Blog CFO - Cluster Family Office

Russia can revolutionise the bond market.

Veteran Bloomberg analyst Mark Gilbert wrote a prescient and excellent book in 2010 titled «Complicit: How greed and collusion made the credit crisis unstoppable«. Today he performs an analysis which could well be another of his clairvoyant premonitions: Russia could revolutionise classic bond issuance due to the interest generated by its low indebtedness, but above all due to the fact that it is under Western-imposed sanctions that prevent banks from operating with that country normally. (more…)

Rentiers, bondholders and other endangered species.

Resulta evidente que la ingente labor de los bancos centrales del mundo desarrollado está acabando con uno de los pilares del Sistema financiero hasta hoy conocido: La llamada genéricamente renta fija. Y no sólo los bonistas o rentistas van a sufrir pérdidas -o en el mejor de los casos ausencia de rentas- sino que junto con ellos hay un mundo de inversores institucionales que dependen también de retornos estables a largo plazo, como por ejemplo aseguradoras o fondos de pensiones públicos y privados. ¿Qué están haciendo estos inversores ante la ausencia de rentas y el oscuro horizonte de la renta fija? La respuesta es tan diversa como el perfil de los afectados. (more…)

The Silence of the Conservatives.

About four years ago, the state of the European economies was so divergent that the markets were pricing in defaults across almost the entire periphery. Risk premiums were pushing half of Europe towards insolvency, and Germany was refusing to allow Draghi to flood the south of the continent with cash. The countdown to the break-up of the EU was underway, and that is what we warned at the time on Gurusblog. However, against all odds (at least as far as we were concerned), Draghi ignored the calls from Schäuble and began to expand the ECB’s balance sheet, just as the Fed had been doing since 2008. That marked the start of a journey into the unknown for the group of developed economies. (more…)

All bets are off.

The medium to long term horizon for investors is very dark. A report by McKinsey Global Institute (download here) hits the nail on the head in concluding that investment returns in general over the next two decades (at least) will be very low. Historically well below what the markets have offered over the last 30 years, and I would add, well below what has been achieved on average over the whole of the 20th century, Great Depression included. There are plenty of reasons for this if you open your eyes and look at the numbers. Let's see. (more…)

Renting or buying?

Many would do well to tinker again with the typical interactive pages, such as the one offered by the NYT («Is it better to rent or to buy».»), to try to find out whether it would be more interesting today to buy or rent a property. As you can see if you do this exercise, the key is in the variables of the evolution of the price and rent of real estate, but above all of the income that we are able to obtain from the money in the coming years. We can also fine-tune by introducing a multitude of variables such as inflation expectations, taxes on the purchase and sale of the property, maintenance and community expenses, real estate agent's commissions, etc. Logically, the structure of this interactive website is based on the costs and format of the North American Real Estate market, but you can adapt it approximately to our real estate market.

It is difficult to foresee where real estate prices will go in Spain 5 to 10 years down the road. But even more difficult to gauge is the inflation - or deflation - to which central banks will lead us in the medium to long term, even they have no idea. And to complicate matters further, we must be aware that, depending on inflation and the price of money, financial repression (the effects of which we explained in detail in 2013) will last, penalising rentiers and other investors, or will give way to an increase in investment returns in general. And as we said, this is perhaps the most important variable in the decision to rent or buy a property at the moment. But beware, because many poorly advised investors, faced with their inability to achieve financial returns, are throwing themselves into the arms of a real estate market that still has a downward path in the medium and long term, despite the much-vaunted rebound in the short term. Especially if the national economy remains in the ICU with a galloping deficit and growing debt. Because both evils are the enemies of sustainable economic growth and hinder job creation and wage increases, which are so necessary to turn around the current downward real estate cycle that began almost a decade ago. In this New Normal, reality is very stubborn and the future is even more uncertain.

Putin and the Middle East conflict, 2 years on.

