Cluster Family Office Blog

The other day I was talking to a friend of mine, who is also a renowned criminal lawyer in Barcelona. He told me that in the first quarter the number of insolvency cases handled by his law firm that year had already exceeded the number of throughout 2007. And that in the second quarter, the upward trend had been even more pronounced. He also told me that many of his clients, who had had stable business partners for many years, were now in dispute with one another for various reasons. Various, yes, but always financial. Logically, financial difficulties within a company put the strength of the relationship between partners to the test in a dramatic way. And many partnerships that have been stable for years shatter into pieces when the red figures begin to seriously affect the partners’ pockets.

«Serious, well-educated and high-profile business partners tear each other apart in court over money,» this prestigious lawyer remarked to me in a chilling tone. Indeed, the organisational charts of corporate senior management are in turmoil during times of loss. And reaching a point of insolvency is always traumatic. In most cases, it involves the breakdown of internal relationships, the sacking of senior and executive management, backstabbing amongst shareholders and, of course, staff cuts accompanied by the collapse of the employer–employee relationship, if indeed such a relationship ever existed.

According to my friend at this leading Barcelona law firm, they have never before witnessed such a collapse in business activity and such a surge in insolvency cases as we are seeing now. So much so that they have had to adapt their internal structure and HR arrangements to cope with this avalanche of business failures, the end of which is nowhere in sight.

Speaking to another friend, this time a tax adviser, he told me that he has many (and when I say many, I mean exactly that) clients with businesses that are waiting for the end of the holiday season so they won’t have to reopen in September. This is set to become widespread practice. In other words, the unemployment figures after the summer are not only going to skyrocket due to the traditional end of the season in the service sector (restaurants, hotels, etc.), but also because of the thousands of workers who will find themselves out of work when they return from their paid holidays in convenient payment terms all-inclusive, right up to dismissal.

Will these workers’ household finances be able to cope with the loss or reduction of one of their incomes when their unemployment benefit comes to an end? For the most part, no. Their levels of debt are often so crippling that any dip in their earnings would shatter the fragile balance of their household finances.

In the face of this massive increase in insolvency cases pre- and, above all post-When it comes to holidays, the classic film springs to mind Timo del Nazareno:

It involves setting up a commercial enterprise, preferably a limited liability company, which begins to make purchases from various suppliers, initially paying for the first purchases in cash until it has gained their trust. From that point onwards, larger purchases are made, using bills of exchange and promissory notes as a form of payment, drawn on dormant bank accounts, whilst the goods, before the payment due date, are either resold at half price or simply diverted, resulting in the bills being dishonoured when presented for collection.

The term ‘scam’ for the Nazarene It stems from the «queue» of debtors caused by this type of fraud, who, just like penitents, turn to the banks in an attempt to cash the promissory notes and bills of exchange issued by the alleged fraudsters.

But of course, there are significant differences: a business owner who will no longer be opening their doors in September is not doing so out of a desire to defraud, but because of an accounting error; and it is not a premeditated act but a regrettable measure resulting from the crisis and/or negligence in business management. What I am not so sure about is whether, before pulling down the shutters, business owners have not done everything possible to minimise the residual assets they will have to face in insolvency proceedings. A practice which, on the other hand, seems perfectly understandable to me. Clearly, the trail of aggrieved creditors that both business owners and fraudsters will leave in their wake will be worthy of the name ‘Nazareno’.

In these times of crisis, the line between the Nazarene con artists and the businesspeople who make purchases – some of which they will sell, some of which they won’t, and which they will never be able to pay for – is becoming increasingly blurred. But what is worrying is that, whether in good or bad faith, the Nazarene penitents are set to swell the already long queues of creditors in a dramatic domino effect.

