Cluster Family Office Blog

«Our economy and our markets will not recover until the housing market correction is behind us»

Henry Paulson – US Secretary of the Treasury.

This statement was made at the same time as the announcement of the bailout was made public (once again on a Sunday) the strange couple. Or rather, his legal guardianship, politically correct euphemism. This bailout finally puts a face to the amorphous and mysterious monster that is the credit crisis. In one fell swoop, we learn on whom the survival of the financial and mortgage system largely depends, we are able to quantify it and, furthermore, we lay the foundations for a bailout as viable as the US government itself can be.

At whose expense?… the answer is obvious to everyone. The law has never been the same for everyone. Especially for those who are so strong and powerful that their disappearance would shake the very foundations of the System. We are facing the most costly injustice in modern history. But many of us believe that, despite everything, it is the least traumatic solution. Perhaps the only one.

The consequences may be predictable, but that does not mean they are inevitable. Those of us who have experienced the markets and have been in this business for several decades know this only too well. Many analysts will see this state intervention, from the most liberal of states, as heralding a bleak future for the dollar, which will have to be printed in vast quantities. And consequently, a bleak outlook for the equity markets as well. But the benefits of dispelling much of the uncertainty that has accompanied the credit crisis since its inception are inscrutable, as well as the The ways of the Lord, as a preacher might say. That said, Paulson’s pithy remark quoted at the beginning takes on a whole new meaning.

Indeed, right in the middle of European crisis tsunami, watch the light at the end of the tunnel The US dollar could have a very powerful stabilising effect. It could even more than offset any short-term weakness in the dollar, which may gradually fade in the medium to long term, provided that the necessary financial support is provided to the two companies under supervision. The markets may also gain confidence from the fact that we have finalised or even almost finalised the problem of credit crunch.

We’ve identified the criminal by name, he’s been arrested and brought before the judge, who has effectively granted him a reprieve, and we’ll all have to foot the bill for his rehabilitation programme. But the truth is that we all feel safer walking the streets now that the villains Mac & Mae They’re no longer on the loose. They’re now in legal guardianship the most expensive and most benevolent in history. But let’s not condemn them without taking a look in the mirror. As my grandmother used to say: «Opportunity makes the thief», and we made it all too easy for this pair of prodigal «delinquents» in our eagerness inversopata. Let he who is without sin take the first loan or the first «safe investment» at LIBOR + 2.25%.

Perhaps this odd couple with a name like an ice-cream brand ((Freddie & Fannie’s) stifle the growth potential of the world's leading power for many years (The size of the lump does matter). And its currency, which has already taken a beating, could well spring a few surprises. Such an injection of banknotes will have to be accompanied by new paper money, which is likely to be a major driver of inflation. But as M1 is included in M3, we must also bear in mind that this increase in M1 improves the ratio of physical money in circulation to the outstanding credit gap, dispels many doubts and, at the same time, strengthens the system. And that is a good thing, especially given the massive global deleveraging that we have been forced into. It is therefore clear that this colossal bailout would shatter any affected currency and cause macroeconomic indicators to plummet and of all kinds, has many unintended consequences. For all these reasons, the reaction—our reaction—to this unprecedented situation strikes me as one of the greatest unknowns in this multi-crisis involving credit, energy and confidence.

The timing of the sacrifices has practically been decided for the odd couple: There will still be slight increases in portfolios linked to mortgage loans until the end of 2009 (which appear to be inevitable), followed by forced reductions of 10% per annum. On paper, a viability plan for two companies that were born and will die unnatural, given that this plan is a bailout paid for by everyone, the only possible happy ending for which can be its abolition. As we have already said, this death cannot be natural because it would take too much with it, and we must save them to later execute them by lethal injection. Without suffering, without screams, without agony, without splatter, minimising collateral damage as much as possible. Aseptically, with a cool head and the lesson learnt. Perhaps its remains, cut up and recycled, will be of use to scavengers who are genuinely committed to the future.

We know who, where, when, how much and how, and all of this points to serious sacrifices and consequences. The greatest in history. But we know so many things that were previously unknown to us that the effect of so much light may dazzle many markets and blind many unwary investors. Let us be more wary than ever of analyses lacking in humility.

The economy probably won’t recover until the housing market correction is behind us, Mr Paulson. But I wouldn’t be so sure that the markets won’t do so in a fragile, premature and—who knows—perhaps short-lived manner. As for currencies? Today more than ever, they are the mother of all speculation, given that their volatility is skyrocketing amid the historic events we are witnessing. Incidentally, between one bailout and the next, the 9/11 and its Bin Laden options, ...the years just fly by. I love this game!

Here is the video that the Chief Risk Officer (CRO) of Freddie Mac and Fannie Mae, Mr Justin Norisk, sent to Mr Henry Paulson this summer:

A few days ago, *Expansión* published a revealing article: «How to make the most of 30,000 euros in the midst of a crisis», featuring charts in print form, which compared the strategies recommended by eight investment firms for achieving «profitable, low-risk portfolios», as the article stated verbatim. The firms were as follows: Inversis, Dexia, Atlas Capital, Tressis, Banif, Abante, Unicorp Heritage y Lloyds TSB Spain.

