Daniel Lacalle (Madrid, 1967), chief economist at Tressis and professor of Global Economy at the IE Business School and the IEB (Institute of Stock Exchange Studies), is one of the best known in his discipline and the author of books such as ‘Nosotros , the markets’. He has recently published ‘Make your money grow’, where he collects his experiences in investment funds and ‘hedge funds’ in the United States, in addition to giving his point of view on burning issues such as the commodity market, cryptocurrencies and inflation. We talked about all these issues with this staunch defender of the market economy:
-How do you see the immediate future of the Spanish economy?
-People believe that there is going to be an implosion, a brutal crisis, but I think that the risk is rather the erosion of potential growth and the trend of stagnation.
It is very evident from the constant downward revisions of the pre-crisis growth estimates. Right now we are not technically in stagflation, but we do see that we fell 10.8% in 2020 and that we have not yet recovered the pre-pandemic GDP. In addition, prices, between 2019 and 2022, are rising at the rate of 6% per year. We are not there yet, but we have a very high risk of stagflation.
-Precisely, if there is a problem that has an impact on the economy, it is inflation. Has the Government taken the appropriate measures? Are you worried about core inflation?
-The first factor that differentiates our level of inflation from that of other countries in our environment is having the only rate regulated 100% by the Government linked to the wholesale market, as well as the greater consumption of monetary reserves through expansion of the deficit monetized by the Central Bank. European (ECB). We have to do like other countries, link the regulated rate to the futures market and reduce public spending, which has skyrocketed in a period of record income. I am also very concerned about core inflation, because although we are talking about 4.4%, the prices of goods and services that we consume every day are rising 20%, 15%…
-A part of your new book focuses on experiences in the best investment funds in the US. Are there many differences with Europe?
-No, in Spain and Europe there are spectacular managers and really dedicated and very good people. What is true is that in the United States and the United Kingdom it is more common for managers to have 100% responsibility for the portfolio. I think that perhaps what happens in Europe and Spain is that the great talent of some managers is lost in being under the umbrella of a brand, a company, a team.
-It strikes me when you say that the investor’s goal is not to ‘earn money’ but to preserve their capital and beat inflation…
-The enormous talent that I was commenting on before must be put to work and, many times, we lose opportunities to extract value from that great investment talent by hiding it behind that consensus system.
-You know the Popular Party well (Lacalle advised the former president of the PP Pablo Casado) What do you think of the first steps of Núñez Feijóo, in economic matters? What do you think of his anti-crisis plan?
-It has been very intelligent on the part of Feijóo to present a plan against the crisis that any citizen understands is good and that portrays the Government for rejecting it. It was not a plan of liberal policies, of radical changes. It was a plan clearly aimed at being accepted by the PSOE. In any case, I cannot agree with a policy that entrusts everything to the European Union, the ECB and the European funds to solve everything.
-What do you think of how the ‘Iberian exception’ is being managed, the intention of limiting the price of gas in Spain and Portugal?
-It’s everything we don’t want: First, to ‘stop’ the price of gas is to pass via subsidies to the fixed part of the rate, the remuneration to gas plants. With this, you are encouraging gas power plants, most of which are losses. There is no change incentive and, in addition, the total rate is increased for all consumers. Additionally, it eliminates the price signal, which has led to record investment in renewables.
-All of the above coincides with changes in the monetary policy of the ECB (European Central Bank). Doesn’t it come at a bad time for an indebted country with a high deficit like Spain? Is it the turn of fiscal consolidation?
I think so. If there is something that has been demonstrated with various governments, and with this one in particular, it is that fiscal consolidation via tax and revenue increases does not work. The structural deficit of the Spanish economy has doubled, this clearly has to be tackled and at full speed. As you say, the cicada’s policy is to think that it’s always summer, but winter is coming and rates are rising. Also the required return on sovereign bonds and, very importantly, the risk.
– What role do you think cryptocurrencies will play in the future? Will we see a digital euro or the ECB issuing its own cryptocurrency?
There are going to be digital currencies from central banks. Which again affects the issue of credibility: there cannot be if the credibility of central banks as independent institutions is not established. What I remind everyone about cryptocurrencies is that they are a very volatile investment asset, they are coin start-ups and, therefore, you have to be very cautious.
The arrival of inflation was supposed to be proof that they function as a store of value and an asset that protects you against inflation. However, in the case of Europe and the United States, it has not clearly been so: cryptocurrencies are falling, while the dollar is rising. Contrary to what many people expected, this shows us that they are coin startups, although many are working as a reserve for citizens who are suffering from central banks that really endanger the purchasing power of the currency. It seems to me that the advance of crypto has a positive effect, especially when central banks realize that they do not have an open horizon to do anything,
2
