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: The world is not getting better - (Asia-Pacific markets declined with European futures falling and US ones somewhat less) – Asia-Pacific markets fell on a combination of rising geopolitical worries, fears of higher rates and negative corporate results. Futures for Europe fell and those for the US somewhat less.

Response to the crisis: What is there not to like – (VAT on energy collects €2.25bn more in 2022 despite the cut in taxes (Cinco Dias p19)- As everyone knows inflation is a government’s best friend. It may upset voters, but this can always be blamed on greedy corporations, foreign dictators or even central bankers. But it does wonders for tax income and, therefore, provides the means to subsidise voters. What is there not to like.

Banks: Friends do not hurt each other - (The digital Euro is closer and will endanger 10% of bank deposits (El Confidencial) – The introduction of a CBDC (a.k.a. central bank digital currency) is not a measure aimed against the banks (If they do not have to bother about customer deposits and instead get funding from the central bank, it is all easier), it is aimed at influencing citizen behaviour. In the current environment there is no need for a government-backed digital payment system. There are plenty of private sector alternatives, some of which may be more threatening to the banks. So, I would not worry about the banks, at least on that score.

Telefonica: Selling the crown jewels - (Lowers its exposure to LatAm networks in order to reduce costs and expenses (Expansion p3)/Supports itself on Brazil on the eve of launching its strategic plan (Cinco Dias p3) – Selling down infrastructure assets (i.e. capital intensive) may make sense in the current rising rate environment. And the LatAm political environment does not engender regulatory confidence. But these assets provide reliable income. And it might be difficult to buy back the stakes at a good price in the future. Asset portfolio management is a key management function. Arbitrage is more difficult.

Investments: Money to spend - (Fund managers increase their pessimism according to the Bank of America survey (Cinco Dias p16) – Fund managers being worried about the market and increasing their cash levels may be seen as a negative. But, for the most part, they are not a good forward indicator. And having more cash means that they will be able to buy. For my part I’m not very bullish on the real economy, but that is why (Fed put etc. allowing in a pre-election year) things may be better for stocks (and hard assets).

*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.