Cluster Family Office Blog

We are delighted to receive an increasing number of submissions from readers every day, which we believe are worthy of publication as articles. We regret that we are unable to publish some submissions which are also of a very high standard but which we must set aside, either due to their subject matter or because we have too many to accommodate. Many thanks to you all.

This time, we’re sharing a candid reflection from a professional in the financial sector who is fully aware, in his own words, that: «The similar outlook that we share (he himself and CFO) is a source of unease for much of the sector». A true lesson in clarity in a corporatist world of professionals, who nevertheless have no qualms about stabbing each other in the back in exchange for money and/or another step up the career ladder.

Ever since I came across your website and blog, I’ve felt a certain urge to keep reading your work and an interest in getting to know you. I think what has struck me most, compared to other websites – not just those dealing with private banking but also “family offices” – is reading some perspectives that are perhaps closer to sociology than the usual, familiar rhetoric. After all, we mustn’t forget that we’re talking about human beings who, moreover, have assets and require professional assistance because they believe that the person or organisation they’re turning to knows more than they do in this area, or because they need to delegate as time is not unlimited and priorities must be set.

Building on the previous article about bank codes, I’d like to offer a few comments and reflections. I broadly agree with your view, but it was interesting to see DJ’s reasonable criticism and the subsequent reply.
It’s not easy to go against the system; I firmly believe in “you win, I win, we all win”, but it’s also all too common to hear ‘I win, I win…’ Years ago, even before I’d finished my degree, I already regarded the financial sector as a ‘marvellous’ destroyer of wealth; but by process of elimination—ruling out what I didn’t want to do—and also out of personal inclination, I ended up in it and, somehow, I haven’t managed to leave it. My view of life and of people – somewhat naïve, idealistic and a little altruistic – as well as my constant restlessness, has prevented me from moving into the financial sector and others without offering (constructive) criticism.

We operate within society, business and politics, navigating the line between what is legal and what is not. If we stick to the former, everything appears to be in order; and if you also make a fortune, you’re considered particularly clever. It is legal to sell a highly illiquid product such as a pension plan without proper planning or analysis – provided, of course, that you offer a brilliant set of frying pans as an incentive. It is legal to subscribe to international funds with an entry fee of 5%, provided the prospectus allows for it. (Here we’re already talking about high-end private banking.) In this case, it would be illegal to steal directly from the client, but I think that would actually be the more honest course of action on the part of the “adviser”.
Being an idealist, a purist in the financial sector and strict when it comes to certain principles – believe me when I say it’s no easy feat. For me, it came at a significant personal and professional cost, but as we know, it’s through the tough times that we learn and grow the most.

I don’t think that’s the key factor or the difference either – whether you work for a bank or as an independent adviser. I’ve met some very good professionals working for banks, and I’ve also worked closely with independent private bankers who had a great deal of freedom in their work; whilst I have no doubt about their dedication and ability to work hard on a day-to-day basis, I wouldn’t have dared to entrust even a tiny fraction of my assets to any of them. Mind you, thanks to these unsuspecting clients, the sums earned by some of these advisers were substantial. Well, successful professionals, aren’t they? They don’t strike me as such, and the fact is that the difference – now more than ever – is made by the people involved. We are facing a critical and complex global economic situation, but part of it – at least as far as the financial and property sectors are concerned – is a crisis rooted in a lack of responsibility and integrity, in greed, and in access to quick and easy money…
I believe that private banking has a unique opportunity to reform itself; the usual empty promises must stop, and a change in the way we work is also necessary. People are even starting to talk about clients at private banking conferences. It sounds good, but I also know that traditional sales practices – the pursuit of high margins and short-term profits – are still very much in place. As a concept, it’s interesting, and I certainly think it would go hand in hand with words such as judgement, common sense, integrity, commitment and responsibility. It really is something worthwhile to apply to the profession – useful for devising the investment strategies we’re told about, and also for our day-to-day personal lives. To this, I’d add – to really add value, or at least try to – the ability to manage the psychology of the client, our own, and that of the market itself. After all, holding the CFA, CAIA and EFA qualifications, along with seven master’s degrees in finance and financial markets, is all very well, but once you get to know the market players, the way to deliver value to the client is, I believe, closer to psychology than to technical expertise.

