Thriving tech scene allows Uruguay to shine during pandemic

Silicon Valley paying attention to small nation following emergence of unicorn and Covid app

Benedict Mander in Buenos Aires

Small but impressive: Uruguay has produced several tech success stories including a vaunted Covid-19 app © Pedro Ugarte/AFP/Getty

Sandwiched between the giant economies of Brazil and Argentina, Uruguay has traditionally been at a disadvantage when it came to attracting foreign investment into its promising tech sector.

But with the recent emergence of the country’s first unicorn and another company developing a sophisticated coronavirus app within a week, the diminutive Latin American economy has put itself more firmly on the global map.

Google and Apple heaped praise on GeneXus after the Montevideo-based software company spearheaded a push to develop a sophisticated Covid-19 advice app, with early success meaning Uruguay was one of the first countries to be chosen by the US groups to pilot contact tracing technology.

In September the country’s tech scene was thrust into the spotlight again after cross-border payment processor dLocal, backed by US-based private equity firm General Atlantic, raised $200m to become Uruguay’s first unicorn.

“We are setting the bar high,” Omar Paganini, Uruguay’s industry minister, told the Financial Times. “If Uruguay can become a player in this field it would be very valuable for the country. This goes beyond our government, it is a policy of state,” he added, explaining that the tech sector is deemed to be of strategic importance.

Uruguay’s relatively new conservative government wants to emulate the success of countries like Israel, another small and open economy with a thriving tech sector. While the country’s economic and political stability means it is often compared favourably to its neighbours, its competent handling of the pandemic in one of the worst hit regions in the world has further burnished its image.

Small nations like Uruguay, which has a population of 3.4m, should concentrate on “developing and attracting talent and entrepreneurs, and being a relevant part of the [global tech] ecosystem”, said Francisco Alvarez-Demalde, managing partner of Riverwood Capital, a private equity firm based in Silicon Valley. “The reality is that the companies that are most successful in tech are operating in a parallel universe without geographical borders,” he said.

Yet Uruguay’s small size has been a factor in its success, forcing businesses to look early on beyond its national borders for growth. This has been the case for dLocal, which has nearly doubled in size each year since its 2016 launch and is now valued at $1.2bn.

It began expanding abroad almost immediately and now operates in 20 emerging markets across Latin America, Asia and Africa, providing services to companies like Amazon, Spotify, Uber and

“For us, it is key to continue expanding. At the end of the day, if you want to be a global emerging markets payment company, you need to be in most emerging markets,” said Jacobo Singer, chief operating officer.

They have also been successful in attracting talent from elsewhere: earlier this month, dLocal poached two senior executives from MercadoLibre — the largest online commerce and payments system in Latin America and based in buzzier Buenos Aires — to be its chief financial and technical officers.

About two-thirds of its nearly 300 employees are based in Montevideo, Uruguay’s laid-back capital on the banks of the River Plate. “Uruguay has played an important role in providing us with great talent,” emphasised Mr Singer. 

Analysts attribute Uruguay’s tech success to several factors, among them concerted efforts by far-sighted governments to promote entrepreneurship and innovation that date back more than half a century. In the 1960s Uruguay became the first country in the region, by a long way, to introduce computer science degrees — just two years after MIT. More recently, it became the first country in the world to implement a one-laptop-per-child programme in public schools in 2007.

Such policies have allowed the country to punch above its weight when it comes to tech. 

“The whole of Uruguay is smaller [in terms of its population] than a neighbourhood in São Paulo,” pointed out GeneXus chief executive Nicolás Jodal.

A well-educated population together with the creation of free trade zones against a backdrop of political and economic stability proved fertile ground for the nascent tech sector. One early success was the creation of Scanntech in 1991, which provides retail and payments software, and is backed by Sequoia Capital.

“Covid was just the cherry on top,” said Ivonne Cuello, chief executive of the Association for Private Capital Investment in Latin America (LAVCA). “What normally happens in a decade in Latin America happened in just a few weeks.”

Although Brazil, followed by Mexico and Argentina, has always attracted the lion’s share of venture capital in the region she says that Uruguay has shown it is now possible to produce unicorns and attract global investment funds in small countries too.

Other Uruguayan start-ups to have attracted funding from international investors in recent years include Meitre, a restaurant management platform in which Andreessen Horowitz made a $1.6m investment last year and digital banking platform Bankingly which raised $5.3m from impact-focused private equity firm Elevar Equity in 2018.

Ms Cuello argues that Uruguay’s relative minnow status is beneficial in another way: 

“In the early days in Silicon Valley it was a small ecosystem with a small, highly-educated population. So when you have that, and people know each other, you start seeing momentum. It’s like you can feel that happening in Uruguay [now],” she said.

Wealthy entrepreneurs from elsewhere in Latin America such as Marcos Galperín, CEO of MercadoLibre, have chosen to relocate to Montevideo © © Javier Pierini - FT Commission

      an affluent and laid-back city with a highly educated workforce © Andia/Universal Images Group/Getty

Despite the success of dLocal, the great challenge for tech in Uruguay and its neighbours remains financing. There are no venture capital funds in the country and precious few elsewhere in Latin America.

For Mr Jodal, the biggest concern is keeping pace with fast-moving innovation around the world. “Our principal focus is on staying up to date. Right now I’m looking at China. I don’t want to be surprised by what’s happening there,” he said.

But by fostering the talent that enables the sector to grow, Uruguay may also benefit from Argentina’s continuing economic decline.

Many wealthy entrepreneurs — among them MercadoLibre co-founder Marcos Galperín — have already chosen to relocate to the country. 

As Mr Alvarez-Demalde points out: “Once you have the talent in one place, a lot of good things start to happen.”

The Next Dollar Problem Has Just Arrived



- The pace of monetary destruction is making a new leap.

- In the context of a combination of monetary inflation and the effect on asset prices, encashment of savings deposits makes sense.

- Logistics businesses involved in the transportation, storage and flow of goods have been badly disrupted by the Covid-19 pandemic.


It is not for no reason that cryptos are roaring, and precious metals are playing catch-up. 

In the last month, there have been developments that point to a new phase of accelerating monetary inflation for the dollar, and fiat money is only just beginning to be exchanged for these inflation hedges at an increasing pace.