It is of no use for a brilliant (but not brilliant) businessman from Valladolid to be involved in cultural and sporting university movements during his younger years. It is of no use that at the age of 30 he leads the general secretariat of the local UCD, nor that his time in politics perfects his capacity for future dialogue in the world of big business. It is of no use that he moved to live in the capital of Spain and that in just 5 years he became CEO of a real estate company called Prehogar. Nor that he later founded with other partners his first own companies: Inomar and Contrucciones Pórtico, whose Managing Director from 1992 to 1996 was Francisco Javier Cerceda Colado, ex-Division General and deputy director of the Guardia Civil, where he was appointed president of the Patronato de Viviendas, and from whose experience his partner and vice-president Fernando Martín obviously benefited... It is of no use at all.

At that time, Mr. Martín had already created Promociones y Urbanizaciones Martín, S.A. (Martinsa), with very moderate activity and growth. Perhaps that is why he continued to accumulate various companies: Jafemafe, Femaral, Almarfe, Fercler, Premier Martinsa (until recently called Martinsa Norte), Inmobiliaria Marplus and FT Castellana Consultores Inmobiliarios. Many of them were nothing more (and nothing less) than mere property companies, but others were dedicated to what really made him great: land management in the midst of the rezoning and credit fiasco. His influences, his complicity with Florentino Pérez and FCC, did the rest.. In the face of accusations of influence peddling, Fernando Martín repeated incessantly: “The business is in unconsolidated land. And that's where imagination and intuition come into play”. Indeed, we sensed and imagined how he was making dream capital gains, one after the other. He even sat in the dock but was acquitted due to the well-known lack of evidence. At the time, he boasted that he was able to get a finalist floor in less than 50 days... It's no use.

Until a couple of years ago alone, he accumulated more than 550 million euros in stock market assets, achieving capital gains of up to 120 million euros in just one year. Sacyr Vallehermoso. But it is of no use that at the beginning of the 21st century his business take-off was meteoric, nor that in 2006 he bought Fadesa and created Martinsa-Fadesa with a presence in 14 countries. The feet of this giant were made of clay. Of a mud built on a real estate bubble and a banking credit lust, which burst months ago.

Mr. Fernando Martín, as you would say my admired Groucho Marx, «the game is over«. But for whom? Unfortunately, this is the million-dollar question. The game is over For the shareholders who trusted you, for the families who bought their flats that you will never finish building, for the shareholders of the banks who trusted you, and we could go on with the list of despair until we bleed to death. But what about you, Mr Martin? For you, only one of your toys is finished, the one that made the most noise, the one that amused you the most and even, who knows, the one that made you the most money. But what about your diversified businesses? Those that are known (3% of Unión Fenosa, 1% of Telefónica, 1% of BBVA, 1% of BSCH, etc.), those that only your friends know, and above all those that are not known. He is known to have more than significant holdings in distribution companies (supermarkets), and seats on a wide range of boards of directors. Mere tips of the iceberg.

I am not criticising him for having diversified his assets at all. Not to have done so would have been reckless and naïve on his part (even Bañuelos did so). But it is not credible that he did not see the danger of not diversifying Martinsa-Fadesa itself at the height of the bubble. Sorry Fernando Martín, nor were the re-qualification bucks repeated by chance, nor was their foresight of the bursting of the bubble so short-sighted.. He simply used one of his tools, one of his toys, until it stopped working. The current real estate and, above all, credit scenario no longer compensates him for his efforts, and not only did he do nothing to avoid bankruptcy, but I fear that it is an end designed and adapted to the future plans he has for his assets. And worst of all, the size of Martinsa-Fadesa makes the Government tremble and force it to buy land from you to pay your debts, thus extending the collateral damage caused by you to immoral extremes.

Perhaps this is what he meant when he spoke of «imagination and intuition». To be a good businessman it is not enough to make a company big and influential, you also have to make it solid, strong, agile, indestructible. Something similar to what you have done with your personal assets. This is the only way to be an entrepreneur in capital letters. You are not, because the only thing you have consolidated is your own fortune. And that is useless without a minimum of moral and human qualities.

Wealth without Ethics is despicable. This from a Family Office where we see many ways of amassing fortunes, Mr. Fernando Martín.

(…) But “don’t worry”, things won’t get that bad. Our financial system is not in mortal danger as long as there is still scope for greater social hardship. Unfortunately, that’s just the way the game is played. But the anchor effect In good times, it helps us look the other way. As he said, Supetramp in 1975: Crisis? What Crisis?

