Peru May Join Cuba’s Authoritarian Axis

Leftist President Pedro Castillo is trying to provoke a crisis so he can seize power.

By Mary Anastasia O’Grady

Protesters call for the impeachment of Peruvian President Pedro Castillo in Lima, Peru, Aug. 5.m /PHOTO: CARLOS GARCIA GRANTHON/ZUMA PRESS

Guerrillas slaughtered 16 people in a south-central Peruvian village in May.

The BBC reported “the bodies had bullet holes” according to a local official, and some, “including those of two children, had been burned.”

The Central Committee of the Militarized Communist Party of Peru, an affiliate of the Maoist-inspired Shining Path, “left pamphlets at the scene ordering people not to vote in the upcoming presidential election,” the BBC said.

Had the Shining Path known that a sympathizer to its cause would be declared the winner of that election, and would fill his cabinet with fellow travelers, perhaps it would have skipped that massacre.

Terror is the tool of the Shining Path but power is the goal.

In President Pedro Castillo of the Marxist Perú Libre party, Peru’s narco-guerrillas may believe they have found a legitimate path to totalitarian rule. 

Most of the rest of the country disagrees.

An early accomplishment of Mr. Castillo is that he has united Peru’s center right and center left. 

Both hate the Shining Path for its 1980s terrorist rampage that killed tens of thousands of civilians. 

Peruvian police captured its founder, Abimael Guzmán, in 1992, and the group’s capacity to inflict harm greatly diminished. 

Today the Shining Path is a big-time drug trafficker and still practices political terrorism.

In his July 28 inaugural address, Mr. Castillo emphasized his determination to rewrite the constitution. 

He claims to be a democrat. 

Yet nearly 8 in 10 Peruvians in a Datum poll released in mid-June said they oppose a new constitution. 

Mr. Castillo’s proposal to have a new Magna Carta drawn up anyway, by an assembly that includes activists chosen by particular social, political and ethnic groups, is pure fascism.

One risk seems clear: With enough legal backing, control of the coca-growing regions, a paramilitary acting as his local enforcer, and command of the army, Mr. Castillo could easily copy the model used by Bolivia’s Evo Morales to build a narco-state and stay in power indefinitely. 

But Mr. Castillo’s Shining Path links suggest something more extreme in the making.

The day after the inauguration, Mr. Castillo stunned the nation by naming Shining Path aficionado Guido Bellido prime minister. 

The 42-year-old Cuzco native is an admirer of the Cuban regime, which he says is not a dictatorship. 

He also is close to Perú Libre’s founder, Vladimir Cerrón. 

Mr. Cerrón is a hard-core communist who lived in Cuba for 10 years and wants to remake Peru into a one-party socialist paradise like Venezuela.

Some have speculated that in naming Mr. Bedillo, Mr. Castillo made a miscalculation, which he regrets. 

His quick decision to name the left-wing, but reportedly moderate, Pedro Francke as his finance minister is supposed to be proof of his contrition.

This is naive. 

The appointment of Mr. Francke, a former World Bank economist, may imply moderation. 

But putting him in the cabinet is lipstick on a pig. 

Religion is being used in a similar way to convince social conservatives in rural areas that the Castillo crowd is virtuous. 

I still remember a Hugo Chávez planning minister—a University of Chicago-trained economist—who told journalists that to criticize the economy was “a sin against the Holy Spirit.”

Mr. Castillo’s effort to calm markets with the appointment of Mr. Francke hasn’t worked. 

Capital is fleeing the country. Reuters reported last week that stocks were trading at eight-month lows and the sol, Peru’s currency, was trading near all-time lows.

Markets are spooked, as are Peruvians, for good reason: The president is trying to provoke a constitutional crisis that would allow him to seize power.

The 1993 constitution allows the executive to close Congress if it gives him two votes of no confidence. 

By law Congress is supposed to approve his new cabinet. 

So he’s populated his list of nominations with extremists, Shining Path sympathizers and even one former terrorist who served in the left-wing military dictatorship of Juan Francisco Velasco Alvarado. 

Mr. Castillo is daring Congress to defy him. 

After the second time he can send them home.

If Congress is closed, there must be an election within four months. 

In the interim the president is supposed to have only emergency powers. 

But in practice, due to precedent set by former President Martín Vizcarra, Mr. Castillo is likely to rule by decree.