Hyper-inflation of the dollar is now becoming obvious to a growing cohort of investors. 

It is driven by factors on both sides of bank balance sheets, with evidence that large depositors are reducing their term deposits and increasing their instant access checking accounts. 

This appears to be behind the increase in M1 money supply fuelled out of a shift from the M2 statistic, which includes savings deposits.

It amounts to a hidden run against bank balance sheets. Meanwhile, increasing supply chain problems against a background of Covid-19 lockdowns are leading to the withdrawal of bank credit from non-financial businesses, potentially imploding bank balance sheets as bank credit contracts.

Foreign support for both the dollar and dollar-denominated fixed interest assets are being withdrawn, which is sure to lead to rising bond yields and dollar interest rates in the New Year, undermining the equity market bubble.

The Fed is now faced with not only financing ballooning federal budget deficits but underwriting US supply chains in their entirety, which is corroborated by ongoing global logistical problems, tying up an annualised $34 trillion of intra-business payments in America alone. 

The Fed's unwavering commitment to Keynesian monetary policies will lead the Fed to attempt to offset these supply chain problems, to rescue banks that fail to survive the inevitable contraction in bank credit, and to defray the bad debts that will arise.

It is a momentous task encompassing the whole US economy, requiring even faster money-printing, and is impossible without destroying the unbacked dollar.


Since May, I have been warning of a dollar collapse. 

I showed that commodities, stocks, cryptocurrencies and precious metals were all rising because of the dollar's loss of purchasing power.

The media is still reporting on the economic effects solely of Covid-19. 

In doing so, they have consistently underestimated them and ignored other factors. 

To return to a normality was always there as a beacon of hope - the spring of hope in a winter of despair. 

And it has only been a small minority who have pointed out that far from being a solution, inflationary financing has negative consequences. 

And even fewer of us who have tried to demonstrate that instead of stimulating economic activity, debasing the currency actually kills it.

The pace of monetary destruction is making a new leap. Figure 1 is the money supply of the world's reserve currency, which is soaring at a new pace. 

In the last two weeks of November, M1 money supply jumped by over 14% - an annualised rate of 367%.

The hyperinflationary trend of US M1 money supply is clear. But everyone has become so bemused by these developments that they have taken to disregarding them, while prices in stocks, commodities and cryptocurrencies console them by rising. 

These developments must not be ignored by anyone who wishes to preserve their wealth, and they give important clues to the road ahead.

US savings deposits are being encashed

According to the most recent figures, the sum of total checkable deposits and the currency component of M1 increased in November by $435.7bn, a rise of 11.6%, while total savings deposits fell by $88.5bn (0.75%). The difference between the former two and the latter is instant access. 

It represents a turnaround from rapidly increasing savings deposits between April and June, to increasing cash and checking accounts instead. It is a new trend that differs from the relationship between instant access and savings accounts at the time of cash contributions to families from the Treasury. 

To the extent that the helicopter-drop bolstered savings accounts, that effect has faded, and following the slowing of the rate of increase in savings deposits, total savings deposits in November actually fell for the first time this year.

The reasons for this turnaround reflect a new reluctance by depositors to tie up funds in the banking system. 

To be clear, with smaller depositors protected by the FDIC, the shifts in deposits are sure to be mostly in balances larger than the insured amounts of $250,000, almost certainly reflecting a financially informed class of depositor, likely to be trading in financial assets. 

The apparent suddenness of the change in attitude among large depositors should pique our interest.

We cannot blame zero interest rates on this development because there were massive inflows totalling $1.24 trillion into total savings deposits in March April and May when interest rates were also zero. 

The most likely reason time deposits are not being renewed is because it is a first step for bank customers who intend to reduce their overall currency exposure relative to the assets, goods and services they normally buy, which for them will embrace all their bank balances, including comparatively illiquid savings accounts.

In the context of a combination of monetary inflation and the effect on asset prices, encashment of savings deposits makes sense. There is no point in lending money to the bank for zero interest, when prices of the assets and goods you buy are rising. 

And if you sell them, there is then no point in tying up the proceeds in time deposits - better to buy something else. Even though this change of behaviour appears to signal that the depositors concerned are increasingly aware that prices are rising, and that assets and goods should be bought sooner rather than later, they are yet to appreciate that the phenomenon is of the purchasing power of the currency falling rather than prices rising.

This gives us an indication on where we are in the hyperinflation process. The signal we are being given by the rise in money M1, including the extent that it is now fuelled out of savings deposits, is that it will eventually lead to an acceleration of the disposal of money by all bank depositors. But we are not there yet.

In the past, hyperinflations of the money quantity have led through rising prices to an increase in demand for currency in the form of notes. 

In the Germany of 1922-23, wage earners had to encash their salaries in order to spend them immediately, which led to a rapid increase in demand for paper marks while their purchasing power collapsed. 

This is why the printing presses were running at full tilt. 

In the modern economy where cash notes and coin play only a small role, the raising of spending liquidity at the banks creates a reservoir of funds, which when a shock comes, is poised to flow rapidly into anything which is not fiat money.

If that condition is triggered, it will drive the dollar's purchasing power over a cliff-edge. An adjustment on these lines will lead to a more sudden increase of consumer goods prices measured in declining fiat than occurs in an economy where cash notes are the principal means of payment. 

But we are not there yet.

For commercial banks, the initial effect of a reduction of savings accounts increases their exposure to the temporal mismatch between funding and their loan books. In the past, this has ended up with bank runs, such as that of Northern Rock in the UK in 2008, a warning of what was to come. 

A more apt laboratory example, perhaps, is the collapse of the whole Cypriot banking system in 2012. This is getting closer to where we are.

The assumption in financial circles is that the soft ban on cash and improved communication between banks and their regulators make bank runs a thing of the past. The trouble will lie with banking customers who have failed to get this message.

We now have a partial explanation for why, as our first chart in Figure 1 showed, M1 money is soaring, because money has been diverted from savings deposits which are only included in the broader M2. 

That leaves another puzzle to solve, which is on the asset side of the banking system's collective balance sheet.

