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		<title>Why wars don’t move oil and defence stocks the way investors expect</title>
		<link>https://alphastrategyconsulting.com/why-wars-dont-move-oil-and-defence-stocks-the-way-investors-expect/</link>
					<comments>https://alphastrategyconsulting.com/why-wars-dont-move-oil-and-defence-stocks-the-way-investors-expect/#respond</comments>
		
		<dc:creator><![CDATA[Yanire Guillén]]></dc:creator>
		<pubDate>Sun, 12 Apr 2026 21:20:28 +0000</pubDate>
				<category><![CDATA[Events]]></category>
		<category><![CDATA[Finance & Markets]]></category>
		<category><![CDATA[Oil & Gas]]></category>
		<guid isPermaLink="false">https://alphastrategyconsulting.com/?p=7369</guid>

					<description><![CDATA[Investing in oil companies as a “sure bet” when there is a temporary spike in crude is usually a challenging idea. Doing it during a war, when the destruction of...]]></description>
										<content:encoded><![CDATA[<p>Investing in oil companies as a “sure bet” when there is a temporary spike in crude is usually a challenging idea.</p>
<p>Doing it during a war, when the destruction of demand can be much greater than the first jump in the commodity price, is even riskier. Recent history in 2008, 2018, 2022, and 2025 proves this.</p>
<p>Investing in oil companies must be based on fundamental analysis that is independent from the spot price of crude and natural gas and focused on value creation at mid‑cycle prices.</p>
<p>The key is not to jump on a short‑term wave that the oil companies themselves barely capture in their profits.</p>
<p>The SXEP index tracks European oil &amp; gas companies that are highly sensitive to different businesses, expectations, investment cycles, and regulations, and in many cases, they are fundamentally refiners, not pure producers that capture the “spot” price of crude.</p>
<p>Price spikes usually coincide with late‑cycle phases or supply shocks, when the risk of a correction in both the sector and the overall market is high.</p>
<p>In those periods, broad indices like the S&amp;P 500, Nasdaq, or Stoxx 600 tend to offer better risk-adjusted returns in the medium term than a long-term entry into oil companies, which in practice is often implemented once the initial shock has already moved the stocks.</p>
<h3><strong>Why the oil price misleads investors in oil stocks</strong></h3>
<p>The typical argument is: “Oil is going up, so I’ll buy oil stocks.” That intuitive leap confuses spot prices with revenues and cash flow and ignores three important brakes:</p>
<ul>
<li>The market discounts the cycle: by the time the retail investor sees oil at a peak on front pages, the strongest stretch of sector re-rating has usually already happened.</li>
<li>Costs and capex: Higher oil prices also bring regulatory pressure, higher taxes, tougher environmental requirements, and large investment plans, all of which reduce future free cash flow.</li>
<li>High oil prices hurt companies with a large share of refining or chemicals in their business mix.</li>
</ul>
<p>If, on top of that, the market perceives the oil jump as temporary, the profit increase is capitalised over a very short time in valuations.</p>
<p>The stock goes up until they report earnings, is a phrase often repeated by analysts that captures the difference between commodity price and profit correlation.</p>
<h3><strong>Confusing momentum with opportunity</strong></h3>
<p>Oil companies, especially European ones, are highly procyclical and complex and should be treated as such. Basing an investment decision on an external event can easily lead to confusing momentum with opportunity.</p>
<p>That is why investment must be analysed separately from the geopolitical backdrop, while remembering that most of these firms, as concession‑based businesses, can suffer expropriations and attacks in periods of political uncertainty.</p>
<blockquote><p>Some European energy firms are notorious for investing huge amounts in boom times and divesting at low prices</p></blockquote>
<p>An oil company is an asset manager that seeks to generate returns at low prices and whose sensitivity to short‑term price volatility is quite low. Its appeal should lie in its low cash‑flow volatility despite limited margins, not in the opposite.</p>
<p>Value creation or destruction from acquisitions is crucial in companies that are essentially managers of concession assets.</p>
<p>Some European energy firms are notorious for investing huge amounts in boom times and divesting at low prices, with honourable exceptions.</p>
<p>That is why the sector trades at a lower PE and EV/EBITDA multiple than many others. Using oil stocks as an automatic hedge against a few months of higher oil prices is conceptually simple but empirically poor.</p>
<h3><strong>Geopolitics, inflation, and oil</strong></h3>
<p>This gets even more complex with <a href="https://www.deloitte.com/us/en/insights/topics/economy/iran-middle-east-conflict-impacts-global-economy.html" target="_blank" rel="noopener">geopolitical events and wars</a>. Between 2022 and 2025, there were seven major conflicts in the Middle East and Africa with no impact on the oil price.</p>
<p>In real terms, the oil price during the Iran War is below mid‑cycle inflation-adjusted highs. Inflation matters, both for the nominal price of the commodity and for exploration, production, and development costs.</p>
<p>Remember that in 2022 the oil and gas price spike deflated in just a couple of months, and four years later commodities have not revisited that peak in either real or nominal terms.</p>
<blockquote><p>The US has gone from amplifying geopolitical risk in commodities to becoming a global shock absorber</p></blockquote>
<p>Why does geopolitical risk affect less and for shorter periods? Ignoring the fact that, since 2007, the <a href="https://www.eia.gov/energyexplained/us-energy-facts/imports-and-exports.php" target="_blank" rel="noopener">United States</a> has gone from being the largest net importer of oil and gas to being independent in gas and the largest oil producer in the world leads to an easy but misguided comparison with past crises.</p>
<p>The US has gone from amplifying geopolitical risk in commodities to becoming a global shock absorber. Added to this is an OPEC that does not want to hurt its customers but rather present itself as the most reliable, competitive, and flexible supplier.</p>
<h3><strong>Lessons from 2008 and 2018</strong></h3>
<p>In 2008, <a href="https://thedocs.worldbank.org/en/doc/60591434652912502-0190022009/original/AirTransportTheOilPriceSpikeof2008.pdf" target="_blank" rel="noopener">crude</a> shot above 140 dollars before collapsing with the financial crisis. That peak looked like an ideal scenario for those who thought oil companies were a great haven, but the macro context was lethal for the entire market, including energy.</p>
<p>The SXEP index was dragged down by the global equity crash, with very significant falls when the credit crisis blew up. Oil plunged to around 55 dollars in a short period.</p>
<p>2018 was another example of an <a href="https://www.iea.org/reports/oil-2018" target="_blank" rel="noopener">oil rally</a> in a context of geopolitical and supply tensions, followed by a market correction.</p>
<blockquote><p>For the investor who patiently waits through boom times to buy on a geopolitical shock or oil spike, it often means missing the opportunity in the rest of the market</p></blockquote>
<p>The SXEP index showed volatile behaviour, with an initial rebound linked to oil, then a correction when the market started discounting the global slowdown.</p>
<p>For the investor who buys oil stocks when oil has already risen and the media talk about an “energy rally,&#8221; the result is often even worse: little portfolio protection and a lot of stock‑specific risk.</p>
<p>For the investor who patiently waits through boom times to buy on a geopolitical shock or oil spike, it often means missing the opportunity in the rest of the market.</p>
<p>That is why professional investors who do not panic over short‑term headlines choose very selectively those oil companies that combine prudent project portfolio management, disciplined investment, high return on capital employed, and cash‑flow growth at the low and midpoints of the cycle, and they do so within a diversified portfolio, not because of the latest front page of a news outlet.</p>
<h3><strong>Lessons from 2022–2025</strong></h3>
<p>2022 looked like the clearest, most recent case supporting the story – at first sight: war in Ukraine, oil surging, gas exploding, and energy being the star sector in the short term. The error is extrapolating that one‑off year.</p>
<p>If you only look at 2022, the “oil stocks as protection” thesis seems to work. If you look at 2022–2025 as a block, the investor who aggressively rotated into oil missed a large part of the structural rebound in broad equity indices, especially technology and quality, and ended up with returns below inflation.</p>
<p>In 2023, 2024, and 2025, even with wars in Ukraine and Gaza, the picture is worse.</p>
<blockquote><p>Investing in the SXEP index – with some honourable individual exceptions – is the empirical definition of “empty calories”</p></blockquote>
<p>The empirical evidence for the SXEP index (European Oil &amp; Gas) over 2008–2025 is a cumulative return of +128% in dollars, compared with +140% for the Stoxx 600, +530% for the S&amp;P 500 and +1,200% for the Nasdaq 100.</p>
<p>In euro terms, the SXEP index rose much less than oil, the XLE, the S&amp;P 500 or the Nasdaq.</p>
<p>In other words, the “easy trade” of buying oil stocks after the shock cools down while the global benchmarks regain traction and more than compensate for the drawdown in the shock year.</p>
<p>The data, in both euros and dollars, show that investing in the SXEP index – with some honourable individual exceptions – is the empirical definition of “empty calories”: an expensive and volatile investment that does not deliver long‑term returns or protection in financial crises.</p>
<h3><strong>More than just the commodity price</strong></h3>
<p>Oil companies, like gold miners, are much more than the commodity price. Most of these firms have low sensitivity to the oil price – something they themselves constantly repeat in their conference calls during periods of low oil prices.</p>
<p>In addition, they tend to do large acquisitions at elevated valuations during high cash‑flow periods, which is why the market assigns them a significant conglomerate discount.</p>
<p>We should not forget that most oil companies are concessionaires with very diversified businesses, where return on capital barely exceeds the cost of capital, again with some exceptions.</p>
<blockquote><p>Individual high-quality names have consistently outperformed the sector indices</p></blockquote>
<p>For investors attracted by oil, exploration and production (E&amp;P) companies are more appealing because they are less politically constrained, but they are also much more volatile.</p>
<p>The XLE index, which tracks major US oil companies, has done better than the European SXEP index in the period I mentioned (+171%), albeit nowhere near broad indices like the Nasdaq or the S&amp;P 500.</p>
<p>The oil services index, which in theory should have a high correlation with crude, has also underperformed.</p>
<p>The importance of independent analysis and a good understanding of fundamentals become even clearer: Individual high-quality names have consistently outperformed the sector indices.</p>
<h3><strong>Looking beyond the noise</strong></h3>
<p>Over a multi‑year horizon, for long‑term investors, a diversified portfolio in sectors with higher returns on capital and lower capital needs beats a tactical bet taken late in the oil cycle.</p>
<p>The investor who buys oil companies at the peak of geopolitical noise is buying volatility, regulatory risk, and confiscation risk, not extraordinary profits, as S&amp;P Global explains.</p>
<p>If there is a sector that demands detailed analysis and looking beyond the surface, it is the energy sector.</p>
<blockquote><p>Being selective and prudent, looking beyond the noise and not confusing headlines with trends is essential when investing in oil companies</p></blockquote>
<p>A temporary spike in oil prices does not justify an aggressive rotation of the portfolio into oil stocks. A war is a very bad reason to buy companies whose profitability is forged in 30‑year investment plans.</p>
<p>In fact, the impact of war on commodities depends largely on expectations about marginal demand and, as we have seen in conflicts since 2022, tends to be very short-lived.</p>
