They said

For all of those who follow me on EStaloteSAssets, Twitter or LinkedIn, what is happening in the financial markets has not surprised them at all. I was very skeptical to many managers, institutions and of course catastrophic policies that today still go on. Many criticized me for the skepticism, but in the end, as usual, history and time have justified my comments with solid facts.

A recession is almost inevitable, this means hard times and unfortunately as I said in previous articles, populism will stay for a while. Many people will still support these damaging “policies” due to desperation, but we should not fall into their game, we must keep it cool. It is very difficult to anticipate a recession because statistical data always tends to be late.

Now is not the  time to panic. It is the best time to invest your savings as well as to do business. Remember that the great fortunes are built on these scenarios, so keep fighting. Some corporate bankruptcies will be due to financial excesses and bad management (there are also fraudulent cases very difficult to detect). As I warned you before, and I will do it one more time, I did bet AGAINST the market but I DO NOT advise you to do it at these levels because world leaders are going to meet in order to "solve this crisis". With the help of central banks, they will try to pull their shit together and put their differences aside (hopefully).

Every crisis is the same, and this time the trigger was a pandemic, so let me be clear if you did not bet against the market 4 months ago, please do not do it now that the world powers are working together, that would be stupid, so move on. This market will recover at these prices because right now there are so many great shares at great value. I think many of you are very pesimistic right now, but now it is time to be optimistic. I am happy that I got it right with my predictions about the market but I am not happy with what is going to happen in the coming months, because the market will recover slowly, but many people are going to suffer from the incompetence of certain people.

Be careful with “fake investors”, people dedicated mainly to scam other people providing investment courses. There are also funds that use Value Investing as a marketing tool to attract clients. I will not give names, you can play detective yourself and investigate them. One of the first things that you have to do now is to silence on your phone those wonderful analysts who have recommended you to buy that stock and bond… yes, you know who I am talking about, don’t fool yourself (we all make mistakes, but some make the same mistake systematically). Avoid the analysts who told you that the market was and is living a simple correction (even when Standard and Poor's 500 was at 3,300 points and a price earnings ratio above 26), avoid them because they said “just a correction” they continued “buy the dip” without any good explanation. You must block them, NOT because of that, but because they will mostly distract you when you need to be focused and the right time comes. Many of them now say "time to get out of the market". Do not do it now! Why are they going to be right this time? Now is the time to BUY, so stay focused!

It is worth to remember that bear markets do not last too long and that bull markets are not forever. Forget the excuses like "there is nowhere to invest in a bear market". It is very easy to invest when things look good, but now that things are not looking so good many “investors”, who earned money on the stock market without having studied a single stock (bonds, commodities, CFDs etc) previously, now realize that investing is not like playing Russian roulette. God bless the economic cycles, which do not stop teaching us important lessons that will later be forgotten again by millions of people. Allow me to repeat myself, patience is necessary and the market rewards it.

Timing is one of the most important things when investing, as well as patience, determination and analytical skills. As investors we must remember, stocks that are cheap today may end up being overvalued in the future, just like the stocks that are expensive now can become undervalued later. For example, four industries that have not performed particularly well in recent years and have depreciated; automotive sector (which I warned in early 2018), mining sector, airlines and energy are now much more attractive and a good opportunity to invest long-term (as long as you know how to choose companies with good fundamentals). But as always, this is NOT buying advice, it is just my opinion and what I do with my savings, which by the way, I have done very well until now, as people who have followed me for years can see.

Many of you also tell me that you do not have the time to analyze companies or investigate funds, I would suggest an ETF or a fund index focused for example in the  S&P500 (Differences between ETF & Fund Index https://investor.vanguard.com/etf/etf-vs-mutual-fund ), Fidelity, Vanguard and Amundi are pretty good (really nice prices). For more information you can visit their official pages, but there is a wide range to choose from. The stock market is one of the best choices to optimize long-term savings, as long as you do NOT need that money in the near future. I believe that the stock market is a better choice than the bond market (unless you are a very good bond trader specialized in companies in complicated situations and in risk of default), but it is just an example and there are many more.

For a real value investor there is nothing more beautiful than these discounts all over the stock market and finding more and more pearls that will provide us with very interesting returns. I have no words to describe this feeling.

I will not talk about debt and central banks balance sheets because I am just tired of it and you all know my point of view. I will not be sharing any more articles publically for a while (I will do only private work), but if you want to contact me you know how to do it. Good luck!

A little bit of everything

I’ve been trying to write this article since November of 2017; at that time stocks were rising to all-time highs. Don’t misunderstand me I have no problem with all-time high stocks, I like them the most but I can not see the value in so many stocks, which are rising for NO fundamental reasons. That’s very dangerous for many economies.

I really believe that we are heading into a recession before 2020, or at least we can NOT deny that the chances of sinking into a new recession before 2020 have significantly increased since political demagogies play an essential role in decision making (almost as much as in the 30s). Whenever this type of behavior takes on greater importance than macroeconomic fundamentals, RUN!

Even though many economies are booming right now I wouldn’t be so optimistic. It is true that technology together with innovation, globalization and the market economy bring progress and prosperity: History proves it. We have also globalized the risks, which is obvious and normal. Nowadays there are so many fears about the increasing globalization of the world economy. The most important ones are the geopolitical risks such as trade wars, which will increase the stress in the financial system, infecting emerging markets that at the same time will cause very high volatility in currencies (removing the effects on the interest rates that should imminently begin to rise, so it will be much worse for emerging markets because they will be financed by borrowing with foreign currency).