I truly hope that the blow dealt by the “financial tsunami” will bring about certain changes – for a start, a lesson in humility and prudence. Let’s not kid ourselves: there are many victims of the private banking sector. I’m sure there’s more than one businessman who’s done nothing but work all his life, and who has seen his 12% income from his “vegetables” was drastically reduced by a bunch of blokes in suits with matching cufflinks, who spoke in Anglicisms and with a certain air of arrogance because they were far more important than this honest gentleman; after all, they worked in “private banking”. That said, these men might well have grey hairs, because there is also the younger version who, with an air of smugness and without the slightest blush, mismanage their clients’ assets, relying on the confidence derived from a degree, a master’s, high self-esteem and a certain arrogance, as well as having superiors who encourage such behaviour.

And this is private banking – which, in terms of account balances and assets, is what its clients have experienced most – but we must never forget those others who deal with personal or commercial banking… because for each individual, their balance is important; €50,000 or less for one person may represent 100% of their assets and demands the same respect, rigour and seriousness as €5,000,000, which may represent 10% for another person or their 100%. But I don’t want my view to come across as negative; I simply wanted to join you in your reflection and perhaps, at the same time, feel supported myself. I value life and people very highly, and that is why I want, above all, to be optimistic, but I believe that responsibility, solidarity, integrity, respect, common sense and good manners are neglected more than is desirable in many sections of society, and that dull and destructive people all too often play an excessively prominent role, both in terms of their influence and the time they remain in the spotlight.
Warm regards, and congratulations on your blog.

RM

I can only add that we must not confuse wealth with cash. And that private banks are unlikely to manage our non-monetary assets (not even some so-called ‘family offices’). If we focus exclusively on financial investments, we risk squandering our wealth and that of our heirs by neglecting our property and business assets. And an excellent entrepreneur is often a poor manager of their own wealth.

We are immensely proud that our humble blog is able to inspire this sort of reflection from professionals such as RM, who once chose to leave the easy path behind in order to follow the right one. Their success, and theirs alone, is the true measure of success.

P.S. There are loads of videos on YouTube about bankers, and we’ve only included a small selection. Don’t miss the first Monty Python sketch.

Given the debates and discussions in which almost everyone feels able to have their say – even pseudo-financial politicians – I think it would be beneficial to share with you all an exercise in humility and realism regarding the future financial situation.

To recognise that, in the known system, rebalancing the quantitative formula: mv = pq (I’d recommend that those of you who haven’t read this article yet do so first) It can come about in various ways It is a rational and honest approach. So too is accepting that the creation of money in circulation and the increase in M1 may be insufficient to achieve that rebalancing, but it may also be excessive. And the uncertainty is even greater if we recognise that political, financial and monetary measures of an unprecedented nature are being applied to the formula, and therefore with consequences predictably unpredictable. And we should also bear in mind that the systemic changes we have been implementing – most of them out of necessity, or even without a clear understanding of what is happening or of their significance – may mean leaving behind models such as the essential and mathematical ones mv=pq. In favour of what? Only God and/or humanity will say.

The massive bailouts, the absurd and lethal leverage we have been experiencing (and which we are still experiencing and will continue to experience for a long time to come), and the rapidly escalating global crisis mean that the only realistic short-term solution to systemic collapse is an increase in m, whilst keeping our fingers crossed that he makes a full recovery v based on a trust founded on our short-term memory.

Even so, the question that underlies all financial and intellectual discourse and debate today is whether these movements will lead to p whether we will continue to experience deflation or, on the contrary, see almost apocalyptic hyperinflation within a few years. In fact, many are already pricing in this imminent rise in prices and take it for granted that deflation’s days are numbered. Paradoxically, perhaps the q is the variable over which human beings have the least control through their leaders, even though it depends entirely on us as a collective.

If, despite the crisis, the decline in macroeconomic indicators stabilises and, furthermore, the velocity of circulation remains unchanged, an increase in the money supply would obviously lead to inflation. But The same increase in the money supply could persist in a deflationary environment if productivity and the velocity of money remain low.. Why might they remain in a precarious situation? Because of a deepening crisis that is undermining confidence and dampening consumption, whilst at the same time taking a heavy toll on GDP figures. Let us not forget that the lifeline of global economic growth – the emerging economies – is also facing serious problems. For example, China’s growth of 6.1% in the last quarter is inflated by deflation estimated at 2.3%, leaving real growth at a modest 3.8%. Nor should we overlook the obvious fact that the increase in m may occur to a greater or lesser extent, and that There is no benchmark whatsoever for determining the extent to which the supply of money in circulation is abundant or scarce. To claim that hyperinflation is imminent is just as reckless as claiming that, in a forest on fire, the imminent arrival of the fire brigade (an increase in m) will not only put out the fire but will also cause severe flooding in the surrounding area (an increase in p). Without knowing how much water they are going to use, and without taking into account the dryness of the conditions, the wind, any rain that might fall, etc. In other words, neither the other variables in the formula nor the extremely complex global uncertainties that will play a decisive role in the future development of the global economy.