<p>Being selective and prudent, looking beyond the noise and not confusing headlines with trends is essential when investing in oil companies.</p>
<h3><strong>Brent’s 40% swing</strong></h3>
<p><a href="https://tradingeconomics.com/commodity/brent-crude-oil/news/534358" target="_blank" rel="noopener">Brent crude</a> has rebounded above 100 dollars per barrel in March 2026 after trading near 70 dollars a month earlier, a swing of more than 40% in a few weeks.</p>
<p>Despite this spike, global oil and gas equities have not matched the move: the S&amp;P 500 Energy sector’s 12‑month returns remain modest, and in prior conflicts, the average 12‑month performance after a war shock has been close to flat once the initial move fades.</p>
<p>Fundamentals matter. Some high-quality oil companies have consistently outperformed their peers due to prudent portfolio management, a focus on returns at mid-cycle prices and cost control.</p>
<p>Meanwhile, most oil equities discount the cycle early, suffer from rising costs and windfall‑tax risk, and do not mirror the latest headline on Brent.</p>
<h3><strong>Defence stocks: why have some sold off in the middle of war?</strong></h3>
<p>Many investors also assume that war equals automatic gains in defence. However, recent months show a different picture:</p>
<p>The <a href="https://www.spglobal.com/spdji/en/indices/equity/sp-aerospace-defense-select-industry-index/#overview" target="_blank" rel="noopener">S&amp;P 500 Aerospace &amp; Defence</a> industry index is up strongly over the last 12 months (around +30% to +35%), but in the most recent 1–3-month period it has registered short‑term pullbacks of around −5% to −7% despite ongoing conflict and rising defence budgets.</p>
<p>This shows that the index mostly discounted the positive news on the military budget early.</p>
<p>Historical analysis across major conflicts (Kuwait 1990, 9/11, Ukraine 2022, and the 2024–2025 Middle East escalations) shows that defence stocks often rally into and shortly after the event but may correct sharply in the first weeks as investors sell the news.</p>
<blockquote><p>Quantitative studies of war periods show that the first month after a shock is often the weakest for defence</p></blockquote>
<p>Several factors explain why defence stocks can fall even as war headlines dominate the news:</p>
<p>From 2022 to 2025, core US defence names like Lockheed Martin, Northrop Grumman, and RTX delivered cumulative gains of roughly 60–85%, significantly outperforming the S&amp;P 500.</p>
<p>When a new escalation hits, such as the Iran war, many investors use the spike in uncertainty to lock in historical profits, generating short‑term drawdowns even though the long‑term backlog is solid.</p>
<p>Quantitative studies of war periods show that the first month after a shock is often the weakest for defence, with negative or flat returns, while 6‑ and 12‑month windows tend to be positive on average, according to Investor Observer.</p>
<h3><strong>When headlines drive crowded trades</strong></h3>
<p>When inflation spikes due to war and oil price impacts, investors become nervous about government budgets, allocation to defence, and the sustainability of current backlogs if central banks decide to hike rates.</p>
<p>Defence stocks tend to suffer when investors anticipate higher interest rates and express concerns about weakening sovereign solvency</p>
<p>Furthermore, sometimes governments announce large defence spending programmes that do not always become real and drive new orders and earnings.</p>
<p>Delays often happen, governments tend to change the structure of their contracts, and political and regulatory risk may affect what seems to be an ideal scenario, leading to uncertainty in revenue projections and investment returns for defence companies.</p>
<p>Some European defence names, in particular, trade with a discount due to governance concerns, state ownership, or fears of windfall‑style government interventions like those seen in energy.</p>
<p>Both energy and defence show a similar pattern: the intuitive “war trade” is often late, crowded, and driven by headlines rather than cycle analysis.</p>
<p>These are two sectors in which independent and detailed analysis, with a deep understanding of fundamentals, becomes critical.</p>
<p>Investors that focus on fundamentals and not on news headlines usually outperform the energy and defence sector indices.</p>
<p>&nbsp;</p>
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		<title>Oil markets show signs of normalisation</title>
		<link>https://alphastrategyconsulting.com/oil-markets-show-signs-of-normalisation/</link>
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		<dc:creator><![CDATA[Yanire Guillén]]></dc:creator>
		<pubDate>Sun, 12 Apr 2026 21:18:36 +0000</pubDate>
				<category><![CDATA[Events]]></category>
		<category><![CDATA[Finance & Markets]]></category>
		<category><![CDATA[Oil & Gas]]></category>
		<guid isPermaLink="false">https://alphastrategyconsulting.com/?p=7365</guid>

					<description><![CDATA[The latest readings for Arab Light and Dubai crude show that prices are falling while the Brent forward curve sits in deep backwardation. These signs of normalisation and relief suggest...]]></description>
										<content:encoded><![CDATA[<p>The latest readings for Arab Light and Dubai crude show that prices are falling while the Brent forward curve sits in deep backwardation.</p>
<p>These signs of normalisation and relief suggest that OPEC+ is trying to act as the central bank of oil in the middle of the war in Iran, elevated geopolitical risk and a fragile global recovery.</p>
<p>Furthermore, the United States is now the largest <a href="https://www.foxbusiness.com/politics/trump-says-us-largest-oil-producer-world-priority-remains-stopping-iran-nuclear-capabilities" target="_blank" rel="noopener">oil producer</a> in the world, and, as such, US production capacity acts as a cushion against geopolitical shocks.</p>
<p>Aramco has been cutting the official selling price (OSP) of Arab Light into Asia for several consecutive months, taking it from a premium over Oman/Dubai to a discount for March 2026 cargoes.</p>
<p>According to Reuters, expectations point to a 50–85 cent per barrel cut for March, implying Arab Light at around 20–55 cents below the Oman/Dubai benchmark, the lowest differential in more than five years.</p>
<p>In 2025, the same grade was priced at close to 4 dollars per barrel above Oman/Dubai, as Asian demand was strong and Russian supplies were limited, according to Reuters and Oil Price.</p>
<p><a href="https://www.reuters.com/business/energy/dubai-crudes-premium-slump-sellers-pile-offers-onto-totalenergies-2026-03-27/" target="_blank" rel="noopener">Dubai crude</a>, the primary medium sour benchmark for Asia, has also seen a decline from its recent peaks.</p>
<p>The Brent forward curve, currently in deep backwardation, indicates a tight market at present, even as it anticipates a well-supplied market in the months ahead.</p>
<h3><strong>Managing oil prices</strong></h3>
<p>Spot crude is expensive because of a higher geopolitical risk premium: inventories are depleting fast, immediate supply is highly valued and buyers are willing to pay a premium to secure deliveries now rather than in six or twelve months.</p>
<p>However, at the very same time, key Middle East benchmarks such as Arab Light and Dubai are easing, which indicates that markets expect a rapid normalisation of supply.</p>
<p>This is where OPEC+ steps in as the closest thing we have to a monetary authority in oil and where the United States becomes the global cushion for geopolitical risk.</p>
<blockquote><p>OPEC+ tries to manage the price of crude by providing ample supply and anchoring expectations of additional barrels in the market</p></blockquote>
<p>In 2008, the United States produced around 5 million barrels per day, and geopolitical risks tended to amplify because of its inelastic demand for imported oil.</p>
<p>That situation has completely reversed as domestic production has soared to almost 14 million barrels per day, and now the <a href="https://www.reuters.com/business/energy/us-crude-oil-output-peak-by-2027-eia-projects-2025-04-15/" target="_blank" rel="noopener">US</a> acts as a cushion that limits geopolitical risk instead of amplifying it.</p>
<p>At the same time, OPEC+ wants to show the world that it is the most competitive, reliable and flexible supplier. In the same way that central banks manage the price of money by controlling liquidity and shaping inflation expectations, OPEC+ tries to manage the price of crude by providing ample supply and anchoring expectations of additional barrels in the market.</p>
<h3><strong>Managing supply amid geopolitical shocks</strong></h3>
<p>The <a title="Iran War" href="https://tomorrowsaffairs.com/strait-of-hormuz-a-battlefield-for-oil-but-also-for-terabytes-of-data" target="_blank" rel="noopener">Iran war</a> and the broader conflict risk in the region have raised the perceived probability of supply shocks. Tankers, pipelines and export terminals have become part of the geopolitical risk premium embedded in oil prices.</p>
<p>However, instead of a long-dated super spike driven by panic, we see a curve that is steeply in backwardation but not pricing a crisis.</p>
<p>The market believes that OPEC+ still holds enough spare capacity and the willingness to deploy it if needed and sees the immediate response of US producers as a source of relief, as we saw in 2022 and 2018</p>
<p>OPEC’s credibility is built every month in the physical market. When buyers see that Aramco and other suppliers are facilitating supply to Asia at a reasonable price, it is not only a reaction to softer demand and competition from discounted Russian barrels or Iranian threats.</p>
<p>It also signals that Saudi Arabia prioritises volume stability and reliability over simply seeking higher prices. By keeping exports flowing and adjusting differentials rather than shutting the tap abruptly, Aramco reinforces the idea that OPEC+ is the guarantee of supply in a world of political disruption.</p>
<p>Deep backwardation also implies that inventories are not ample. OECD stocks sit close to or below their five-year averages, and commercial and strategic reserves have been drawn down recently.</p>
<p>Backwardation penalises holding inventories: each month that passes, the value of stock in the tank falls relative to the spot price.</p>
<p>The market is effectively discounting a system that will continue to flow without disruption, which is exactly the role OPEC+ is trying to play. It provides insurance, substituting barrels in the ground for barrels in storage.</p>
<p>Asia is the marginal buyer of Middle East crude, the key driver of incremental demand and the main arena where OPEC+’s “central bank of oil” role is most important.</p>
<p>All actions so far suggest that OPEC+ and US producers are prioritising reliable and constant supply instead of maximising the short-term benefits of rising prices and a tight market.</p>
<p>&nbsp;</p>
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		<title>How net zero sabotaged Europe’s chance to solve the energy crisis</title>
		<link>https://alphastrategyconsulting.com/how-net-zero-sabotaged-europes-chance-to-solve-the-energy-crisis/</link>
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		<dc:creator><![CDATA[Yanire Guillén]]></dc:creator>
		<pubDate>Sun, 12 Apr 2026 21:15:11 +0000</pubDate>
				<category><![CDATA[Events]]></category>
		<category><![CDATA[Finance & Markets]]></category>
		<guid isPermaLink="false">https://alphastrategyconsulting.com/?p=7362</guid>

					<description><![CDATA[Net zero was sold to Europeans as a triple win: lower emissions, stronger industry, and cheaper energy. Two decades later, the continent has higher structural energy costs for consumers, a...]]></description>
										<content:encoded><![CDATA[<p><a href="https://climate.ec.europa.eu/eu-action/climate-strategies-targets/2050-long-term-strategy_en" target="_blank" rel="noopener">Net zero</a> was sold to Europeans as a triple win: lower emissions, stronger industry, and cheaper energy.</p>
<p>Two decades later, the continent has higher structural energy costs for consumers, a weakened industrial base and a new set of strategic dependencies.</p>
<p>The idea that renewables alone will solve Europe’s energy crisis is not just wrong; it is dangerously complacent.</p>
<p>Let us start with the basic numbers. Despite record deployment of wind and solar and hundreds of billions of euros in subsidies, roughly 70 per cent of the EU’s gross available energy still comes from fossil fuels: oil, gas and coal.</p>
