader of the biggest opposition party, but the lack of any other news has forced me into it. The debate was not very enlightening regarding future policies, especially as they apply to the investment field. The main takeaway is that the PM is really worried about his election outlook, as evidenced by his demeanor. ?The PM’s main problem is that he does not come across as likeable, which is sad given the plentiful alternative areas for complaint. His performance yesterday will not help remedy this. But the leader of the biggest opposition party may yet come to his rescue.

Banks: Fake it until you make it - (The Alvarez & Marsal managing directors say that many corporates are not returning the public aid received (Expansion p10)/Mortgages with ICO development bank guarantee could end up costing up to 25% more (Expansion p15) – A significant part of the recovery from the pandemic lows has been due to government aid and banking sector “forbearance”. The idea, generally, was to “fake it until you make it”, playing for time until the underlying situation improves. The problem is that if the only underlying improvement is due to the “external” factors the bill will eventually have to be settled. And it will not be the Government that pays.

Macro: No good deed goes unpunished - (Wages rise 3.26% through June but remain below underlying inflation (El Economista p26) – Wages rising above headline inflation but below the underlying CPI is a problem. It leads to justification for higher wages, as they may be above the CPI but still underlying inflation, and they make up for past loss of purchasing power. But those wage rises are likely to be the source of upward pressure on underlying inflation, in the absence of significant productivity gains. No good deed goes unpunished.

*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.?

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