We simply regard this as a possible scenario, but one that is by no means certain. Faced with such an uncertain scenario and in such uncharted territory, as we forge a path towards a new system, we must not assume that hyperinflation is inevitable as a result of the rise in M1, since the variables in decline from mv=pq can perfectly well offset an increase in the money supply which, moreover, no one is in a position to quantify or pinpoint in time.

We cannot even be sure that mv=pq Let this be the equation that governs a new system towards which we are heading without even realising it. And there is no other way forward than to abandon a system that is broken, as we set off towards an unknown destination with our saddlebags full of expansionist economic theories that may not serve us well wherever we are headed. Or perhaps they will, but only after thorough revision.

Our wealth can thrive and grow perfectly well in a deflationary environment, whilst at the same time preparing us for possible short-term hyperinflation that we may never actually see. Deflation, inflation… all I know is that I know nothing.

An interesting city, without a doubt. An oasis between the desert and the sea, between tradition and vice, between business and leisure. A place where almost everything remains to be done, but where there is money to do it.

The crash in the property bubble is proving to be a major blow, and offices and homes priced at 20,000 $/m² are becoming increasingly rare. They are by no means immune to the crisis, but there is one factor that sets them apart: The United Arab Emirates (UAE) is a wealthy state amidst a growing wave of sovereign defaults. And that distinguishing factor could prove vital if this global crisis drags on, as is to be expected.

In fact, Dubai has no oil (or very little) and its wealth comes from the capital, Abu Dhabi, another of the seven emirates that make up the country. The question is: why hasn’t the growth and boom of Dubai been channelled into the capital, Abu Dhabi, itself, given that it is this emirate that foots the bill? The answer is religious. Both the capital and the rest of the country wish to keep their distance from the debauchery and excesses of Dubai. The aim is to confine the widespread consumption of alcohol and the almost total relaxation of religious customs and prohibitions to that lawless (Islamic) city: Dubai. All that’s missing is gambling to increasingly outdo Las Vegas.

But returning to the impact of the crisis on the city that has seen the most recent development on the planet, we would say that having a wealthy state behind it makes a huge qualitative difference when it comes to facing the coming years. It is true that many projects have been put on hold indefinitely, and that over the next five years, Dubai’s growth will bear little resemblance to that of the past five years. However, the construction of the planned infrastructure will remain in excellent shape during these years of crisis, and this will go a long way towards helping Dubai overcome the current global recession. The state will not go bankrupt, even if it were to have to bail out its own banks. Its public deficit is non-existent because it was never balanced through taxation of society; rather, its wealth stems from vast natural resources in the form of crude oil and natural gas. Therefore, Society will suffer, but it will not drag the State down with it; quite the contrary, in fact.

We’re not saying that investing in property in Dubai is a good way to safeguard our wealth – far from it. But perhaps, as a speculative investment, Dubai may offer added value in the future, once prices have fallen to more reasonable levels. Because whilst we’re still in the thick of this crisis, Dubai will continue to build all the necessary infrastructure so that, when we emerge from it, the city will be in an even more privileged position compared to the rest.

The fact is that this crisis is bankrupting many states, which will find themselves increasingly unable to even maintain their respective countries’ infrastructure as the recession drags on. It is unthinkable to devise a plan for significant growth at a time when national coffers are as leaky as a sieve. Unthinkable for everyone except for a few exceptions such as Dubai, which has the UAE behind it, with firm and clear political resolve, despite a crisis that affects only those states that rely on tax revenue – in other words, the vast majority.

If the future lies in the East, a paradise halfway between East and West stands a good chance of becoming a world-class holiday, leisure and business destination. Right at the heart of an opulent and extremely wealthy Middle East, whilst the world continues to run on fossil fuels.