<p>Renewables account for less than a fifth of total primary energy, with most of the remainder provided by nuclear. Electricity is the only segment where wind and solar appear dominant.</p>
<p>However, electricity is only part of the system, and the need for natural gas backing in peak demand periods has perpetuated Russian gas dependency.</p>
<p>Once transport, industry and heating are included, Europe remains overwhelmingly fossil‑fuel based, and this will not change in the next decade.</p>
<h3><strong>A ‘strategic mistake’</strong></h3>
<p>The war in Ukraine and the rush to net zero have not changed this reality; they have simply redrawn the map of dependence.</p>
<p>European imports of Russian gas have persisted despite sanctions, increasingly in liquefied natural gas (<a href="https://www.consilium.europa.eu/en/infographics/where-does-the-eu-s-gas-come-from/" target="_blank" rel="noopener">LNG</a>). At the same time, Europe has raced to expand LNG capacity and lock in long‑term cargoes from the United States and Qatar.</p>
<p>Far from delivering autonomy, the transition has entrenched reliance on foreign gas suppliers, often at higher marginal cost and with greater exposure to global price volatility.</p>
<blockquote><p>Closing reactors was a phenomenal mistake that drove prices higher and made energy security weaker</p></blockquote>
<p>Europe decided to ban or severely limit the exploration and development of its natural resources only to purchase energy at much higher prices.</p>
<p>The parallel decision to shut down <a href="https://tomorrowsaffairs.com/is-it-too-late-for-europe-to-correct-its-strategic-nuclear-mistake" target="_blank" rel="noopener">nuclear power</a> has made this vulnerability worse. Phasing out firm, low‑carbon baseload in countries such as Germany and Belgium did not create a renewable paradise; it revived coal, increased gas burn and eroded security of supply.</p>
<p>Policymakers are now implicitly admitting it. Von Der Leyen called the nuclear phase-out a &#8220;strategic mistake&#8221;.</p>
<p>Nuclear, once treated as a problem to be eliminated, is being redefined as a “strategic” technology, and several member states are talking about a nuclear revival to stabilise the system. Closing reactors was a phenomenal mistake that drove prices higher and made energy security weaker.</p>
<h3><strong>A new front in Europe’s dependency problem</strong></h3>
<p>Meanwhile, the celebrated surge in renewables has opened a new front in Europe’s dependency problem. The continent imports almost all its solar panels, and the overwhelming majority come from China.</p>
<p>The <a title="IEA" href="https://www.iea.org/reports/solar-pv-global-supply-chains/executive-summary" target="_blank" rel="noopener">IEA warns</a> that the world will “almost completely rely on China” for the key building blocks of solar manufacturing – polysilicon, ingots and wafers – for years to come.</p>
<p>The pattern is similar for critical raw materials: rare earths, lithium, cobalt and other minerals essential for turbines, batteries, and grids are overwhelmingly processed in China.</p>
<p>A strategy centred on ever greater electrification and volatile renewables without diversifying supply chains does not end geopolitical risk. It merely adds China to the dependence on Russia and OPEC.</p>
<p>Net‑zero policies have also carried a heavy industrial cost. Instead of driving a productivity and innovation boom, they have often pushed energy‑intensive sectors out of Europe altogether.</p>
<blockquote><p>Net‑zero policy, as executed, has shifted risk and higher cost towards the end user</p></blockquote>
<p>Steel, chemicals, fertilisers, aluminium, glass and paper producers have seen their competitive position shredded by higher energy prices, a volatile carbon tax and excessive regulation.</p>
<p>Emissions “fall” on paper because factories close or relocate to regions with looser standards and cheaper energy, not because underlying processes have become genuinely cleaner. This is not decarbonisation; it is de‑industrialisation and job destruction.</p>
<p>For households and small businesses, the promise of lower energy bills has not materialised. Bills have soared, and Europeans pay twice as much as US or Chinese citizens and businesses for <a href="https://www.iea.org/reports/electricity-mid-year-update-2025/prices-trends-in-wholesale-markets-differ-across-regions" target="_blank" rel="noopener">electricity and natural gas</a>.</p>
<p>While there are periods when wholesale electricity prices fall on the back of low gas prices and strong renewable output, the structure of bills drowns any improvement.</p>
<p>Network charges, taxes, subsidies and capacity mechanisms, and the cost of carbon allowances embedded in power prices all accumulate to make bills more expensive every year.</p>
<p>The result is higher total energy costs even as politicians boast that “sun and wind are free”. Net‑zero policy, as executed, has shifted risk and higher cost towards the end user.</p>
<h3><strong>Picking the wrong winners and losers</strong></h3>
<p>The biggest problem comes from a policy designed from an ideological and sectarian perspective. European energy and climate policy has been guided by activist targets and slogans more than by competitiveness, flexibility and security of supply.</p>
<p>Policymakers have picked the wrong winners, heavily subsidising some technologies while penalising or banning others, and the wrong losers, instead of designing a technology‑neutral framework that rewards competitiveness, reliability and low emissions at the lowest possible cost</p>
<p>The outcome is an unbalanced mix: too much intermittent capacity without adequate firm backup, too much regulatory complexity, too many taxes and hidden charges and limits to investment.</p>
<p>There is an alternative. Europe will not resolve its energy crisis or meet its climate goals by limiting some sources and betting everything on one family of technologies.</p>
<p>It needs an “all of the above” strategy anchored in open markets and diversification.</p>
<p>That means treating nuclear and hydropower as the stable, low‑carbon backbone of the system; allowing renewables to grow where they genuinely compete on cost and system value; and recognising that natural gas will remain essential for decades, while ensuring supply is diversified in both origin and contract structure.</p>
<p>It also means making use of domestic resources, from responsibly developed gas fields to local mining and processing of critical minerals under strict environmental standards, instead of outsourcing every strategic decision.</p>
<p>Energy security and competitiveness are not achieved by demolishing the industry, banning technologies, and hoping that more wind farms and solar parks will somehow fill every gap. They come from competition, diversification and technology.</p>
<p>Europe should abandon the comforting illusion that renewables alone will make the continent independent, prosperous and green.</p>
<p>Only a balanced mix that includes nuclear, hydro, flexible natural gas, oil and competitive renewables, under a policy framework focused on affordability, industrial strength and security of supply, can deliver the stability and strength Europeans were promised.</p>
<p>&nbsp;</p>
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		<title>Private debt: the next crisis looming over the global economy</title>
		<link>https://alphastrategyconsulting.com/private-debt-the-next-crisis-looming-over-the-global-economy/</link>
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		<dc:creator><![CDATA[Yanire Guillén]]></dc:creator>
		<pubDate>Sun, 22 Mar 2026 19:47:21 +0000</pubDate>
				<category><![CDATA[Events]]></category>
		<category><![CDATA[Finance & Markets]]></category>
		<guid isPermaLink="false">https://alphastrategyconsulting.com/?p=7359</guid>

					<description><![CDATA[Investors are concerned about the Iran war and its impact on the economy. This is something that has been well analysed. However, we must remind that the largest risk may...]]></description>
										<content:encoded><![CDATA[<p>Investors are concerned about the Iran war and its impact on the economy. This is something that has been well analysed.</p>
<p>However, we must remind that the largest risk may not come from an energy prices shock, which futures discount as temporary, but from another set of policy mistakes from governments and central banks.</p>
<p>If governments decide to spend and print to present themselves as the solution to the Iran war impact, and central banks decide to hike rates due to a geopolitical event that has nothing to do with credit demand and money supply, the stagflation risk may appear.</p>
<p>However, the two trillion-dollar crisis that no one seems to be concerned about may be more relevant: A private debt crisis.</p>
<h3 class="wp-block-heading"><strong>Emerging risks in private debt and equity</strong></h3>
<p>A financial crisis based on private debt and private equity risks would not be like the one in 2008, but it could cause a long, painful shock to credit, investment, and growth around the world.</p>
<p>The threat today is not a sudden bank failure but rather opaque, illiquid structures, a huge wall of refinancing, and the slow repricing of risk after ten years of cheap and abundant money.</p>
<p>Private credit and leveraged portfolios are the most important issues. In the past ten years, <a href="https://www.moodys.com/web/en/us/creditview/blog/private-credit-2026.html" target="_blank" rel="noreferrer noopener">private credit</a> has grown from a small strategy to a multi-trillion-dollar part of global finance. Its assets are now well over $2 trillion and are expected to keep growing.</p>
<p>Every year, we see more loans going to companies that have trouble making their interest payments, especially in cyclical and software industries, with investors looking for some real returns.</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow"><p>Prudent and profitable private equity will likely come out of this period stronger, proving that good analysis and prudent management are key factors to attract investors</p></blockquote>
<p>Investors that suffered policy financial repression saw that sovereign debt did not provide any real economic return and were forced to take more risk for small real returns.</p>
<p>Private equity has made this weakness worse. Buyout funds that were heavily leveraged in 2020–2022 now must refinance at rates that are often twice as high as the original cost of debt, just when valuations are falling and exit markets are full.</p>
<p>In this environment, many private equity funds will post large losses from over-leveraged investments. However, we must separate those prudent private equity funds that did not fall into the easy money trap from those that followed a “fear of missing out” strategy.</p>
<p>Prudent and profitable private equity will likely come out of this period stronger, proving that good analysis and prudent management are key factors to attract investors.</p>
<h3 class="wp-block-heading"><strong>Private credit and leveraged loan defaults: systemic concerns</strong></h3>
<p>Many companies in the most aggressive private equity funds’ portfolios, especially those in software and consumer-facing industries, have negative free cash flow and rely on being able to borrow money and get good exit prices to keep making money.</p>
<p>The “refinancing wall” and the cycle of defaults are significant risks, but not ones that will affect all private equity.</p>
<p>The refinancing wall is the most immediate concern. Hundreds of billions of dollars in private loans and leveraged facilities will come due in the next two years.</p>
<p>Analysts say that <a href="https://www.investmentnews.com/equities/middle-market-ma-set-to-expand-in-2026-as-deal-confidence-hits-multi-year-high/264726" target="_blank" rel="noreferrer noopener">middle-market maturities </a>will rise from about $100 billion in 2025 to more than $150 billion in 2026. Most of these loans were signed at very low rates in the 2019-2021 period of negative real rates.</p>
<p>Refinancing debt at current spreads with higher base rates makes interest payments soar, which pushes the weakest borrowers to restructure or default.</p>
<p>The number of defaults on private credit and leveraged loans is already rising.</p>
<p>Fitch stated that the default rate in its <a href="https://www.fitchratings.com/research/corporate-finance/6336fcc7-8612-4276-98e2-f7b826c87ab3-06-03-2026" target="_blank" rel="noreferrer noopener">U.S. private credit portfolio</a> has hit a record 9.2% for 2025, up from 8.1% in 2024, from 302 borrowers. Smaller issuers with EBITDA below 25 million dollars accounted for most of the defaults.</p>