Legally he cannot initiate the process to rewrite the constitution without congressional approval. 

But Mr. Castillo’s radicalism raises questions of whether, short of the military stepping in to uphold its oath to the constitution, he could be stopped.

On Thursday a Perú Libre congressman taunted his opponents in the chamber to trigger its closure. 

Such incivility could backfire. 

Congress can vote to impeach Mr. Castillo, and later his militant vice president, with 87 votes out of 137. 

Both impeachments would be legal, ethical and, because Mr. Castillo shows no interest in governing democratically, may be the only way to escape the imposition of a new tyranny. 

COVID Consumer Headache

By John Mauldin 

If you look just at 2021, it seems the US economy is tearing higher. 

Real GDP grew an annualized +6.5% in the second quarter, the Commerce Department estimated last week. 

This follows a similar +6.3% first quarter, and a pandemic-interrupted 2020 that turned out not so bad in the end. 

The July unemployment report showed more impressive jobs growth. 

The Fed will increasingly have problems maintaining its credibility with interest rates at the zero bound and massive QE and inflation still rising.

For one thing, we’re only halfway through 2021. 

Much of this impressive growth derives from consumer spending, and much of the consumer spending was funded by government benefit programs and monetary stimulus money.

This is a problem because the US economy wasn’t exactly in a great place when COVID-19 came along. 

It wasn’t terrible, either. Real GDP growth had been above 2% since the prior recession. 

The economy could certainly have been worse, but it rarely posted the kind of growth that was previously normal in recovery phases. 

This has persisted long enough that even a 6% GDP growth rate this year won’t restore what used to be “average.”

Today we’ll look at this most recent GDP data and what it tells us about consumers. 

Then I’ll have some thoughts about COVID’s long-term effects on both people and the economy.

Peak Optimism

Let’s start with a 2021 big-picture review.

As the year opened, the US was in the middle of its largest COVID wave yet, and had just started the vaccine rollout. 

Cases peaked in January and receded over the next couple of months. 

Congress had passed another relief bill in late December, extending unemployment benefits and sending $600 stimulus checks to most Americans. 

The Fed was keeping rates low and buying truckloads of Treasury and mortgage bonds.

Following an unusually turbulent (to say the least) presidential transition, Congress passed another relief bill in March. 

It extended the supplemental unemployment benefits to September and gave another $1,400 to most Americans. 

Those payments actually hit in late March and April, with a noticeable effect on consumer spending. 

The CDC imposed a moratorium on evictions affecting a minimum of 12 million people (actual survey responses) and more likely closer to 25 million, extrapolating from those who did not respond to the survey.

Concurrently, reduced COVID fears and more vaccinations were encouraging more Americans to resume travel, shopping, and other habits many had set aside in 2020. 

Businesses responded, though supply chain problems and an inability to hire more workers constrained many. 

Inflation benchmarks started creeping higher, but that didn’t stop many from going on vacation and otherwise making up for lost time.

June 2021 may have marked a kind of “peak optimism.” 

By then, those who wanted the vaccine had been able to get it, the pandemic seemed to be behind us, the economy looked to be mending, and we could look ahead with more confidence.

That was the backdrop for this last GDP report. 

Here’s a chart of the last five years (percent change from previous period, seasonally adjusted annualized rate).

Source: FRED

The negative quarters in 2020 were due largely to a major drop in consumer spending—specifically consumer service spending: restaurants, travel, etc. 

That’s why unemployment was concentrated in those industries. 

Then there was a major bounceback in late 2020, and now here we are… trying to find “normal” again.

On the surface, it seems like we found it. 

Consumer spending, largely services rather than goods, accounted for about two-thirds of the Q2 GDP gain. 

Personal Consumption Expenditures (PCE) rose 11.8% for the quarter.

So consumers are back in a spending mood—good news in a consumer-driven economy. 

What we don’t know is how much of this spending depended on unrepeatable income sources. 

A family of four that received $5,600 in stimulus money could have gone on a nice vacation, spending liberally on hotels, entertainment, and restaurant meals for a week. 

Good for them and good for the businesses they visited… but the next week it was over.

Nor is it just the fiscal stimulus. 

The Fed’s asset purchases are driving a home refinancing wave, which in many cases involves taking out cash for improvement projects. 