Nowadays, no one can turn a blind eye any longer. We all know – even the most optimistic or misinformed amongst us (where have I heard that phrase before?) – that we are in a crisis. Or rather, a Crisis, with a capital C. Some have found it very hard to conceive of a major crisis without a stock market crash, with the permission of the draft of 21 January That may be in the past, but nowadays even those with the slowest reactions know that the West is in crisis. Nevertheless, it seems that the dangers which some saw as threatening the survival of the financial system will be resolved through global impoverishment.

The rise in energy costs has undoubtedly fuelled this sense of crisis. Yet, for most people, it is still little more than a feeling. Prices are rising as a direct consequence of the cost of crude oil, but the impact on employment resulting from the fall in consumption is still in its early stages. Unemployment is only just beginning to rise, and society has barely begun to feel the consequences of the economic system’s decline. Moreover, coming as it does on the heels of unprecedented consumerist excesses and financial extravagance, the fall will be all the more painful. The earthquake has struck – seismologists know this only too well – but the general public, despite some increasingly urgent voices of alarm, remains largely oblivious as it awaits the arrival of the tsunami.

Very few people realise the scale of the tragedy, because very few are affected. In other words, wartime household economies involving drastic belt-tightening only occur in cases where people are already feeling the pinch. The rest hear about the crisis every day but remain confident that their lives will not change substantially. At most, they’ll have fewer holidays or fewer expensive luxuries such as new cars, and so on. But the reality is that many will lose a large part of their income, and the adjustments will have to be far more drastic.

Fortunately, we have room for even greater social hardship. I hope no one takes offence: what I mean is that, generally speaking, until just a few months ago, the middle class was spending and getting into debt far beyond its actual means. And the upper-middle class too – you only have to look at the record figures for Ferraris sold amongst people whose fortunes were not sufficient to afford such luxuries. The fact that we’ve gorged ourselves on consumer credit, mortgages and Caribbean holidays until we were almost in a drunken stupor condemns us to a massive and long, very long hangover. The cycle of a deep and complex crisis such as this can be a long one. Although political, business and institutional forces are trying to convince the public that after a couple of bad years we’ll have atoned for our sins, the sad reality is quite different. In all likelihood (since we do not have the crystal ball that some seem to possess), in Spain property sellers will not see their market valuations improve over the next 5 or even 10 years, nor will we be able to fill our savings accounts at last year’s rates, nor will the banks resume offering mortgages for 80% of the valuation (despite some official voices recklessly calling for this), nor consumer loans without solid guarantees, nor…

In Japan, there have been no capital gains of any kind for almost 20 years: not in wages, prices, property values or, of course, the stock market. That recessionary model, which to us seems like economic fiction, actually exists. The much-repeated phrases heard in Spain, such as: «Property prices never fall»; or «you always make a profit in the stock market in the medium term»; or even «everything is getting more expensive every day», are a pipe dream for the Japanese of the past 20 years’ generation. And 20 years is almost half a lifetime as an investor – let’s not forget that. I shall never tire of pointing out that the Dow Jones itself rose by a mere 10% between 1965 and 1983 (18 years), and that was in a growth environment, not a recessionary one.

As if in a Machiavellian astronomical alignment, a number of fateful circumstances are coinciding today in both time (since around 2007) and place (the West): The collapse of the abuse in securitisation, the bursting of the property bubble, predatory lending widespread and a oil crisis which goes beyond rising prices (peak oil). As you may have noticed, I do not include a stock market crash, although it is clear that many reservations families’ assets were poorly armoured in shares (can you believe it?), which are also looking very battered today, thereby exacerbating the consequences of this coincidental convergence of fatal factors. A planetary alignment resulting from bad luck? Not at all. It is nothing more than the result of our excesses, abuses and our own misdeeds. Let’s hope the outcome is less unpleasant and traumatic than the excesses of the protagonist in the following memorable clip from Monty Python’s *The Meaning of Life*.

