Economia y finanzas - Cluster Family Office

The abuse of bricks and mortar in Spanish wealth

It is very curious to see how in Spain there is a very different mentality regarding the allocation of household assets to that of American households. As you can see in the interesting chart published by Inbestia and reproduced below, approx. 80% of Spaniards' assets are allocated to real estate, i.e. the main residence and additional real estate. Therefore, less than 20% are allocated to financial assets, such as shares (listed or unlisted), investment funds, pension funds, life insurance, deposits, etc.

If we compare the allocation between Americans and Spaniards, we will see that the preference for companies in the world's leading economy is much greater than in Spain and most other countries (although it would be interesting to know the figures for the north of the EU, which we suspect must be closer to those of the US). The entrepreneurial culture of North Americans is much greater, and half of their assets are invested in both listed and unlisted shares (mostly in their own businesses or with partners), investment funds, pensions and life insurance.

Why are Americans more inclined to allocate their wealth and savings to companies in general? Do we in the rest of the world not like our money to work for ourselves? Haven't the real estate bubbles affected Americans as much or more than Spaniards? The answers are not simple, but rather an accumulation of factors that make up the difference between one financial allocation and the other. Let's look at some of these reasons:

The financial culture in which American society is growing up has an entrepreneurial tradition and the majority of the population is clear that the only engine that moves the country and that can lead them to well-being is to participate in one way or another in the creation of wealth achieved by companies. Either as employees seeking hierarchical job progression or as small entrepreneurs (franchisees or with small personal businesses). They expect little more financially from their state. By contrast, in Spain and much of the rest of the Western world, there is less of an entrepreneurial culture, and more reliance on state-dependent labour activities, which are generally a little less liberal and a little more interventionist than in the USA.

Another aspect that makes Spaniards more inclined to accumulate our wealth in real estate than Americans is precisely the unpleasantness that the financial sector has been giving us in recent decades. For our banks, even today, volatility is the demon from which they recommend their clients to flee. To this end, they offer them all kinds of products and structured products with the obsession to reduce volatility, a concept that they mistakenly consider to be synonymous with risk. And of course, when volatility is confused with risk, it is much easier for the banking sector to sell low-volatility products than high-volatility ones. What customer will not try to avoid a high-volatility product if they are told about high risk?

Therefore, the general opinion of Spanish savers is that it is much riskier to invest in the stock market than in less volatile banking products or in real estate. And here we come to the second derivative: How have the low-volatility banking products sold by banks in recent years been performing? Well, in the best of cases they have been mediocre, and in the worst of cases they have been abused or have been directly sentenced to court, as in the case of the preference shares. This unhappy end to many of the low volatility products has exacerbated Spanish investors' appetite for real estate, reaching the extremes in Spain that we have seen in the graph: almost 90% in real estate and assets of their own personal business, such as self-employment, etc.

The right balance of wealth should moderate real estate and boost financial investment to levels similar to those seen in the USA (not for nothing is it the society with the leading wealth and GDP per capita on the planet). Families should enjoy financial investments that work to generate wealth for their old age, as the state pension is not going to do this sufficiently (and even less so in Spain). In addition, the US regulator limits more and better the access of retail investors to structured products and other nonsense that Spanish banks sell with impunity to any retiree without financial knowledge. This limitation on the sale of complex products to retail clients in the USA also channels a good part of these small savers to ordinary equity funds, which are less afraid of volatility and more inclined to buy the idea of investing in companies.

And what about real estate - does it not also guarantee the generation of income for our old age? The answer is yes, but with some additional risks that need to be highlighted: By massively concentrating our assets in real estate, we will be at the mercy of geographical risk, local economic risk or country risk, and the risk that the real estate cycle will no longer be favourable to us when its growth becomes saturated. Not to mention the risk of non-payment, maintenance and rising taxes on property owners. The diversification and freedom of movement that comes from acquiring shares in good companies all over the world, creating wealth in the most diverse sectors and countries on the planet, is hard to achieve with real estate investment. And the capacity of the business world to adapt and overcome whatever the future circumstances of the economy may be in the coming decades will never be able to be achieved by the inert brick.

Finally, the common characteristic of new clients who come to Cluster Family Office has always been the overload of properties in their portfolio. A lack of diversification that many paid dearly for with the bursting of the real estate bubble after 2007. And one of the first things we do for new Clients is to replace real estate and rentals with financial investments through versatile and fiscally efficient vehicles. They should make their money work for the family, either by generating alternative income to rents by buying good alternative funds or by seeking to grow portfolios by buying good equity funds from around the world. The volatility - not risk - that can be assumed by each family and professional circumstance in the financial portfolio should determine the proportion of investments in company shares or in alternative strategies that generate more stable income.

To make the 2-speed omelette, the Euro shell must be broken.