These organisations were asked to propose a strategy for generating returns of between 5 and 10% on an investment of €30,000 over a one-year period «without taking on high levels of risk». Right from the start, we must point out that the first flaw in the approach is the failure to define in greater detail what is meant by «without taking on high risks». Furthermore, investment strategies should not be prescribed without taking into account each investor’s individual circumstances: without knowing whether that €30,000 represents a significant or negligible portion of their assets, whether or not they hold a large amount of property, whether they receive fixed income – from property, corporate sources or employment – in substantial or modest amounts, whether their ability to save is negligible or substantial, whether their family situation involves growing financial obligations such as caring for the sick and/or the elderly, whether their household expenditure is substantial or frugal in relation to their assets, whether they make charitable donations, whether their focus is on wealth growth, on investments of one sort or another, or on enjoying their resources, whether their life goals are achievable given their current financial circumstances, whether they wish to bequeath their assets in one way or another (a whole other world), whether they have a greater or lesser aversion to taxation (yet another world), whether… well, I’d better not bore you any further, really what is covered by a PGR. What is clear is that these eight organisations have merely prescribed a media-driven, non-therapeutic ‘remedy’ for all readers of the article in question, without giving a thought to anything else. But the worst thing is that most readers will eagerly devour their advice without even considering half the issues we have raised, let alone, of course, bothering to check whether the advice they read last year was actually sound. And if we do not learn from our mistakes, we will never shake them off or improve.

Nevertheless, let us set aside the errors in the fundamental approach and move on to analysing the guidelines provided by these organisations. The first thing that strikes us is that they all recommend investing between 30 and 42% in the stock market, with the exception of Banif, which does not specify percentages (sic), and Atlas Capital, which proposes a 20% allocation to the stock market and whose proposal we consider to be the most distinct, as we shall see later. It is also worth noting that the majority advise investing in US$ as well; some propose US equities on the grounds that they are likely to recover sooner than Europe, whilst others suggest investment-grade corporate bonds – criteria with which we agree. However, others, such as Atlas Capital once again, even propose investing in a pure and simple money market fund for $, in a clear bet on the recovery of the US dollar (although of dubious efficiency, given that other investments in USD could capitalise on the currency factor and achieve better returns over the specified 12-month period). Furthermore, this latter firm is the only one to include a 5% allocation within the proposed portfolio in Japanese interest rates, via the fund Invesco Japanese.

Another noteworthy point is that all of them, with the exception of Lloyds TSB Spain, recommend investing at least 14% in alternative investment strategies. These investments, as we have already mentioned in other articles, are unclassifiable for various reasons. And high volatility (and fees) do not always align with the portfolio’s needs. However, it must be said that in a flat or bearish equity market scenario, with fixed income in serious trouble, certain types of so-called alternative investment strategies may be a good option – but never indiscriminately, as proposed, for example, by Banif, which would invest the largest percentage of the portfolio (once again, without specifying) in this type of investment.

It is also worth noting that the majority would remain «in liquid assets» with percentages ranging from 30 to 45%, whether in money market funds or bonds, although the liquidity of the latter leaves much to be desired. Here we see two clear exceptions: Banif, which proposes fixed-income investments with a maturity of 1.66 years – again without specifying percentages – with yields below 5% (excluding trading and custody fees); and, at the other end of the spectrum, Atlas Capital once again, which proposes allocating 50% of the portfolio to one-year term deposits with rates above 5%.

Without exception, they all blatantly put their own interests first. Some, such as Atlas Capital, have 20% of their portfolio invested in their own stock market fund, whilst others take a much cruder approach, such as Dexia, where the only euros it allows to escape from the purchase of its funds are the 5% it proposes to leave in liquid assets; or Banif, which recommends its full arsenal of products and hefty fees for nothing less than alternative fund management.

In short, if you take a look at the article in *Expansión*, you’ll see how all the proposals seem to be taken straight from their promotional leaflets, perhaps with the exception of Atlas Capital’s proposal, which tones down its sales pitch, although even this one falls back on the most unappealing clichés of model portfolios (conservative, mixed, dynamic) as soon as you visit their website. All things considered, I fear that the offers from all of them would vary little, whatever the initial investor profile might be.

Only time will tell whether a proposal will prove to be the right one or not in 12 months’ time. However, it has not been clarified whether we are talking about safeguarding an asset or growing 30,000 euros, nor anything mentioned in a PGR. Therefore, these eight proposals are little more than empty talk, a chance to appear in a publicity photo and be among the eight published with messages designed to flatter the ears of their potential victims. It is obvious that the organisations consulted have confined themselves to the question of how to make the most OF our €30,000 rather than how to make the most AT our €30,000. Our colleague Sherpa has already addressed the issue of the money that isn’t strictly working for us.