Despite everything, I’d like to end on a somewhat optimistic note, and I’d like to believe that a glimmer of economic hope will break through the bleak horizon – one I cannot yet foresee – and that it will cushion the fall (alternative energy, a technological boom, emerging economies… who knows). Although I’m not entirely sure it’s either healthy or prudent to avoid a certain disaster that would allow us to start afresh on a clean slate, capable of withstanding our future excesses.

Let’s hope this advert, which could have been written by Henry Paulson in conjunction with Citi, take effect and attract some Salvador Carroñero, previously that public money should be used to clear away the rotting remains, belatedly and poorly, as is the case, for example, with IndyMac Bank. It is up to all of us to spruce up and tidy up these increasingly unappealing remains enough to make them attractive, sexy, which are accessible and attractive to scavengers. Otherwise, everything would become much more complicated for us.

Yes to everything, Mr Carroñero. God bless Scavengers!

Today we look back at the article in which we discussed the middle class’s eagerness to strike it rich and catapult themselves straight into a higher social class, thereby neglecting their professional and career progression.

In times like these, perhaps more than a few of us long for the situation a year ago, when a worker could focus on striving to get ahead in their job or improving their circumstances by changing companies, without feeling the threat of redundancy breathing down their neck. Here is the original article:

The get-rich-quick culture and Pixie Dust

The fishermen arrived in the middle of a troubled river. And of course they won. They won over chastened followers (or inept ones) who wanted to see alternative investment as a substitute for the bullish rallies to which the stock market has been giving them a hard time since the beginning of time. Their world, of course. A world, that of these investors, which is inconceivable without capital gains in equities that in many cases exceed the earning capacity of their own work. How clever we all were, weren't we?

But then came the stock market cuts and the reproaches began to be heaped on their vaunted managers and bankers. Why didn't they warn them that they were going to suffer such large and persistent losses? Isn't that their job? What use are their ties, their courses (not even masters anymore), their experience...? Faced with this avalanche of blame, managers tend to react in two very different ways:

1. The incompetent and inexperienced (although there are some middle-aged ones) are as surprised as the client himself. I would never have imagined that VR could lose so much and, more importantly, beyond one or two bad years. Most have even dragged down not only their clients but also their family and close friends, and of course their own savings. In fact, the only one they have not harmed is the very entity they work for, since they have sold fish left, right and centre, generating a large amount of commissions. But that does not mean they will keep their jobs, since the flight of clients, and the consequent reduction in profits in the manager's operating account, inevitably digs their grave.
2. On the other hand, the old dog (with almost all due respect), knows perfectly well that these are lean times and that it is necessary to operate clients morning and afternoon. The market is not going to be able to take the rain as it has in the past, although this time it looks worse, as there is no stock market crash to excuse itself for, and it is going to be a long one. However, it knows that it has alternative weapons at its disposal to continue sucking commissions from its clients who have been chastened by the traditional RV. The entities for which they work nimbly have supplied them with them. and have even trained them minimally to use them.

However, there are managers whose power of conviction is not sufficiently oppressive and who allow their clients to doze off for some time in simple deposits. while inflation eats away at them and their private banking or management company bosses lose their patience.

But let's focus on the managers and bankers of champions, the fishermen who win in troubled waters, i.e. those who really generate profits for the entities in which they work. They have managed to ensure that their clients see alternative investments as an idem for their longed-for annual capital gains of 12, 18, 25% or even more. The «perfect antidote».» against western RV downgrades. Many investors have bought alternative funds confusing them with hedge funds (which is very common) and without really knowing what either one or the other means. They just wanted to hear that these investments would continue to make money despite stock market declines.