Bank lending is suddenly contracting

Apart from the decrease of deposits in M2 and the increase of funds in checking accounts, the origin for most of the sudden fall in US M2 money supply in November is linked to the contraction in bank lending. Figure 2 is of M2 minus M1, giving an approximation from customer deposits of the course of bank credit on the other side of bank balance sheets.

Bank credit tends to expand over a period of years when bankers gradually become less cautious about lending, as memories of the previous financial crisis gradually fade. 

Lemann was intensely financial, and with the assistance of the Fed's inflationary financing and guarantees did not end up undermining bank lending to the non-financial sector, despite the sudden knock to GDP and gross output.

Following the chart in Figure 2 tells the story since the Lehman crisis. With official price inflation remaining low and the Fed in control of interest rates, bank credit then expanded at a steady pace for ten years. 

When the US banks ran into balance sheet constraints in September 2019, the Fed intervened in the repo market to ensure bank credit continued to be available.

The problem was patched up until March this year when the Fed cut its funds rate to 0% and announced unlimited QE a few days later. It coincided with the first world-wide Covid-19 lockdowns. 

At that time, it was thought that in a matter of a few months the virus would be brought under control and the global economy would return to normal. Bankers remembered from Lehman that the solution was to keep calm and carry on. 

With that in mind and egged on by the Fed, commercial banks rapidly expanded credit to counter what were thought to be short-term liquidity problems in non-financials due to supply chains and the payments along them seizing up. 

Commodity prices rallied, which was taken as confirmation by many that the manufacturing outlook was restored to being bullish. 

Between March and early November bank credit expanded by nearly $2 trillion to record levels, having already more than doubled since 2008.

Bank credit, and with it bank balance sheets, became even more dangerously overextended and ripe for a significant contraction. 

Only an increase in bank equity can reduce the pressure on balance sheets if credit levels are to be maintained. But with bank equity at current levels relative to book value, dilution of shareholder equity is an unattractive option. 

The only alternative is to reduce the ratio of assets to shareholders' funds, and so in recent weeks, bank credit has begun to contract sharply. And given the enormous increase since the Lehman crisis, there is now likely to be a further significant withdrawal of bank lending.

Lending psychology

The psychology of bank credit cycles is easy to understand in the context of bankers who start with a fear of risk, followed by lending caution, growing competition for business, then greed compressing margins even further, and finally fear again.

Bankers have a strong tendency to act in unison, creating a definitive lending cycle, a feature seen throughout banking history. With repeating cyclical failures, over time the bankers' collective monopolistic instincts led them to rally round to prevent a crisis at one or more banks infecting them - as was the case with Barings in 1890 - and then to central banks becoming wholly responsible for bank rescues in the twentieth century. 

That was one of the reasons why the Fed was created in the first place.

The comfort of rescue from their own follies affects the herd instinct of bankers when it comes to lending. They know they will always be bailed out. 

Long before these developments, in the case of Overend Gurney and Company in 1866, Bagot wrote that "These losses were made in a manner so reckless and so foolish that one would think a child who had lent money in the City of London would have lent it better". 

Bagot's description could equally be applied to the behaviour of banks in the run up to the Lehman failure, and to the condition they find themselves in today. It could also be extended to the behaviour of central banks and banking regulators who encourage credit excesses.

Any observer of lending cycles would have perceived this phenomenon time and again. 

In our contemporary example, at the top of the lending cycle bankers clearly believed that the Fed was firmly in control; and that the economy, if it wasn't for Covid-19, was healthy. 

We cannot know for certain which of the recent events tipped this view from extreme optimism to doubt and possibly evolving panic because it is fundamentally a matter of the madness of the banking crowd. 

But the evidence suggests that it is the continuing difficulties with supply chains and that the payments that go with them. They have not recovered from the initial pandemic disruption. 

And now nervous bankers see that savers are liquidating savings deposits in favour of instant access checking accounts in a trend that searches for greater liquidity.

Global logistics are in chaos

Logistics businesses involved in the transportation, storage and flow of goods have been badly disrupted by the Covid-19 pandemic. Containers full of goods have accumulated at ports with ongoing distribution capacity having been cut. 

Furthermore, stockpiling of certain goods has led to container ports being used as storage facilities, clogging them up despite financial penalties. An example is the UK government stockpiling PPE at Felixstowe, having over-ordered in the initial Covid-19 panic and now require storage for a reserve of vital supplies. 

And with containers not being swiftly returned from importing nations to exporters, the global flow of goods has become badly impaired, which is why so many are in the wrong place.

The disruption to global logistics started early this year with shipments backlogged at China's container ports and a lack of truck drivers to pick up and deliver containers. 

Shipping companies were forced to cancel sailings, and that led to a lack of components in China's export markets. 

When China emerged from lockdowns earlier this year road haulage returned towards normality. The pressure on container distribution from China to America's Pacific seaboard eased initially, but the pandemic's course in America impacted on its road haulage capacity, leading to an accumulation of containers in North American ports. 

The backlogs led to container vessels unable to get unloading slots and mounting chaos from rollovers - the term applied to containers that fail to get loaded as scheduled and rebooked for the next available sailing, which in turn might have had to be rolled over again.

By mid-October, it was reported that up to a third of transshipment cargos in Asian container shipping hubs was subject to rollovers, and more recent reports suggest the problem has not been resolved - if anything, conditions have deteriorated. 

And due to poor communications, cargo owners often have no idea where their shipments are in the logistics chain and therefore cannot manage their own supply chains.

Supply chain problems are gumming up the global economy. In addition, increased government spending is making things worse - for example, the accumulation of containers at Felixstowe full of government-owned PPE. 

And the American government's rapid increase in inflationary financed spending is putting further pressure on shipment logistics by leading to greater trade imbalances.

The financing requirements of American businesses are proportional to the supply chain disruption from the container chaos, whether the business is importing consumer goods or components for manufacture. 

The totality of the problem is far larger than GDP, being directly related to US gross output, last recorded at the end of the second quarter 2020 at $34.26 trillion. The screenshot of the FRED chart below illustrates how this has dropped from its all-time peak at the end of 2019.

The contraction in gross output to the mid-year point approached $4 trillion, and as we have seen, the initial response from the banks was to extend credit to alleviate the supply chain crisis. 