<p>For U.S. leveraged loans, a recent Morningstar/LSTA update mentioned a <a href="https://www.lsta.org/content/morningstar-lsta-leveraged-loan-index-analysis-february-2026/" target="_blank" rel="noreferrer noopener">payment default rate</a> of 1.38% by amount and 1.36% by issuer as of late February 2026.</p>
<p>FTI Consulting survey reports that the <a href="https://www.fticonsulting.com/insights/reports/2025-leveraged-loan-market-survey" target="_blank" rel="noreferrer noopener">U.S. leveraged loan default rate</a> reached 5.6% by late 2024, a decade high largely driven by distressed exchanges, so-called “amend‑and‑extend” and liability‑management deals.</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow"><p>The most likely risk for banks is not a domino of defaults as in 2008 with subprime mortgages, but the need to cut access to credit and take preventive measures and write-offs</p></blockquote>
<p>Fitch now projects leveraged‑loan default rates in 2026 around 4.5%–5.0%, in line with 2025 and well above the long‑run average near 1.5%–2%.</p>
<p>These figures are not enough to justify a financial crisis but are clearly a concern for investors looking for attractive investments in private companies.</p>
<p>Downgrades and failed refinancings could make managers lower the value of their portfolios, show that their valuations are too high, and put pressure on semi-liquid structures to redeem.</p>
<p>This trend becomes self-reinforcing during a severe downturn: lower valuations eat away at equity cushions, which makes lending standards stricter, which lowers exit prices and extends the drought in distributions to limited partners.</p>
<p>Gates are likely and even inevitable. Many of the more aggressive funds may have to change the terms for investors to avoid large losses.</p>
<p>European and UK regulators often say that private credit funds don’t use much leverage, but the risk to the system comes from the fact that these funds are connected and hard to see through.</p>
<p>Global banks’ exposures to private credit and hedge funds can reach several trillion dollars. However, the most likely risk for banks is not a domino of defaults as in 2008 with subprime mortgages, but the need to cut access to credit and take preventive measures and write-offs.</p>
<p>We must remember that banks have increased core capital at very significant rates in the past years, so the situation in terms of solvency and balance sheet is not even close to the challenges of 2008.</p>
<p>A silent credit crunch that leads to weaker growth are two significant impacts on the economy.</p>
<h3 class="wp-block-heading"><strong>A slow credit crunch</strong></h3>
<p>If private debt and risky private equity caused a crisis, it would probably be a slow credit crunch instead of one big disaster as in 2008.</p>
<p>As lenders become more prudent, small and medium-sized businesses, especially those that can’t access the public market, may have to pay more to borrow money, deal with stricter covenants, or even be turned down for credit, which makes it harder for them to invest and hire.</p>
<p>Technology, healthcare, business services, and some consumer niches have relied heavily on leveraged buyouts, roll-ups, and sponsor-backed expansion. If these companies went out of business, there would be consolidation, failures, and job losses.</p>
<p>All this may imply lower economic growth, weaker productivity, and business zombification, which is when companies stay in business despite being unable to pay interest expenses with operating profits.</p>
<p>Emerging markets that have borrowed significantly from private entities could see a sudden stop, as new money goes to US dollar and safer assets, putting pressure on currency exchange rates and local banks.</p>
<p>Even if the banking system doesn’t crash, tighter credit, falling valuations, and shaken confidence can add up to a few percentage points cut in global GDP over the course of several years.</p>
<p>The problem is that governments and central banks will not react, improving competition and reducing perverse incentives.</p>
<p>If this risk becomes a reality, they will react by increasing an already excruciating regulation and cutting rates, increasing liquidity to address market concerns.</p>
<p>All those measures will be the equivalent of another kick to the can, as we have seen since 2008, and one that will – again – benefit very large institutions and companies that can navigate the excess of regulation and be part of the first recipients of new money, while small businesses and families will likely suffer the impact of tighter credit conditions.</p>
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		<title>Spain’s position in the war against Iran is hypocritical and unjustified</title>
		<link>https://alphastrategyconsulting.com/spains-position-in-the-war-against-iran-is-hypocritical-and-unjustified/</link>
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		<dc:creator><![CDATA[Yanire Guillén]]></dc:creator>
		<pubDate>Sun, 15 Mar 2026 22:39:53 +0000</pubDate>
				<category><![CDATA[Events]]></category>
		<category><![CDATA[Finance & Markets]]></category>
		<guid isPermaLink="false">https://alphastrategyconsulting.com/?p=7357</guid>

					<description><![CDATA[&#8220;Death to America is not a slogan, it is an objective.&#8221; &#8220;Israel is a cancerous tumour that must be eradicated,&#8221; &#8220;The barbaric Israeli regime has no cure other than annihilation.&#8221;...]]></description>
										<content:encoded><![CDATA[<p>&#8220;Death to America is not a slogan, it is an objective.&#8221; &#8220;Israel is a cancerous tumour that must be eradicated,&#8221; &#8220;The barbaric Israeli regime has no cure other than annihilation.&#8221;</p>
<p>These are not the words of some irrelevant radical but of Iran&#8217;s Supreme Leader in statements to the Iranian parliament and official communiqués.</p>
<p>The Iranian regime executes women and homosexuals, finances global terrorism, and has breached its obligations under nuclear non-proliferation agreements.</p>
<p>The International Atomic Energy Agency (<a href="https://www.iaea.org/newscenter/focus/iran/iaea-and-iran-iaea-resolutions" target="_blank" rel="noopener">IAEA</a>) has issued two resolutions condemning Iran, stating that cooperation from the Iranian regime is non-existent and that it is impossible to verify that the nuclear programme has exclusively peaceful purposes.</p>
<p>Iran has accumulated more than 400 kilograms of highly enriched uranium, when no more than 4% enrichment is required for civilian use. The nuclear threat is not an invention of President Trump. It has been verified by the IAEA.</p>
<p>The Iranian regime has been, for decades, the world&#8217;s leading state sponsor of terrorism through the Revolutionary Guard (IRGC) and its Quds Force.</p>
<p>Terrorist actions promoted by the Iranian regime in recent years extend from Argentina to Bahrain, Lebanon, the United Arab Emirates, and Syria.</p>
<p>The Iranian dictatorship appears on the U.S. State Department&#8217;s list of &#8220;<a href="https://www.state.gov/state-sponsors-of-terrorism" target="_blank" rel="noopener">State Sponsors of Terrorism</a>&#8220;. FinCEN and OFAC have sanctioned nearly 1,000 individuals and entities linked to terrorism financing by the Iranian government.</p>
<h3><strong>A clear and present threat</strong></h3>
<p>In recent weeks, the <a href="https://www.theguardian.com/global-development/2026/jan/27/iran-protests-death-toll-disappeared-bodies-mass-burials-30000-dead" target="_blank" rel="noopener">regime&#8217;s campaign of repression</a> has caused, according to independent medical organisations, the deaths of more than 32,000 Iranians, in addition to the detention, torture, and execution of dissidents and their families, the blocking of the internet, and the suppression of any independent information.</p>
<p>Despite this, some European media outlets disseminate data from the Iranian regime as if it were verified information, just as they did with Hamas propaganda.</p>
<p>Iran declared war on Israel directly through the Hamas invasion on 7 October 2023, the ongoing attacks by Hezbollah from Lebanon, and, above all, through the massive attack on Israel on 13 April 2024, known as &#8220;Operation True Promise&#8221;.</p>
<blockquote><p>The Arab League itself has confirmed through its condemnation that Iran&#8217;s regime represents a clear and present threat to its Gulf neighbours</p></blockquote>
<p>In that operation, Iran launched more than 170 drones, more than 30 cruise missiles, and more than 120 ballistic missiles against Israeli targets.</p>
<p>Direct attacks with hundreds of missiles and drones against U.S. interests in Iraq, against Israel, and against shipping in the Red Sea, combined with the continued campaign by its terrorist groups, constitute an ongoing armed threat that enables the right of self-defence under Article 51 of the United Nations Charter.</p>
<p>The Arab League itself has confirmed through its condemnation that Iran&#8217;s regime represents a clear and present threat to its Gulf neighbours, in addition to threatening Western democracies through continuous attacks.</p>
<h3><strong>International law as a moral alibi</strong></h3>
<p>All these facts are sufficient grounds to act against the Iranian regime and invalidate the rhetoric of the Sánchez government.</p>
<p>Part of the left selectively appeals to &#8220;international law&#8221; and the UN Charter, using them as a moral alibi to avoid assuming the political cost of confronting regimes like Iran&#8217;s.</p>
<p>That reading systematically ignores the regime&#8217;s own prior actions, from financing terrorist groups to direct attacks with drones and missiles.</p>
<p>Have they not noticed how they only remember international law and human rights when doing so allows totalitarian dictatorships to remain in power?</p>
<p><a href="https://english.elpais.com/international/2026-03-04/pedro-sanchez-on-the-us-and-israeli-attack-on-iran-no-to-war-we-will-not-support-this-disaster.html" target="_blank" rel="noopener">Sánchez</a> states, in a paternalistic tone, that &#8220;one can be against an odious regime like Iran&#8217;s and against an unjustified attack,&#8221; but his actions show otherwise.</p>
<p>In 2019, the Sánchez government committed to promoting and using the INSTEX instrument to circumvent U.S. sanctions against the Iranian regime.</p>
<p>Between 2018 and 2024, the government authorised millions in exports to Iran of &#8220;dual-use&#8221; material (civilian and military), according to official trade data.</p>
<blockquote><p>Presenting the Islamic Republic as a passive actor that &#8220;has not attacked anyone&#8221; is an insult to intelligence</p></blockquote>
<p>The legal debate on the use of force is usually reduced to a formalistic reading of Article 2 of the <a href="https://www.un.org/en/about-us/un-charter/full-text" target="_blank" rel="noopener">UN Charter</a>, ignoring Article 51, which recognises the inherent right of self-defence against an &#8220;armed attack&#8221;.</p>
<p>When a state continuously sustains direct attacks, operations through proxies, and financing of groups that commit massacres against civilians, the boundary between &#8220;armed attack&#8221; and &#8220;imminent threat&#8221; ceases to be theoretical.</p>
<p>The United Nations Charter is designed to regulate relations between cooperative states that protect their populations, not to accommodate expansionist terrorist regimes that make aggression against their own citizens and state terrorism their reason for being.</p>
<p>The same text that some invoke to characterise the Western attack as an &#8220;act of aggression&#8221; systematically ignores Iran&#8217;s continued use of force against its neighbours, against Israel, and against Western interests.</p>
<p>If turning a country into a platform for financing, training, and arming groups that massacre civilians is not a &#8220;use of force,&#8221; the concept loses all meaning.</p>
<p>Self-defence cannot be interpreted as passively waiting for the enemy to &#8220;annihilate&#8221; the population and &#8220;devastate&#8221; the country.</p>
<p>Legal doctrine has adapted precisely because dictatorships like Iran use intermediaries to evade direct responsibility. Presenting the Islamic Republic as a passive actor that &#8220;has not attacked anyone&#8221; is an insult to intelligence.</p>
<h3><strong>A profoundly hypocritical position</strong></h3>
