The SPAC facts you should absolutely know about 📖💲
Issue 040 - WTF is going on with the Economy?!
Photo by Mufid Majnun on Unsplash
Hey and welcome to Issue Number 040 of WTF is going on with the Economy?! - Barcelona’s leading economics newsletter for people living & working abroad. Remember: sharing is caring so don’t forget to tell your friends about us!
Here's what we're watching.
Stimulus Time in America🇺🇸💸
Over the weekend, the US Senate finished its impeachment trial against former President Trump. With that process concluded, the upper house of the US government can get back business at hand.
President Biden wants both a massive stimulus bill and a return to bipartisan politics in Washington. This week will be telling as to how those efforts play out. The size and the scope will set the tenor for all sorts of financial markets, including stocks, bonds, and exchange rates.
Dropping Rents in Spain🏠📉
Last week, data came out on the state of Spain's real estate rental market in 2020. The verdict? Rents dropped, but not as much as many people expected.
There are a couple of reasons why. Some people decided to move out of the city after the Spring lockdown to get more space for the same price. Others downgraded when they went on short-term furlough, prudently reducing their cost of living.
Many tourist apartments -- the popular scapegoat of politicians for bad housing policies -- went back onto the long(er)-term market. Last June, many of these units were still in "Airbnb" mode. By the time it became clear that tourism wasn't coming back, they shifted strategies.
In any case, rents fell for the first time in nearly five years across the country. Our take is that this move is only temporary, even if it does bring some relief to an overheated market. For one, the housing market is in much better shape than ten years ago where a disastrous mortgage bubble tanked the economy. Those toxic issues with banks and borrowers are primarily cleared up.
Second, many people left cities like Madrid and Barcelona for more space. However, we can't rule out an exodus into bigger cities from people moving in from abroad and other parts of the country post-pandemic. If that happens, then rents will stabilize or even go back up. Finally, popular Spanish cities have a fundamental housing shortage. Until there's enough supply to meet demand, rent will stay high, regardless of the pandemic economy.
The Pound Rebound🇬🇧📈
The British pound sterling is having one of its best runs against the EUR and the USD in nearly three years.
This is good news for remote workers and digital nomads getting paid in GBP. It's also great for countries like Portugal, Greece, and Spain that welcome millions of British tourists each summer. For them, a stronger pound means UK visitors can buy more euros, which generally means they'll spend more.
As it stands right now, the UK will be the first country in Europe to vaccinate its population, thus ending its pandemic. Hard-hit domestic services like restaurants and entertainment will all benefit from a much-needed reopening. However, being "first "means that investors will flock to the economy, driving up the pound. That's bad news for British exporters.
If you're Boris Johnson and you want to boost your country's exports post-Brexit, then an expensive pound is your enemy. After all, the UK now has tariffs with its biggest trading partner in the EU. Weakened currencies offset these taxes.
A relatively weaker euro and dollar not only harms your exports but makes imports cheaper. We'll see if this market trend continues, if the Bank of England (the central bank in charge of the pound) does anything, or if the pound's rebound is only temporary.
Our Insights Feature: SPACs👇👓
So as promised last week, we're tinkering with the format a bit. Instead of including our full-feature read at the bottom of each week's newsletter, we're publishing it directly on our blog then linking it. Like it, love it, indifferent? Let us know!
If you've been following the financial news lately, there's a good chance you've heard the term SPAC. "What's a SPAC?" Might you say? Great question! In short, it's a smart trick for startups and other companies to get to the stock market faster. At the same time, big investors can get a quicker pay-off from investing large sums with promising companies.
We've got everything you need to know about SPACs right here.
Madeira's Digital Nomad Experiment 🇵🇹👨🔬️
Madeira -- a tiny island in the Atlantic belonging to Portugal -- is running an experiment. If the isle optimizes itself for digital nomads, will they come? On February 1st, a government-sponsored co-working/co-living welcomed 75 digital nomads to the coastal village of Ponta do Sol. The project's mission is to test how well this sort of accommodation will boost the local economy. Since tourism drives most of the economy, diversifying it through encouraging talented workers could prove lucrative.
Additionally, as a member of the European Union, citizens from across the bloc can travel and work there without worrying about visas and work permits. How will this program play out? Should Spain's Canary Islands try something similar? We'll keep you posted.
Night Trains Across France and Beyond🚝🛌
The groundwork for a green recovery from the pandemic is well underway. As home to one of the world's most extensive rail networks, French officials are trying to leverage the country's infrastructure to bring back night trains. The ambitious plan envisages ten new routes in the next ten years. But that's not all: France would like to be a lynchpin in a pan-European night-train network spanning Lisbon to Helsinki and Dublin (you read that right) to Athens.
Of note, the plan runs in parallel with another strategy to add longer-range high-speed rail networks. The goal is simple: provide a viable alternative to short-haul flights. On the surface, this move sounds like a noble goal. However, the problem is that rail, even if becoming more competitive, is still way expensive than flying. Many people want to be more green, but planes will still dominate this space until it becomes a cost-effective alternative.
If Europe is serious about making rail the primary continental transport medium, then it will also need to get serious about increasing its competitiveness.
That’s all from us for this week. Have a great one!