When we wake up from the nightmare of depression, the global picture will be nightmarish, except in a few parts of the world where the miracle of economic growth will have continued against all odds, fuelled by petrodollars. It is these places that will shape the speculative future.

It will come as a surprise to many to realise that, over numerous periods and for a long time, we have experienced decades in which stock market returns have not outperformed bond returns. It is important to emphasise that we are not saying it is more profitable to invest in bonds than in shares, nor the opposite, as it essentially depends on the economic cycle we happen to be experiencing as investors. And we must remember that our lives as investors are short compared to the long-term charts that can cloud our judgement. A generation’s ability to generate wealth that can be invested in the stock market or fixed-income securities is usually limited to a few decades, assuming we are able to hold assets, remain consistent and disciplined, and also enjoy a long life in which to make such investments. In short, the circumstances of most ordinary people prevent them from reaping the long-term benefits of either market, with a few exceptions. Another matter is the intergenerational transfer of portfolios, which is usually rare and only relatively common in the case of vast fortunes.

The following chart shows the cumulative relative performance of shares compared with bonds over the last 207 years. The periods during which the stock markets did not exceed their previous high are marked by horizontal lines. High Water Mark.

We must also analyse specific periods that reveal more than a simple glance at the chart would suggest. In fact, the life of an investor consists of nothing more than small segments of very long-term charts such as this one. Any investor who had entered the S&P 500 market; between 1980 and 2008, and up to January 2009, would have achieved worse returns than if they’d invested in the 20-year US Treasury bond (20Y T-Bond), also relative to January 2009. Surprising, isn’t it? Well, there’s more. If we go back 40 years, to 1969, investors in 20-year bonds would still have outperformed those in the stock market right up until January 2009 (even though bonds went through a very rough patch during the 1970s).

As we can see from the graph, out of the 207 years of historical data, there are three long periods during which stock market returns did not outperform the 20-year bond: 1803–71, 1929–49 and 1968–January 2009. That’s a total of 129 years out of 207. Remarkable. Statistically, therefore, it is highly likely that, throughout the investment lives of our ancestors and our own, we have at least partially overlapped with periods in which equities have not outperformed fixed income. Compound interest works wonders over the long term, and although our memory may be short and selective, history is full of long periods in the markets when, to say the least, flat.

Where do we stand at the moment? Nobody knows, but the fact is that we’ve come out of a period of stock market bubble-like excesses that have led to a crash, and we don’t know when it will bottom out. Of course, a crash like the current one usually brings with it rebounds and the beginnings of new rallies, during which investment in fixed income is clearly outperformed. I would therefore not want this article to be interpreted as a defence of one type of investment over another – not at all. It is simply an observation of some data that has surprised us and which need not necessarily occur in our investment lives (which, incidentally, we do not know how long will last either). Furthermore, as we always say, we are facing a scenario of systemic collapse that will usher in a new world of investment, where the charts from the last 207 years are likely to be of little help to us. It also seems reasonable to think that, in the near future, we will learn a lesson from the excesses and stock market bubbles of the last 50 years, during which the world has never stopped expanding and inventing new ways to generate credit, financial engineering and virtual wealth.

To conclude, I would point out that when analysing all this data, we must bear in mind that the risk premium typically required for investment in the stock market is that it should exceed the yield on the 20-year government bond by 5%. We must also bear in mind that the rally from January 2009 (the end date of the chart) to the present day significantly improves the returns on stock market investments. And finally, dividend yields from equity investments have not been taken into account either.

Nor can I resist reminding you that long-term wealth growth will depend to a large extent on the returns we are able to achieve on our property and corporate assets, as financial growth is merely one part – albeit a common, yet unfortunately minor, part in these times – of our total wealth.

In response to the previous article by Fried Anchovies (VII), let’s start by saying, DJ, that in your comment you make some observations that would be very interesting to consider from a position of the most absolute scepticism. Let me explain: You talk about «solve the problem«. And one might well ask whether we want to solve this by returning to our roots of credit-fuelled greed, of financiers and investors playing to win without producing anything. Perhaps the most detached approach would be to watch and suffer through the collapse of the system with great attention. I’m not saying it has to be that way; I’m just not entirely convinced that a solution which takes us back to the virtual well-being we came from – a magician’s trick of a solution – is in our best interests, blue pill.