<p>The Spanish Government hides behind the rhetoric of &#8220;international law&#8221; and rejection of &#8220;all violence&#8221; to justify its refusal to allow the use of Spanish bases.</p>
<p>The Foreign Minister states that Spain will not support any operation &#8220;that does not fit within the UN Charter,&#8221; while simultaneously proclaiming condemnation of &#8220;the brutality of the Iranian regime towards its population.”</p>
<p>All this while Iran launches missiles at Gulf countries, Cyprus, and Turkey and continues murdering its own citizens.</p>
<p>This position is profoundly hypocritical for two reasons. First, because it reduces international law to a procedural formalism that ignores the actions of the Iranian regime.</p>
<blockquote><p>Official foreign trade data demolish the image of a &#8220;neutral&#8221; government</p></blockquote>
<p>A legal system worthy of the name cannot place democracies acting to defend themselves against a real threat on the same level as theocratic dictatorships that proclaim the destruction of other states as an official objective.</p>
<p>Second, because this supposed legal purity coexists comfortably with years of Spanish business dealings with Iran in military materials.</p>
<p>Official foreign trade data demolish the image of a &#8220;neutral&#8221; government. The Sánchez administration authorised millions in dual-use exports, including detonators, explosives, laboratory reagents, and control software. It is difficult to imagine a clearer example of double standards.</p>
<h3><strong>The luxury of saying “no to war”</strong></h3>
<p>The government&#8217;s refusal to cooperate with its allies comes at a time when Spain has benefited from U.S. liquefied natural gas to avoid an energy crisis following the rupture with Algeria, our main supplier, caused by another unilateral shift by La Moncloa in foreign policy.</p>
<p>In the midst of <a title="Iran War" href="https://tomorrowsaffairs.com/how-protected-are-saudi-arabia-and-its-energy-infrastructure-from-airstrikes" target="_blank" rel="noopener">escalation with Iran</a>, Sánchez sends the message that Spain is an unreliable partner, willing to hide behind legal technicalities while authorising sensitive exports to the regime it claims to condemn.</p>
<p>International law cannot become a refuge for dictatorships that make terrorism and aggression their state policy while demanding an impossible level of purity from democracies attempting to contain them</p>
<p>Saying &#8220;no to war&#8221; while the United States, Israel, and NATO protect you, supply energy, and provide strategic and financial support is an exercise in shameful hypocrisy.</p>
<p>The Sánchez Government reproduces the same pattern it has applied in Gaza and Lebanon: it uses certain ministers (Robles, Cuerpo) to communicate cooperation to partners, while Sánchez and Albares disseminate a completely different narrative to the press and to third countries. That is why the Spanish government is not a reliable partner.</p>
<p>Sánchez&#8217;s position consists of always being very tough on democracies and Western partners and very soft on terrorist dictatorships.</p>
<p>He only remembers international law and human rights when doing so allows him to perpetuate and whitewash dictatorships.</p>
<p>Sánchez has received congratulations from Hamas, Hezbollah, the Houthis, the Iranian regime, the Cuban dictatorship, the Chavista regime, and all the world&#8217;s communist leaders. He has become the favourite leader of terrorists and totalitarians.</p>
<p>The position of the Spanish Government is neither neutral nor pacifist; it is a mixture of selective legalism and ideological calculation that leaves us worse positioned before our partners, weakens our security, and puts investment and economic growth at risk.</p>
<p>When an administration that has authorised sales of sensitive material to Iran claims a monopoly on &#8220;international law&#8221; to wash its hands of the response to that same regime, it is not on the right side of history but on the cowardly side of political marketing at the expense of national interest.</p>
<p>Saying &#8220;no to war&#8221; is a luxury when you are protected by NATO, the United States, and Israel, and your neighbours are countries like France or Portugal.</p>
<p>That luxury does not exist when your neighbours are murderous theocracies that boast of seeking your destruction.</p>
<p>&nbsp;</p>
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		<title>Why markets ignore geopolitical risk</title>
		<link>https://alphastrategyconsulting.com/why-markets-ignore-geopolitical-risk/</link>
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		<dc:creator><![CDATA[Yanire Guillén]]></dc:creator>
		<pubDate>Sun, 25 Jan 2026 22:28:12 +0000</pubDate>
				<category><![CDATA[Events]]></category>
		<category><![CDATA[Finance & Markets]]></category>
		<guid isPermaLink="false">https://alphastrategyconsulting.com/?p=7353</guid>

					<description><![CDATA[The increase in the global geopolitical risk index has not affected global markets. The general tone remains bullish despite a surprising “neutral” view shown in CNN’s Fear and Greed Index. The...]]></description>
										<content:encoded><![CDATA[<p>The increase in the global geopolitical risk index has not affected global markets. The general tone remains bullish despite a surprising “neutral” view shown in <a href="https://edition.cnn.com/markets/fear-and-greed" target="_blank" rel="noreferrer noopener">CNN’s Fear and Greed Index</a>.</p>
<p>The reality is completely different. Investors may say they are neutral given the elevated valuations and the global uncertainty, but most asset managers’ positioning is exceedingly bullish and concentrated on very cyclical sectors like banks and technology.</p>
<p>The main reason for this striking contrast between explicit concerns and positioning is a clear consensus of central bank easing as the norm. Global money supply is expected to grow much faster than nominal <a href="https://www.reuters.com/business/finance/world-bank-sees-resilient-global-growth-2026-despite-tariffs-fading-dynamism-2026-01-13/" target="_blank" rel="noreferrer noopener">GDP in 2026</a>, what I call the monetary tsunami.</p>
<p>Investors should not ignore geopolitical risks and the evident impoverishment of middle classes due to inflationist policies that we have commented on in this column a few times.</p>
<p>Inflating financial asset prices while eroding the real value of fiat currencies generates social discontent, weaker productive investment, and a dangerous sentiment of confidence.</p>
<h3 class="wp-block-heading"><strong>Gold soars as government bonds lose appeal</strong></h3>
<p>Risk accumulates gradually but can manifest suddenly, and the current environment is characterised by a perilous sovereign debt bubble that coincides with a decrease in global central banks’ demand for bonds from developed economies.</p>
<p>That is why gold soars. Demand for gold is rising while appetite for government bonds declines.</p>
<p>Global broad money is probably going to rise well above nominal output, with overall money supply growth projected to exceed 12% in 2026 while <a href="https://unctad.org/news/global-growth-expected-slow-26-through-2026" target="_blank" rel="noreferrer noopener">global GDP</a> stalls around 3–3.1%, far below pre-2008 norms.</p>
<p>Furthermore, global capital investment is likely to be flat relative to depreciation in 2026. This enormous difference between liquidity and real activity reflects years of aggressive monetary and fiscal policies, with out-of-control deficits and bloated public balance sheets still driving central bank behaviour.</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow"><p>In Europe, the challenging political and fiscal situation, particularly in countries such as France, makes it very difficult for the ECB to normalise</p></blockquote>
<p>According to <a href="https://privatebank.jpmorgan.com/eur/en/insights/latest-and-featured/outlook-b" target="_blank" rel="noreferrer noopener">JP Morgan</a>, US money supply (M2) rose by 1.7 trillion dollars in 2025, growing at 6.6% and above nominal GDP for a third consecutive year.</p>
<p>This creates a risk of persistent inflation and elevated valuations in financial assets. Even if consumer prices rise at a slower pace than in previous years, the risk of loss of purchasing power remains.</p>
<p>For 2026, JP Morgan expects US money creation to exceed 2 trillion dollars, approaching the 2021 pace, as new liquidity channels—especially Federal Reserve T-bill purchases—replace quantitative tightening and extend the monetary stimulus cycle.</p>
<p>In 2026 the Federal Reserve is likely to remain accommodative, bringing real rates down towards a neutral level and even maybe adding a potential “mini–Quantitative Easing” or hidden easing program of roughly 20 billion dollars a month in Treasury purchases and mortgage-backed securities.</p>
<p>In Europe, the challenging political and fiscal situation, particularly in countries such as France, makes it very difficult for the ECB to normalise, forcing it to persist with instruments such as the anti-fragmentation tools and the monetisation of EU funds as well as a larger EU budget.</p>
<h3 class="wp-block-heading"><strong>Resisting the negative impact of inflation</strong></h3>
<p>The reason why investors remain bullish is also because recent years’ events have shown that geopolitical risk plays a diminishing role in market volatility.</p>
<p>However, ongoing inflation and geopolitical risk do impact economic growth, investment, and consumer spending, which results in lower forecasts for economic output, reduced earnings estimates for companies that are more sensitive to the economy and keeps valuations at uncomfortable levels.</p>
<p>Global inflation is expected to moderate but remain above pre-pandemic levels around 3%, with developed economies still above their 2% targets because governments refuse to cut spending or deficits, so CPI stays “artificially” high relative to where it should be and underlying growth.</p>
<p>This leads to social discontent and rising populist measures in developed nations, while protests may bring more unrest in countries like Iran.</p>
<p>The situation never ends well. Central banks stopped being independent years ago, and their main strategy is to maintain unjustified low yields in sovereign bonds at the expense of consumers, who suffer the accumulated impact of inflation and rising taxes.</p>
<p>Ignoring geopolitical risks may lead to more aggressive investment in financial assets than would be advisable. However, too much fear leads to real losses for investors who decide to stay in cash and therefore suffer the annual erosion of the purchasing power of the currency.</p>
<p>What to do then? Active portfolio management, prudent positioning, and a focus on gold, silver, and developed economies’ equities may help investors resist the negative impact of inflation and avoid the risks accumulated due to political uncertainty.</p>
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		<title>How socialism stole Venezuela’s oil and how to recover it</title>
		<link>https://alphastrategyconsulting.com/how-socialism-stole-venezuelas-oil-and-how-to-recover-it/</link>
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		<dc:creator><![CDATA[Yanire Guillén]]></dc:creator>
		<pubDate>Mon, 19 Jan 2026 10:00:02 +0000</pubDate>
				<category><![CDATA[Events]]></category>
		<category><![CDATA[Finance & Markets]]></category>
		<category><![CDATA[Oil & Gas]]></category>
		<guid isPermaLink="false">https://alphastrategyconsulting.com/?p=7349</guid>

					<description><![CDATA[Many commentators state that the United States&#8217; intervention in Venezuela is all about oil. However, they seem to ignore the reality of what has happened in the country. The current...]]></description>
										<content:encoded><![CDATA[<p>Many commentators state that the United States&#8217; intervention in Venezuela is all about oil. However, they seem to ignore the reality of what has happened in the country.</p>
<p>The current system has been one of squandering and stealing oil for decades.</p>
<p>Venezuela’s oil sector, once the most efficient in the industry, has been systematically looted and weaponised by the socialist <a href="https://www.forbes.com/sites/rrapier/2026/01/03/venezuela-maduro-and-the-long-shadow-of-oil-expropriation/" target="_blank" rel="noopener">Chavez-Maduro regime</a> and its political allies, turning the world’s largest proven reserves into a poverty machine instead of a development engine.</p>