That’s good for builders and contractors but again, may not continue. 

And it often leaves the homeowners even more leveraged than they were before.

Consumer Questions

So, we know much of the first half’s consumer spending revival wasn’t organic; it was more of a sugar high, with the sugar coming from Washington, DC. 

And yet, it wasn’t all spent. It turns out that a great deal of that money was saved. 

The personal savings rate went at times to levels that we have not seen for multiple generations, if ever.

Source: FRED

And a great deal of that money is still in savings and remains to be spent.

Source: FRED

On the monetary side, I’m dubious the Fed will slow its asset purchases or do anything else to tighten financial conditions this year, but the markets may do it for them. 

The Fed can pump money into the banking system; it can’t make the banks lend. 

Worse, it also can’t control foreign exchange rates, and an adjustment in the dollar could have the same effect as a rate hike.

Congress has still not decided what future stimulus will look like, so it is truly hard to speculate. 

Maybe a lot, maybe nothing.

Many states have already canceled the supplemental unemployment benefits, and they will end everywhere in September if not extended. 

We can speculate, but we will actually know in a few months if things are really changing or if they go back to “normal,” whatever that will come to mean.

The smart thing has always been to rely on the American consumer’s willingness to spend. 

My job is to ask the uncomfortable questions. 

What if the entire COVID crisis has changed the willingness of the American consumer to spend just like the Great Depression did to our grandparents? 

I am not saying it has, but those high savings rates pictured above were certainly different from the past.

GDP has been averaging roughly 2% for the last 20 years. 

I am quite concerned that the next 10 years will see an average of 1.5%. 

Debt and deficits are going to be a drag. 

Technology will be awesome, but even the Bank Credit Analyst is suggesting that social media is a net negative for GDP. And they do have a case.

And then there’s the elephant in the room: COVID-19. 

As of a few months ago, it seemed like vaccines would let the US reach herd immunity this year. 

But between more-transmissible variants and lower-than-expected vaccination rates, that now looks unlikely. 

That’s partly why we now see a new wave building. It is still very much smaller than past waves but growing quickly.

The good news is the most vulnerable people—the elderly and those with serious health challenges—are mostly vaccinated. 

The people now being hospitalized are mostly unvaccinated but also younger and healthier. 

There’s reason to think mortality will be much lower this time around. 

But death isn’t the only problem.   


As I have done in the past when stepping outside my area of competency on things medical, I will rely on Dr. Mike Roizen, head of wellness at the Cleveland Clinic and who has sold 35 million books. 

We are simply going to offer some statistics, similar to investment risk/reward. What you do with this data is up to you. I simply want to keep my readers healthy.

By Dr. Mike Roizen and John Mauldin

First, let’s say that we both hate the “crisis/panic porn” associated with some media and the pandemic. 

This Newsweek cover is barely disguised click bait:

The Delta variant is a very real and serious problem, but it’s not Doomsday. This variant seems to be more transmissible and less deadly. That shouldn’t surprise us. Serious scientist Matt Ridley shows how viruses evolve that way. Those that kill their host don’t spread as well.

The vast majority of people infected with COVID-19 don’t die. Most are never even hospitalized. Many have no symptoms, or minor symptoms, and don’t even know they had it. But that isn’t the end of the story. Some people who survive the virus are experiencing long-term problems that can be serious. A growing pile of data says the number afflicted with “long COVID” is significant.

We urge you to read this short Scientific American note by Claire Pomeroy, an infectious disease physician and president of the Lasker Foundation. 

Here are some excerpts, with some relevant points.

Consider the numbers we know. 

At least 34 million Americans (and probably many more) have already contracted COVID. 

An increasing number of studies find that greater than one fourth of patients have developed some form of long COVID. (In one study from China, three quarters of patients had at least one ongoing symptom six months after hospital discharge, and in another report more than half of infected health care workers had symptoms seven to eight months later.) 

Initial indications suggest that the likelihood of developing persistent symptoms may not be related to the severity of the initial illness; it is even conceivable that infections that were initially asymptomatic could later cause persistent problems.

For some, symptoms have now continued for many months with no apparent end in sight, with many survivors fearing that they will simply have to adjust to a “new normal.” 

More and more sufferers have not been able to return to work, even months after their initial illness. 