The truth is that, given the prevailing uncertainty and the outlook, European equities do not look particularly promising in our view. The US market looks more promising, but perhaps not for another 12 months, if that is our investment horizon. However, looking further ahead, economic prospects in the US appear more attractive. Not only in terms of equities, but also in Prime property and even non-financial corporate RF. The slogan wait and see We believe it would be prudent to create a asset allocation to safeguard one’s assets without rushing, and to this end, keeping funds in deposits for a few months and making a sound selection of fixed-income investments may be the right approach. Beyond mere protection, certain alternative investment strategies should have their place, but only if we know what we are going to do with our money and what levels of volatility we are prepared to accept. One of our current problems is that this catch-all category encompasses everything, including the desperate and blind need to recoup the expectations that equities have failed to meet in recent months. If, on top of that, we diversify into alternative investments indiscriminately, finding out what is being done with our money will be like looking for a needle in a haystack. Given the current uncertainty, it seems as though alternative investment is going to solve all our portfolio’s problems, and allocating a quarter of our assets to an unknown universe is frankly imprudent.

Most investment firms they’ll know how to make the most of it for our money, but we might not even get to try it, and yet our assets will be squeezed dry.

«Poor man… He’ll never know what it’s like to be young, because he was born a banker.»

Mayer Amschel Rothschild (1744-1812)

As with any bull or bear run in any market, the rise in the price of crude oil is also experiencing a correction downwards. For many, this will be a typical technical correction, whilst for others it may mark the peak of the price rally and energy speculation. However, let us analyse the fundamentals behind this moderation in prices:

Following a breathtaking bull run over the last three or so semesters (2007/2008), a number of concurrent factors are now coming together to cause the easing in prices we have been seeing in recent weeks. Namely: the absence of unforeseen geopolitical tensions, an increase in supply and a slowdown in the rate of growth in demand, as well as a possible easing of outright speculation driving these prices.

The first circumstance is very fleeting, and we could describe it as sa sense of normality amidst the chaos, although I personally believe that the exploitation of recent geopolitical crises (since the 11 September 2001) has led to a certain degree of market immunity to these factors (see the virtually negligible impact that the latest spasm has been having Russian-Georgian). As for the increase in supply, this is estimated as the net figure between the start-up of new extraction operations and the decline in production due to the depletion of old wells. Finally, the slowdown in the rate of growth in demand is driven by various factors: the destruction of demand caused by high prices, the impact of the economic crisis in the developed world, and a certain moderation in the rate of growth in emerging economies, also due to the knock-on effects of the crisis in the developed world. However, it should be clarified that the growth in demand from these emerging economies is still far from being offset by the slower growth in demand from the developed world; this is why we speak of a slowdown in the rate of growth of demand rather than a decline in demand itself.

For all these reasons, according to a recent report by the International Energy Agency (IEA), the forecast for the balance between the increase in demand and the potential for supply growth clearly favours supply. But bear in mind, this is only for 2008 and 2009, as the IEA anticipates that the crisis situation in industrialised countries will begin to improve from 2010 onwards, at which point the balance will even out. What will happen from 2011 onwards? You’ve guessed it: the Agency forecasts a clear shortfall which will undoubtedly send prices soaring once again to record highs.

In our view, the period of recession in the industrialised countries could extend well beyond 2009 and 2010, but in any case a medium-term rebound in oil prices seems inevitable, due to the enormous consumer demand from emerging economies. Consequently, the crisis in the developed world also seems far from being a short-lived one, as it has a very significant first-round inflationary component in the macroeconomic figures; but unfortunately (or perhaps not), this crisis appears to do little to encourage a moderation in future energy consumption.

The technical correction we are currently experiencing appears to be nothing more than that: a correction within a rally, the fundamentals of which continue to point towards rising oil prices in the medium to long term. And the worst thing is that there does not seem to be palliative care tools beyond simply moderating consumption and the pursuit of what is, for the time being, the pipe dream of abundant and cheap energy. Let us hope that speculation does not even sweep away the respite offered by the correction before its time. Nevertheless, there are several voices predicting the benefits of the energy crisis through greater efficiency brought about by scarcity. And we will always have the joy of being poor but efficient, in contrast to the excesses of the rich and the oil producers… or was it the other way round… what a mess.

«When you jump for joy, make sure no one pulls the ground from under your feet.»

Stanisław Jerzy Lec

Bad news and misfortunes are easier to bear if they are delivered in manageable doses. Even our ability to respond and find solutions depends on crises not taking us by surprise. We need time to come to terms with bad news and respond effectively. The timing of crises is crucial.

On 12 August 2007, in the midst of the credit crunch, we wrote this article in which we analysed the contagion process surrounding subprime securitisation: mistrust in corporate debt, interbank lending and, finally, equity market volatility. At that time, we did not anticipate that the extremely serious situation unfolding with the credit crunch could be exacerbated by oil prices at $150 per barrel. Had that been the case, the panic that ensued in August 2007 could have severely damaged the foundations of the system, which remain intact today thanks to the gradual release of the bad news we have been absorbing over the course of a whole year. Indeed, the System has had time to absorb one piece of bad news after another, and today’s macroeconomic figures bear no resemblance to those we had in August 2007. And the current figures are likely to be much better than those for next summer 2009. In any case, we are where we are after a year of hard-to-digest realities that have allowed the System to survive. Now it is society’s turn to face these hard-to-digest realities.