<p>Any serious recovery will require dismantling this network of political exploitation, restoring the rule of law, recapitalising PDVSA, and orienting exports in transparent market conditions.</p>
<h3><strong>From an oil superpower to a poverty machine</strong></h3>
<p><a href="https://www.reuters.com/business/energy/oil-prices-slip-ample-supply-despite-political-turmoil-venezuela-2026-01-04/" target="_blank" rel="noopener">Venezuela</a> went from being one of OPEC’s most efficient producers, reaching more than 3.5 million barrels per day, to a marginal supplier pumping barely 1 million barrels per day.</p>
<p>Despite holding around 20 per cent of global proven crude reserves, production is now less than one per cent of global output, with a collapse in investment, technology, and destructive governance.</p>
<blockquote><p>Venezuela’s GDP is still below pre‑Chavez levels from more than 26 years ago</p></blockquote>
<p>The socialist regime has squandered an estimated 300 billion dollars in oil income on clientelism, ideological projects, and opaque foreign deals that left no productive legacy at home.</p>
<p>Leaders of the dictatorship became extremely wealthy while the country was demolished with a clear objective: create a dependent and scared society.</p>
<p>Venezuela’s GDP is still below pre‑Chavez levels from more than 26 years ago; most of the country lives in <a href="https://www.wilsoncenter.org/blog-post/venezuela-more-mere-numbers" target="_blank" rel="noopener">poverty</a> (90% poverty, 76% extreme poverty) and is suffering one of the largest refugee crises in the world, with 8 million exiled.</p>
<h3><strong>The first looter: Chavismo and PDVSA </strong></h3>
<p>The biggest thief of Venezuelan wealth has been its own dictatorial regime.</p>
<p>PDVSA was transformed from a technically valued company into a politicised cash machine, purged of more than 18,000 qualified professionals in 2003 and turned “red from top to bottom” to finance the Bolivarian project, according to ex-minister Rafael Ramirez.</p>
<blockquote><p>Recent scandals alone uncovered tens of billions more lost through black‑market sales, crypto schemes, and uncollected receivables from intermediaries</p></blockquote>
<p>Transparency Venezuela and other sources point to at least 42 billion dollars stolen in PDVSA‑related <a href="https://transparenciave.org/wp-content/uploads/2022/09/Asi_sefraguo_Ingles_completo_compressed.pdf" target="_blank" rel="noopener">corruption schemes</a>abroad, while the ex-planning minister estimates more than 300 billion dollars in misused or diverted oil income since 1999.</p>
<p>Recent scandals alone uncovered tens of billions more lost through black‑market sales, crypto schemes, and uncollected receivables from intermediaries, according to Credit Suisse.</p>
<h3><strong>External allies as extractive partners </strong></h3>
<p>The current propaganda says that “the United States just wants Venezuelan oil.” This message deliberately hides who is taking the country’s oil for free or on favourable and opaque terms</p>
<p>Recently, around 80 per cent of Venezuela’s exports have gone to <a href="https://www.bloomberg.com/news/articles/2026-01-05/china-what-ousting-of-venezuela-s-maduro-means-for-taiwan-oil-imports" target="_blank" rel="noopener">China</a>, largely as repayment for tens of billions in oil‑for‑loan deals that mortgage future production and leave no real net income in Caracas.</p>
<p>The <a href="https://theconversation.com/with-maduro-gone-and-venezuelas-oil-cut-off-cuba-is-isolated-and-vulnerable-273119" target="_blank" rel="noopener">Cuban dictatorship</a> has received up to 115,000 barrels per day of oil for free, even as Venezuelans endured gasoline and power shortages.</p>
<blockquote><p>Russian and Chinese companies have built up significant reserves and control over logistics in joint ventures</p></blockquote>
<p>The regime exported security agents and repression experts, while Havana then re‑exported part of that crude oil and products, keeping the US dollars that never reached Venezuelan public services.</p>
<p>The Iranian regime has used barter arrangements—gasoline, spare parts, and repression “expertise” in exchange for crude and gold—all in structures designed to sustain the regime rather than the Venezuelan economy.</p>
<p>Russian and Chinese companies have built up significant reserves and control over logistics in joint ventures that were set up without clear rules or fair competition.</p>
<h3><strong>Corruption, subsidies, and the fiction of a blockade</strong></h3>
<p>The Maduro dictatorship often uses the narrative of a US “blockade” to disguise two facts: first, Venezuela maintains commercial relations with all major economies, and the US is one of its main trading partners; second, US measures have been explicitly linked to democratic conditionality rather than resource seizure.</p>
<p>Venezuela is, additionally, one of the most subsidised economies in the world, receiving tens of billions of dollars of support from Russia and China.</p>
<p>Furthermore, the Venezuelan economy was already collapsing before any sanctions were implemented.</p>
<p>The regime itself used sanctions as an excuse to deepen black‑market operations and discretionary deals that enriched the dictatorship leaders while depleting and decapitalising PDVSA.</p>
<blockquote><p>The United States is currently the world’s largest oil producer, at 13.8 million barrels per day</p></blockquote>
<p>According to reports from Infobae, <a href="https://derechadiario.com.ar/us/argentina/while-millions-of-venezuelans-were-emigrating-nicolas-maduro-accumulated-an-estimated-fortune-and-assets-of-38-billion-dollars" target="_blank" rel="noopener">Maduro</a> and his family have accumulated more than 3.8 billion dollars in offshore accounts. The Swiss government has ordered the freezing of all the family accounts in the country.</p>
<p>The claim that Washington needs Venezuelan heavy crude to avoid an energy crisis is simply nonsense.</p>
<p>The <a href="https://www.cnbc.com/2026/01/07/oil-sales-from-venezuela-to-continue-indefinitely-sanctions-will-be-reduced-source-says.html" target="_blank" rel="noopener">United States</a> is currently the world’s largest oil producer, at 13.8 million barrels per day, and is effectively energy independent while still importing and exporting different grades for refining optimisation and trading.</p>
<p>US refiners can source heavy oil from multiple stable suppliers, including Canada, Mexico, Saudi Arabia, the Emirates, Kuwait, and others.</p>
<h3><strong>The preconditions for restoring Venezuela’s oil sector</strong></h3>
<p>Restoring Venezuela’s oil sector is technically and financially possible but will take years and at least 100 billion dollars in investment.</p>
<p>In the short term, rehabilitating existing fields and infrastructure could raise production to 2 million barrels per day. In the medium term, developing new projects in the Orinoco Belt would require substantial capital injections.</p>
<p>To recover Venezuela’s oil sector and benefit citizens, four conditions need to be met:</p>
<p>Recovering property rights, legal security, and independent institutions so that PDVSA stops being a political arm and recovers its status as a professional operator.</p>
<p>Auditing and restructuring PDVSA’s debt and those opaque oil‑for‑loan contracts is essential to recover future production from illegitimate commitments.</p>
<p>Opening the sector to credible international firms from Europe and the US with transparent contracts, arbitration mechanisms, and clear fiscal frameworks that maximise net revenue to the Venezuelan state and citizens.</p>
<p>This will benefit Chinese and Russian companies as well, as they have lost billions in the country.</p>
<p>Redirecting oil income from ideological spending and foreign clientelism towards stabilisation, infrastructure, social services, and healthcare.</p>
<p>Venezuela only has two options: maintaining a narco-dictatorship where Cuba, Iran, China, Russia, and the regime elite extract rent from oil wealth and a starving nation, or recovering an open, rules‑based framework in which Venezuela’s oil finally serves its people instead of their political leaders and foreign supporters.</p>
<p>&nbsp;</p>
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		<title>Another Year of “Monetary Tsunami”: 2026 Outlook</title>
		<link>https://alphastrategyconsulting.com/another-year-of-monetary-tsunami-2026-outlook/</link>
					<comments>https://alphastrategyconsulting.com/another-year-of-monetary-tsunami-2026-outlook/#respond</comments>
		
		<dc:creator><![CDATA[Yanire Guillén]]></dc:creator>
		<pubDate>Mon, 12 Jan 2026 12:50:19 +0000</pubDate>
				<category><![CDATA[Events]]></category>
		<category><![CDATA[Finance & Markets]]></category>
		<guid isPermaLink="false">https://alphastrategyconsulting.com/?p=7346</guid>

					<description><![CDATA[The world remains in an environment of poor growth, high debt and financial repression, with a continuing monetary tsunami that inflates nominal valuations and forces investors to stay selectively focused...]]></description>
										<content:encoded><![CDATA[<p>The world remains in an environment of poor growth, high debt and financial repression, with a continuing monetary tsunami that inflates nominal valuations and forces investors to stay selectively focused on structural winners.</p>
<p>To protect themselves against monetary inflation, investors should continue to invest in equities, as multiples are compelling when looking beyond the “magnificent seven” technology names.</p>
<p>Gold and silver, as well as bitcoin if you accept the volatility, will likely offset the negative real returns of sovereign debt.</p>
<h3><strong>A world of weak growth and excess debt</strong></h3>
<p><a href="https://unctad.org/news/global-growth-expected-slow-26-through-2026" target="_blank" rel="noopener">Global growth</a> in 2026 is expected to be weak but positive, clearly above recession territory due to big unproductive government spending programmes but insufficient to generate solid productivity gains, absorb accumulated public debt, or comfortably finance future spending commitments.</p>
<p>Global GDP is projected to grow around 3.0–3.1% in 2026, broadly in line with 2025 and well below pre-2008 averages.</p>
<blockquote><p>Most developed nations will likely remain in a private sector recession, while the US leads in investment growth and manufacturing improvement</p></blockquote>
<p>The <a href="https://www.goldmansachs.com/insights/articles/what-is-the-us-economys-potential-growth-rate" target="_blank" rel="noopener">United States</a> will likely lead developed markets with 2.1% growth, while the euro area, Japan, the UK, and Canada will likely continue to stagnate.</p>
<p>In fact, most developed nations will likely remain in a private sector recession, while the US leads in investment growth and manufacturing improvement.</p>
<p>China and India, at 5% and 6%, are likely to lead the momentum in emerging economies, while LatAm lags with slightly above‑1.5% growth except for <a href="https://www.spglobal.com/ratings/en/regulatory/article/-/view/sourceId/101662812" target="_blank" rel="noopener">Argentina</a>, which is expected to grow above 4%.</p>
<h3><strong>Monetary policy, inflation and fiscal stress</strong></h3>
<p>Global money supply growth will probably rise significantly above nominal GDP, at least by 12%.</p>
<p>The monetary “tsunami” reflects years of aggressive monetary and fiscal expansion, persistent fiscal deficits, and bloated public balance sheets that still dominate central banks and government policies.</p>
<p>Behind the official debt figures lies a much larger iceberg of unfunded entitlements and implicit promises, exceeding 100% of GDP in the US and more than 400% in France or Germany, which limits inflation control and shows a structurally low‑growth backdrop.</p>
<p>In 2026, the Federal Reserve will remain accommodative, lowering real rates to the neutral level after admitting that tariffs did not cause the feared inflation to burst.</p>
<p>I still expect broad money in the US, Europe, and globally to grow faster than nominal GDP, supporting higher nominal asset prices.</p>
<p>The possibility of a small quantitative easing programme of $20 billion per month or a hidden easing plan to boost liquidity is very likely as well.</p>
<p>Given the political and fiscal fragility in member states such as France, the European Central Bank must remain accommodative.</p>
<blockquote><p>Ongoing inflation along with low interest rates and lots of money available will probably impact how much people spend and invest</p></blockquote>