But given that annual movement of all supplies is the equivalent of gross output, the implication of the initial increase in bank lending to end-June was the banks loaned credit of an extra $1.6 trillion, and the non-financial sector (i.e. the basic economy) absorbed supply chain costs of $2.3 trillion, leaving business finances very stretched.

The situation has deteriorated further since end-June. As they breathe in and count up to ten, bankers now realise that the Fed has not done enough to protect them from the true scale of the logistics disaster. 

Unlike Lehman, which they rode through, they are now fully exposed to a rapidly deteriorating situation. 

They can no longer afford to support cash-strapped businesses while the Fed dithers, which is why the sudden collapse in bank lending is now taking place and appears to have much further to go. 

And seeing their depositors withdrawing term lending, commercial banks are now in a growing panic to rein in their bank lending and de-gear their balance sheets.

The Fed's mounting tasks

So far, the Fed has been acting conventionally in Keynesian terms to rescue the US economy. In order to ensure that the consequences of Covid-19 are contained, it has promised unlimited QE, currently running at $120bn a month, to fund the increase in the Federal budget deficit. 

They have imposed zero interest rates to keep funding costs down. The initial round of monetary inflation financed two-thirds of increased federal spending in the second half of fiscal 2020 to end-September, the remaining third being from revenues. A second "stimulus package" is due shortly, which will be financed by yet more monetary inflation.

The Fed's task is now evolving from only financing the government's ballooning deficit to backstopping supply chain disruptions as well, now that bank lending is failing to keep pace. 

While the former problem is still ongoing, the latter is far larger, which without the Fed's successful intervention will end in a deflationary slump to rival the 1930s, with banks failing under the pressure from previous lending excesses and from the consequences of rising bad debts. 

To save the banks, they will have to be supported in the face of current and future loan commitments. And for future credit expansion, regulations will have to be amended or suspended, because the banks now lack the equity backing to expand their balance sheets sufficiently.

Even if that could be achieved, the Fed is up against the 80/20 Pareto rule, whereby roughly 80% of private sector economic activity is by local small and medium sized businesses. 

Getting support to SMEs is a mammoth task, and merely supporting supply chain payment flows, substantial though they are, will not be sufficient to resolve mounting economic problems for smaller businesses. But having embarked on a Keynesian solution to everything, for the Fed there can be no turning back, and anyway they have no mandate to do so. 

The stimuli for Covid-19 are becoming small beer compared with what the Fed has yet to face.

The growing realisation in the banking community that America and the wider world face a deep economic slump will do what these conditions are bound to do - lead the banks into a race for the exit. 

Reassurances from the Fed will not stop it. Foreigners, with over $6 trillion of bank deposits and $22 trillion of financial assets in American dollars will also race for the exit by selling dollars for other currencies, commodities and gold - anything but dollars. 

This is already happening as Figure 3 of the dollar's trade-weighted index shows.

Domestic depositors, faced with the choice of being creditors of any bank (moving funds from one to another is no solution for systemic issues) will increasingly opt to exchange their swollen bank accounts for anything but dollars in the bank, leading to a crack-up boom.

One factor not seen in previous monetary collapses is that there is now an educated class of cryptocurrency fans, who understand that the Fed's monetary policy is causing the dollar to collapse, relative to their favoured cryptocurrency. 

Their education is far from complete, but that doesn't matter. They are making money, measured in fiat, and everyone sees it. Gone is the situation where only one man in a million understands what is happening to money. This can only quicken the pace of the dollar's collapse.

The choice between financial assets and other goods

So far, we have detected that depositors not protected by the FDIC have been liquidating their savings deposits in favour of cash in order to invest in inflating assets. 

For every asset bought, there is a seller who banks the proceeds. And with cryptocurrencies, equities, commodities and raw material prices all in bull markets, sellers are reinvesting instead of just taking profits. 

Clearly, this activity is being driven by increasing speculation in market bubbles, and to a minimal extent by fear of the dollar losing its purchasing power for tangible goods. 

For evidence that this is not yet an inflation trade, we only need to look at market sentiment for gold, whose performance has noticeably lagged that of other financial assets.

In the absence of a widespread fear of currency debasement, we must conclude that the actions in financial markets, with the exception of fixed interest where there is only one buyer - the Fed, are indeed speculative bubbles, and that these bubbles will burst. 

When bubbles go pop, money which exists only in valuations simply disappears.

An important consequence is that bank collateral, which is increasingly in the form of listed financial assets or those that relate to them, falls in value, exposing the folly of excessive balance sheet leverage by leaving loans inadequately covered. 

The bank collateral problem was expressed by Irving Fisher in his analysis of the Wall Street Crash and how that led to self-feeding losses at the banks. Nothing needs to be added to his description.

Without the Fed's intervention, a reduction in the availability of bank credit will lead to sharply higher borrowing rates due to increasing refinancing demands at a time of credit contraction. Interest rates are far too low on this account alone. 

Historically, the conditions that lead to speculative bubbles imploding are nearly always related to rising interest rates and bond yields, exposing malinvestments.

The consequences of a falling currency over-owned by foreign interests can also trigger these conditions. For foreign investors the returns on dollar-denominated assets are struck after currency losses, and this is particularly noticeable in fixed interest, where yields are far too low to offset the currency losses now arising. 

According to US treasury TIC figures, in the last twelve months to October private sector foreigners have liquidated nearly $300bn of fixed interest Treasury bonds, corporate and agency bonds. The true liquidation is larger once offshore dollar-based captive insurance businesses are removed from the figures.

The underlying condition is of time preference, which, in a falling currency, alerts foreign owners to future losses not offset by current interest rates. This is why capital gains from falling interest rates to offset the lack of interest income have become so important for foreigner investors.

But as Figure 4 shows, with rising yields there is a growing sense that profits from falling yields will now be replaced by capital losses from rising yields.

Rising bond yields for US Treasury debt have further negative implications for equity markets. Valuations are solely based on the Fed's monetary policy and completely divorced from the prospects for business in the non-financial sector, where supply chains are failing and bankruptcies mounting.