They care little about knowing the truth. And the truth is that a alternative investment is as undefined and absurd as to say market investment. Do investors know whether their alternative investment is based on hedge funds with 50% or 800% leverage? Do they know whether they invest in yield curves or equity spreads? Do they know whether they have bought a fund of funds with corresponding fee multiples? Do they know if their money is invested in an unlisted company (venture capital) as a shareholder? Do they know if at the same time they are investing in commodities, emerging or alternative energies? Do they know if they are paying a NAV with the proceeds of a derivative or credit sale that compromises the future of their investment? etc., etc... The unfortunate majority answers are NO. At most a brief history of results and volatilities that is more than ever useless due to the constant adaptation of investment policies to the day-to-day scenario. Because an alternative investment enjoys the greatest freedom of movement for its managers. Anything goes. But if anything goes and the type and strategy of investment changes substantially and constantly, trackbacks are meaningless. If, in addition, if we de-correlate (what a nice word) In the market, not knowing where we put our money, we decide to diversify within the most absolute diversity, what investment criteria do we have? Nil.

In such cases, which are unfortunately all too common, we are only obfuscated by the promise of compensating for longed-for stock market gains. We lose sight of the North, and of course our money. The consequences are already obvious.

What's next for promiscuous investors? The arms industry of the financos It is sure to impress us with shiny new weapons of mass (patrimonial) destruction.

Your comments on strategies for a scenario of severe financial and energy crisis are, as always, very interesting. I would just ask that, even if using an anonymous pseudonym, you post them as comments rather than sending private emails. I believe this is the best way for us all to share ideas – some of which are excellent – whilst reserving emails for personal enquiries, so that this forum doesn’t become overloaded. Having said that, let’s analyse our strategies and yours.

Seeking opportunities in turbulent times. This is how we like to analyse future strategies. Although seeking opportunities means exactly that – that is, making investments that carry a certain degree of risk in pursuit of the potential gains that a crisis scenario often offers. For this reason, given that inherent risk, we must seek out opportunities with caution. Without jeopardising the bulk of our assets, and using only those assets earmarked for this purpose, following a thorough analysis and planning of our PGR. Now that this point has been clarified, let’s move on.

It is quite true, however, that the times ahead may not be as turbulent or difficult as they appear today, and that many of today’s views may turn out to be ridiculous, alarmist exaggerations. Some people, in fact – mainly politicians and bankers – predict just that. It is possible that the credit crisis will be played down and that the worst is now behind us. That, through the natural evolution of social customs or who-knows-what, may time restore confidence in credit, this being the best medicine (or rather the best painkiller – which relieves but does not cure, I would say) for a return to the dangerous and fragile normality of years gone by. It is also possible that the dreaded peak oil that it is a false alarm and that, despite being unable to replace our dependence on oil with anything else, we will continue to extract barrels at somewhat more moderate prices for several decades. Or why not? Perhaps in a few years’ time we will find a viable, cheap and globally accessible alternative energy source. I, too, sincerely hope so, Fernan2. In that case, the current analyses and strategies would be useful, but we wanted this to be an exercise in reflection, considering the hypothesis that we might actually find ourselves in serious trouble.

In that potential worst-case scenario, it is wise to have at least some strategy in place to deal with the possible prolongation and intensification of the current financial and/or energy crisis. The first thing we must reconsider in such a negative scenario is the structure of our assets that need to be protected and the proportion we are willing to risk. And, of course, we must redefine our risk aversion – in fact, redefine our ad hoc risk tolerance. How would we protect the majority of our assets, and where would we look for opportunities? That is undoubtedly the million-dollar question, but we’re going to try to offer some guidance – just as you have done – which may prove useful in the process of each individual analysis. Obviously, it goes without saying that every PGR must be tailored entirely to each individual’s assets, personality, family, idiosyncrasies and circumstances. Having said that, and bearing in mind all the risks involved in offering guidelines without knowing the potential reader inside out, we are going to make some dangerous generalisations (much to the delight of some), assuming a net worth of at least €3 or 4 million:

As regards cash holdings, to begin with, the traditional reliance on banks should be reviewed in favour of a more rigorous selection of institutions and a lower concentration of risk organisation. I’m not quite as convinced as ManuelMad that tax havens are the ideal refuge, but I do agree that, in principle, they should be less affected by the credit crisis. Furthermore, the part we need to shield, one should steer clear of fixed-income securities and lean more towards sovereign bonds, with maturities not exceeding the medium term. ManuelMad commented that he would steer clear of sovereign fixed-income securities, but given such a scenario, we believe that a safe-haven currency and countries least affected by the oil shortage would be safer than corporate alternatives. Perhaps our view of both crises is less bellicose than yours. As for gold as a safe haven, which Manuel also mentions, a 40% allocation to a precious metal strikes me as an excessive concentration of assets in something whose return can only be expected from speculative appreciation. It could be a good investment, but bear in mind that we’re talking about the amounts set aside for protection; as for assets that can withstand certain risks, we’ll find significant investment opportunities (with the potential to gain or lose) in commodities, financial debt «distressed» (not to be confused with the «Distressed Wealth Strategies«), etc.

