Cluster Family Office Blog

Modern finance theory, whichever methods we examine, bases its analysis on the risk-return trade-off. It is a pairing which, through being repeated time and time again, we have come to regard as unique and inseparable, and upon which investment decisions are based. Any proposal offering a more attractive return than is normally achieved tends to prompt the question «but what is the risk?», without delving any deeper.

Let's throw a few drops of humour into the sea of financial tears to make the daily news more bearable for our readers. Some of you will already be familiar with it because it is an alleged recent publication of an advertisement in the US business press. It was sent to me by a good friend whose company (Husesolar), by the way, sets the tone for the evolution of the renewable energy sector towards other segments such as the Biogas. And about which we will soon publish an article.

That said, let's take a look at the announcement published in the US electronic financial press. I have taken the liberty of polishing the English translation a little. The ad in question reads as follows:

«I am a beautiful girl, wonderfully beautiful, 25 years old. I am well educated and classy. I want to marry someone who earns at least half a million dollars a year.
Are there any men among the readers of this portal who earn $500,000 or more?
Maybe the wives of those who win that can give me some advice.
I've been the girlfriend of men who make 200-250k, but I can't go above that and 250k isn't going to make me live on Central Park West.
I know a woman, from my yoga class, who married a banker and lives in Tribeca, but she is not as beautiful as me, nor is she smart.
So what did she do that I didn't? How can I get to her level?»

Rafaela S.

So much for a peculiar advertisement in a business newspaper, in the country where all this is possible. But pay attention to the response from a reader and wealthy investor:

«I read your query with great interest, thought carefully about your case and made an analysis of the situation. First of all, I am not wasting your time, as I earn more than 500,000 per year, and that said, I consider the facts as follows: Putting the roundabout aside, what you are offering, seen from the perspective of a man like the one you are looking for, is simply a lousy deal. Here are the reasons why: You provide the physical beauty and I provide the money. Clear proposal, without between the lines. However, there is a problem: For sure, its beauty will fade and one day it will end, and most likely my money will continue to grow, more and more.

So, in economic terms, you are a depreciating asset and I am a dividend-yielding asset. Not only do you suffer depreciation, but because it is progressive, it always increases! To clarify further, you are 25 years old today and you will continue to look beautiful for the next 5/10 years, but always a little bit less every year, and suddenly if you compare it with a photo of today, you will see that it will already be aged. This means that you are now ‘on the rise’, at the ideal time to be sold, but not to be bought. To use Wall Street parlance, whoever has it today must have it in a ‘trading position’, and not in a ‘buy and hold’, which is what you are offering it for? Therefore, still in commercial terms, a marriage with you (which is a ‘buy and hold’) is a marriage with you (which is a 'buy and hold'). is not a good business in the medium/long term. However, renting it can be and, in social terms, it may be a reasonable business we can ponder and pretend. I think, through certification of, how ‘shapely, classy and wonderfully beautiful’ she is, I probable future As a lessee of this ‘machine’, I want to do what is standard practice: I want to do a test drive to make the possible operation more concrete. I can schedule it.

Jack Paul Henderson Investor.

Funny advert and funny response, no doubt. But let's go a little further in our reflection: Perhaps some stock market investors and, above all, their bank managers or those of the financial institutions with which they risk their money, have been thinking for months or years that the right decision is to marry this lady. Perhaps they think that those incipient wrinkles are about to disappear and that in the long term their wives will always gain in beauty, even though they may age in the short term. And it is quite possible that in that particular case they will one day, but perhaps your client will not live long enough and will spend his last years with a very unpleasant companion.. But there are other ladies who can make us happier today, without having to wait for a long term that we may never know, and who will age as well or better. Or perhaps our managers are only interested in us staying as long as possible by repeatedly marrying and divorcing in order to get unmentionable commissions on each of our new romantic dates, with their subsequent visits to the office of the matrimonial lawyers who will avidly realise our munisvalues. Perhaps they will propose polygamy with the highest number of «polygamies".«assets»The "possible" (as much as our heritage allows), rotating our hearts several times a year, regardless of whether the beauty of our achievements is bullish or bearish.

At most, our managers will join the bandwagon of the most Machiavellian marketing by charging success fees, i.e. depending on the amount of pleasure received. To this end, they will obviously provide us with a large number of candidates, assuming health risks, sentimental risks and unbridled and lustful costs of all kinds, and they will cross their fingers that on one of these dates, one of these candidates will satisfy us enough to achieve their success fee established. They don't care if we take serious risks in the multiple failures, they will try everything to get enough pleasure to collect their success commission, theirs, of course.

What is certain is that none of our managers will be concerned about our heart, but only about our body. However, just as in a marital relationship, in our assets we need a stable long-term relationship that can more than compensate for natural ageing with a relationship of love, complicity, companionship and, in short, all the virtues of a stable partner with whom we can find happiness. Why do managers call it Love when they really mean Sex? Even the young lady and the Investor in the advertisement distinguish one from the other.

Well, sex has always been economically more profitable. But only when life smiles on us, when we are young, handsome and rich. That is to say, only in the short term, and the life of the Investor in capital letters is something else. If we follow the indications of these managers, we will surely end our investment life old, tired, sick, lonely and poor, very poor. When we talk about asset management, we must keep both concepts in mind: Love and Sex, in that order. Because if we focus only on the latter, we will have a very bad time in the medium or long term. But unfortunately, private banking and other asset managers focus exclusively on giving us a good time... or even a bad time. At the end of the day, that matters very little to the thugs.