Bank depositors holding in excess of the FDIC $250,000 limit on protection will attempt to reverse their current bullishness on equities by liquidating their positions. 

The traditional safe-haven attractions of swapping bank deposits for US Treasuries will be swapping creditor status at insolvent banks for collapsing bond prices in a collapsing currency. 

The only refuge is likely to become a choice between precious metals and cryptocurrencies, in an attempt to rid themselves of dollars.

Developments on these lines are repeating the experience of the John Law episode in France exactly three hundred years ago. Wise bankers, such as Richard Cantillon, played the bubble collapse not by shorting the Mississippi venture, but Law's paper currency, the unbacked livre, on the foreign exchanges in London and Amsterdam in return for currencies backed by gold and silver. 

That was the second fortune he made from Law's paleo-Keynesian policies, the first from secretly selling Mississippi shares deposited with him as collateral.

There can be little doubt that the monetary, banking and economic developments and their requirements for an additional and unlimited expansion in the money supply are set to destroy the dollar and all the fiat currencies that take their cue from it, as surely as John Law's currency collapsed three hundred years ago. 

In their partial understanding of what represents money, the cryptocurrency community are just the first to get this message.

Try These 6 Travel and Leisure Stocks to Play a Vaccine-Driven Rebound in Demand

By Lawrence C. Strauss

     Photograph by Andrew B. Myers; (background) Suttipong Sutiratanachai/Getty Images

Corporate travel has fallen off a cliff during the pandemic, taking airline traffic with it. 

The Las Vegas Strip, ordinarily bustling with conference-goers and leisure travelers alike, more resembles a quiet resort town than the 24/7 hive of activity it usually is. No cruise ships—aside from some Covid-stricken stragglers—have embarked from or entered U.S. ports since mid-March.

Even domestic leisure travel, a relatively bright spot over the summer and into the fall, is coming up against a surge of Covid-19 cases and a fresh round of travel and commercial restrictions around the country. 

Pennsylvania, for instance, recently closed its casinos for the second time this year to combat the spread of the coronavirus. Nearly 70% of Americans said they wouldn’t travel for Christmas, according to a recent survey commissioned by the American Hotel & Lodging Association.

It’s not exactly a picture postcard for travel and tourism these days.

And yet, travel and leisure stocks—including cruise, lodging, casino, and time-share names—have been on a tear. Some are up 20% or more in recent weeks, though many remain down on the year. 

A big impetus came in early November when promising news about the efficacy of Covid-19 vaccines began to emerge, and the good feelings continued with the approval and rollout of vaccines.

“It’s a belief that travel will come back,” Geoffrey Ballotti, CEO of Wyndham Hotels & Resorts (ticker: WH), tells Barron’s. “It’s a belief that people want to get out of the house. They want to travel. They want to see things come back to normal.”

Still, while the vaccines should pave the way for better times and earnings across the travel and tourism industry, the speed and takeup of the rollout are wild cards. Many Americans have seen their incomes and travel budgets take a hit, and there is also sure to be some lingering skittishness among people and businesses. Investors, then, need to have a framework.

“From a high level, the way we have gone about this, No. 1, is thinking about leisure versus business, No. 2, driving versus air travel and, No. 3, outdoors versus indoors,” says David Katz, a leisure and gaming analyst at Jefferies.

Katz expects leisure and business travelers will unleash a lot of pent-up demand, starting in the middle of 2021 and extending into early 2022. They “will be looking to get out and travel and get caught up,” he says.

With that in mind, investors shouldn’t fret that they’ve missed the boat. For one thing, there are sure to be pullbacks after the rally as pandemic news ebbs and flows. What’s more, some sectors will rebound more quickly than others and there could be bargains among the laggards.

“It’s about picking my names carefully—the ones I have confidence in that there’s not any lingering problems or some sort of impairment to the business model,” says Patrick Scholes, who covers cruises and lodging for Truist Securities.

He points to time-share companies, such as Wyndham Destinations (WYND), Hilton Grand Vacations (HGV), and Marriott Vacations Worldwide (VAC), as compelling picks because they’ll benefit from a strong demand for domestic leisure travel and a steady stream of fee income, among other things. Marriott’s shares are up about 3% this year, but the others are still underwater.

They all trade at less than 10 times enterprise value (mainly market capitalization, plus net debt) to consensus estimates for 2022 earnings before interest, taxes, depreciation, and amortization, or Ebitda. That compares with more than 16 times for traditional lodging companies like Marriott International (MAR) and Hilton Worldwide Holdings (HLT).

As for the surge in travel and leisure stocks, Scholes says: “It’s purely vaccine trade momentum here, because it’s not like hotel bookings and room rates are seeing any green shoots.” During the week ended Dec. 12, for example, revenue per available room, a key hotel industry metric known as revpar, was down 57% year over year.

Nevertheless, the backdrop for the hotel industry coming out of the pandemic, assuming the vaccines are successful and widely disseminated, is promising, says Bill Crow, head of real estate research at Raymond James. That’s partly because “we do expect hotel supply growth to slow over the next few years,” he tells Barron’s.

“That sets the stage for what should be a multiyear, fundamental upturn for the group right through 2024-25, assuming we don’t screw up the economy,” he adds.

Another potential catalyst that looks more within reach now is the return of business travel, on which many companies, including Marriott International and Hilton Worldwide, depend heavily. While Zoom meetings and other virtual tools have helped businesses get through the pandemic, there’s no substitute for making connections face to face during a conference’s coffee break or over a drink in the hotel bar.

Steve Reynolds, CEO of Tripbam Analytics, which helps companies monitor and book their travel, expects to “see a nice increase” in next year’s second-quarter business travel to about 40% of 2019 levels. He’s expecting the figure to hit 60% by the end of 2021—with international travel starting to pick up by then—and 80% in 2022.

“Everyone’s just itchy to get back to a conference or to a trade show,” Reynolds says. “They had value before. It’s all about networking in the hallway and bumping into people.”

Mark Finn, portfolio manager of the T. Rowe Price Value fund (TRVLX), spotted a few opportunities in April and May when he was aggressively buying shares of Hilton Worldwide and Marriott International. “As awful as the world seemed then, that was not really that hard to do,” he recalls.