While the number of patients with persistent illness remains undetermined this early in the pandemic, estimates suggest that millions of Americans may enter the ranks of the permanently disabled.

The related health care and disability costs are also still unknowable. 

How many “long haulers” will never be able to return to work? 

How many will need short-term disability payments? 

How many will be permanently disabled and become dependent on disability programs? 

As increasing numbers of younger people become infected, will we see an entire generation of chronically ill? 

We must actively work to better understand the size and scope of the problem and begin planning now.

What kind of symptoms are we talking about? 

People who experience long COVID have reported a range of problems—sometimes multiple symptoms at a time—from shortness of breath to joint and muscle pain. 

Other articles highlight “brain fog,” including problems with memory and concentration., difficulty sleeping, heart palpitations, dizziness, and joint pain.

The US Department of Health and Human Services (HHS) and the Department of Justice jointly released new guidance classifying long COVID as a physical or mental impairment, which means that those affected can qualify for disability benefit programs and discrimination protections under the Americans with Disabilities Act (ADA).

As with everything else about this virus, we are still learning. We think we can safely say it will be a major problem. 

Millions more disabled workers in an already-stretched healthcare system, and an economy already suffering from a labor shortage? 

That’s not good, any way you look at it. 

The idea that COVID’s medical impact falls mainly on elderly or unhealthy people may prove optimistic.

Fortunately, we have an easy way to help prevent this from getting worse. 

The mRNA vaccines from Moderna and Pfizer-BioNTech are proving highly effective in reducing COVID-19 hospitalization and death. 

We lack data on whether they prevent long COVID symptoms in people with “breakthrough” infections, but it seems likely they would help.

Yet, for various reasons, large numbers of Americans aren’t getting vaccinated. 

The most common barrier among those we talk to is risk. 

They think the risk of getting COVID-19 is low, and think it won’t be serious if they do. 

They’re balancing that against a vaccine they consider new and untested and therefore risky.

In fact, these vaccines are not new; they are the application of a technology that was already in development before this particular virus, and has been studied for almost 20 years now. 

And untested? 

After hundreds of millions of doses, major side effects are vanishingly rare. 

The people in hospitals right now aren’t there with vaccine side effects. They are mostly unvaccinated.

Let’s be clear: The vaccines aren’t perfect. 

Vaccinated people can be infected and get sick, but it’s extremely rare. 

Here’s a chart John shared on Twitter that makes the point better than words, using data from an ABC news story, with links to even more data.

Simply stated, for every 102,000 people vaccinated, there have been 100 symptomatic “breakthrough” infections. 

But out of those 100 people, only one died.

Source: Reddit

Restated statistically: If you have a vaccination your risk of dying is 1 in 100,000. The odds of being struck by lightning during a normal lifetime is one in 15,300. Yes, you are more likely to be struck by lightning in your lifetime than to die from COVID-19 if you have been vaccinated.

Of course, the vaccines have risks. Mike cites studies that show the risks of a serious impact from the vaccine is one in 250,000 with the Johnson & Johnson vaccine, and one in 750,000 with Pfizer and Moderna vaccines. 

Again, we are talking serious complications, not headaches or a slight fever or something that is annoying. 

The vaccines that we took as kids had (mostly rare) side effects. 

WebMD says 48 million people suffer food poisoning every year, 128,000 are hospitalized and 3,000 die. 

The odds of getting sick from eating restaurant food are astronomically higher than getting sick from a vaccine.

As with investing, you have to balance risk with reward. 

A growing number of experts think we missed our shot at herd immunity and this virus will become “endemic.” 

That means almost everyone who hasn’t already been infected or vaccinated will eventually get it, and we will slowly develop immunity over years until it becomes a minor annoyance. 

But meanwhile it can still make you very sick. 

Balancing that against a vaccine many millions have received with no or very minor side effects seems like a slam-dunk to us.

The key point is this: If you get the virus, there is something like a 10% to 20% chance that you will have “long Covid” symptoms. 

That is not doom porn, it is just the facts. 

The odds are many tens of thousands to one when you weigh the risks from getting COVID-19 and potentially long Covid versus the vaccine risks. 

There is not enough data yet to calculate the precise set of statistical odds, but when we do have that data, it is going to be overwhelming.

If you are in the US, or another country where the vaccine is available, we strongly urge you to get it pronto. 