It is easier to look good as a lover than as a husband; because it is easier to be timely and witty once in a while than every day.

Honoré de Balzac (1799-1850)

Given the current scenario of a stock market crash (or the onset of a stock market crash), many investors are wondering what the right time is to move away from liquidity and start buying value. However, a minority of us believe that, as well as considering the right timing, we must analyse where the future value, as it will not always match – far from it – the value classic.

Most analysts believe that the utilities …and essential services such as energy and food companies, etc., are the lifeline to cling to in the midst of the storm. It does indeed seem that they could be a good corporate safe haven in which to invest, bearing in mind that their prices already reflect a significant degree of panic. But perhaps we are mistaken in looking for «safe-haven assets». Perhaps we should, of course, in proportion to our Vital Balance designed for that purpose, looking to the future value of the new era that lies ahead. A value which, as at every turning point, takes on a form different from what we are used to. The million-dollar question is: where is the new «The Value Investor’s Handbook», and the answer is that, unfortunately, it has yet to be written, although various drafts – also known as blind man's buff.

The well-known cycles are part of history, and globalisation is one of the main causes of this chaos. Chaos that will lead us to a new economy where new business models – and consequently new investment opportunities – will emerge, along with new sectors, new blue-chip companies, new mid-caps, vast numbers of new small-caps, and even new and dubious penny shares that will fuel new, effervescent bull runs. And all this against the backdrop of a reimagined and unsettling form of capitalism.

We find ourselves at a crossroads, facing a dilemma: should we seek a safe haven in utilities and essential services, or should we focus on analysing a massive, globalised Seed Capital, Angel Investor or whatever we want to call it? I’d go for the latter, especially for investors who suffer from what we in our Family Office call Distressed Wealth. That they need a specific strategy for their impaired assets – a situation, moreover, shared by all new clients in recent months. This is what we already know as Distressed Wealth Strategy. All this without forgetting, of course, a careful selection of quality traditional, depending on how the markets develop in the near future.

At the risk of repeating ourselves, we must remind readers that we must always adhere strictly to the roadmap set out by the BV tailored specifically to each investor. A BV which, moreover, must be constantly reviewed in light of changes affecting the client themselves and also the global landscape, which is more volatile than ever. Gordon Gekko would have a different story to tell…

We will continue to monitor bank nationalisations very closely to see whether or not they dispel the pseudo-panic currently gripping their customers. Who would have thought that a globalised bank nationalisation involving millions of US mortgages could be the remedy to try and calm the spirits of global capitalism, under the astonished gaze of a consumerist China? If communism were to rear its head… Meanwhile, the forgotten Cold War is re-arming and Islamic terrorism lies dormant.

Under capitalism, man exploits man. Under communism, it is exactly the opposite.

John Kenneth Galbraith (1908–2006)

Echevarri It’s bounced back to me (you’ll remember this one…) the meme launched by Farnan2 regarding the possibility of a Spanish bank or savings bank going into administration and the safety of the money deposited with them.

First of all, I must say that my comments on this matter will be, above all, those responsible. And, even though this article is longer than is advisable for a blog post, I’m going to tell you in one go everything I think is relevant and whatever takes my fancy, just as I always do.

The public only takes an interest in the health of the economy when it sees significant stock market falls on the news. It seems that if the stock markets don’t fall, the crash doesn’t exist. But unfortunately, the crash has already been unfolding in the credit market since the summer of 2007. And this failure of the RF forms the foundations on which many other aspects of the economy are based, including the stock markets. As we said in The unstable chemistry of the economic molecule Half a year ago, a strangely distorted RF could not coexist for long with a buoyant RV. We were banking on a rebalancing in the form of a recovery in credit confidence, but as we noted in that article, the other possibility was that the market would stabilise in a state of mistrust, with equity losses, whilst keeping fixed income at record lows «…breaking records in a matter of time, leading to a global crisis the likes of which has never been seen…».

In recent weeks, we have been seeing falls in global stock markets, which are unfortunately fuelling widespread mistrust, raining on already flooded ground. At present, this is leading to financial panic, casting doubt on the solvency of banks and severely accelerating the deterioration of the financial system. This effect is devastating and turns a stock market crash into banking chaos – in institutions that are already mortally wounded – when these should be entirely separate phenomena. A conventional stock market crash (such as that of ’87 or even ’29) should not only have no substantial impact beyond the markets themselves, but is even cyclically healthy. But This time, the interconnections between the multiple crises are deadly.

As for the financial situation of the global banking sector, it is critical. The US banking sector is suffering beyond description, whilst the European sector holds approximately half of the existing credit sludge. It therefore seems likely that the extent of the European crisis will be at least as severe, given that its capacity to respond is more limited by the lower potential of its economies and, worse still, the fragmentation of policies further complicates the already limited room for manoeuvre available to Europeans in general.

The much-vaunted greater readiness of the Spanish banking sector to tackle this financial crisis is, to a certain extent, real but irrelevant. In other words, the problem at hand is of such magnitude that the qualitative advantage of Spanish regulations FGD It is despicable. Proof of this is that the political measures adopted at the meeting of the 27 have been to ensure for the time being €100,000 per account holder and institution – which is a far cry from the much-vaunted qualitative superiority of the now obsolete €20,000. Perhaps these measures will not be enough to restore confidence, or perhaps they will, but for the time being the Show Me the Money It is gaining ground… Time (and we) will tell. In any case, this is a measure of trust, an act of faith. After all, these guarantees will apply to all savers, regardless of whether the bank failure affects a few thousand savers or every Spaniard, as if it were a piece of chewing gum. And even if it isn’t true, it’s a clever turn of phrase, which is what it’s all about.