Many of us believe that we are only seeing the tip of the iceberg when it comes to the social crisis and macroeconomic figures. But it is very encouraging that we are all now fully aware that we have collided with a massive iceberg and that the bow of our Titanic is taking on water irreversible. No one is dancing gracefully to the orchestra’s music in first class anymore, as most people were still doing last summer. There is nothing worse when facing a crisis than ignoring it.

The longer a disaster drags on and the more it becomes blurred over time, the greater the capacity to respond. If the Titanic sinks very slowly, the evacuation and subsequent rescue operations will be carried out with a greater chance of success, and the damage can be mitigated to a greater extent. It is true that the energy crisis is like a wave that complicates the emergency protocol, whilst at the same time accelerating the sinking. But at last the orchestra has stopped playing and has set to work to assist with the evacuation and rescue. And that benefits the attitude and willingness of the rest of the passengers in the face of the crisis. For the music to keep playing and for the crew (political and economic) to talk to us of a mere slowdown not only solves nothing but makes us far more vulnerable to the shipwreck.

How distant now seems the day we set sail on this luxurious maiden voyage. And how reckless were the words of the captain, Edward John Smith: «»I can't imagine anything sinking modern ships; modern shipbuilding is far more advanced than that.'. Or those of the company’s president, J. Bruce Ismay, who was travelling on board and refused to slow down in order to complete the crossing in record time. They were just as reckless as we have been, taking advantage of an absurdly low price to mortgage our lives and live on credit in a first-class cabin with an orchestra included. An orchestra that has now stopped playing.

We must not view the lifeboats as a traumatic reminder of what we have long since left behind, but rather as a unique opportunity to learn from our mistakes and our arrogance. At the same time, they mark the start of a new voyage towards a world full of opportunities, albeit one that is currently marked by hardship and devoid of music.

As published WSJ, a Citi has had no choice but to negotiate the repurchase of seven billion $ (some sources cite more than twice that amount) of long-term debt instruments with auctionable interest rates or Auction Rate Securities (ARS), which sold with allegedly «malpractice»to its customers. The New York Attorney General's Office, the SEC and other federal authorities, have not ceased to pepper Citi with lawsuits until it has atoned for its sin, which is no less common than a cry to heaven. Citi sold instruments that with the credit crisis have dried up and become totally illiquid, as well as being left with a solvency as dubious as its own degraded underlyings today. The bank pushed to their clients to buy such instruments by assuring them that they were «insurance, liquid and near cash equivalents«The New York Attorney General Andrew M. Cuomo himself said, in his own words.

According to the US judicial system, it appears that Citi could be charged with «...the crime of fraud".«malpractice and poor advice«. Something that, on the other hand, is more than obvious and of simple Common Sense, but not at all obvious if we want to extrapolate it mentally to what our national bankers have been doing with all of us since private banking is private banking, and even in simple commercial banking. In addition to the 7 billion, it will pay another 100 million in fines.

The US is the country where «anything is possible», for better or worse. And among the good, we have seen how a giant such as Citi has been forced to buy back billions of illiquid product now in the hands of its clients and customers, to whom it sold the bike. An example to follow, despite the fact that it has only been possible after several lawsuits, threats and a heavy hand from the corresponding official bodies. But undoubtedly exemplary.

Some of you may be thinking: Why is it Citi's fault that we have been hit by a credit crisis that has wiped out the liquidity and solvency of countless financial instruments? The answer is, as did UBS, In the case of the latter, these sales took place on a massive scale when the entity was already aware that was placing some instruments that burned in the balance sheets of the bank. Even with sales insiders of the top management who took the dead body off their hands before anyone else without caring about the damage that would be suffered by their clients and purchasers. But even on the unrealistic assumption that these entities had not been aware of the problems of these securitisations, it is still a malpractice. Their incompetence cannot massively harm clients who have relied on their advice, and they must be compensated, even if only through judicial pressure. Something similar to what happens with medical malpractice, even if the error is unintentional. The sale of instruments based on subprime debts that have undergone the engineering of securitisation as liquids, insurance and near cash equivalents, The liability is a responsibility that should be debited to the bank's accounts and not to the customer's. Fortunately, it seems that UBS and Merrill Lynch will be added to the list. Fortunately, it seems that the list of entities that will be forced to compensate for their abuses will be completed with UBS and Merrill Lynch, for the time being... ?Will we one day see a European bank lobbied by European bodies on this list? I am afraid not.

It is an old, unfortunately familiar story. Already at the time of the Argentinean debt crisis we were forced by various commitments to intervene with banks to defend the interests of helpless savers who had hitherto only trusted their personal bank manager. We have seen how they had sold Argentinean debt pre-corralito, leveraging the life savings of widows and pensioners. The bank's arguments at the time were limited to phrases along the lines of: «...".«Who would have thought that Argentina would have such liquidity problems. We have never seen anything like it»and other such nonsense. Banks just sell as much as they can, without caring whether the buyer is an informed investor or a widow who blindly trusts the handsome tie-wearing clerk who sits as you enter the office on the right. Much less do they care whether they are risking their late husband's life savings or the recurring income of a well-off rentier. Oh, and the latest in customer information (MIFID), serves only to protect the institution from potential customer lawsuits and not the other way around, as you rightly said. Echevarri in its day.