You won’t have full protection until two weeks after the second dose, so the sooner the better. 

It is the best way to protect yourself, others, and the economy.

It is increasingly clear that we will need boosters for some years, just like many take annual flu shots. 

We live with the flu each year. 

Life goes on, and we will have to make the same accommodations with COVID.

For inexplicable reasons, this virus has become politicized. 

That’s not just wrong, it’s dangerous. 

A virus has no political sentiments.

The fact of the matter is, we should be celebrating the fact that we as humanity developed these vaccines in an incredibly short time, have manufactured billions of doses, with multiple billions more coming over the next 12 months. 

Over 100 companies worked on vaccines, most of which haven’t proved viable, but dear gods, it was literally a Cambrian explosion of scientific data. 

The new drugs and therapies that are going to come from this extraordinary focused effort will be felt for decades. 

This pandemic has been a disaster, but humanity’s (at least the scientific community’s) response has been a triumph. 

Through Operation Warp Speed and the experience of various nations, we are better prepared for the next time something like this hits. 

Yes, it’s been a disaster, and each death diminishes us all, but it was nothing like the Spanish flu or the black plague.

I realize many readers will see this differently. 

I (John) get slammed with feedback, much of it highly emotional, whenever I mention vaccines. 

I think the data is quite clear on this and I’m sorry if you disagree. 

The virus really doesn’t care. 

It is out there and, given a chance, will do all it can to multiply. 

You have ways to fight back. 

Please take advantage of them.

Travel and Some Downtime

Schedule note: Thoughts from the Frontline will not be published for the August 14–15 weekend, as I will be at Camp Kotok in a remote part of Maine. 

We’ll be back the following weekend with a special edition for you. 

And as everyone knows by now, I will be in Washington, DC, Maine, and Steamboat Springs.

Tiffani, Tracy, and my granddaughter Lively have all departed, and my daughter Amanda and her husband Allen show up today (Friday). 

Tuesday I fly out for 10 days, meeting Trey in DC and then flying to Bangor where we rent the world’s most expensive Nissan. 

I think Hertz is trying to make up for their crisis shortfall on my one rental. 

Supply and demand and all that.

This is the 21st anniversary of writing Thoughts from the Frontline

Some of you have been with me from the beginning. 

I appreciate each and every reader and the fact that you give me one of the most valuable things you have, your attention. 

I try to be worth it.

I’m going to do one thing differently. 

For whatever reason, since moving to Puerto Rico, I pretty much work every day, with almost no downtime. 

I think it is affecting my productivity and creating unwanted pressure. 

I plan to start purposely taking “time off,” more than just going to the gym.

And with that, I will hit the send button. 

I should note that for the first 10–12 years of writing this letter, when I hit the send button the letter literally went out. 

Today, it goes through editing, then back to me, then back to another edit and proofing and then formatting before being teed up to arrive Saturday morning for most people, depending on your time zone. 

It’s great to have a team that makes all these things happen.

You have a great week and let’s all take some downtime. And follow me on Twitter.

Your concerned about the economy analyst,

John Mauldin
Co-Founder, Mauldin Economics

The funding frenzy

Investment in fintech booms as upstarts go mainstream

Firms’ expansion plans and investors’ search for returns bring a blizzard of deals and listings

An air of hype habitually surrounds the founders of startups and their venture-capital backers: everyone is an evangelist for their latest project. 

But even allowing for that zeal, something astonishing is going on in fintech. 

Much more money is pouring into it than usual. 

In the second quarter of the year alone it attracted $34bn in venture-capital funding, a record, reckons cb Insights, a data provider (see chart 1). 

One in every five dollars invested by venture capital this year has gone into fintech.

Deals are also proceeding at a frenetic pace. 

PitchBook, another data provider, reckons that venture-capital firms have sold $70bn in stakes in fintech startups so far this year, nearly twice as much as in all of 2020, itself a bumper year (see chart 2). 

That included 32 listings. 

Fintechs took part in 372 mergers in the first quarter, including 21 of $1bn or more.

In the past few weeks alone Visa, a credit-card firm, has paid €1.8bn ($2.1bn) for Tink, a Swedish payments platform. 

JPMorgan Chase, America’s largest bank, has said it will buy OpenInvest, which provides sustainable-investment tools—its third fintech acquisition in six months. 