I do not want to pay special attention to trade wars because I think there are enough studies that explain their negative effects on economies; these trade wars damage the final consumer along with many other consequences. Now we do not know exactly whether in the 21st century advanced countries are going to really use these tools or they will merely be used to renegotiate contracts. Because if it were the second one I wouldn’t be worried at all but if it is the first one, well, we have all failed. I really hope no one takes it too far and other countries strike back because it will send the global trade community down a spiraling path out of control of retaliation (like “The Smoot-Hawley Tariff Act” in the 30s in USA). 

Nowadays we can appreciate the rise of nationalist, countries blaming each other for their struggles, and as usual at the end of the day average people are going to be the ones who will have to pay for all of this ignorance. The last time it happened the trade war became into a real war, and I think we all know the impacts besides deaths and destruction: When economies tank people always blame poor people and immigrants. It's nothing new, right?

We are living very unstable moments for the world economy, we live not only in a populist era as we said, but also an era of fraud. That’s why making investment decisions by looking at the fundamentals of isolated companies is NOT a viable investment philosophy right now for some individuals who don’t know how to apply it in these kind of conditions (many investors who call themselves as value investors just because they expect everything to rise in the long term|| Don’t call yourself a value investor, that’s not value investing ||), we must analyze beyond the fundamentals. It is necessary to aim and study the companies in depth, the environment in which they find themselves and, above all, we must be flexible. We have to know how to use the information that is given to us and find out if it is true or not. Tasks that are harder in the phase of the cycle known as "peak", phase in which I think we are, as long as we are not entering into a recession. What is clear is that we will continue to see important corrections in the market due to the lack of security and SOLVENCY. Confirmation depends on the macroeconomic data, which for now show signs of deceleration but still remain stable.

Perhaps the extreme nationalisms, protectionism or the loss of international competitiveness are not the reasons for the next recession, but they could be the triggers that make it blow up. We don’t know exactly when it will happen and it is very difficult to know when everything will break down again but I believe it shouldn’t take more than 2 years, as long as the central banks do not continue injecting capital into the markets, which could prolong the rise somehow but with much worse consequences in the end.

I may be early but I believe I am right, the problems are still the same as in July 2016, when I wrote my article called “¿En qué entrada estamos?” in English “Where are we?” Debt is still increasing in numerous economies; its management has been disastrous. Those in charge of fiscal policies have NOT been able to clean up the debt in times of boom and economic growth. Now it is time to normalize monetary policies and many governments have not done their homework. Do not misunderstand me; I do not believe that the debt is bad as long as it can be paid in the agreed periods. Once we lose confidence in certain economies, it is very difficult for them to earn it back that’s why the global economy has recovered with much uncertainty.

As I said, many economic agents haven’t done their homework, from governments to companies and the time has come for the central banks. The quantitative easing of the European Central Bank will stop very soon, and interest rates must be normalized if we do not want the next crisis to catch us off guard and become the next Japan. Actually Europe couldn’t be the next Japan, the truth is that Japan and Europe are culturally incomparable, Europe would perform below the standards, which would lead us to a higher internal devaluation, and the European periphery would need a tougher restructuring. It is obvious that European citizens can’t compete through internal devaluation and they would not tolerate it, even China can’t continue anymore competing at that rate of internal devaluation. What I mean is that if the responsible of the monetary policy together with the responsible of the fiscal policy don’t act fast to eradicate the debt problem, Europe may be in a similar situation as Japan, with problems to reactivate the economy.

I hope it doesn’t end as usual, bailing out inefficient companies that are not managed properly. I do not want this to be an article in which I criticize companies, because the article would never end and it is not its purpose. I just want to dedicate a few words to Deutsche Bank (Germany's biggest bank), a bank run by managers without strategy and without vision of the future for the banking business. Managers who have not been able to reduce their toxic assets to ensure the survival of the bank, without the need for rising capital or even a bail out from the government (taxpayers). I could speak also about the situation in BNP or BPCE, as we can see these days German and French banks still hold the most-hard-to-value assets, toxic assets that they aren’t ready to handle and that in situations of extreme instability could cause the collapse of these entities. Now the “extreme instability” may arrive soon and someone hasn’t done its homework after all this years of growth. So what will it be next time: Bail out, capital increase or merger? Extend the inevitable fall or launch the necessary restructuring to guarantee the autonomous survival of the company? We will see what happens, but maybe new managers are hired to do their job in a clean and concise way.

People know that inflation erodes the real value of government debt and, therefore, it is in the government's interest to create a minimum of inflation, in some cases even force it badly. Debt is going to continue to suffer; I doubt that those responsible of the fiscal policies do their job together with those in charge with the monetary policies. Government debt yields are going to reach dangerous levels and I am afraid that they will damage numerous stocks along with other financial products like corporate bonds. For all of these reasons I’m bearish on many financial products, specially overvalued companies, which hold strong debt, those most exposed to world trade, and punctually to pro-cyclical sectors that can turn around very quickly. Not everyone can invest in these conditions, whether it is a long position or a short position.

However, the situation shouldn’t be an obstacle to invest and still be profitable. To my clients and my friends I advise them to invest in the same way that I operate to find value, I have also advised many to change managers (because there is a lot of trash in the market) or NOT invest. There are many people who deposit their money in products/assets that they do not know anything about and they do it simply because their bank/fund advises them, that isn’t right. You have to know where your manager is investing or at least have references to avoid surprises and big losses. You have to have the peace of mind that your manager is doing his job as "manager of your money" as if it were his.