It is true that among those who will be bought back there will be some well-informed people who knew what they were risking, just as a smoker must know the risk he runs with his cigarettes. But the person who is supposed to look after your health, i.e. your doctor, should never tell you that smoking will not harm you or even improve your general condition, especially if he or she has your absolute, blind and exclusive trust, as is usually the case. In the event of future harm, in my opinion, it is possible to claim for liability, with the aggravating factor that in the case of the doctor/smoker, financial compensation is not enough.

Let Sinners pay for the Just for once in their lives. But the accountability process in the US is, for the moment, only possible in the country where anything is possible. In the meantime, here, those affected by domestic sales of similar products will have to settle for an annoyance that will make them change their manager or, at most, their institution. The downside is that after each bank butchery, the weight of the customer in the new entity will be lower and therefore the «good investment opportunities» will be offered to preferential customers. What a pity.

Asking an employee of a financial institution that sells products to be a good advisor to its customers is like asking the Big Bad Wolf to give dinner to the Three Little Pigs, put them to bed and tell them a bedtime story. Oh... and in most cases the Piglets wouldn't even have been able to build themselves a little house of straw, but they refuse to pay for a professional babysitter because the Wolf doesn't charge them...

If you don't fight to end corruption and decay, you will end up being part of it.

Joan Baez.

The 2008 Beijing (or Peking) Olympic Games are now ready to begin. Official rhetoric is rife and tension is at its peak. This tension is officially justified by the high risk of terrorist attacks, but in reality it stems from the risk that something might slip out of the organisers’ control. all-powerful party. Ensuring the smooth running of the Olympic Games in a country as vast as China is a very difficult task, but a vast amount of human and financial resources has been allocated to maintaining absolute control over everything. Information is controlled, as is the image presented to the outside world, internal discipline, and so on… The self-censorship practised by millions of Chinese people this summer will be absolute, and without it, the state could not succeed in exercising such control.

Propaganda-laden speeches are the order of the day, and a prime example of this can be found on the official website itself:

«The Olympic Games fulfil the dream of all Chinese people. The 2008 Beijing Olympic Games have brought great expectations and inspiration to the world. For those who enjoy life, the Olympic Games are not merely seen as a first-class sporting event, but as a festival created and celebrated by the whole world. No matter where you are, you will be swept up in the Olympic spirit of “faster, higher, stronger” during the Games. Then the joy of “peace, friendship, multiculturalism and win-win” will blossom in your heart.

China is a country steeped in history with a rich cultural heritage. We Chinese are a hospitable people and we are filled with anticipation and enthusiasm at the magnificent occasion that is the Olympic Games. This ancient Eastern civilisation will come into close contact with the world during the 2008 Beijing Olympic Games. It is you, our friends from all over the world, who will bear witness to this momentous occasion! For this reason, BOCOG has set up a dedicated department to serve Olympic spectators. We look forward to providing you with an extraordinary experience and an unforgettable journey to the Olympic Games, with our sincere smiles and wholehearted service.

(...)

Visiting other Olympic cities is also a good idea. In the “Spectator Services” section, we’ll introduce Qingdao, where the sailing events are being held; Hong Kong, where the equestrian events are taking place; as well as Tianjin, Shanghai, Shenyang and Qinhuangdao, where the football matches are being played. You can visit these places to watch the Games or simply to travel. We’ll also provide you with information about them.

»How delighted Beijing must be to see friends coming from so far away! Today’s Beijing is preparing to welcome friends and guests from all over the world with a new look.”

That’s great! Not only do they allow us to travel to certain areas and go beyond simply attending sporting events, but they also encourage us to do so, provided it is considered «good idea«The Piarist Fathers are so wonderful…!’

From the COJOB (Beijing Organising Committee for the XXIX Olympic Games) now comprises more than 30 departments that have been set up since its establishment in 2001. All of these are theoretically intended for the organisation of the Olympic and Paralympic Games, but are primarily devoted to controlling the information and image presented to the world. Departments have been created that are quite unusual for other Olympic Games, such as a General Planning Office, a mysterious General Office, an Environment Department, an International Liaison Department, a Games Services Department, a Legal Services Department and an Audit and Supervision Department, to name but a few.

The following are also well worth a look: official notices which always unfold at breakneck speed and make up the imposed, erratic schedules of accredited journalists. In the purest tradition of despotism and secrecy:

«BEIJING, 3 August (COJOB website) The Main Press Centre will organise a visit to Tiananmen Square on 5 August (Tuesday), from 14:00 to 16:00, to view the state of preparations at the square. During the visit, officials from the Beijing Landscaping Administration will give a general presentation on the decoration process.”.

Foreign journalists accredited for the Olympics are invited to this event. To attend, they simply need to send a fax with their proof of accreditation before 10.00 am on the 5th to the following fax number: 010-84371065

On the day of the visit, simply wait at the designated entrance at 1.30 pm

Contact persons: Tang Hui, Liu Xiaohui
Tel.: 66625259 66625258
Fax: 84371065″

A form of paternalism to which 1.3 billion people are accustomed, although I find it hard to believe that, in the remote and deep-seated rural areas of China, they have managed to motivate the population, however hard they may have tried. I fear that in the parts of China not visible to the international media, people will continue to struggle to escape poverty, and they will do so completely oblivious to the 2008 Beijing Olympics and its patriotic megalomania.