If we were to consider the absurdity of having to advise a government or even the G20 itself, we would, of course, have no idea where to begin. Protecting assets at the present time is child’s play compared to the solution you are asking of us. We could probably only attempt to analyse the situation from our own perspective and personal experience. In that attempt to determine where we stand and what we’ll be facing, I’d say we should forget about the world as we know it. I’m convinced there’s no turning back and that we’ve definitively abandoned the familiar financial model. What would we do and what would we recommend? To what end? To return to something that has proven to be unsustainable and recklessly unrealistic? I honestly am not sure what the purpose would be of our surreal advice to a G20 that is supposed to lead the way into the future. I suspect that our advice should help to create and contribute to a system that is better than the one we know, but it should not seek to find a way back – amongst other reasons, because such a way probably does not exist.

A great deal of social suffering will surely be inevitable in a part of the world as unaccustomed to it as the West itself. You also mention that we might not wish to explain our views in detail regarding what lies ahead, and although for the most part we have been setting these out article by article in the 250 we have already published over the last two years, this is partly true. But this is not because we wish to avoid sharing our views on the matter freely – far from it. Rather, it is because we might say things that it would be irresponsible to publish in a medium which, whilst modest, does have a certain reach. Our clients – both those who pay and those we assist free of charge – are well aware of our comprehensive view of the current situation and the detailed proposals for the future, tailored to each of them. And I must also say that, as is to be expected, not everyone shares our view of the situation we are currently facing or of the prospects for the future.

The deterioration of the system is proceeding at a steady pace, with some the inertia of an oil tanker which means that most people fail to realise the irreversibility of the collapse of the financial system as we know it. At best, we will be set back many decades in terms of the wealth created. And perhaps this is precisely because it only appeared to have been created, whilst in reality it was simulated by leverage based exclusively on the single-generation benefit.

The chronological sequence has been as follows: the collapse of the banking system, triggered by a credit bubble within which lay another property bubble (in the USA and certain European and Asian countries). To prevent this banking collapse, governments decided that Lehman Brothers would be the last and only major casualty the system could afford. Consequently, government finances have been put at the service of bailing out the banking system. We are now witnessing the collapse of those governments with the least capacity to withstand the crisis, both in terms of rescuing their financial institutions and in terms of their own resilience to the collapse of their macroeconomic indicators (unemployment, GDP, loan defaults, crime and social unrest, etc.). Among these first countries to go bankrupt, some have their own currency with which to try to alleviate their extreme situations, whilst others do not. Some are already being kept afloat by neighbouring states or supranational bodies that cannot afford to let their neighbours go up in smoke. But the countdown is inexorable for the weakest, and also for those who were the most reckless and least rigorous during the golden years we buried less than two years ago.

Subsequently, even the most resilient states will face extreme crises. And from there, depending on the fate of the weakest, the seed of the new system must emerge. Perhaps simply because, beyond the so-called leading powers, there is nothing else – the end of the line, game over. That is why this will be the decisive moment in the creation of the new system. There are so many unknowns, and they are so significant, that it is impossible for us to predict with any degree of certainty the principles that may govern this new system. Nevertheless, it seems logical to assume that the East in general, and China and India in particular, will have a major say in the New World Economic Order that we will see in a few years’ time. The oil-rich Middle East will also play a role, at least whilst the world remains dependent on fossil fuels.

(To be continued in the next article…)

Below is the comment DJ has sent us regarding the article Changes. I think he makes some very interesting points that are worth reading and discussing in a blog post. As always, I look forward to reading your comments on this, and in the next article you’ll be able to read our thoughts on the matter:

«You have spoken to us once again about the problem, but not about the solution or the strategy for achieving it. Imagine for a moment that the Government of the Kingdom of Spain, or the G20, were to call upon your services as a Family Office to resolve this crisis and what lies ahead (the future), and think about the assessment of the situation you would make and what you would recommend (whether or not you’d be willing to tell us is another matter).

Problems never sort themselves out, and that is perhaps the problem we face here: we wait for someone other than ourselves to do or say something; we wait for things to happen of their own accord, without giving much thought to individual or collective initiative. As the song went: “Let’s take action”.

As for protecting one’s assets, it now seems more like a theoretical possibility than something feasible, at least in an absolute and universal sense. In fact, I do not know a single person – not a single one – who has not been affected by the crisis, this crisis which is still ongoing, not even those who, in theory, were exposed to a low or theoretically zero level of risk. It is true that some have fared better than others, although it remains to be seen whether this is down to chance – as was sometimes the case during the boom years – or the result of a sound strategic plan and a job well done.