The root cause of the banking crisis – namely, the toxic assets that are driving banks into technical insolvency – is in the process of being resolved. A political solution, since As far as a financial solution is concerned, the towel was thrown in a long time ago. In this scenario, Spanish banks, like their European counterparts, are no longer self-sufficient. Their ability to survive on their own is virtually non-existent. It seems that bailouts will follow one another in a macabre and unpredictable sequence, and this does not depend so much on the ranking of CDS‘… but rather on the decisions of its executives, who will seek the least bad moment to fall out of an increasingly cramped and overcrowded cupboard. But there is another danger even worse than the contamination of assets itself, and for which State bailouts would be unlikely to be effective: Panic. Our panic as customers of banks and building societies. No financial institution is prepared for a mass withdrawal of funds. But this is not solely due to their current precarious situation; even in their heyday of record profits (the day before yesterday), a mass withdrawal of money would have devastated their balance sheets. And in the face of that risk, there is no possible bailout. The system operates through links as intangible as trust, and there’s no room for repairs or welding, not even botched jobs to keep things going for the time being: Either it’s there or it isn’t.

Banks no longer lend money to one another; they don’t trust each other. However, we really must do it, and we must carry on lending them ours, because if we keep it under the mattress, that’s it, we’re done for. And only if the financial system continues to function – despite its current malfunctions – can we hope that interbank confidence will return and that the flow of money will once again lubricate an engine that has been stalling for days. We can prop up the system by withdrawing our money from the bank (only the first few); or we can rely on state guarantees and hope that the wealthiest will diversify their fortunes across various accounts and/or account holders. Among the collateral damage caused by these measures, it is worth noting that this week’s plan – the result of the meeting of the 27 European leaders (which will not be the last) – does not guarantee investment funds. And that is something that was best left unmentioned, as it is likely to provoke a flight to quality which would exacerbate the stock market slump in favour of sovereign debt or, in the worst-case scenario, lead people straight to their savings and hiding places under the floorboards. But I’d rather not think about that because it would really hurt us, and it’s within our power to prevent it.

Above and beyond the toxicity of the securitisations held in the banks’ vaults; above and beyond state bail-outs, whether or not coordinated with private vulture operations; above the surprise, globally coordinated half-point cuts in multi-currency interest rates (something never seen before)… above all of this, despite everything, it is in our hands to bring about the end of the system. If we do not continue to lend our money to the banks, there is no possible salvation. Those of you who have read my work regularly will already know that I have a particular aversion to the behaviour of banks and bankers, and I shall certainly not be the one to defend them. But without banks, our society would be set back several decades in terms of prosperity and wealth creation. Unthinkable. I am convinced that The chances of such chaos occurring are minimal, but it is also true that we have never been as close to it as we are today.

If we don’t do anything reckless, there will be a future for the system, although it will be a mad future, involving a great deal of suffering. Let’s not forget that the most toxic mortgages have only just begun to surface. Over the next two, three or four years, we are likely to see the worst of it. In other words, these will be the worst years for the governments that will have to absorb the loans, which are already turning into foreclosures with no prospect of realisation, but with one aggravating factor that will make them radically different: unlike the lending institutions that sold the loans, the government or the quasi-public bodies created ad hoc, They will not be able to allow the mass repossession and eviction of their population. Perhaps social solutions will be adopted to allow tenants to remain in what were once their own mortgaged homes, in exchange for rents well below market rates. They may also have limited options to buy in the future. But what seems unthinkable is that mortgage foreclosures by public bodies should cause a social and human crisis for millions and millions of people. A genuine housing subsidy in the truest ‘popular’ style (that of the Chinese Communist Party, not the PP).

Ultimately, we are faced with a very, very socialist scenario – some might even call it communist. There is no doubt that seeing the most ultra-liberal state on the planet – which for years has denied its citizens even decent social healthcare provision – nationalising existing housing and subsidising it is somewhat surreal. This will result in a form of nationalisation and state intervention that is as unintended as it is effective – and I would go so far as to say that, in many respects, it is fair. Unintentionally fair, and we’ve ended up here in the worst possible way.

I have been writing for months that we are facing a multi-crisis on an unprecedented scale. Despite this, I have always maintained a relatively optimistic tone, but events have taken a sudden turn. There is a ‘before’ and an ‘after’ the collapse of Lehman Brothers. A turning point in political, financial and economic terms. What we have seen since then is more than just a black swan, and so the old playbooks are proving of very little or absolutely no use. The situation is so serious that it has overshadowed the very energy crisis we were experiencing just three months ago. As for the economic and social crisis, my view is, unfortunately, very pessimistic. We are only seeing the tip of the iceberg. I fear that the worst is yet to come between 2010 and 2012, when competition amongst companies will be fierce and unemployment figures overwhelming and cruel. Being in debt at this time is, and will remain, too heavy a burden to maintain a decent household economy. The depression will be a long one – perhaps a decade spent traversing a desert where many economies – those of countries, companies and individuals – will fall by the wayside. Fortunately, most people are unaware of the gravity of the situation, but the reality is quite different: Farewell to Disneyland – farewell for many years to come. And all of this, more globalised than ever.