Nevertheless, from our summer seats we’ll be able to enjoy live what will undoubtedly be a spectacular sporting event on a national scale – the sort you don’t see much of these days.

The question is: How has China managed to prevent its Olympic Games from being boycotted, as happened with Moscow ’80 and Los Angeles ’84? Diplomacy or democratic concessions are not the answer. The key lies in the economic power of the up-and-coming leading power worldwide. The fact is that Western democracy is crumbling in the face of the financial support like an ice cube in my summer red wine whilst I lose a game of Monopoly with my children.

As we mentioned last August, almost all activity comes to a standstill during this month. The run-up to July makes the slowdown less abrupt, but it really does become difficult to work and get in touch with most of the people who make up our daily working routine. This lack of productivity for practically 10% of the year sets us permanently apart from other parts of the world, such as Japan, where it is customary to have just over a week’s annual holiday, which barely affects their productivity. In any case, we tend to refer to our summer ‘productive hibernation’ as «well-deserved rest», although, personally, I’ve always found it a rather sweeping definition.

Whether deserved or undeserved, what is clear is that, to a greater or lesser extent, everyone takes a temporary break (or definitely) their work. And most employees do so without this affecting their earnings; however, the vagaries of the market during August tend to mean that the dolce far niente with the loss of earnings. Whether it is down to Murphy’s Law itself or a hidden hand at work when investors’ ability to react is at its lowest, the fact is that in August there are often erratic market movements that tend to cost holidaymakers far more money than the mere cost of their holidays. But we’ll be discussing these holiday crises (financial ones, of course) in a future article.

Now let’s focus on the sun, the beach and the sun cream on tanned backs. Beachside democracy brings together rich and poor, fat and thin, beautiful and ugly… And also successful investors, losers and even those who have never risked their money beyond their conservative pension scheme, which invests passively in emerging market equities. Nudity on the beach can give us the chance to lay out our towel next to the all-inclusive resort an executive from a company whose shares have been purchased by the investment fund in which we have invested our savings. Perhaps we’ll be sitting at the same table at the Captain’s Gala Dinner, during a cruise across the Mediterranean, with a banker/fishmonger que disfruta de su incentivo por haber conseguido la cifra exigida de explotación por cliente. Y también es posible que alguien coincida, durante una visita guiada, con su gestor de cartera saliendo de una de las suites del hotel Burj Al Arab de Dubai.

La grandeza del verano es que podemos disfrutar de nuestras vacaciones anónimamente junto a otros damnificados por la crisis; en hamacas contiguas con quien se ha forrado comprando futuros de petróleo; o michelín frente a michelín de corresponsables de nuestras carnicerías patrimoniales. Pero mejor no pensar en ello, olvidémonos de la condición inversora y financiera de los veraneantes de nuestro alrededor y de la nuestra propia. Que cada mástil aguante su vela y disfrutemos del surf sin importarnos quien sujeta la tabla de al lado.

Los que velamos para que no cese el lucro seguiremos escribiendo y surfeando entre el oleaje de las crisis, esperando «the big one» y vigilando para que nadie se ahogue o se queme. Va con el sueldo.

Desperate times call for desperate measures. With this in mind, we’re going to put an idea out there so that, through your comments, we can test it. The aim is simply to find a a definitive solution to the world’s dependence on oil and fossil fuels in general.

Looking at the latest movements in the price of crude oil, which peaked at 145 and subsequently corrected down to 122$ per barrel, we are going to analyse a possible strategy that could, at the very least, alleviate our dependence on oil and the resulting speculation, as well as minimise thethe effects of peak oil. Let me explain: When, just a couple of weeks ago, we were seeing record-high prices, there were persistent voices (some with vested interests, but others without) warning us of the likelihood that the price would soon exceed $150, heading towards the 200 $ target. No one knows how high the price of crude oil might rise. Nor is it clear how well the world’s economies will be able to cope with a price per barrel that could quadruple in just 24 months.

But what we do know is that, at 145$, the world has not ceased to exist. Global macroeconomic structures have come under extraordinary strain, and countries dependent on massive oil imports are suffering and experiencing record levels of decline. Economic figures are therefore deteriorating, and first-round inflation is sweeping away the fragile balance achieved during years of prosperity. But despite all the difficulties, the world has not ceased to exist, and it is unlikely to do so even if the price per barrel reaches 160 or 170 $.

On the other hand, we must acknowledge that no country has yet been able to replace its dependence on oil in an efficient, sustainable and sufficient manner. The investment required is prohibitive for governments, and for the private sector these projects are not yet attractive enough to be undertaken on a large scale. To take just one example, the boom in solar farms is only expected to meet 10% of energy demand over the next 10 years. And we must not lose sight of the fact that their profitability is based on prices which, far removed from market forces, are underpinned by legislation. For this reason, it is unlikely that private companies will meet the demand for alternative energy production on a large scale in the short or medium term. That is far too long, given the state of the planet.