<p>I expect them to continue with “hidden QE” measures like the anti-fragmentation tool and the monetisation of part of the Re-Arm and Next Generation funds.</p>
<p>While headline inflation globally shows a declining trend, the risk of persistent price inflation remains, and global CPI figures are expected to remain significantly larger than what they should be due to the elevated government spending figures.</p>
<p><a href="https://globalmarkets.cib.bnpparibas/global-outlook-2026-in-a-good-place/" target="_blank" rel="noopener">Global inflation</a> is expected to continue moderating in 2026 but remain above pre-pandemic levels, at 3%, with developed economies above their 2% target, when CPI should be significantly lower if governments did not continue expanding their budgets and deficits.</p>
<p>Ongoing inflation along with low interest rates and lots of money available will probably impact how much people spend and invest, but it will likely increase the prices of hard assets and equities.</p>
<p>On the fiscal side, the combination of high debt and uncontrolled primary spending is especially concerning in France, Japan, and the United Kingdom, where public finances are clearly deteriorating.</p>
<p>Large deficits in Canada, France, Germany, the UK and Japan compare with some improvements in the US, where tax cuts and deregulation reinforce a relatively more attractive combination of growth and spending cuts. ​</p>
<p>This is the main reason why we may see another poor year for sovereign debt with real negative returns, as investors lose confidence in the solvency of major public issuers.</p>
<h3><strong>Geopolitics, fragmentation and currencies</strong></h3>
<p>Geopolitical risk looks slightly lower than in previous years, but tensions in Ukraine and Venezuela, as well as political strain in France and uncertainty in Germany, continue to fragment the European landscape.</p>
<p>Globally, the financial decoupling between China and the United States will keep affecting demand for developed‑market sovereign bonds and support the renewed role of gold as a reserve asset.</p>
<p>In the currency market, the US dollar, which was heavily shorted in 2025, may reverse its trend and strengthen</p>
<p>The DXY <a href="https://tradingeconomics.com/united-states/currency" target="_blank" rel="noopener">US dollar</a> index closes 2025 above its 20‑year average and has held a stabilisation trend since June, helped by better-than-expected growth and deficit reduction.</p>
<p>The US dollar tends to strengthen for seven years after a year of weakness and continues to act as the global reserve fiat currency in a world of weakening state-issued currencies.</p>
<p>However, gold continues to be the <a title="Gold Market" href="https://tomorrowsaffairs.com/the-recent-gold-correction-has-changed-nothing" target="_blank" rel="noopener">preferred asset</a> for many global central banks as all fiat currencies lose purchasing power.​</p>
<p>Poor growth and a monetary tsunami mean that valuations and solid large-cap earnings will likely continue to support investment, without ignoring volatility and growing dispersion between winners and losers.</p>
<p>The strategy remains to stay with the winners, avoid sovereign debt, and use gold, silver and Bitcoin, volatility adjusted, to defend ourselves against the monetary inflation ahead.​</p>
<p>Gold and silver, together with bitcoin—acknowledging its volatility—will continue to act as beneficial hedges against the erosion of fiat currencies’ purchasing power.</p>
<p>Central bank demand supports gold; industrial and technological uses support silver; and the search for a decentralised, non-sovereign asset may drive higher demand for bitcoin.</p>
<p>Geopolitical risk, persistent inflation, poor productivity and manufacturing growth, the end of sovereign debt as a reserve asset, fiscal challenges in developed nations, and the destruction of the middle class through monetary inflation remain the biggest concerns for investors.</p>
<p>​The next year looks a lot like 2025. Weak growth, insane government spending, monetary expansion, and heavy public debt are driving inflationary pressure on assets and reducing potential economic growth.</p>
<p>The most important lesson: the only way to defend yourself against the irreversible decline of fiat money is to invest.</p>
<p>&nbsp;</p>
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		<title>Universal Basic Income: A Subsidy To Obedience</title>
		<link>https://alphastrategyconsulting.com/universal-basic-income-a-subsidy-to-obedience/</link>
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		<dc:creator><![CDATA[Yanire Guillén]]></dc:creator>
		<pubDate>Tue, 16 Dec 2025 13:43:46 +0000</pubDate>
				<category><![CDATA[Events]]></category>
		<category><![CDATA[Finance & Markets]]></category>
		<guid isPermaLink="false">https://alphastrategyconsulting.com/?p=7342</guid>

					<description><![CDATA[All bad ideas come with alleged good intentions. Universal Basic Income (UBI) is one of them. Proponents present themselves as compassionate and caring, when the idea generates guaranteed stagnation and...]]></description>
										<content:encoded><![CDATA[<p>All bad ideas come with alleged good intentions. Universal Basic Income (<a href="https://documents1.worldbank.org/curated/en/993911574784667955/pdf/Exploring-Universal-Basic-Income-A-Guide-to-Navigating-Concepts-Evidence-and-Practices.pdf" target="_blank" rel="noopener">UBI</a>) is one of them.</p>
<p>Proponents present themselves as compassionate and caring, when the idea generates guaranteed stagnation and the destruction of the same collectives they claim to support.</p>
<p>Universal basic income must be condemned as immoral and dangerous, hurting those it pretends to defend. It is the oldest trick in the book to create a zombie-dependent underclass.</p>
<p>It is presented as a generous handout to the poor, but it is nothing more than a sophisticated mechanism to perpetuate poverty and dependency while maintaining the privileges of the elite that eliminates any competition by paying handouts in a constantly depreciated currency.</p>
<p>The proponents of UBI argue that it is a solution to the inequalities generated by globalisation and technological progress. However, nothing could be further from the truth.</p>
<p>UBI is a perverse incentive that discourages work, destroys the entrepreneurial spirit, and condemns millions to a life of subsistence.</p>
<h3><strong>The fiscal reality behind UBI</strong></h3>
<p>Any serious analysis of the implications of UBI shows it is fiscally explosive, inefficient at reducing poverty, and dangerous for the productive base of the economy.</p>
<p>The central criticism is simple: UBI promises “Nordic” outcomes under the budget constraints of debt‑laden economies, so the likely result is not more social justice but weaker growth, higher inflation, more confiscatory taxes, and increasing dependence on the state. ​</p>
<blockquote><p>Even relatively modest universal grants, once paid to all adults, quickly reach hundreds of billions per year, equivalent to several points of GDP</p></blockquote>
<p>A genuinely universal UBI implies annual spending that in most advanced economies would require roughly multiplying tax revenues or dismantling much of the existing welfare state.</p>
<p>The evidence of taxation shows that implementing revenue measures never works because tax receipts never reach the level required to balance the books, capital flight follows, and tax revenues are cyclical, but handouts are structural.</p>
<p>Studies for different countries show that even relatively modest universal grants, once paid to all adults, quickly reach hundreds of billions per year, equivalent to several points of GDP. ​</p>
<h3><strong>The real cost of UBI</strong></h3>
<p>The bill must be paid with higher taxes, more debt, more inflation or all at the same time. In practice, that means significantly higher labour and consumption taxes.</p>
<p>A UBI financed by wealth taxes, higher income taxes and social contributions widens the tax wedge on employment, penalises investment and generates capital flights while hindering formal hiring.</p>
<p>When a guaranteed cheque is combined with higher marginal tax rates, macroeconomic models typically show lower participation, slower capital accumulation and a decline in output.</p>
<p>This is the predictable response to changing the relative price of work versus leisure in economies where the room to raise taxes without harming employment and investment is already limited. ​</p>
<blockquote><p>The “basic income” becomes an irrelevant nominal figure that becomes worthless as the purchasing power of the currency declines</p></blockquote>
<p>A permanent flow of transfers financed by higher government currency issuance through deficits and tax hikes passed on into prices creates persistent inflation, eroding the real purchasing power of the UBI itself.</p>
<p>As governments are forced to resort to artificial money creation to sustain a large new entitlement, the “basic income” becomes an irrelevant nominal figure that becomes worthless as the purchasing power of the currency declines.​</p>
<p>UBI risks creating a dual society: one integrated by employment and private enterprise, and a growing part stabilised in permanent beneficiary status with limited prospects for upward mobility.</p>
<h3><strong>Why most UBI designs fail</strong></h3>
<p>Surveys of leading economists, even consensus social democrat-orientated experts, show that a clear majority oppose large‑scale UBI, mainly because of its cost and the bluntness of the instrument.</p>
<p>Across policy journals, the recurring conclusion is that almost all realistic UBI designs crash into the “inadequate or unaffordable” wall.</p>
<p><a href="https://www.bbc.co.uk/news/world-europe-47169549" target="_blank" rel="noopener">Finland</a>’s experience with basic income is a warning sign for ambitious UBI projects: after a high‑profile two‑year trial, the government ended the experiment because the results showed no discernible employment gains and generated no real benefits, proving to be too costly to be politically and fiscally sustainable.</p>
<blockquote><p>The basic income did not raise employment &#8211; Finland&#8217;s experience with basic income</p></blockquote>
<p>The headline result is clear: the basic income did not raise employment. Official evaluations by <a href="https://basicincome.org/topic/kela/" target="_blank" rel="noopener">Kela</a> and the Finnish government show that in the first year there was no statistically significant difference in days worked between basic‑income recipients and the control group, despite better financial incentives and the removal of job‑search conditions.</p>
<p>In the second year, employment among recipients improved slightly—only a few extra days of work per year on average—and even those modest gains are hard to interpret because a separate “activation model” reform tightened unemployment‑benefit rules for everyone at the same time.</p>
<h3><strong>Two central concerns</strong></h3>
<p>From the perspective of economists sceptical about UBI, the Finnish experiment confirms two central concerns.</p>
<p>First, if a generous, unconditional payment to selected unemployed people in a rich, well‑governed country produces only marginal changes in work behaviour, it is unrealistic to expect that a full UBI—much more expensive and financed through higher taxes—will dramatically boost employment. ​</p>
<p>Second, because the Finnish trial was not financed, it sheds no light on the wider general‑equilibrium effects of paying a basic income to everyone through higher taxes, spending cuts or more debt.</p>
<p>Those financing choices are precisely where many of UBI’s biggest risks lie: weaker work incentives for middle earners, heavier tax wedges, lower growth and a politically entrenched transfer that is almost impossible to roll back.</p>
<blockquote><p>Once an unconditional universal income exists, electoral logic pushes politicians to expand it, not to reform or cut it</p></blockquote>
<p>UBI adds many political‑economy risks and the degradation of incentives. The rise of UBI is another manifestation of redistributive populism that ultimately rebrands middle‑class incomes and small savers as “rich” to be squeezed to fund a permanent expansion of cheques and nominal “rights” that ultimately erode the productive base.</p>
<p>Once an unconditional universal income exists, electoral logic pushes politicians to expand it, not to reform or cut it, even in low‑growth, high‑debt environments.</p>