The problem with household economies, generally speaking, is that they do not usually keep accounting records of their financial transactions nor do they carry out an overall valuation of their assets at the end of each financial year, as a business would. If this were the case, I believe we would have cause for greater concern than we currently have, which is why this fact is used as a justification – in my view, an unfounded one – for failing to analyse the financial situation over time in many household economies that live from hand to mouth, and that is how things have turned out for them in the majority of cases. What became of them afterwards? A clean slate, and a fresh start.

Reading the press and a few blogs this week, I’ve come across such contradictory views and perspectives – ranging from the utmost optimism to the deepest pessimism – that it’s almost worth setting them aside and reflecting on the crisis for myself. And worst of all, almost everyone who writes does so from a very short-term perspective – in some cases so short-term that tomorrow they will be saying the opposite of what they have said today, without many of their readers realising it because they are guilty of the very same thing: a lack of medium- or long-term perspective; a tendency to look more to the past than to the present or the future; a lack of foresight and medium- or long-term strategy; and, ultimately, a lack of foresight, leaving them at the mercy of whatever analysts, the media and politicians tell them. Nor should we forget all those who, rather than analysing reality, are simply trying to sell us something (a product, service or theory, amongst other things), but who embellish it and present it to us as if it were a news story.

»I would highlight at least four problems, which affect some people more than others but which do exist; they can be solved (with determination and action), and they are: a lack of clear objectives, a lack of perspective, a lack of rigour and a lack of critical thinking. This is just my opinion.’

DJ

It is a fact that the US has a serious property problem. A problem greater than that of Europe as a whole. But the situation in Spain and Ireland, with their respective property bubbles, is, to say the least, comparable. A price collapse is necessary, but if we could shorten the period of decline and speed up the recovery in demand by a few years, the entire economy of these countries, which are experiencing severe property market collapses, would improve. And in doing so, we would be able to turn the collateral damage caused by the sector’s collapse into collateral benefits that would go a long way towards reducing the years of economic depression that lie ahead for us all, especially for those most affected by the property crash.

But how can we revive a sector that is in the doldrums and seems doomed to wallow in the mire for many years to come? Well, for a start, by implementing radical yet imaginative solutions, such as the one proposed by LeFrac y Schilling. In other words, by imposing conditions on immigrants applying for residency in the US.

The US grants citizenship to one million new US citizens every year. If those residence permits were granted on the condition that the recipient purchased their own home, many immigrants would gladly accept them. The aim would be to raise the economic standard of living for immigrants granted US citizenship. How many families around the world would be willing to change their lives and seek a future in the US in exchange for buying a home? In return for their financial commitment, these families would be granted a provisional Green Card and, say, within five years, permanent residency in the world’s leading power and the planet’s ‘dream factory’. Naturally, these immigrants would have to demonstrate good conduct and financial stability by earning enough to support their families. But let us remember that they would already have paid off their home and would therefore only need to earn the minimum required to make ends meet, pay their taxes, cover their living costs and pay for healthcare. Immigrants from all over the world would be queuing up to buy homes in California or Florida. And let’s not forget that nowadays an immigrant family could have a more than decent home for as little as 100,000′- o 125,000′- $.

Let’s imagine what would happen to the US economy if 125,000 million $ from abroad were invested in the country every year. And we’re not just talking about the purchase price, but also about furniture, cars and, in general, the consumption that this million immigrant families with average purchasing power would generate. We are talking about restricting the admission of that same annual quota of immigrants to a middle class with sufficient purchasing power to buy a home. It would mean replacing one million new citizens – many of whom are from the lower class – with members of the middle class. Socially unjust, yes; economically beneficial for the US, too.

To achieve this, it would need to be meticulously legislated, regulated, supervised and enforced, but the results of such an effort would be spectacular. Perhaps we would be talking about the driving force needed to get the North American economy growing again and leave the recession behind. There are still many families around the world eager to settle in the US legally, dazzled by what the American Dream still represents. And let us not forget that the current global recession will intensify that desire among millions of people who will see their countries of origin become dramatically impoverished: Eastern Europe, Latin America, the Middle East, etc., and who would not hesitate to leave a homeland with no future behind and set out in search of a new world, with their life savings.

