June 16, 2021

José Ramón Iturriaga: Cryptocurrencies


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I understand that it is preaching in the desert because believers have gone through situations like those experienced in recent days several times and it has not affected them. In fact, falls of more than 80% as bitcoins have suffered were the end point of assimilable bubbles. But this has not been the case and probably the collapse of the last days does not end up burying them either.

Now, of course, the volatility of these last weeks does not help to convince those of us on the other side. An encrypted payment system whose only novelty is that the origin or application of these funds can be traced should have the days numbered because it is to leave the way clear for capital evasion. The Chinese have understood it quickly and have banned it in all its forms. China prevented banks, financial institutions and online payment channels from providing any services related to any cryptocurrency. Neither registration, nor negotiation, clearing, settlement, nor its use as collateral or pledge, nor issuing financial products related to these virtual issues. Beijing ends the announcement saying: “virtual currencies are not backed by real value, their prices are easily manipulated and commercial contracts are not protected by law.”

In the West we are not very clear how to get our teeth into it and we are giving it more fuel, but it is a matter of time. And without a doubt the one who has understood it best has been Elon Musk who has known how to take advantage of the legal vacuum so far and manage at will (and profit) the only thing behind such extraordinary behavior: the greed of many. In any case, play with fire and it may end up being clever.

It is the chronicle of a misery announced. And it’s not that it’s going to be lost – what, of course! nearly $ 500 billion in a few days – it should never have been won.

Banks regain shine

Banks are the companies that will benefit the most from the reopening and normalization of economic activity in the next two or three years. Both the top line – at first hand in hand with the commissions and then the financial margin takes over – and the bottom line, in which the provisioning effort seems to be more than covered with what was done last year. Unlike the previous crisis, the quality of the assets does not offer any doubt. The affected sectors are very limited – hospitality and tourism – and the ICO guarantees will absorb a large part of the incidence.

In addition, banks serve as a hedge against inflation. The eventual rise in interest rates due to higher inflation is transferred directly to the assets and liabilities of your balance sheet. Higher profitability from the hand of higher margins and ‘carry trade’.

On the cost side, to the cuts in which all banks have been immersed in recent years thanks to digitization, we must add what the consolidation of the sector implies on this front. With the accumulated experience of the last years resulta quite feasible to achieve synergies greater than 50% of the cost base of the absorbed entity.

Fewer players, more profitable and with the tailwind, which will also allow them to return to remunerate their shareholders, with valuations that continue to be both not at all and relatively very attractive. You can not ask for more. Well, nobody has them in their portfolio, as is the case.

Market recovery

In recent weeks it seems that the market, as they say today, has changed screens. The success of vaccines in the countries that are ahead points to a faster reopening of the economy that will most certainly translate into stronger growth earlier than expected. The main risk, beyond a new variant of the Covid, has become a strong rebound in prices that could double the hand of central banks, something that, for now, is not contemplated. A) Yes things, the rise in interest rates continues to set the times in the market. Expectations of a greater and quicker recovery continue to press the upward curves, which has an impact on the valuation of all assets. In equities, it is precisely the sectors most closely linked to the real economy that benefit the most from this environment compared to those that could be considered long-term. It makes sense to think that the current dynamics of the markets, far from breaking down, should accelerate in the coming months hand in hand with the economic reopening. The main risk has become a possible blunder on the part of central banksBut it seems that they are aware of their enormous responsibility and that they are willing to live for a reasonable time with negative real interest rates, whatever that may entail.

I understand that after what I have experienced in recent years, the doubts are many, but, as I don’t know who said a few days ago, many have forgotten what it is to manage with the tail wind: it is very fun and it makes money.

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