As for cash exposed to a certain degree of risk, we would consider investing in prime property in the USA. The depressed property market and an attractive exchange rate make this market one worth considering. Even today, we advise many of our clients on the benefits of selling some of their properties in Spain at market prices, in order to take advantage of these opportunities across the Atlantic. Some of you might say that to sell in Spain at the moment, you have to «to sell at a loss«. But it’s not actually that it’s cheap, but rather its actual market price – there is no other. And the opportunity cost may be much higher than the drop in price we have in mind moored. Generating rental income from property in the US $ with rates of return that we haven’t seen in Spain for many years seems to us to be a sound strategy at present, even as the financial and energy crises worsen. That is certainly true Dalamar, that the American model of typical towns The Truman Show where people used to commute 100 miles from home to work, are no longer viable for the average household. In fact, it is this type of housing that has suffered most from the property and mortgage crisis in the US. In Spain, some people will certainly feel the pinch, but we never started from such low petrol prices as they do there, and the cost of travelling by private car has always been factored in in Europe.

As for the portion of cash that is also subject to risk, we would consider investments in equities. Depending on the proportion of total assets and the level of risk we are willing to take, current options include emerging markets. But beware: in the event of a severe energy crisis, their domestic consumption (in China and India), low wages and sluggish GDP growth could take a dramatic turn for the worse. Depending on the severity of the crisis, these markets are only worth considering as long as energy costs do not skyrocket to the point of stifling them. Nevertheless, their extreme volatility should prompt us to exercise caution regarding the volumes invested at present. Another, less volatile option – and one that is indeed compatible with a world where oil is prohibitively expensive – would be the blue-chip companies Americans, but only those who are least affected by a rise in energy prices and its impact on transport costs.

Assuming fuel prices remain significantly higher than they are at present, it seems that one sector that might be spared this problem is the telecommunications or technology sector. The bubble of 2000 is now sufficiently distant and has been sufficiently deflated for the conditions to be in place for it to recur, and this time with less hype and more substance. Furthermore, the challenges facing physical transport could lead to a particular boom for these companies. A portfolio in this sector could be a sound long-term strategy in such a scenario. I agree with Alejandro and Paco, although the sector is so broad that finding the gems amongst all the chaff would not be easy. I would even go so far as to say that, given current energy prices, this investment strategy would already be advisable.

I think a lot of things would change, Tom, the needs might be very similar for a while, but what we really ought to adapt straight away is the way we meet them.

Thank you for your thoughts and analysis of this hypothetical financial and energy scenario. I hope you’ll continue to contribute high-quality content to this blog, as you always do.

We simply wish to offer a brief reminder of the crisis that was clearly looming just a year ago. Some people were still unaware of the crisis that was bearing down on us, whilst others were predicting catastrophes marking the end of civilisation and/or the system. Amidst talk of capital controls and the collapse of the global economy, our perspective was that the financial outlook for the average citizen was deteriorating.

Sadly, it seems time is proving us right. For the time being, the credit crunch and the energy crisis are more than enough to harm billions of people. Dear Virgin Mary, dear Virgin Mary, let me stay just as I am…:

Crisis? What crisis?

«Money doesn’t bring happiness, but it creates a feeling so similar that it takes a highly skilled expert to tell the difference.»

Woody Allen.

If we fail to curb the rise in energy prices, not only will it hit the pockets of the poorest countries and the economies of the developed world, but it will also put the brakes on our much-debated globalisation. And it will therefore affect the very development of our civilisation as such.