More than a half-year later, Finn still holds Hilton and Marriott along with a smaller position in MGM Resorts International (MGM), which is more of a play on the beleaguered Las Vegas Strip. “They are good holdings, but they are not the fat pitches they were,” he says.

Meanwhile, the major U.S. cruise operators have been largely shut down since mid-March and have extended sailing suspensions into February or March as they look to address the conditional sailing order they received in October from the Centers for Disease Control and Prevention. “Right now, every one of my clients is sitting on hold,” says Jackie Ceren, who runs a travel agency in Largo, Fla., with an emphasis on cruises.

The companies say they are cautiously encouraged by booking trends, but they’re burning through hundreds of millions of dollars every month, and they aren’t expected to earn a profit until at least 2022—and a modest one, at that.

But stocks of the cruise operators, though still down at least 40% year to date, have surged on the vaccine news. “People have the ability and willingness and desire to go on a cruise post-Covid,” says Chris Woronka, a cruise and lodging analyst at Deutsche Bank. “That’s bullish. I just think the stocks have priced all of that optimism.”

Woronka, who remains bullish long term, thinks that expectations about the post-Covid reopening need to be tempered a bit. “It’s going to be a little more gradual of a recovery than we might think,” he says. “I have no idea when cruise lines or airlines or hotels are going to say you don’t have to wear a mask anywhere, but it’s not going to be when the first person gets the vaccine or the first 10% get vaccinated.”

An example of the valuation euphoria: Royal Caribbean Group (RCL) recently fetched more than 18 times its enterprise value to projected 2022 Ebitda, based on Woronka’s estimates. Its 10-year average for that metric is about nine times, he says.

       Photograph by Andrew B. Myers; (background) MediaProduction/Getty Images; (syringe)

Stepping back, Thomas Allen, a lodging, gaming, and cruise analyst at Morgan Stanley, says that Covid has created “some structural shifts in the industry,” with some sectors recovering more quickly than others.

Bearish on cruise stocks, Allen is more optimistic about leisure travel than corporate travel. And he favors gambling within leisure. “We don’t think Covid has created any meaningful structural headwinds to people’s willingness to go to casinos,” he says.

Indeed, a big winner during the pandemic so far has been regional gambling. Boyd Gaming (BYD), for example, is up 135% since Barron’s recommended it in May, and Penn National Gaming (PENN) is up more than 250% this year.

But the run-up means investors must be discerning. “Whether it’s cost cuts or whether it’s the pace of the recovery, there’s a lot of good news in these things,” says Deutsche Bank lodging and gambling analyst Carlo Santarelli.

Spread across the country in places like Biloxi, Miss., and Evansville, Ind., regional gambling properties typically serve customers who live within an hour’s drive and who focus on gambling—not entertainment, conventions, or events.

“Regional casinos have benefited tremendously from the fact that in a lot of states, they are the only game in town right now, with everything else closed,” Santarelli says. The regionals also benefit from the buzz about the growth potential of online sports betting and igaming, or online casino gambling, in which they’ve been investing. Caesars Entertainment (CZR), for example, is acquiring London-based sports-betting firm William Hill (WMH.UK).

Allen says he doesn’t “expect regional casino revenues to get back to 2019 peak levels until the second half of 2022 or 2023, but that is way faster than where we think Vegas or hotels will recover.”

Many lodging stocks have run up as well, though not as much as regional gaming shares. Allen says that, from an operational perspective, those lodging firms “with higher leisure exposure are better positioned than those with higher corporate exposure”—one example being Choice Hotels International (CHH).

Another example is Wyndham Hotels & Resorts, which gets about 70% of its business from leisure travelers and benefits from a lot of domestic drive-to business.

“The concern right now has been looking at that rising case load,” says Ballotti, the company CEO, referring to Covid. Still, he says he sees some encouraging signs for the hotel business: “People are feeling safer, especially to get in their car and drive someplace. They feel they can do it safely and responsibly.”

Barron’s spoke with a number of analysts and portfolio managers to find stocks with good potential value. Here they are:

Wyndham Hotels & Resorts

Compared with lodging companies such as Marriott International and Hilton Worldwide, Wyndham is more of a value play. It was recently trading at about 12.5 times enterprise value to estimated 2022 Ebitda, versus more than 16 times for Marriott and Hilton.

Wyndham, the world’s largest hotel franchising company, focuses on midscale and economy customers, segments of the market that have held up better than higher-end properties. As of Dec. 12, year-to-date revpar for economy hotels was down 20.9%, compared with the total in the corresponding 2019 period. Luxury revpar was down 57.6%.

Wyndham caters to “the business traveler that has to be out there on the road,” Ballotti tells Barron’s, adding that essential workers are key members of that group. “We saw a great pickup in the infrastructure business,” such as cable and utility workers. Health-care workers are another important constituency.

Robert Mollins of Gordon Haskett Research Advisors observed in a Dec. 16 note that Wyndham “is uniquely positioned to capture ‘drive to’ leisure” customers and “blue-collar business transient demand—telecom, front-line workers, infrastructure—all workers that can’t WFH,” or work from home. He has the stock at a Buy.

Unlike most leisure stocks, Wyndham continues to pay a quarterly dividend, cut to 8 cents a share from 32 cents this year. The company is looking to increase it in 2021. The stock, which yields 0.6%, has returned about minus 10% this year, though it has more than doubled off its March pandemic lows.

Norwegian Cruise Line Holdings

Cruise stocks, down more than 80% at one point during the initial Covid wave, have been volatile during the pandemic. And just when there will be sailing from U.S. ports again remains up in the air.

Still, Norwegian Cruise Line Holdings (NCLH), the smallest of the three major U.S. cruise operators, could be an interesting play whenever North American operations do resume in 2021.

“When we talk to the very large travel agencies, they tell us very clearly that the best booking/reservation demand for future cruises right now is on your higher-end, luxury cruises,” says Scholes, the Truist analyst. He has a Hold on Norwegian and peers Royal Caribbean Group and Carnival (CCL).

Roughly 15% of Norwegian’s fleet capacity is dedicated to luxury, much higher than it is for Royal Caribbean and Carnival, Scholes says.