Upstarts, such as Raisin and Deposit Solutions, two German platforms that link banks with savers, are merging. 

Some are going public. On July 7th a listing in London valued Wise, a money-transfer firm, at nearly £9bn ($12.2bn). 

Recent or planned multi-billion initial public offerings (ipos) include that of Marqeta (a debit-card firm), Robinhood (a no-fee broker) and SoFi (an online lender).

This blizzard of activity reflects demand from investors as they hunt for returns and as the digital surge in finance takes off. But it also reveals something more profound. 

Once the insurgents of finance, fintech firms are becoming part of the establishment.

The current investment boom has several novel features beyond its scale. 

For a start, it is increasingly focused on the biggest firms, says Xavier Bindel of JPMorgan. 

Smaller me-toos and startups with business models that have struggled during the pandemic are no longer in favour. 

The first quarter of 2021 saw the most funding rounds ever for private fintech startups valued above $100m; the median round raised $10m, a quarter more than in the same period last year.

The location of activity has changed, too. 

Five years ago the fintech story centred on America and China. 

Today, Europe is catching up. 

A funding round in June valued Klarna, a Swedish “buy now, pay later” startup, at $46bn, making it the second-most-valuable private fintech firm in the West. 

Only July 15th Revolut, a London-based neobank, said it had raised $800m, valuing it at $33bn. 

Firms in Latin America and Asia, and led by Stanford-educated or Silicon-Valley-trained founders in particular, have become magnets for investors. 

Nubank, Brazil’s biggest digital-only bank, for instance, is worth $30bn.

The craze also extends beyond payments. 

A surge in savings in rich countries in the past year has boosted “wealth-tech” startups, such as online brokers and investment advisers. 

Insurance-tech firms received $1.8bn through 82 deals globally in the first quarter of this year. 

Lending has proved trickier to disrupt—perhaps owing to regulators’ firmer grip on this area of finance—except when it crosses over into payments, as illustrated by the rise of Klarna and its rivals.

This broadening out points to one explanation for the explosion in funding: the huge growth in the market for fintech offerings during the pandemic. 

Consumers and companies adjusted with rapidity and ease to the closure of bank branches and shops and the resulting digitisation of commerce and finance. 

Many of their new habits are likely to stick.

Factors specific to fintech are also behind the big bang. 

Most of today’s fintech stars are not overnight successes, but were set up in the early 2010s. 

Since then their user numbers have swollen to the many millions and they are approaching profitability. 

They have become big enough to appear on the radar screens of late-stage venture-capital and private-equity firms, such as America-based tcv (which has backed Trade Republic, a German variant of Robinhood), Japan’s SoftBank (a recent investor in Klarna) and Sweden’s eqt (which backed Mollie, a Dutch payments firm, last month).

Moreover, some institutional investors—such as asset managers (BlackRock), sovereign-wealth funds (Singapore’s gic) and pension funds (Canada’s Pension Plan Investment Board)—have made a lot of money by snapping up shares in big tech firms in recent years. 

These are now trying to gain an edge by investing in promising startups before they go public.

The huge cheques from these investors come just as fintech firms are hoping to write the next chapter. 

Most startups were created to “unbundle” finance: to carve out niches where they could offer a better service than the banks. 

Now, however, most successful firms are rebundling, adding new products in a bid to become platforms. 

Acquisitions provide a handy shortcut; their high valuations mean the big firms can often snap up smaller ones on the cheap by swapping equity.

Stripe, the most valuable private fintech firm in the West, is a good example of the sector’s coming of age. 

It was set up a decade ago to help firms accept payments online. 

Now worth $95bn, it also offers services ranging from tax compliance to fraud prevention. 

That breadth was partly achieved through acquisitions; since October it has bought three other firms.

A similar logic animates credit-card giants, which are trying to hedge against innovations in online payments; and the banks, which see fintech as a way to plug gaps in their digital offerings, cut costs, and diversify away from lending. 

Goldman Sachs and JPMorgan are bringing lots of smaller acquisitions under the umbrella of new, versatile consumer apps. 

As a consequence, the distinction between fintech and traditional banking could eventually blur, predicts Nik Milanovic of Google Pay, the tech firm’s payments arm.

Swipe right

All this splurging and merging also carries risks. 

One is that the hefty prices paid for fintechs prove unjustified. 