The process of globalisation that has been underway in recent decades, beginning with the worldwide commercial roll-out of the internet and continuing with the movement of goods and people low-cost, will be jeopardised as energy costs rise.

A generation or so ago, it was impossible to consume tropical fruit outside the tropics themselves. In the near future, if energy costs continue to rise, it will go from being commonplace to being prohibitively expensive. The question we might ask is this: is it a bad thing if we return to consuming only locally grown, seasonal produce and the developed world no longer has everything available all the time? My answer would be: it depends. For developed countries in general, it need not be dramatic – or even negative – if they consume only their own seasonal produce and have to diversify local production once again to meet regional needs. In that case, only essential products from far-off places – such as medicines – would be imported, albeit at a sky-high price (black market, of course). But this very same phenomenon would be disastrous for the developing world, as condemning them to produce solely for their domestic market would spell the demise of countless sections of the population. It is chilling to imagine an emerging or even underdeveloped country unable to export because transport costs completely erode its competitiveness. However, logically, transport costs do not affect a large, heavy and cheap product in the same way as they do a small, light and expensive one. In other words, for example, rising energy prices will not affect the transport of video cameras as much as that of bicycles, even though both products are made in China.

If these countries with extremely poor economies have any advantage at all, it is precisely their cheap labour, which makes their products attractive to the developed world. But the moment a sweatshirt costs the same or less made in Italy, Spain or France another one (probably of poorer quality) made in Indonesia, Korea or Taiwan, the world we had grown accustomed to will be a different one. We should abandon the specialised production that we have been developing since the end of the last century, and return to diversified production due to the absence of commercial globalisation. The scenario we would be forced to contend with – one of runaway oil prices and no immediate alternative – is, to say the least, disturbing. Undoubtedly, it is a clearly regressive outlook (with apologies to the anti-globalisation movement).

However, the phenomenon of globalisation is something that is difficult to reverse; only an event of such a massive scale affecting the entire planet – such as an energy crisis – could slow down (though not halt or eliminate) this globalisation. I hope that, having observed the peak oil three or four years ago, and before we reach a point of exhaustion that goes beyond simply rising oil prices, we must be able to develop a truly viable and global alternative. Otherwise, we may well see the hitherto breakneck pace of globalisation come under threat.

Venturing into economic fiction – though I fear it is less fictional than it seems – let’s imagine a scenario of unsustainable and persistent energy costs. In other words, we’re caught out (if we haven’t already been) and find ourselves thrust into a world with the characteristics we’ve outlined, and for decades to come. We’re unable to find a cheap, abundant and global energy alternative like oil was until a few years ago. Let us imagine, then, that international trade is drastically altered as a result, and that industries and economies become significantly less global. However, despite this scenario, the financial markets would continue to thrive on the flow of information, remaining almost oblivious to the problems surrounding the movement of goods and people. Let us raise some interesting questions: What will happen to financial investments in such a scenario? What investment strategies should we devise to ensure our wealth continues to grow at a healthy rate in the face of a severe energy crisis?

It would be really interesting to read your comments on this, especially if they aren’t limited just to the purchase of petroleum products, of course 🙂

Perhaps if we start to think about what our investments might look like in that fictional economic scenario, we might find some interesting and useful guidelines for the current real-world situation. A long-term investment strategy today might well require an analysis of this future scenario.

The globalisation of financial markets does not require oil and, thanks to the internet, these markets would be the main beneficiaries of the inability to carry out physical movements caused by the lack of cheap energy. And there is no doubt that, in such a scenario, the prices of equities, commodities, sovereign or corporate fixed income, and indeed any product created by the financial sector, would be profoundly affected. Are you thinking of the same sector as me? Perhaps even the same companies?

And the fact is that the mother of all crises I couldn’t imagine it without the mother of all opportunities.

We must find a way to protect future generations from the greed or incompetence of the present ones.

Napoleon Bonaparte.

Wealth, fortunately, is mostly redistributed naturally. That is to say, the wealthy spend surpluses more easily in favour of the less wealthy. This quasi-universal law exists in countless areas: From the rich man who lives at a rate that means the livelihood of many families around him; to the football club of the G14 which pays a huge sum for a player from a mediocre club, thus helping to balance the latter's damaged balance sheets.