However, these alternative energy needs could indeed be met through massive state subsidies. Or indeed, the country could be flooded with semi-public or state-run solar or wind farms. With sufficient resources, the right to secure and affordable energy could be guaranteed by the state for as long as the private sector is unable to do so on a viable basis. However, as soon as private companies become efficient and capable of producing the necessary energy profitably and at reasonable prices, the state should withdraw from the scene, intervening only in the event of imbalances or energy emergencies. In other words, solely to guarantee citizens’ fundamental rights.

There is no doubt that if governments could guarantee such alternative energy generation, the planet’s future prospects would be infinitely less compromised. Let us imagine a global economic system with surplus and reasonably cheap energy, even with the growing needs of emerging economies met. It is true that we would continue to cause ourselves harm through our own ineptitude; we might continue to abuse credit and carry on playing dangerous games with bubbles of all kinds. But what is clear is that a guaranteed energy supply at reasonable prices would be the philosopher's stone of humanity’s future progress.

The key question is: Where can we secure the necessary funds to provide massive subsidies for, or publicly generate, sufficient alternative energy? At this point, we should recall the saying, «desperate times call for desperate measures«: Turning the need to ensure a sustainable and sufficient energy supply into Reason of State, the all-time high price reached by crude oil could be maintained through state intervention. In other words, the difference between the all-time high price and the actual market price of oil at that time would be channelled into a special budget item. A sort of National Energy Generation Plan could even be created, with an official body such as the Nuclear Safety Council which would be responsible, for example, for subsidising or setting up solar farms on a massive scale.

If the profits from these energy-generation projects were reinvested in the development of further facilities of this or any other kind of alternative energy generation, the State’s capacity to generate energy would multiply within a few years. In the meantime, unfortunately, the non-oil-producing world would continue to suffer from the strain of oil prices at artificially high levels. It would obviously not benefit from corrections and easing in the market price, and its macroeconomic figures would also continue to be adversely affected at historically high levels. But the light at the very end of the tunnel would be clear, and our pace of progress would steadily accelerate. Furthermore, the adoption of this strategy by a large number of non-oil-producing countries would drive down speculation very decisively, thereby creating a positive cluster effect copy.

But let’s put what we’re saying into figures: At current levels, with a spread between the current price per barrel and the all-time high of 23$ (145–122), we’re talking about more than 37 million dollars newspapers in Spain only, whilst worldwide, more than 1,950 million dollars newspapers the search for and deployment of alternative energy generators. Furthermore, as we have already mentioned, the start of this process would coincide with the period of lowest efficiency and energy generation capacity. This is because, once the first facilities come on stream, the energy generated could either be channelled to alleviate the stifling effects of maintaining price caps on the economy; or the proceeds from its sale at official or market prices could be reinvested, thereby increasing the daily amount available for generating more energy.

As we said at the outset, imposing a permanent tax on the cost of oil imports could only be justified on grounds of national interest. The drawbacks and the number of people adversely affected would be enormous. But in return, we would resolve our dependence on fossil fuels once and for all and eliminate the pressure exerted by oil-producing countries (OPEC), we would reap countless environmental benefits, and ultimately yet another World Order would be established – one that is far more stable and conducive to sound development.

Meanwhile, the all-time highs dictated by market forces are squeezing the lives of non-producers in favour of OPEC and its havens of abundance, such as the Dubai shown in the previous photograph. The fact is that Wealth with a capital ‘W’ is shifting at a far greater rate than the daily figures cited, as we had already warned in Monopoly either ends in bankruptcy or doesn’t end at all. In fact, the pace is proportional to the price of crude oil and, to a much lesser extent, to the imbalance in China’s trade balance. And I believe that the non-oil-producing West should consider some major remedy, even if it hides behind the ever-dangerous concept of ‘reason of state’.

It is unfair for one generation to be held accountable for the actions of the previous one. We must find a way to protect future generations from the greed or incompetence of the present ones.

Napoleon Bonaparte.

Today we are going with a light post for a summer weekend. Below you will see a series of maps of Worldmapper.org very interesting. Many of you have already seen some of them, but let's make some revealing comparisons between some of these distorted thematic maps in function and proportion to what is depicted on them:

Let's start with the simple territorial map (#0) and compare it with the following one (#1), what differences do you see and which one looks more familiar? For most of you, the first one will look slightly distorted in its southern hemisphere, with Africa, South America and Oceania exaggeratedly elongated, while the second one looks more realistic. No, the first one is the one that fits the geographical reality, while in the second one the southern hemisphere is minimised. Likewise, in map #2 we see the reverse distortion, with a minimised northern hemisphere. Indeed, the scale of the lower half of the world map is used to contract in order to have a better and more detailed view of the northern hemisphere, where most of the developed world is concentrated. But the world is much more extensive in its lower half than we have usually wanted to see.

The following map shows the population in 2002. If we compare it with the territorial map #1 we will see that the extension of the territory does not correspond at all with the population. As a curiosity, Australia is 21 times larger than Japan, but the Japanese population is 6 times larger. Another curious fact is that in the year 2050, 6 billion people (the entire current population) will live in Africa and South-East Asia, while 3 billion more will live in the rest of the planet.