Visa is buying Tink at a price that is 60 times the startup’s annual revenue; Wise is valued at around 20 times its revenues and 285 times its profits. 

Banks in particular may find out about promising fintech firms only once they are too expensive.

Another risk is that competition and innovation are stifled. 

Founders of startups that have been acquired often leave at the end of their “vesting” period—the minimum amount of time they must stick around before they can sell their shares, usually one to three years. 

The culture that allowed a firm to thrive could then wither. 

Fintechs bought by banks in particular could struggle: after a deal, cultures can clash; customers often leave. 

Most neobanks acquired by old ones, such as Simple (bought by bbva, a Spanish bank), have been either shut down or sold.

Nevertheless, one thing seems clear. 

Fintechs are inexorably gaining critical mass: their value has risen to $1.1trn, equivalent to 10% of the value of the global banking and payments industry, and up from 4% in 2018. 

Prices may be stretched today and some firms may flop, but in the long run it seems likely that this share will only rise further. 

Forgotten Latin America

The EU well knows that when it comes to expanding its influence within a country or region, China plays the long game. But China is also adept at identifying opportunities to make rapid progress, and Latin America’s escalating crises represent a golden one.

Ana Palacio

MADRID – Thousands of Cubans took to the streets last weekend to protest food and medicine shortages – the biggest display of dissent seen in the country in decades. 

And Cubans are not alone: across Latin America, social, political, and economic crises are intensifying, with dire consequences. 

The European Union needs to start paying attention.

Throughout the region, economies have been gradually weakening, and populism has been gaining momentum, for quite some time. 

But the COVID-19 crisis has plunged Latin America into its worst economic recession in a century. 

By gutting the middle class, the pandemic has increased inequality in what was already the world’s most unequal region. 

Now, one-third of Latin Americans are living in extreme poverty ($1.90 per day or less, according to the World Bank definition).

It might seem inappropriate, even dismissive, to discuss Latin America as a single entity, given the region’s vast socioeconomic diversity. 

But there is considerable overlap in terms of the challenges its countries face.

From Chile and Ecuador to Venezuela and Peru, populations are grappling with their national identities. 

Amid rampant corruption and state capture, Latin Americans lack trust in their institutions – a trend that has contributed to the collapse of traditional political parties and a surge of populist outsider candidates. 

Democratic backsliding and disillusionment are rife.

To reverse these trends, the region needs deep structural change. 

And it is incumbent on the international community – especially the United States and the EU – to help.

During the Cold War, Latin America was often treated as a pawn on the global geopolitical chessboard. 

To a significant extent, this remains the case today, though it is now China, not the Soviet Union, that is competing with the US for influence. 

In fact, China has worked hard in recent years to re-orient Latin America’s trade away from the US, and is now set to become Latin America’s main trading partner by 2035.

And yet, even as Latin America has been manipulated and used by great powers, it has also been an influential global actor in its own right. 

Accounting for nearly half the delegations at the Bretton Woods Conference in 1944, the region played an important role in laying the foundations of the liberal world order.

More recently, Latin America was a driving force behind the adoption of landmark international agreements, from the 2030 Agenda for Sustainable Development to the Paris climate agreement. 

And the region is home to many economies that, just a few years ago, were being hailed for their vast growth potential.

Between the problematic legacy of foreign intervention in Latin America and the region’s vast economic and diplomatic potential, there is no shortage of compelling reasons why the international community, especially the wealthy Western democracies, should be helping it to overcome the cascade of challenges it faces. 

Yet that simply has not happened – and Western neglect is particularly glaring in the case of the EU.

The bloc’s Latin America policy began essentially as an afterthought. It was only after the accession of Spain and Portugal in 1986 that something akin to a focused regional policy came into being. 

But, 35 years later, the policy remains embryonic. 

The European Commission proudly proclaims that the EU is Latin America’s most important development partner. 

That is a significant overstatement.

Consider the fate of the EU’s free-trade agreement with the Mercosur bloc (Argentina, Brazil, Paraguay, and Uruguay). 

The deal, signed in 2019 as part of a broader Association Agreement between the two regions, inspired high hopes. 

More than 90% of tariff barriers were to be reduced over the course of a decade.

Alas, the agreement was never ratified. 