No state has enough money to patch up this web. The money will have to be created, and in doing so, a large part of the wealth generated by the system – perhaps virtually – over decades will be destroyed. And once this depression has been overcome, governments will probably cede the limelight to large corporations, giving rise to a New World Order that is unimaginable at present. But for that to happen, we must first try to overcome the unprecedented depression that we can only sense today.

It seems clear that the financial system is going to be saved by the mother of all bailout plans. But that doesn’t mean the mother of all crises It is going to ease off. Let no one be under any illusion: this multi-crisis has countless social side-effects that are difficult to prevent. We’ve squandered our future in the most irresponsible and absurd way. And now we have to cross the desert after having poured the water from our last canteen over our heads.

But faced with the possibility that this bailout might avert financial collapse, we find ourselves in the position of someone who knows that a family member has been in a serious accident and is fearing the worst. And when the doctor emerges from the ICU and tells us that the patient has come out of the operating theatre alive, the seriousness of their condition seems like a lesser evil compared to the thought of never seeing them again. The financial system will survive thanks to the Democratic-Republican bailout that will be approved come what may, but the patient’s prognosis remains extremely serious, reserved. I think it would be interesting to read the article again: The American Patient, which, dated December 2007, gives us a glimpse of the situation as it stood nine months ago – an eternity in this turbulent era in which we find ourselves living in such peril.

As we said at the outset, although the system will survive, the socio-economic outlook is devastating. We are set to suffer a decline in wealth and social welfare equivalent to several decades. And anyone who downplays the situation by saying that this is merely a cyclical crisis like so many others we have seen is either mistaken, deluded or lying in a politically correct manner. The locomotive that has been pulling the rest of the world along since the Second World War will no longer be able to do so in the coming years. The million-dollar question is: who is going to replace it? And we’re not talking about who is going to be the world’s leading power in the coming years, because the Chinese have no intention of ousting anyone, let alone the economic system as we know it. It is an unknown whose answer will undoubtedly shape the New World Order.

We can no longer talk about tightening our belts, but rather about a substantial change in lifestyle that hundreds or thousands of millions of people will have to make in the coming years. A dramatic yet gradual situation, in which opportunities, hidden amongst the devastation that the crisis will leave in its wake, will abound more than ever before.

I can’t help but feel strangely surprised when I reread Once upon a time… at the end of the 20th century, an article we wrote over half a year ago. A light-hearted exercise in economic fiction that is taking on an increasingly grim reality with each passing day. It has only been seven years since 9/11 (WTC), and the world is a different place. But this is only the beginning of what is yet to come. A historic, thrilling and uncertain future unlike anything we have ever seen, the result of the virtual wealth accumulated, globalisation and our own foolishness, respectively.

The Emergency Economic Stabilisation Act 2008 (EESA 2008), has become the most important and far-reaching constitution ever drafted in modern history. And it was drafted in just a few days, with round-the-clock work amidst hurried negotiations and in a situation of greater stress than the American political class – or any political class anywhere else in the world – has ever experienced. Meanwhile, the rest of the world watches in astonishment as events unfold Sunday after Sunday, unaware of the future significance of the weeks we have been living through since the intervention took place Mac & Mae. We have been saying for over a year now that history is being made, ever since, in the middle of August 2007, some of us (still only a few) woke up from the A Midsummer Night’s Credit Dream, but the drafting and subsequent adoption of the Emergency Economic Stabilisation Act 2008 It represents a genuine ‘Re-founding Charter’ for the global economic system. And it lays the foundations for a constitution for the new capitalist system. We are, in effect, reinventing the banking business and the foundations of the future credit system, and The most worrying thing is that we’re doing it under time pressure and whilst facing record levels of stress and pressure.

There were two ways of making it work and ensuring its viability:

1. That the 2008 Emergency Stabilisation Plan (I don’t know why, but I’m reluctant to call it a ‘law’), which originally consisted of just three pages, was implemented at the discretion of the Bush administration and carried over by his successor.
2. May this simple document, which gave the leaders a free hand, evolve into a much more concrete 106-page text, the implementation of which must be overseen by both the government and the opposition.

At first glance, the second option seems the more sensible choice, but it could be a double-edged sword, as partisan political interference could seriously hamper the effective implementation of the 2008 Emergency Economic Stabilisation Act.

The American political class is being put to the test in full view of the whole world. And what is most worrying is that its ability – or inability – to rise to the occasion will affect us all. Perhaps option 1 would have been more effective, albeit less democratic. It would have allowed the freedom to cover up scandals and restore confidence in the system. Something similar to what usually happens when one acts in the interests of the state, or in this case, going even further, System Reason. However, the regulatory framework for the new system – that is, the way in which financial institutions are (I hope) going to be kept on a tight leash from now on – must indeed be agreed upon by both the Congress and the Senate in order to avoid, as far as possible, favouritism, potentially corrupt decisions and the dreaded laxity.