The following two maps show the differences between the number of births (1TP5Q4) and the population over 65 (1TP5Q5), with Europe, the USA, China and Japan being the most affected by population ageing:

Infant mortality (#6) would be the opposite map of population ageing. Surprisingly, in the Americas as a whole, this rate is moderately low compared to Africa or Southeast Asia:

In terms of the number of people infected by HIV (#7), we can see that it mainly affects Africa and South-East Asia, but also significantly Europe and America. In other words, wealth can almost eradicate infant mortality, but it cannot prevent HIV infections, even with such a significant health expenditure as we can see in map #8.

As for who pollutes the most, this is clear from map #9. It is quite consistent with that of the largest importers of oil and oil products 1TP5Q10 (note South Korea and Japan), and with that of current GDP 1TP5Q11. However, it should be noted that in general China and India pollute a lot in proportion to the fuel they import and also to their GDP.

The appearance of the map changes radically if we focus on the major oil exporters of #12. Here we see an American continent with Brazil, Mexico and Canada very visible. A Northern Europe together with significant Russia, and of course an unrecognisable Persian Gulf:

Another dramatic map is that of war and war-related deaths #13. Here it is Africa that once again bears the brunt. Asian countries such as Russia, Afghanistan and the Balkans are also significant. If this map were updated to this year, the impact of the Iraq war could be seen. But it was last updated in 2002.

In terms of religions, we will see the differences between Christians (#14) and Muslims (#15). Also significant is the map of Agnostics (#16) led by China.

If we talk about PPP (Purchasing Power Parity) 1TP5Q17, only 53 million people earn more than €130 a day. And of these, 58% are in the USA. It should be noted that this graph is from 2002 and does not include the nouveau riche of the East in recent years.

Finally, we can see how Europe (and Spain) are leaders in terms of tourist destinations 1TP5Q18

In short, the world is what it looks like from a bird's eye view. But the inequalities are so brutal that our picture from the sky might look very different if our fundamental affect our appearance.

It is no secret that wealth is created in good times. The longed-for Welfare State achieved by many first world countries has not come to us by accident, but has been worked for by all of us. It is very true, however, that much of the first world has progressed at the cost of the regression of the second and third worlds. And although there have been very honourable exceptions in which the growth of the first world has pulled the cart of the second and third worlds, in general it has progressed at the expense of others, including the environment. Be that as it may, for one reason or another, the reality on which we want to focus this article is that first world GDPs have grown steadily since the last century.

In this map we can see the projected GDPs for 2015.

But this growth has not only been based on the wealth creation capacity of the M1 conglomerate (banknotes, coins in circulation and liquid securities). In other words, growth has not been based on the traditional wealth in circulation. Had this been the case, growth would have been much slower, but at the same time probably more robust. Growth has also been based, especially in the last couple of decades, on the M3 conglomerate. This includes M1 and M2 and money created on the basis of credit, institutional and long-term deposits, i.e. all money that is recorded as an electric impulse and book entry and does not necessarily have a physical or tangible counterpart. This conglomerate has also grown disproportionately in recent years. It now exceeds M1 by more than 10 times and is growing (it was growing until a few months ago) at a rate of 15% per year (i.e. +1.5M1/year). It has to be said that the clusters are vaguely defined and calculated, so I would not consider them a reliable macroeconomic tool as such. But in this day and age, we must certainly keep a close eye on the behaviour and evolution of the Money Supply.

Precisely because this growth is also based on M3, the fall will be harder. In other words, the impoverishment or destruction of wealth (production, jobs, profits, etc.) will be more severe due to the level of indebtedness of the general population. The prevailing welfare state in the first world has also been based, and abusively so, on money owed. In this way we have used money in the present to generate money in the future, as we have already commented in Back to the Future. Paradox of Time and Money, and not only because of the abuse of derivatives. And to be honest, we should bear in mind that part of the present welfare state also comes from the future. In other words, we have mortgaged our future welfare in order to recklessly optimise the present welfare state. To give a sadly topical example, it is as if we were to produce a litre of alternative fuel (with the same energy potential as petrol), but at a cost far higher than a litre of petrol. Or, in the height of inefficiency, to obtain this litre of alternative fuel we would have to use 2 litres of petrol, for example. Similarly, our welfare gains of the last decades have been dangerously and grossly inefficient and have squandered future welfare.

At the current time of credit crumbling and the real estate and energy crises, this unbridled burning of future wealth will aggravate the consequences of the current crises. A large M3 amplifies the positive effects, we know this well and we thought we were very clever at the time. But beware, it also amplifies them in the negative, and today we should know ourselves to be very foolish for that.

The coming social misery for the first world will be as harsh as it is globally deserved. Although the righteous almost always pay the price for the sinners, the financos abused the inversopaths; but also the creditors abused hypophiliacs without investor status, which in turn abused their inefficient welfare. We all bear our share of responsibility, with the logical exception of those parts of the planet that did not even have the capacity to participate in the System and whose only concern was, and is today even more so, to survive famines and epidemics.

This multiple crisis is here to stay, and the future will not save us. We have already spent it. How far have we spent the future? That is undoubtedly the million-dollar question. A million that, of course, we also owe.