Instead, it has been put on hold over environmental concerns – in particular, the destruction of the Amazon in Brazil. 

EU trade policy now upholds stringent environmental and labor standards. 

This, together with the bloc’s new strategy for financing the transition to a sustainable economy, means that the pact is unlikely to move forward without new provisions and conditionality.

Of course, there is good reason for this: sound management of natural resources is essential to long-term prosperity. 

Nonetheless, Europe can ill afford to ignore Latin America’s strategic importance, or take for granted Mercosur’s interest in the deal, which took 20 years to negotiate, especially given China’s efforts to consolidate its presence in the region. 

After all, environmental concerns are not going to stop China.

The most recent EU Council Conclusions reflect Europe’s recognition that it needs to boost its global engagement. 

“A Globally Connected Europe,” as the document is called, “invites” the Commission and the high representative for foreign affairs and security policy, Josep Borell, to “identify and implement a set of high impact and visible projects and actions globally.” 

But while multiple Asian countries are highlighted, Latin America is a footnote.

The Conclusions also make no mention of China. 

But this is not a case of neglect: countering China is the principal motivation behind the document’s recommendations. 

The same is true of the EU Strategy for Cooperation in the Indo-Pacific, which also avoids any explicit mention of China.

The EU well knows that when it comes to expanding its influence within a country or region, China plays the long game. 

But China is also adept at identifying opportunities to make rapid progress, and Latin America’s escalating crises represent a golden one. 

The region needs help from somewhere. 

If the EU doesn’t act quickly to provide it, China will.

Ana Palacio, a former minister of foreign affairs of Spain and former senior vice president and general counsel of the World Bank Group, is a visiting lecturer at Georgetown University.

Soaring Debts and Plummeting Yields...

by David Stockman


After decades of unhinged money-pumping, the Fed has driven real interest rates so low that there are no more bond investors — just traders and suckers.

The former have driven the 10-year yield in recent days to just 150 basis points in nominal terms (and deeply into the red in real terms in the face of surging monthly inflation numbers), because they are "pricing-in" one thing and one thing only: simple and supreme confidence that the spineless fanatics who occupy the Eccles Building will keep buying $120 billion per month of government and quasi-government debt.

Real Yield on 10-Year UST, 1985–2021 

These are no longer even "markets" by any historical sense of the term. 

The bond markets and the stock exchanges are just mindless gambling casinos.

Inflation-adjusted yields had previously meandered around the 10%+ level for several decades. 

But no more. 

The real yield is so low that yield starved fund managers are throwing caution to the wind and setting themselves up for massive future losses.

That’s not an honest price discovery. 

It’s the crazed trading that has been fostered by fanatical central bankers who have literally lost touch with history, reality and every canon of sound finance.

There is $80+ trillion of public and private debt outstanding and it amounts to a staggering 380%+ of GDP.

Below is the total debt-to-GDP ratio for the last 73 years.

Total Leverage Ratio for the US Economy: Debt-to-GDP, 1947–2020 

Do the fanatics in the Eccles Building have any clue about the fact that their policies amount to a massive signal flood to the US economy to bury itself in debt?

Evidently, they do not. But with each passing month of negative real yields and $120 billion of freshly minted fiat credit, the US economy slouches in exactly that direction.

Annual Increase in Nonfinancial Business Debt, 2000–2020

During 2020 — the year of the sweeping COVID Lockdown — conventional economics would suggest a liquidation of business debt, especially when business leverage levels had previously reached dangerous, all-time highs.

But not in the Fed’s hothouse financial markets. 

To the contrary, business debt soared by $1.5 trillion in 2020 or by 50% more than the peak borrowing year of 2007 when companies were on a borrowing binge.

This is truly aberrational.

Back in the day, the business leverage ratio stood at 35% in 1947 and had plateaued at about 60% by the 1970s. 

But once the Fed got into the financial repression business big time, the ratio was off to the races. 

The staggering amount of business debt now amounts to an off-the-chart 111%!

Can the clowns perched in the Eccles Building explain how the US economy can grow in the future when it is submerged in so much debt?

Can they also explain how interest rates can ever be normalized in real terms without blowing up the entire financial edifice?

And do they have a clue as to what will happen if they continue to signal private and public parties to borrow like there is no tomorrow by keeping real interest rates submerged in negative territory?

The answer is, of course: No.