Norwegian does have a lot of debt, including some taken on this year to stay afloat as its fleet sits idle. As of Sept. 30, its long-term debt totaled about $10.6 billion, up considerably from about $6 billion at the end of last year. And its recent valuation of 10.5 times enterprise value to estimated 2022 Ebitda is hardly cheap. Based on consensus FactSet estimates, the cruise operator isn’t expected to return to profitability until 2022.

But the company’s luxury brands, notably Oceania and Regent Seven Seas, operate fleets with smaller ships, in many cases with under 1,000 berths—a potentially more attractive option to customers in a post-Covid world who want to avoid larger crowds. Those vessels, says Scholes, are “less crowded and cramped than a mass market three-days-to-the-Bahamas trip.”

James Hardiman, a Wedbush analyst who rates Norwegian Outperform, observed in a recent note that the company “has positioned itself to eventually emerge from the pandemic and ultimately flourish.”

Caesars Entertainment

Caesars Entertainment’s shares have done well this year, up 26%, reflecting how strongly regional casinos have snapped back.

Although Caesars has several signature Las Vegas properties, including Caesars Palace Las Vegas, it derived about three-quarters of its third-quarter revenue from regional gambling operations. That gives Ceasars, which merged with Eldorado Resorts in an $8.6 billion deal in July, some protection as it waits for Las Vegas to recover.

Jefferies’ Katz says that the company’s Las Vegas business “is loyalty-driven, meaning that they don’t have the same large-scale events and conventions” that other gambling companies have. Conventions and events have been decimated by the pandemic, eroding Las Vegas traffic.

To broaden its reach, Caesars is acquiring William Hill, a sports-betting company with which it already had a partnership. “They put together the assets to be a major player in digital gaming,” says Katz. He has Caesars at a Buy.

The stock looks relatively inexpensive versus some of its peers. It was recently trading at 11.5 times enterprise value to estimated 2022 Ebitda, in line with its peer average and well below the 17.2 multiple for Penn National, according to J.P. Morgan Securities.

One thing to be aware of: Caesars does have a big debt load. As of Sept. 30, it totaled about $15.2 billion in long-term debt against total shareholders’ equity of $3.4 billion. But helped by the cash flow from its regional gaming properties, Caesars should be a solid bet, even after its recent run-up.

Marriott Vacations Worldwide

Trading recently at a little under 10 times enterprise value to consensus 2022 Ebitda, Marriott Vacations Worldwide sports a premium valuation among its peers in the time-share industry. But the company, whose shares have held up in a year in which many haven’t, looks worthy of that valuation.

The time-share business is helped by a lot of recurring fees and many customers who travel by car. Though sales have been pressured by the pandemic, they did show some improvement in the third quarter, compared with the total in the previous three months.

In a note after Marriott Vacations’ third-quarter earnings release in November, J.P. Morgan analyst Brandt Montour characterized the company “as a way to play a recovery in U.S. leisure travel.”

He cited the company’s “diversified footprint, with a majority of resorts drive-able, and linkage to a higher-end loyalty program” as attributes that “collectively positions [Marriott Vacations] uniquely among its time-share peers.” He rates the stock Overweight.

The company is expected to lose 46 cents a share this year, and then return to profitability in 2021 at around $5 a share, according to FactSet. As of Sept. 30, its liquidity, including $660 million of cash on its balance sheet, totaled more than $1.3 billion. Net debt was about $2.7 billion.

Marriot Vacations gets about 20% of its sales from Hawaii, which was shut down earlier in the pandemic, but which has reopened.

“You’ve really got nowhere to go but up,” says Truist’s Scholes. “And there’s a tremendous amount of pent-up demand for Hawaii.”

Extended Stay America

Extended Stay America (STAY), which caters to customers who need lodging for more than a week, has held up reasonably well during the pandemic. Its third-quarter revpar declined 14.7% from the level a year earlier. That’s a respectable result, considering that upscale and luxury hotels have seen revpar decline by more than 50%.

The stock isn’t garnering as much respect as those of some other lodging companies, however. Although well off of its pandemic-induced lows in March and April, Extended Stay America has returned about minus 4% this year, dividends included.

To preserve cash, the company did cut its quarterly dividend in May, to a penny a share from 23 cents a share. But this past week, it declared a special payout of 35 cents a share. The stock yields 0.3%.

Extended Stay America is expected to earn 24 cents a share this year—down from 95 cents last year—and 56 cents in 2021, according to FactSet. It was recently trading at about 10.5 times enterprise value to estimated 2022 Ebitda, a fair valuation compared with those of other lodging stocks like Hyatt Hotels (H) and Marriott International.

Extended Stay’s third-quarter results showed some encouraging signs, one being that its systemwide occupancy had been running close to 2019 levels in recent months.

The company has about 75% of its locations in suburban settings—as opposed to cities—and the majority of its guests arrive by car.

In a Dec. 17 research note, J.P. Morgan said it expects the company “to continue generating solid/above peer operating fundamentals” such as revpar and occupancy.

Wynn Resorts

Shares of Wynn Resorts (WYNN) are down about 18% this year, in part reflecting the company’s exposure to Las Vegas. Last year, it generated about a quarter of its $6.6 billion of operating revenue from Sin City. In addition, Wynn isn’t getting help from China’s Macau, where it gets the bulk of its revenue, due to Covid and restrictions from the Chinese government.

Still, Morgan Stanley’s Allen sees upside potential. Wynn’s customer base is higher-end and, he says, that will pay off when gambling rebounds in Las Vegas and other markets.

“That means you need fewer visitors to come back. It’s just that you need those visitors to spend more,” says Allen. “What we are seeing for the regional casinos that have reopened is that there are fewer visitors and people are spending a lot more.”

Wynn trades at about 13 times enterprise value to 2022 Ebtida estimates, a slight premium to rivals. Las Vegas Sands (LVS), which also has big exposure in Macau, was around 12 times, and MGM Resorts International (MGM), which is much more of a play on the Strip, was at about 10.2 times.

Still, Allen says, the company’s prospects are bright. He rates the stock Overweight, with a price target of $120, about 8% above where it traded recently. “The beauty of Wynn,” he says, “is that it somewhat takes the cream of the crop of the market, whenever the markets open.”