<p>This creates a ratchet effect: more structural spending, more borrowing, and heavier tax pressure on a shrinking pool of productive taxpayers, accelerating offshoring, informality, and brain drain.</p>
<h3><strong>UBI and the reality of global poverty</strong></h3>
<p>UBI is not only an economic mistake but also a mechanism of political dependency: it turns a growing share of citizens into a subclass of dependent clients of the state whose vote focuses on preserving transfers instead of backing reforms that raise productivity, investment and high‑quality employment</p>
<p>Furthermore, in over‑indebted countries, adding a large permanent entitlement increases the temptation to use inflationary policies to finance it, eroding the real value of wages and savings.</p>
<p>The UBI disincentivises work. Why work if you can receive a monthly cheque from the state? Studies show that when people receive unconditional income, labour participation decreases. In the second place, UBI destroys purchasing power.</p>
<p>To finance this supposed panacea, governments would have to print money or increase taxes, which would generate inflation and devalue the currency and lead to capital flights.</p>
<p>The worst part is that UBI benefits the privileged classes of rich countries at the expense of the poor of the world.</p>
<p>While the elites of the West receive their monthly stipend, the workers of developing countries are left without markets and opportunities. It is a selfish and myopic policy that ignores the reality of global poverty.</p>
<h3><strong>The alternative to UBI</strong></h3>
<p>UBI is not a solution; it is a problem. It is the perfect tool for politicians who want to buy votes and for bureaucrats who want to justify their existence. It is the euthanasia of work and the suicide of freedom.</p>
<p>We need real solutions: education, opportunity, and freedom. Not handouts that chain people to dependency.</p>
<p>Against this model of permanent subsidy, the alternative is to lower tax wedges on work, create stronger legal and investor certainty, better education and active policies that make it easier to create jobs and businesses instead of replacing them with a fake guaranteed income.</p>
<p>The real choice is not between compassion and cruelty but between a system of subsidised stagnation and one of economic freedom and social mobility.</p>
<p>&nbsp;</p>
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		<title>The UK economy is in bad shape, but don’t blame Brexit</title>
		<link>https://alphastrategyconsulting.com/the-uk-economy-is-in-bad-shape-but-dont-blame-brexit/</link>
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		<dc:creator><![CDATA[Yanire Guillén]]></dc:creator>
		<pubDate>Mon, 08 Dec 2025 13:39:53 +0000</pubDate>
				<category><![CDATA[Events]]></category>
		<category><![CDATA[Finance & Markets]]></category>
		<guid isPermaLink="false">https://alphastrategyconsulting.com/?p=7336</guid>

					<description><![CDATA[A recent study, “The Economic Impact of Brexit” (Bloom et al., 2025), argues that their simulation models suggest that Brexithad reduced UK GDP by 6% to 8% by 2025. There...]]></description>
										<content:encoded><![CDATA[<p>A recent study, “The Economic Impact of Brexit” (Bloom et al., 2025), argues that their simulation models suggest that <a href="https://www.nber.org/system/files/working_papers/w34459/w34459.pdf" target="_blank" rel="noopener">Brexit</a>had reduced UK GDP by 6% to 8% by 2025.</p>
<p>There are several inconsistencies in the study, starting with a view that staying in the EU would have not penalised growth, which does not seem logical considering that the UK’s major peers in the European Union are in stagnation and in a worse situation than the UK.</p>
<p>One can hardly assume that the UK would have led strong economic growth inside the EU when Germany, France and Italy remain in stagnation.</p>
<p>Furthermore, the study does not explain why the European Union registered no real improvement in growth, as well as showing no impact in their models from the excessive regulation that even Mr Draghi and the European Commission acknowledge to be large burdens of growth.</p>
<h3><strong>A tax system that “combines the worst of the US and Scandinavia”</strong></h3>
<p>No. Brexit did not wipe out 6% to 8% of the UK&#8217;s GDP. Germany and France are in stagnation, as is the euro area. Brexit, therefore, cannot be the cause of the UK&#8217;s stagnation, as it is experiencing similar economic conditions to France, Germany, and even Canada or Japan.</p>
<p>What has destroyed the UK&#8217;s economic potential was maintaining and increasing all the regulatory and tax burdens of the EU, raising taxes and imposing net zero interventionism.</p>
<p>This is more likely the reason why the UK economy is as weak as Canada, France and Germany: politicians have demolished the private sector and bloated political interventionism.</p>
<p>Brexit was supposed to open the UK economy to the world by eliminating unnecessary regulatory burdens, reducing taxes and increasing economic freedom.</p>
<blockquote><p>UK slumped by keeping all the negatives of the EU burdens and eliminating all the positives of the UK’s own tax system</p></blockquote>
<p>Instead, governments increased regulatory burdens to growth, imposed net-zero policies that crippled the industry and made energy bills even more expensive, and implemented a <a href="https://www.ft.com/content/75ce2fba-f6df-4d72-a5a4-0a297d50891f" target="_blank" rel="noopener">tax system</a> that “combines the worst of the US and Scandinavia”, defined as “eating the rich” by the Financial Times.</p>
<p>The UK did not fall into stagnation because of Brexit. It slumped by keeping all the negatives of the European Union burdens and eliminating all the positives of the UK’s own tax system.</p>
<p>The result? A record capital flight. The UK’s leading export is millionaires, which leads to lower tax collection, lower investment and a disastrous economy.</p>
<h3><strong>Poor growth, high borrowing, and negative expectations</strong></h3>
<p>The latest official data paints a negative picture for the UK economy. Poor growth, high borrowing, and negative expectations ahead of Chancellor Rachel Reeves’s <a href="https://www.bbc.co.uk/news/articles/cql9ez5grpqo" target="_blank" rel="noopener">Autumn Budget</a>.</p>
<p>Expecting another interventionist budget, consensus estimates warn of increasing challenges for growth, employment, and investor confidence.</p>
<p>UK real <a href="https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpfirstquarterlyestimateuk/julytoseptember2025" target="_blank" rel="noopener">GDP</a> grew by just 0.1% in the third quarter of 2025, significantly lower than the already weak 0.3% of the preceding quarter, missing market forecasts of 0.2%.</p>
<blockquote><p>Consensus among forecasters anticipates UK GDP growth of just 1.5% for 2025</p></blockquote>
<p>Annual growth reached 1.3% for Q3, and momentum worsened, as the effects of higher spending and rising taxes combined with sluggish consumer spending may create a worse slowdown into 2026.</p>
<p>The Office for Budget Responsibility (OBR) recently downgraded its estimate for economic growth, increasing the deficit and reminding us that higher taxes would not help improve receipts.</p>
<p>Consensus among forecasters, including the EY ITEM Club, anticipates <a href="https://www.ey.com/en_uk/newsroom/2025/11/uk-economic-growth-forecast-upgraded-for-2025" target="_blank" rel="noopener">UK GDP growth</a> of just 1.5% for 2025, with a deceleration to 0.9% next in 2026.</p>
<h3><strong>Rising taxes and weak growth </strong></h3>
<p>With these estimates, the UK will be in a very weak economic growth environment. However, when we look at the estimates for France, Italy, and Germany, they are not better at all.</p>
<p>For <a href="https://economy-finance.ec.europa.eu/economic-surveillance-eu-member-states/country-pages/france/economic-forecast-france_en" target="_blank" rel="noopener">France</a>, estimates of 2025 GDP growth are at 0.7%, with 0.9% in 2026. For <a href="https://www.reuters.com/world/europe/german-economic-council-cuts-growth-forecast-2026-2025-11-12/" target="_blank" rel="noopener">Germany</a> it is worse, at +0.2% for 2025 and 1.2% for 2026. Furthermore, <a href="https://economy-finance.ec.europa.eu/economic-surveillance-eu-member-states/country-pages/italy/economic-forecast-italy_en" target="_blank" rel="noopener">Italy</a> is expected to grow 0.4% in 2025 and 0.8% in 2026. No, Brexit is not the cause of the UK’s problems.</p>
<p>The UK problem comes from governments that think they can solve the borrowing problem by constantly raising taxes, despite the evidence of failure.</p>
<blockquote><p>Deficit rises with higher taxes as weak growth erodes revenues while unnecessary spending remains</p></blockquote>
<p>The latest UK borrowing figures reveal the extent of the financial challenges of the economy. In October 2025, UK government borrowing hit £17.4 billion, exceeding both consensus forecasts and the Office for Budget Responsibility’s prediction.</p>
<p>This was the third highest borrowing figure in October since records began. Year-to-date (April to October), the government borrowed £116.8 billion, £9 billion more than last year and the second highest since modern records began.</p>
<p>Government net debt has risen to 94.5% of GDP. Although lower than France’s 114%, it is an unsustainable level considering the expected borrowing path. Deficit rises with higher taxes as weak growth erodes revenues while unnecessary spending remains.</p>
<h3><strong>The fiscal hole</strong></h3>
<p>The fiscal hole is estimated at £20–30 billion for the upcoming budget, and the evidence shows that higher taxes will not solve it.</p>
<p>The last budget’s combination of higher spending and tax hikes depressed the private sector growth and generated an even worse borrowing outlook.</p>
<p>Furthermore, recent GDP increases were artificially inflated by government spending rather than a productive economic recovery.</p>
<blockquote><p>The anticipated Autumn Budget is expected to bet again on tax increases</p></blockquote>
<p>Without meaningful productive investment and supply-side reforms, stagnation will worsen. Additionally, the negative outlook for fiscal deficits means that British 10-year bond yields have risen to more than 4.5%, showing the evidence of the loss of investor confidence after the budget announcement.​</p>
<p>The anticipated Autumn Budget is expected to bet again on tax increases. Reeves has reiterated a commitment to “iron-clad” fiscal rules, which seems to be a joke when she is constantly increasing spending.</p>
<p>Deficits are always a spending problem. Consensus expects damaging measures such as freezing income tax thresholds, increasing property taxes, and introducing new levies on sectors from electric vehicles to gambling.</p>
<p>However, these tax increases will further undermine investment and job creation and may accelerate capital flight among high earners and businesses.</p>
<h3><strong>Confidence low among investors and businesses</strong></h3>
<p>The OBR’s recent reduction in the UK’s productivity forecast weakens long-term fiscal sustainability. For every 0.1 percentage point drop in productivity, government borrowing is projected to increase by £7 billion, with a recent revision threatening a £21 billion budget shortfall</p>
<p>Meanwhile, unemployment is already on a slow rise due to elevated labour costs and is forecast to rise to 5% in 2026. Considering that inflation is rising to a 13-month high, the decline in living standards is evident as effective real net wage growth becomes almost non-existent.</p>
<p>When we look at expectations for Reeves&#8217;s Autumn Budget, confidence is low among investors and business owners. Analysts expect a “smorgasbord” of targeted tax changes, according to the BBC, rather than bold supply-side reforms.</p>
<p>Public opinion polls show a lack of support for the government’s handling of the economy, with 76% of citizens stating that the government is managing the economy badly or very badly, according to YouGov.</p>
<p>The result of big government and high taxes is stagnating GDP, capital flight, persistent deficit and a rising debt burden.</p>
<p>High taxes and big government are the recipe for stagnation. UK citizens deserve better, but the harsh reality is that the solution is not to copy France or rejoin the European Union, which are in worse shape, but to abandon net-zero and regulatory burdens and reduce taxes to attract investment and jobs.</p>
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