Only as the weeks and months go by will we find out whether the 106-page document, the oversight by senators and members of Congress, and their ability to veto the use of half of those 700,000 millones from the $ programme will prove to be a positive development or not. Since initially only 250,000 will be released, with the option of a further 100,000, the government (whichever party is in power at the time) will then have to pass a renewal before Congress and the Senate before he is grant a further 350,000 million $. To save the system, it may be necessary to take too many politically incorrect decisions that will not pass the scrutiny of so many politicians who, before giving their approval, will look to their voters, fearing they might lose their future support. But this delicate process of implementing these funds requires agility, determination and a steady, surgical touch. This is something the man in the street is not equipped to deal with, and I fear that neither is a large part of the political class, which has been elected on the back of electioneering demagoguery. Politicians and political opportunists, whose quest for fame and power they may now be reluctant to jeopardise by endorsing measures that will have a direct and severe impact on their voters’ pockets.

For everyone’s sake, I hope that the American political class, for once in their lives, will live up to what is expected of them and, instead of engaging in party politics, govern for a few months in coalition with the leadership. And this must be done both by the Democrats in opposition and by the Republicans’ own internal opposition, who, to date, have been the most reluctant to support the implementation of measures that might save the system.

The path is beginning to come into view; now all that remains is for politicians to shake off their bad habits and devote themselves to Politics with a capital P, recalling the times of Plato and the Republic, but without forgetting to adapt it to our reality.

Let us hope that electoral manoeuvring and republican liberal fundamentalism do not hinder the pilots who must guide this aircraft – in which we are all on board – to the runway. It will undoubtedly be the most dramatic emergency landing in history, and one in which there may be many casualties. When we were writing Fasten your seatbelts On 14 September 2007, the aircraft’s technical problems were far less serious than they were a year later. Today, the hydraulic systems – so vital to any aircraft – have failed, and we are hurtling towards the runway in an emergency in which we must all do the right thing to survive. Because if anyone tries to exploit the situation for political gain, they will end up being elected president of the most barren region ever seen. Meanwhile, the markets continue to turn their backs on the 2008 Emergency Stabilisation Act. Something that is, in a way, trivial, because what is really at stake is far more important than the markets.

When a mob exercises authority, it is even more cruel than tyrants.

Plato (428 BC – 347 BC)

In the previous article, The Key Factors in an Investment: Circumstances vs. Risk-Return Profile, we have received the following revealing comment from Mangallous which I think deserves a reply in the form of a post:

«I have been reading your work for some time now, and although I have no doubt as to your professional integrity, I have a serious complaint to make.’.
Those of us who’ve been involved in the markets for a few years now are so scared and terrified this year that we don’t know what to think anymore.
All that talk about the time horizon, each person’s risk profile, and where my savings or investments are headed – whilst not entirely untrue – already sounds almost as hollow to me as any sales pitch from a high-street branch sales rep.
Mind you… I’ve used it too, because I’ve also been selling motorbikes in private banking.
What’s interesting for your readers – and I’m one of them – is how you’ve weathered the tsunami, or whether you’re just as badly hit as the rest of us; what you’ve invested in; how you’ve put your foot in it or managed to dodge the blow; what your medium-term outlook is; which stocks are undervalued… The rest is fine for a chat with clients to win over a few over a cup of coffee, or for the foreword to some McKinsey handbook that’s completely useless in the real world…»

As will be clear, Mangallous, I think the only thing we agree on is our admiration for Xavier Sala-i-Martin.

Mangallous, our worlds are different. «All this fuss», as you put it, is nothing more and nothing less than the vast difference between looking at the markets, the competitors’ benchmark and the return as at 31 December (your commendable and, I have no doubt, honest work); and ensuring the proper growth of a family fortune, as our Family Office does. It is a question of perspective: whether to look solely at the year-on-year return on stock market investments, or to work across a myriad of areas such as taxation, property, family circumstances, legacies for future generations, family philanthropy, corporate advisory services, coaching for heirs, the optimal legal structures for each fortune, asset relocation, and a loooooong etcetera that we have been discussing for years and in hundreds of articles which you seem not to have understood at all. And all of this, of course, without forgetting such an important aspect as the financial management of monetary assets, which is where the work of asset managers—such as yourself, for example—comes into play.

You’re, as you put it, «scared stiff, terrified or drenched» because you see your stock market portfolio as a whole universe. That’s why I’m telling you it’s a question of perspective.

It is no surprise, then, that we always protect the bulk of our clients’ assets through fixed-income investments, and always in accordance with the rigorous standards set by the Balance sheet Vital tailored to each individual. Consequently, the extent to which what you might consider a nightmare affects you is greatly minimised, as it should be. Furthermore, the selection of fund managers, funds or portfolios and other derivatives that may potentially be added, depending on the design of each BV, are selected according to criteria based on two fundamental concepts: The historical rigour netos (if any), and the absolute independence of interests, as well as, of course, all the investment selection criteria that are suited to the circumstances for each Customer, as we have already explained in the previous article. Only in this way – through high-risk investments and the proportion of one’s assets allocated to them – can we minimise losses in bad times and maximise profits in good times. But infinitely more important are all the criteria on which the rigorous design of a BV the detail involved in simply selecting the stock market assets that make up your portfolio.

The ups and downs you experience on the trading floor or on screen, in volatile markets, only have a negative impact on the smallest proportion of the portfolio that was jointly designed for this purpose with each client. We probably don’t know how to do your job better than you do (although, judging by your tone, I’d venture to say we may well have more years’ experience of following the markets). But bear in mind that you won’t get the answer you’re asking for, nor will you find it anywhere else, simply because there is no magic formula that guarantees profits in the equity markets these days. No one will give you a foolproof formula that will make money for you and your clients in the future, no matter what happens on the stock market. And anyone who claims to do so is deceiving you. Forget about finding the magic formula. SYou’ll only come across illusions that are extremely dangerous for you and, worse still, for your clients.