By Egon von Greyerz

Most people are familiar with the Aesop fable “CRY WOLF” about the little boy who falsely called out Cry Wolf too often to his villagers when there was no wolf around. 

Then when one day the wolf came and the boy again cried, no one believed him and the consequences were fatal for the flock of sheep.

I (and a few others) have Cried Gold for 20 years but less than 0.5% of global financial money is invested in gold so very few have listened to our cry.


It is even more surprising since gold has outperformed virtually every major asset class in this century as well as all currencies. The dollar is down 85% against gold since 2000.

The Dow down 67% since 1999 (excluding dividends).

As a rule, mankind ignores history and therefore forgets that credit and printed money don’t equal wealth. 

So today’s conventional wisdom says that gold has little purpose in the modern world. 

But what you learn from a long life is that these beliefs contain no wisdom but are merely conventional.


Most investors are not even aware of gold and the ones who are don’t understand it. 

For millennia people have kept their savings in gold but “today it is different”.

And who can blame people who disbelieve gold. 

When the media talks about gold it is normally in a disparaging way. 

They will start with the 1980 peak at $850 and point out what a bad investment it has been as gold declined for 20 years and didn’t reach the 1980 high until 2008.

The fact that gold was $35 in 1971 is never mentioned and then moved up 24x until 1980 or that gold today is up 5,300% since 1971.

Even more importantly, neither journalists, nor investors understand that gold doesn’t go up at all. 

Since gold represents constant purchasing power, it is not gold that goes up but the value of paper money that goes down.


The last 100 years since the creation of the Fed has been a shameful period during which the rich and powerful have controlled the financial system. 

This has given them access to limitless funds at the expense of ordinary people.

The very wealthiest are leading the way for this elite crowd and adding hundreds of billions of dollars to their wealth in a year when the majority of “normal” people are fighting for survival.

Just take the Tesla founder Elon Musk. 

At the beginning of this year his wealth was $26 billion. 

As of Dec 18, his wealth has grown by $130b to $156b. 

That is a massive 6 fold increase built on hope and faith of investors rather than on sound financial performance.

If we take the world’s richest man, his gain is a mere $67b making his total wealth $182b. 

That makes Bezos wealth higher than the market cap of 453 of the S&P 500 corporations and bigger than companies like Exxon or Chevron.

Many others increased their wealth massively, like Dan Gilbert (Quicken Loans) who went from $7b to $44b in 2020 and Bernard Arnault (Louis Vitton Moet Hennessy) up $36b to $146b.


The gap between the rich and the poor is now reaching proportions that history warns us about. 

In 2018, the richest 26 people on earth had the same net worth as half of the world’s population or 3.8 billion people.

Having just watched the Last Tsars about the period leading up to the 1917 Russian Revolution, it is a stark reminder of what happens when the wealth gap reaches the proportions that we are seeing in the world now.

The world is already regularly seeing many protests in several countries. 

So far this has not yet led to civil wars. 

But when the current unsustainable debt and asset bubbles in the world implode and the world realises that printed fiat money has zero value, we are going to experience a different situation.

The trigger for revolutions is mostly gross inequality combined with lack of work and income for the masses plus empty stomachs. 

As the world economy implodes in the next few years, these conditions are very likely to come upon the world. 

There are already clear indications that food shortages will soon hit the world.

How it will all finish is of course impossible to forecast but the suffering for most people will be very severe.


The trillions of debt that central banks and governments have created this year obviously exacerbates the world’s debt trap.

Debt comes from the Latin “debitum” which means something owed. 

But no one must believe that this debt will ever be repaid and nor will interest payments be met.

In the UK for example, the pandemic loan schemes are a farce. 

Due to enormous pressure on the state to hand this money out quickly, a lot has gone to unsound or fraudulent borrowers. 

One scheme called the Bounce Back Loans Scheme for £43 billion was launched in May. 

It is estimated that as much as 60% will be lost to defaults and fraud.

A senior London banker described the schemes as “a giant bonfire of taxpayers’ money with banks just handing out matches”.

The President of the ECB Supervisory Board Andrea Enria recently said that many of the 117 banks it oversees are ”all over the place” on provisioning for non-performing loans. 

The ECB has warned banks that they could face an extra €1.4t of these loans compared to the 2008 crisis.

If we look at the $280 trillion total global debt, the value of this debt is linked to the assets that were acquired with the debt. 

When bubble assets such as stocks, bonds and property falls by 50-90%, which is very likely, this $280t debt will be worthless.


As I pointed out in my article last week, out of the $280t global debt, $200t has been created since 2000! 

That is absolutely astounding and is a clear warning that all the wealth which has been created in the last and 20 years is likely to fall like a stick.

We know from the saying that anything that rises like a rocket will fall a lot faster than it rose. 

So once the fall starts, it could easily happen in say 2 years and probably not more than 5.

I also showed in my article last week how quickly an over-indebted country’s currency can collapse and how quickly hyperinflation can rise. 

My good friend Alasdair Macleod has taken the King World News readers through these type of scenarios many times in his superb pieces.


So back to CRY WOLF.

I have in numerous articles talked about the risks in the world which are incontrovertible although most investors prefer to suppress them.

I suggest that these permabull investors turn their charts of stock, bond and property prices upside down, just to realise what could happen. 

But they must also remember that falls are many times faster than rises.

Also, falls start so quickly that almost everyone is caught out. 

And for decades central banks have saved investors and did it again in March this year. 

So there is very little fear in the market that next time will be any different and that investors will be deserted.

But let us play with the idea that this time CRY WOLF is a genuine call and the crash actually happens. 

If that were the case, the unsuspecting lambs will be slaughtered so quickly that no one has time to save himself.

And this is how we will see the biggest wealth destruction ever in history as I wrote about a couple of weeks ago.


The choice is simple. 

Ignore the risk of an implosion of the financial system and you could be led like lambs to the slaughter and never recover again in your lifetime.

Or alternatively buy the only money that has survived in history and the only money ever that has maintained its purchasing power.

As paper money collapses together with all bubble assets (stocks, bonds & property), precious metals like gold and silver will not only preserve your wealth but most probably also enhance it substantially.