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The European exchange with ups and downs and the debt of the Capricorn companies are increasing. Does Spain have a plan?

May 19, 2020

The measures to deal with the occurrence of the corona virus had very high economic costs. The situation was not easy for anyone. The things we’ve been through lately seem to be something from a science fiction film. The large empty cities of the world and much of humanity have been quarantined due to an infectious virus. The suspended economic activity. Closed shops, stopped factories, and millions of people locked in their homes and watching Netflix and making videos on TikTok. We were all affected by this pandemic, but Spain was particularly hard hit. His detention was one of the most severe in the world. And its economy has shown its vulnerability to the situation. The main companies are in trouble. How serious is it?

The stock markets are usually very emotional. In fact, they suffer from hypersensitivity. In many cases they react very spiritedly. Sometimes they serve as an early thermometer for what’s to come in the economy. Of course, nobody can predict the future. But we certainly have a chicken-and-egg-like dilemma here. What started it all? The crisis or the panic? Crises create panic and panic creates crises. Sometimes one after the other comes. But in many cases, one is the cause of the other. In the big mess of things, however, it is very difficult to know for sure whether it is an egg or a chicken because we have it in a huge paella with thousands of ingredients.

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The European exchange with ups and downs and the debt of the Capricorn companies are increasing. Does Spain have a plan?
The European exchange with ups and downs and the debt of the Capricorn companies are increasing. Does Spain have a plan?

Before the crisis really started, the pockets fell dramatically. Investors were concerned about the possible global spread of the corona virus and feared that they would remain in detention for longer. They panicked and their nervous sales brought the markets down. It turned out that the concern in this case was justified because the virus was spreading everywhere and governments imposed a very strict quarantine with serious economic consequences at all levels. In late February, before the corona virus became a pandemic, stock markets around the world collapsed. As of March, the economic damage was really felt, but the bags fell earlier. The Ibex 35, the Spanish stock index, saw the steepest daily decline in its history, dropping a dramatic 22.21%. Since then there have been good and bad days. However, the situation in general remains very delicate. The Ibex 35 is an index made up of the largest companies in Spain.

The paradox of all of this is that in March and April, during the toughest detention, these companies needed the most money to keep the ship afloat. However, with inventory on the floor, not much can be collected this way. At that moment we realize that panic is a cause and not just a consequence. Sometimes it is not the crisis that triggers panic. Sometimes it is panic that causes more losses, and these losses deepen the crisis into what we might call self-fulfilling prophecy.

Now these companies are with the rope around their necks, without a lot of resources to maneuver. In this particular case, the economic damage was of course caused by the restriction, but the decline in markets limits the ability of companies to handle this damage. Complicated and ironic, but that’s how markets work. And we have to learn to live with it.

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In Ibex 35 we have big names, the most important companies in Spain. Of course, the business is spread all over the world and occupies a leading position in various sectors such as the textile industry, banking, energy, telecommunications and technology.

The jewel in the crown is Inditex. This name suddenly doesn’t tell us much, but here we are talking about a giant among giants. We’re talking about the group consolidated by Amancio Ortega, a top 100 company in the world by capitalization. This group is best known for its outstanding brand. Zara.

We also have two banking giants, Santander and BBVA. These financial institutions are everywhere, but their presence is huge in Latin America. Telefónica obviously stands out in the telecommunications sector. And we have in the energy sector Repsol and Naturgy. Of course we cannot forget Amadeus, a company that is very present in the tourism and transport sector, Aena, the famous airport operator, and Endesa, the leader in the electricity sector in Spain. I will not name all the companies that make up the Ibex 35, but here I mention the most important ones.

To cut a long story short, these companies have accumulated a lot of debt during this crisis and the issue is still worrying. A report by El País newspaper reports that Ibex companies’ debt increased by € 6.6 billion in just three months. We know that the reports for the first half of the year will be appalling. It’s not just the losses from the stock market crash and the increase in debt. I mean losses in the company’s books. And now, it’s no surprise here, because spending was expected to increase in relation to income. And there is no income during this pandemic. We have to keep our fingers crossed and hope that there are no major bankruptcies.

What is the plan? Well, the plan is quantitative easing (QE) in the style of the 2008 crisis. The European Central Bank (ECB) will not only buy Spanish government bonds. The ECB will also continue to buy corporate bonds. And the Spanish central bank is responsible for the placement of the winning names. Yes, Inditex, Repsol, etc. are on the list.

From a macroeconomic perspective, these bailouts generally work very well. L.The economy finally reactivates with this injected liquidity. The controversial lies in the ethics of this whole matter. Because these bailouts primarily benefit large shareholders and managers of large companies. And all of this leaves a bitter taste in the mouth, because it is known that many unemployed people need more help and sometimes the bureaucracy prevents this aid from being effectively received. It is a very difficult reality and the reforms are certainly necessary. The problem is finding the solution. It is not easy. It’s not about criticizing the elites and that’s it. Unfortunately, the world we need requires sustainable and viable proposals.

What are the executives and majority shareholders of the Ibex companies doing right now? Good, They buy shares in their companies. Why? Because they are very cheap and the recovery is on the way thanks to the stimuli. And whether we like it or not, they’ll make a fortune.

We have several options here. We can sit down to cry, make anti-system documentation, and then post it on YouTube. Or we can learn how the system works so as not to fall victim to it. The second solution may seem cynical and petty, but honestly, who do we help if we sit down to cry? The issue is not easy. And everyone can choose their way freely.

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We have high-level Capricorn officials who invest millions of euros in their businesses during the crisis. It meansThey use the cheap money of the European Central Bank to buy undervalued securities, the price of which will increase sooner or later with the recovery from the corona virus.

For example, Javier Botín, the brother of Ana Botín, president of Santander, recently bought options that would allow him to purchase 20 million Santander shares for € 3.4 in December 2023. He is betting that Santander will increase by 70% and a half in three years. This is where the big fortune lies at the moment. You are looking for opportunities. And thanks to the liquidity of the impulses and prices on the spot, there are opportunities everywhere.

In the crypto space, Bitcoin lovers keep complaining about the central bank’s tax and monetary policies. This is probably due to the libertarian influence that exists in the community. The great irony of all of this is that despite the lawsuit of many libertarian Bitcoiners These charms will work wonders for the price of Bitcoin. Investors in all markets will do the same as the directors of Capricorn companies. In other words, they will use the new money issued by central banks to buy assets in the financial markets. Buyers will be more every day and that will eventually inflate the markets. Yes, that affects Bitcoin.