Almost always the increase in wealth leads to an increase in spending, consumption, investment and/or whatever we want to call it, with many different collaterals benefiting from it. Some of us call this relationship a kind of Win-Win, but sometimes it becomes a parasitic relationship. Some will say that the rich get richer and the poor get poorer, because of the exploitation of the former by the latter. In that case we would enter into the controversy of who is the parasite and who is the host. But the class struggle is not the main reason for this reflection, so we will ignore this polemic and consider (fairly or not) that the rich is the host and the poor the parasite when it is not a Win-Win relationship.

Not all parasitic relationships are trophic, In other words, they involve an increase in monetary resources that feed the parasite. Sometimes the benefit obtained from the rich or powerful translates into protection from third parties, influence, leisure, business, prestige or other very diverse advantages that have little or no relation to money.

Another example of wealth redistribution would be philanthropic giving. Perhaps mostly residual in volume, but look at the large donations that do occur from time to time. For example, Warren Buffett's recent donation of 37,400,000,000′-$ to charitable foundations (when you read all the zeros, it's more impressive, isn't it?). These types of philanthropic acts are the most straightforward and direct way to redistribute wealth. The most radical and at the same time laudable form of Win-Win decompensated or voluntary parasitism on the part of the host. In the face of an altruistic attitude of this calibre, the balance of the two «win» or the «damage»The "parasite as a passive subject" is something that, happily, escapes us from the traditional analysis of the relationship between wealth and poverty.

Some may criticise such acts as merely laundering the conscience of the rich. I prefer to think that laundering or not, we are dealing with effective redistributions of wealth that honour the human race. NGOs (some) will not only redistribute mere resources but also encourage small forms of autonomous wealth creation, e.g. wells, dams, schools, etc. At this point I cannot fail to mention Vicent Ferrer and its copy Foundation, to which I personally have a couple of splendid ties.

Philanthropy, trade, business, leisure, influence.... whether the relationship between the rich and the poor is parasitic or Win-Win, it tends to compensate to a greater or lesser extent for the distribution of wealth.

But lately there is something that has me a little worried. I am not sure that the hands that have accumulated an enormous amount of wealth since the beginning of the new century have the same profile as the rich to which we are traditionally accustomed. I am basically referring to the Chinese and above all to Arabs (natural and legal persons) who are accumulating astronomical amounts of money day after day. Let us bear in mind that money has always been in the hands of Westerners in the past, either through the merits of their own civilisation or through the plundering of third worlds, but that is how it has traditionally been. But the holders of great wealth have changed in the last decade, in the last couple of years, I dare say. And perhaps the way they spend or pass on their wealth to the rest of the planet is not the traditional way either.

The great billionaires of the last century, as long as modern economics has been called that, have always been Westerners. Great businessmen who have amassed their great fortunes in industry, business or even commerce. Diverse men, of course, but all of them of Western culture. Only in the late 20th century did we see some Japanese multi-millionaires whose culture is far removed from Western culture, but they were short-lived and much less significant than today's great fortune-makers. My personal opinion is that many huge fortunes created in the last few years, which are growing at an unprecedented rate, are being formed without the commitment, effort and perseverance of traditional Western multi-millionaire businessmen. It is only an impression, true, but if these new fortunes of unimagined volumes have been formed in a somewhat passive way by their holders, their future objectives will undoubtedly be different from the traditional ones as well.

This is not at all a question of cultural, religious or even racial discrimination. It is only a reflection that leads me to think that wealth is no longer in the hands of our western culture, as it has always been historically until a few years ago. And the next question I ask is: What are the consequences of this phenomenon: will the traditional redistribution of wealth change?

It is as if in an eternal game of Monopoly, tacitly, the winners would cyclically return the banknotes to the bank so that the game would never end. And suddenly, the winners would have a new profile and question whether they will return their wealth to continue the game forever or not. The question I dare not ask myself is what will happen to our game if the nouveau riche decide to break with tradition.