Some of you may remember the article we published a little over two years ago entitled «Russia's Motives».». At the time the Western media could not (and do not) see beyond their noses and insisted on warning of Putin's demonic will to invade the whole of Ukraine after annexing Crimea. They biasedly ignored the fact that the elected Ukrainian president, Yanukovych, had been overthrown in a coup d'état dubbed Euromaidan, Maidan Square Revolution, Revolution of Dignity and other sweetened euphemisms. The fact is that, apart from the fact that this coup/revolution has, over time, done more harm than good to Ukrainians as a whole, Western public opinion feared that Russia's military response to Crimea was only the beginning of a pan-European war invasion in the purest secular style. We recommend re-reading it before continuing our reflections today, two years later. (more…)

The Big Write-Down

La Historia nos demuestra que ante un problema la opción que se acaba aplicando es la menos dolorosa para la mayoría a corto plazo, a pesar de que no sea la mejor solución ni la más simple o racional. En cambio, las opciones que perjudican y son más dolorosas para la mayoría, a pesar de que sean las mejores o únicas soluciones, difícilmente acaban sucediendo. Por ello, un desenlace más que posible para el callejón sin salida en el que se han -nos han- metido los bancos centrales con su creación de dinero y deuda hasta el infinito y más allá, bien pudiera ser un masivo y jamás visto write-down o default diseñado de dicha deuda. Veamos los detalles. (more…)

The volatility of the New Normal's volatility overturns modern portfolio theory.

According to this Fundspeople article as you will find summarised below, volatility as a moderately reliable tool for managing investment portfolios is fading in the face of the new financial normal in which we live. Inaccurate interval averaging and uncontrolled shifting correlations (or controlled by political decisions and central bank interventionism as never seen before) mean that much greater errors are being made in calculating portfolio volatility today than just 5 or 10 years ago. The term that defines this financial unpredictability is heteroscedasticity, and it is here to stay. Let's look at it:

The traditional approach to portfolio volatility is inherently limited. It is common for investors to measure historical volatility by looking at the standard deviation of interval returns over a defined period. By combining this information with historical levels of correlation between different asset classes or securities, investors seek to diversify while distancing their portfolios from irregular risk (diversifiable risk). Typically, investors do this by diversifying their exposures across multiple asset classes, sectors and regions. The modern portfolio theory approach is only effective if certain conditions are met. (more…)

Greece: The moment of truth.

The time has come. The last cartridge has already been fired, and it is none other than the reunification of the principal payments that Greece owes to the IMF for the month of June until the last day of the month. In other words, 30 June is the moment of truth, since all possible rabbits have already been pulled out of the chisteras of the euro-bureaucrats in these almost 3 years of Greek agony.

Yesterday it was requested in extremis that the June maturities, starting today on the 5th and followed by another due date on the 12th, be combined into a single payment on the 30th. This was the last legally established possibility of postponement without falling into manifest default. No more. The end of the pantomime and theatrics between Varoufakis, Tsipras, the men in black, the iron hand of Dijsselbloem, Merkel and the Vaseline of Draghi and Lagarde. On the last day of June Greece will officially go bankrupt (unofficially it has been bankrupt for years), unless Germany and the rest of the «rich north» give in, i.e. pay the debts of the corrupt south, which is highly unlikely. Let us not forget that some central banks have already prepare contingencies The «Greexit» has been unspeakable for more than 3 years. (more…)

The US law that will prioritise the Client's interest

Putting their clients' interests first. Something so obvious but at the same time so difficult to find among financial advisors and bankers is what a new law promoted by the US Department of Labor is going to regulate, for the time being only advisors who specifically recommend investments for their clients' old age (retirement investments and 401k). Perhaps in time this law will also be extended to all other non-specific advice for old age or retirement, although it seems unlikely that one day we will see something similar for all other advisors/bankers/real estate salesmen, home insurance, etc. (more…)

(+34) 93 626 47 75

(+34) 91 794 19 82

Cluster Family Office Blog

Russia can revolutionise the bond market.

Rentiers, bondholders and other endangered species.

The Silence of the Conservatives.

All bets are off.

Renting or buying?

Putin and the Middle East conflict, 2 years on.

The Big Write-Down

The volatility of the New Normal's volatility overturns modern portfolio theory.

Greece: The moment of truth.

The US law that will prioritise the Client's interest

Shall we help you search?

Cluster Family Office

Do you need help in capital and wealth management?

How can I avoid the negative effects that my fortune may have on my children?

How and when should I talk to my children about family wealth, and what relationship should they have with money throughout their adolescence?

How can I measure the real risks of my investments and protect my assets adequately?

Do I have sufficient liquidity and stable income to cover my needs on a permanent basis?

(+34) 93 626 47 75

(+34) 91 794 19 82