-How will the markets interpret a possible rebound in US inflation?
-The key, more than the rise in inflation, is how long the market is going to believe what the central banks tell us, the transitory nature of inflation, that they will not have to do anything or reduce the purchase program, nor will they raise rates of interest until 2023.
Obviously the higher and beyond the forecast the inflation data, the more the central banks’ position is questioned. With a figure of 4.2% or less, obviously, the feeling would be of authentic relaxation. The investor would say: we have already seen the worst, and the Fed and the ECB are right, they are not going to touch rates, we have all the support of monetary and fiscal policy.
On the contrary, data above expectations suggests that central banks are not taking the pulse of the inflation problem that is being unleashed well and perhaps it is not transitory as they say. And when they realize their mistake, they will have to react more abruptly, withdrawing stimulus, at an unforeseen speed and at a time prior to the one announced.
Inflation, having this base effect (comparative of this month with the equivalent month of the previous year) with very low inflation data, makes it likely that the inflation data is quite high.
-Although the Eurozone suffered a GDP contraction of 0.3% in the first quarter, the data is better than expected. What reading and forecasts can be made of the European economy with this data?
-You have to be very positive for the second part of this year. The best sample is what happened first in China and in the US. With so much stimulus, very high growth rates are produced. In Europe, the second half of 2021, will touch very strong growth data. Although the market has discounted that and much more, it is trading at highs despite the fact that we continue with annual growth rates of -1.
There is a disconnect between the economic reality and the reality of the financial markets, which have already participated in discounting that there will be economic growth, that the pandemic is already passing. We’ve been making that game since late 2020.
3:22 – Will the Spanish banking sector continue to be the mainstay of the Ibex 35 in the long term?
– At the moment they are the ones that pull the positive behavior of the index. At the end of last year it was electricity and everything related to renewable energy. In part, the role of the banks is due to the merger processes, cost cuts … they had provisioned a lot in the face of possible losses due to the pandemic.
In addition, the market begins to work with the hypothesis that the great beneficiaries of the inflationary process are the banks because there will be a rise in the slope of the curve in bonds, and that greater steepening or slope of the curve generates a greater intermediation margin than Consequently, it means higher profits for banks and justification for higher multiples.
The dichotomy is that, on the one hand, at the level of the banking sector, investors are happy to discount that higher inflation and the effect of rates, but, on the other, in the general market we see that the perception is that they will not have than touching interest rates, which is a bit absurd.
There has to be a positive scenario for the bank and not so much for the rest of the market or vice versa. The fact that inflation is falling now, as predicted by central banks, will lead them not to move interest rates. And with these levels of interest rates, banks are not big winners but big losers. It will be very curious to see how this change in sentiment is generated over the next few months.
-In terms of raw materials, will it take a long time for gold to reach 2,000 dollars?
-Gold is a function of real interest rates. There is a very high correlation between real interest rates and gold, in an inverse relationship. The lower the real interest rate, the more gold rises. The real interest rate is the nominal interest rate, that is, if we take the 10-year bond in the US as a reference, it has a yield of around 1.5%. In this sense, inflation must be subtracted but if inflation is -3%, the real rates would be -1.5%.
If the Fed does not touch rates and bonds remain where they are and inflation rises another percentage point, it means that the real interest rate drops another negative percentage point, it would be -2.5%. Anything that is delving into negative real interest rates is very positive for gold and the ability to return to all-time highs is unquestionable.
If the inflation data were not so high or the behavior of the banks is focused on the announcement of the withdrawal of stimulus, what will cause a much faster movement of yields or nominal rates upwards, which would not be positive for gold.
-Bitcoin confirms its downward trend, despite small occasional rallies. Is there a possibility that it will turn to the upside?
-There are detractors who say that bitcoin and cryptos is a meaningless bubble and, on the other hand, there are those who think that it will be the alternative to the financial system and that it will be worth huge amounts within a few years.
The reality is that there is a story to analyze. Bitcoin was born in 2009, it has had multiple corrections from 30 to 80% (2011, 2013 and 2017). We see a very important loss of what had risen but from those lows, Bitcoin stars in rises of 6,000 and a peak of 14,000 or 20,000%. This makes bitcoin from levels 1 or 2 to more than $ 64,000.
My feeling is that as long as fiat money continues to devalue, because more and more dollars, euros and yuan are printed, we see a policy of increasing M2 without pause. As long as this continues, the probability that cryptocurrencies will increase their valuation in the future is very high.
Do you have the problem of regulation? Yes. Do you have the problem that governments do not want there to be a monetary system parallel to the one they control? Yes. Banks and governments do not want competition and even less, if it is not regulated.
Eliminating the crypto market is very complicated; regulate it, too, and it will be somewhat persecuted.
Corrections in bitcoin or crypto, especially in those that have demonstrated their viability over time, for example Ethereum, must be used to buy because the feeling is that the experience will be repeated. Maybe it will go lower, but if bitcoin falls 80% from highs, maybe we will see it fall $ 10,000 or $ 12,000. But if the subsequent pattern is repeated, it would not be strange if it could reach 100,000 or 150,000