And I wonder: wouldn’t that still be possible in Spain? The fact of being able to live in the EU, in an environment Schengen, is and will remain of great value. Perhaps the EU would not allow a troubled southern member state to exploit this situation, or perhaps Spain’s borders are more porous than those of the US. It is also possible that, despite gaining EU citizenship, the «Spanish Dream’ may not be a sufficient incentive. But the main obstacle is that in ‘our California y our Florida«, the properties are not worth €75,000 (100,000 $).

Perhaps we’re not as bad off as in the US… or perhaps we’re worse off.

The head of the Regional Statistics Department at the Establishment of the Savings Banks (Funcas), Pablo Alcaide, appears to be the most far-sighted and/or sincere and/or realistic economist with links to the banking sector.

Among their statements, we find, for example, that Spain faces many years of low growth, that the worst of this crisis will be seen in the coming quarters, or that the Spanish economy will bottom out by the end of 2010. These may be obvious points, but they are a sign of candour when they come from the world of banks and building societies.

Just one objection, when he highlighted the advantages of being in the European Union and using the euro: «»…although this prevents us from using the exchange rate, the fact is that if Spain were not under the umbrella of the EU and the single currency, the current crisis would be comparable to that of 1929…” In my humble opinion, the crisis is indeed comparable to that of 1929 in quantitative terms, though not in qualitative terms, as this time it is the system itself that has collapsed, and not simply the stock market. And on the other hand, the new era of devaluations It is taking place, not only informally, but also at the expense of the single currency.

Alcaide also called for public investment, given the foreseeable lack of private investment for many years to come. However, and this is significant, we must neither expect nor seek to encourage private consumption to revive the economy, because it is not in families’ interests to continue at this rate of borrowing. Private consumption cannot and must not be allowed to diverge from savings for any longer. And that concept clashes head-on with the profits of banks and building societies.

Although I do not agree with them entirely, these statements—which steer clear of politically correct lies—are welcome in any case, even if they come from the Savings Banks Foundation. Nevertheless, the gossipmongers they’ll say that people never lie on his deathbed…

Yours sincerely, Mr Pablo Alcaide.

Few people are now unaware that the world is undergoing a complete transformation. But it is doing so with the inertia of an oil tanker; in other words, it is moving at such a pace that the violence and radical nature of the changes may well go unnoticed by many. If we had a time accelerator and could compress a month into a single day, we would see that in just three short weeks we have gone from the placidity of global growth and the proliferation of welfare states to a situation like the one we face today. And with every passing day—that is to say, every month—events are accelerating, leaving behind systems, forms of organisation and dogmas that have been exposed and to which we will never return. Something similar is happening to us to what we said in «The Death of the Frog» with regard to those who have lost money on the stock market. The forces of inertia are so powerful that few people are aware of the major changes we are currently experiencing and their significance.

They have fallen absolute truths as fundamental as confidence, the real estate market, leverage, consumption and economic growth. The solvency and security of banks—and even of states—have crumbled, revealing that many arguments we considered rock-solid are in fact nothing more than a house of cards. Dogmas of the calibre of the inappropriateness of market intervention and the nationalisation of banks—consequences of a neoliberalism that was the very essence of capitalism—have also fallen. The list is as long as it is unimaginable. The fundamental pillars on which we built our economy and our society—the global one—have vanished. We are left with only a few minor pillars still standing, and we will have to decipher the rest through trial and error in the immediate future.

Furthermore, the most visible aspect – the perception on the street and within society – has so far shown only the earliest signs of deterioration. Not even the tip of the iceberg. To date, the most significant changes have been systemic, fundamental and structural. The tsunami is still almost invisible, and yet it is inevitable. The changes that have already taken place are taking us away from the familiar, never to return, and only a few stand by in astonishment as they unfold day after day (or month after month). But for those who are unaware of the change—whether through an inability to analyse the world beyond the day-to-day, or through simple naivety—they need only imagine a snapshot of their life and their assets two years ago and today. And to consider that all around them, in every sphere, changes have also been taking place inexorably.

Change isn't inherently bad, not at all. But we must learn to walk and talk all over again. Throughout this traumatic process, we must also protect our assets. And this is only just the beginning.

I've posted four videos of the genius Bowie with his Changes in very different versions. Same artist, same song. In the same way, the world will remain the world, but with many changes.

For those of us who love this letter, These are unique and truly exciting times.