Managing a family’s wealth over the years goes far beyond simply year to date (year-to-date performance) or any other short-term performance of any fund or index that you monitor on a daily basis. EI hope you can see beyond the heads of those around you and understand this. I deeply regret that, as you yourself acknowledge, you have been «»selling motorbikes in private banking with empty sales pitches from high-street branch sales staff". And I don’t just feel sorry for you – who’s peddling motorbikes in a way that ought to be keeping you awake at night far more than it actually does – but I feel sorry, above all, for the customers who, over the course of your life, bought the motorbikes you sold them. For you, they were just small commissions and accolades that have propelled you to where you are now, but along the way you’ve ruined the efforts and hopes of many families who trusted you and your smart tie. Of course, you did help some of them make money, but Don’t kid yourself – they were merely collateral damage in your main objective, which was to sell indiscriminately the company’s products, for which you were paid a fixed salary plus a variable bonus. And in these extremely tough market conditions, the consequences for your career must be devastating.

But please don’t see this post as a personal attack on you. We don’t even know each other. What you’ve been doing in your job is common practice amongst bankers and other asset managers. But just because it’s common practice doesn’t make it any less shocking or reprehensible.

I know lots of people like you who, one fine day, insightful and memorable They ceased to be part of the armed wing of the banking and financial sectors. Most of them (though not all) saw their financial and career prospects cut short by this decision, but I take my hat off to them because they chose the difficult but right path. It is essentially a matter of personal and professional ethics, which is not incompatible with success, even if that path is longer and more winding than the financial fishmonger’s ‘motorway to heaven’.

To conclude, I’ll answer your questions: If you’re referring to RV, I have to say that at the moment we recommend holding only a very small amount in portfolios, provided that the BV consider this, placing greater emphasis on US non-financial value and blue-chip stocks. Although this depends on the approval of the mother of all rescues, there may be some financial opportunities. For those BV As for emerging markets, we are focusing on Latin America and Greater China. Our medium-term outlook (if you are referring to the global economy) is very negative, given that the fact that to ensure the system’s survival does not mean that this is not Let it be the Perfect Storm which could wipe out much of the economic growth and prosperity achieved over recent decades. As for the undervalued stocks you’ve asked about, I’d say there are countless examples these days. But only time will tell whether the current apparent undervaluation was not simply the start of these companies’ decline. Therefore, you should never invest more than the amount set out in the BV for value shares, no matter how much they’ve fallen. Even if they’re made of gold, they’re still knives falling from the sky. As you can see, you won’t find a miracle share that will definitely get you – and your clients – out of this situation. And I wouldn’t recommend taking a gamble, for the sake of the assets that depend on you. Readers – and of course you too – must remember that none of the above holds any universal truth without first drawing up your Vital Balance Sheets, and it is only in light of these that our recommendations make sense.

Fortunately, customer acquisition is now a thing of the past for us, and we have never sold our expertise, either on this blog or in any book. I would simply be satisfied if, through these reflections, I have managed to open your eyes a little and broaden your horizons beyond the losses

That's it, game over, that's the end of the road. Nothing will ever be the same again.

The total figure is approaching the 600 billion already committed, to which must be added the 700 billion from the final plan, that is to say: 1,300,000,000,000′-$ ($1.3 trillion) or, to put it another way, 150,000,000,000,000 pesetas (150 trillion pesetas) is the approximate cost of our excesses. Everyone’s. Because those of us who bought the securitisations or compulsively took out loans in one form or another, whether we realised it or not, are just as jointly responsible as the securitisation firms, the credit rating agencies; or as the companies that recklessly offered mortgages to the insolvent, and they, in turn, are to blame for embarking on the purchase of a house without knowing how to swim or having a life jacket. A explosive cocktail Financial markets, speculators, the credit and property bubbles, with a dash of terrorism and new geopolitical orders, a good splash of oil speculation, and all served up in a long drink glass made in China.

However, it is highly likely that hundreds of billions of dollars could be saved if some Americans were able to keep their jobs and their dignity, and thereby avoid the foreclosure of their partially paid-off homes. Even so, most of the repossessed properties will end up in public or quasi-public hands, which will then put them back on the private market according to criteria that are, for the time being, inscrutable. And they will have more than earned it.

European banks are breathing a sigh of relief because only those that acted like bloodsuckers, exploiting the now-defunct property developers by recklessly concentrating their risks, will disappear from the map. It seems that only the savings banks (mostly Spanish) and the odd reckless, second-rate little bank will sacrificed by the law of natural selection. Banking with a capital 'B' seems to be spared from extinction if Father, Son and Holy Spirit They dry and iron the wet paper they’ve been piling up on their balance sheets. Now all that’s left is the easy part: reinventing their core business, as they have done time and time again, whilst negotiating the upcoming regulations downwards. Beads of sweat were already trickling down the faces of big names in suits and ties in the sumptuous offices of the most prestigious organisations, for example at UBS without going any further. It was only a matter of weeks, or even days, before those beads of sweat became apparent to the general public. And the ground would have given way beneath their feet, and beneath those of their millions of customers too.

Massive interventionism in the name of the most extreme form of liberalism: socialising losses and privatising profits.... these are truisms that will remain just that, but it is essential that we learn from this historic mistake made by everyone. In my view, the action taken by the most powerful nation on the planet is not open to criticism, but rather vital. To judge the solution on the basis of its fairness is to forget that there is no better one. There is no alternative; or rather, the alternative is so harmful and regressive that humanity cannot afford it. It is the only one, although unfair a way for millions of people to survive the widespread poverty and famine that would have led to the collapse of our economic system. The Great Depression of the 1930s would have been child’s play compared to what the whole world would face if the most globalised house of cards in history were to actually collapse, since time immemorial. Even as we consolidate the foundations of the System, at the expense of all the inhabitants of North America and those affected by the coordinated interventions of past and future central banks, we may well have to weather something akin to that depression. But it will be a far lesser evil.

Throughout the 20th century, there was endless theorising about whether or not it was advisable to intervene in Mr Market. There were eminent theories to suit every taste. But they all spoke of a market in its purest form, and none of them envisaged that our own abuses would distort it to the point of absurdity. So much so that market self-regulation would endanger too many lives and make Intervention with a capital ‘I’ imperative. The theory worked until very recently but, as always, reality surpasses fiction. In this case, reality has surpassed economic theories.

Perhaps Obama has lost his appetite for winning the election, and for McCain, defeat would not be quite so bitter if it were to happen. Or vice versa. The fact is, the post-Bush landscape is more daunting than ever for the future most powerful leader on the planet. But the path has been laid out, and now all that remains is the journey through the desert itself.

The identification of loopholes, provisions, coordinated interventions, bailouts, vultures and other developments in the greatest multi-crisis in history were leading us towards the the light we sensed at the end of the tunnel even a year ago, when hardly anyone knew the meaning of subprime. However, let no one be under any illusion: We haven't come out of the tunnel; they've just turned on the lights. Powerful spotlights that reveal its filth, its winding nature and its immense length. We now realise that we would probably never have made it out unscathed, even if we had glimpsed a light at the end of the tunnel. Now we know what lies ahead, and this should serve as a lesson to us not to get ourselves into another dead-end situation again.

Meanwhile, in a grotesque turn of events, those analysts in their suits continue to recommend investments left, right and centre, justifying them with academic reasoning without the slightest sense of the absurd or of ethics.

Call me soft-hearted or naive (or worse), but I am proud of the coordinated global response that has continued to this day and of the action taken by the Trio Calavera backed by the Democratic opposition.

11 September 2001 and 18 September 2008 are two dates that have changed the world. What a 21st century lies ahead of us. A clean slate—unfair and accursed—and a hopeful and blessed new beginning.

What we are about to discuss applies, for the time being, only to the US market and its official bodies such as the Fed. However, we may see similar developments in Europe and at the ECB in the future.

The scene is brimming with hope and a desperate need for good news to lift people’s spirits. Bear Stearns, Mac & Mae y AIG, are, to this day, the chosen ones for glory or rrising stars. On the contrary, for the time being, only Lehman Brothers features on the blacklist of fallen angels. Investment banks, unorthodox mortgage institutions that are difficult to categorise, insurance companies… various types of financial business models, but all with the same outcome: The public bailout or semi-public.

As for bailouts or private mergers and acquisitions, the criteria have naturally been commercial, that is to say, market-driven. There may have been some political influence in the form of personal commitments and/or non-commercial favours, but they have essentially been based—and will continue to be based—on commercial criteria. However, on the basis of what criteria have decisions regarding bailouts and public interventions been made? That is the million-dollar question, and it is likely that those responsible will take some of those criteria to their graves. Nevertheless, we venture to suggest that some are directly linked to the scale and severity of the consequences of letting the angels in question fall. In other words, depending on the damage this might cause to the System, the default or the bankruptcy of those companies, the Fed or whoever is in a position to prevent it will take the necessary action (in conjunction with the Fed). However, I must say that given the current economic climate, I refuse to believe that such decisions could have been influenced by personal interests, political considerations per se, or any other factor other than the pure pursuit of the best solution to the current financial crisis. I sincerely believe that the leaders in question are aware of the extreme gravity of the situation and are working tirelessly and without interference for the global good. That said, if the extent of the damage is the main criterion for deciding on the bailout, we can to jump to conclusions those institutions that find themselves in an extreme situation, such as investment banks, insurance companies, private mortgage lenders or commercial banks themselves. Let me explain. Perhaps the manoeuvres, overtures, flirtations and rumours of deals and rapprochements between private US financial institutions are not strictly motivated by commercial reasons. It’s possible that Wachovia isn’t actually in a position to acquire Morgan Stanley, and in fact nobody knows whether this is a takeover or a merger. Who’s buying whom? Who’s in a worse state? We might well suspect the same of the deal between Bank of America and Merrill Lynch. We’re back to the same old story Where the hell is Wally?, and I doubt the Fed knows for sure.

Perhaps not all the merger or acquisition deals we are seeing now, and will see in the future, will have a viable plan at its core. Nor should they be based on corporate restructuring aimed at optimising resources that are already severely depleted. Perhaps some of these sudden infatuations are simply down to the fact that unity creates pressure, not strength. Under pressure to be rescued by an underfed and overwhelmed lifeguard.

Given the amplified damage caused by the collapse of a macro-entity comprising two or more entities (commercial and investment banks in the cases mentioned), it may be more likely that cries for help will be heeded which, on their own, would be lost in a sea of storms, as happened with the heart-rending cries for help from Lehman Brothers. Machiavellian? Yes, but also likely. And I would venture to say that, in a way, it is understandable given the situation of extreme desperation faced by the shareholder-director-owner, who sees a imminent extinction of its financial institution, with the resulting disaster for creditors, shareholders and bondholders.

With all this flirting and «UTEE”»s" (temporary partnership) strategic (businesses) let us hope that these false vultures do not hinder the work of the genuine ones, that they do not cause amplified tremors that exceed the structural and confidence-based capacity of the system, or the capacity for public bailouts. I will never tire of repeating it: only the public and private vultures can save the system.

Dollars: Those reckless American banknotes that come in different denominations but are all the same size.

Jorge Luis Borges (1899–1986) Argentine writer.

If only we could have a Waste Allocation Load Lifter – Earth-Class (WALL-E) to eliminate the financial junk and toxic waste generated by the credit abuses of the last decade. Someone kind-hearted who will set about making the world of investment a more liveable place. But unlike what happens in the memorable film Disney’s Wall-E, he ought to come and clean up the planet before every trace of our financial system disappears, rather than 700 years later. In his absence, the scavengers of our market-based civilisation must be allowed to do their work, free from negative interference or disparagement from others. Quite the contrary: with the help of public bodies that have never been so grateful for the work of the scavengers. Only they can prevent a Wall-E from wandering aimlessly through barren financial wastelands when none of us are left standing to need him.

These vultures are as diverse as they are necessary: from Middle Eastern sovereign wealth funds to simple speculators who buy gold knives at the height of the slump, including the usual suspects such as Buffett, JP Morgan, Bank of America, BSCH itself and Chinese sovereign wealth funds. What’s more, amidst mergers and bailouts (especially the one about Mac & Mae) this benefits the major holders of debt issued by institutions in a state of decline, who, in turn, act as retaining walls against financial devastation. Among these major holders are many central banks, and this gives an idea of just how vital it is that the ‘carcass’ is properly absorbed by scavengers and rescued by whoever is in a position to do so, whoever it may be.

A few voices are surprised that the debt holders of institutions distressed come out better off than their shareholders. Perhaps this is because they do not realise that Investing in shares and buying corporate debt are two different things, even though many people confuse them as soon as the stock market turns bearish or simply flat (Some idiots even confuse them during bull markets). Gentlemen: The fact that fixed-income returns are, under certain circumstances, comparable to or higher than those of equities does not mean that they should be regarded as similar investment vehicles. It is entirely logical that, in the face of a highly dubious bailout or takeover, an equity investor might lose 100% of their investment, whilst a debt holder might not only come out unscathed but even stand to benefit significantly. These are entirely different risks.

The scope for manoeuvre available to a debt purchaser when faced with a credit event, particularly in the event of a default, is zero. And its successful outcome depends not so much on the balance sheets as on the degree of uncertainty surrounding its future as a company, contrary to what usually happens with the share price. In the event of a takeover or a solid bailout, the debt is free from doubt, whilst the accounting fundamentals and, ultimately, the very essence of the corporate remains highly uncertain. Just as much as the value of its shares. In such a scenario, the only uncertainty that will have been dispelled is whether the share price might fall to zero; but beyond that, uncertainty for shareholders usually remains total following a merger or takeover. Furthermore, the circumstances of such a public or private bailout are likely to distort the company’s future components beyond recognition. Therefore, what certainty can we find in the price of its shares? Only its survival. However, the potential windfall It can trigger a 1000% at the pre-bailout purchase price in just a few days, and that is something that debt holders will never achieve, however much they may stand to gain from the process of absorption, intervention or bailout, as has been the case with Bear Stearns. I repeat, they are different animals. In fact, someone I know well bought shares in Lehman Brothers at the market open on 11 September (with two c… and losing more than 18% in a single day whilst waiting for that big payoff), whereas his corporate debt is following a different, albeit uncertain, path. However, as we will explain in a forthcoming article, the quality of an investment depends on three variables: return, risk and the Circumstances of the Investment, the latter being the most important of the three.

Stratospheric volatility aside, so far there have been plenty of public bailouts, takeovers and private bids to dispose of decaying financial entities. And let’s hope there are plenty more. It is true that the honesty or dishonesty of these offers is directly proportional to the degree of decay of the carcass, the severity of the global situation and the scarcity of the scavenger market, but so far, where the private scavenger fails to step in, the public sector has. And that instils confidence in the System, so that many are beginning to see historic opportunities rather than hysterical breakdowns, thereby encouraging the emergence of new vultures circling above our nightmarish financial landscape. Never have their shadows over our heads been so comforting.

Let’s hope our lovable Wall-E doesn’t end up like a lost soul, wandering amongst the lifeless rubble of what was once a market economy. Carrying out a clean-up task that has become both absurd and futile, clearing away the remnants of investment banks and mortgages that once dragged the rest of consumer credit down with them. A debt burden that died of its own success back in the early 21st century.

«The greater the wealth, the thicker the grime»

John Kenneth Galbraith

P.S. Official statement from Lehman Brothers 24 hours after this article was written:

For Immediate Release

LEHMAN BROTHERS HOLDINGS INC. ANNOUNCES THAT IT INTENDS TO FILE A CHAPTER 11 BANKRUPTCY PETITION;

The carrion from Merryl than that of Lehman. Game Over…