El Euro sube. Y lleva ya casi un 5% de recuperación desde sus mínimos por debajo del 1,04 respecto al dólar. Pareciera que puede más la fortaleza de la locomotora alemana que la debilidad del Sur y el Este de la UE. Como si por el hecho de haber reconocido que se avanzará a -al menos- dos velocidades, ello permitiera que la divisa única dejase atrás sus incertidumbres.

Es como si la cifra publicada por el IFO alemán (112,3) superior a la esperada (111), fuera capaz de reafirmar y acelerar la subida de tipos en Europa, al más puro estilo norteamericano. Es cierto que esa y otras cifras reafirman la recuperación económica germana, pero esos árboles de optimismo inequívoco no nos deben impedir ver el bosque en el que está sumido la moneda única. Y ese bosque no es otro que la inviabilidad precisamente de su cualidad de única. O sea, que aún se comparte el Euro entre muchos países que están lejísimos de ni tan siquiera imaginar una relajación de las facilidades cuantitativas con las que inunda el BCE las economías del Sur. Y ello hace imposible una subida de tipos que, paradójicamente está descontando el Mercado con la recuperación del Euro respecto al dólar.

¿A dónde nos lleva esta paradoja? Pues a que cuanto más descuente el Mercado una subida de tipos del Euro y una reducción de la relajación cuantitativa por parte del BCE, más próximos estaremos a la materialización de las dos velocidades de la Eurozona, y por tanto de la ruptura de la cotización única del Euro. Ya que, o bien el Euro pierde su condición de moneda única y empieza a cotizar de manera distinta en cada velocidad de la Eurozona, o bien la subida de tipos es imposible, en cuyo caso el precio del Euro respecto al dólar y resto de hard currencies debería volver a cotizar el riesgo de explosión de la propia Eurozona (según el adjetivo utilizado por los propios dirigentes de la UE para justificar esas dos o más velocidades) y caer de nuevo a mínimos.

Si se mantiene una única cotización del Euro, es imposible subir los tipos, puesto que en el Sur no nos lo podemos permitir. Aquí necesitamos tipos cero e inflación abundante que se coma la deuda poco a poco. Sin embargo, en el núcleo duro alemán, lo que no pueden ni van a permitir es no subir tipos y que su temidísima inflación les repunte más allá de lo deseable. Por lo tanto, ante tal dicotomía, o bien Mr. Market está caminando en dirección contraria, o bien las ya anunciadas dos velocidades están a la vuelta de la esquina.

Tampoco es baladí la ruda reacción de Dijsselbloem, que denota que muchos europeos del norte ya no se sienten obligados a tener ni siquiera corrección política con quienes consideran que de facto ya no forman parte de su core o núcleo duro europeo. Sus disculpas, forzadas, ligeras y tardías delatan ese sentimiento de desapego y desconexión que los habitantes e inversores del Sur parece que todavía no hemos comprendido. Lo curioso es que el inversor de a pie del Sur ha asumido lo de las dos velocidades sin percatarse de que ello implica dos cotizaciones de divisa y dos tipos de interés diferenciados. No en balde Guy Verhofstadt (sí, el mismo que está supervisando desde la UE la negociación del Brexit) ya dijo públicamente que debía crearse un segundo banco central en Bruselas. Dos velocidades, dos autoridades monetarias… Blanco y en botella, y hay que estar preparado para ese escenario.

Para hacer la tortilla de las dos velocidades hay que romper la cáscara del Euro. Hay que partir la moneda «única» en dos. Y aunque aunque lleven el mismo nombre y tengan prácticamente la misma cotización inicial para evitar pánicos, tendrán valoraciones distintas y tipos de interés distintos al cabo de poco tiempo. Serán diferencias de tipos y cotización acordes con las necesidades de las distintas economías, como no podría ser de otra manera. Y lo más curioso es que incluso algunos inversores institucionales, que sí llegan a imaginarse la materialización de esas dos velocidades y dos políticas monetarias, confían sorprendentemente en que España estará en la primera velocidad! ¿Por qué? Pues porque el gobierno español así lo ha dicho, enarbolando el mayor crecimiento de PIB de la Eurozona, pero obviando el déficit presupuestario, el endeudamiento y el paro estremecedor y endémico. Y ya se sabe, los gobiernos, especialmente los de la periferia europea, siempre aciertan en sus pronósticos ¿verdad?

It is now official: Eurozone 1 and Eurozone 2

It is now official. In the covers The inevitable news of a death more than foretold by a few, who branded us as quasi-aliens for predicting the break-up of the Eurozone five years ago, has already been published all over Europe. Hollande and Merkel have chosen the pompous Palace of Versailles to announce that the EU of 27 has no future and that the Eurozone of 19 should at least go at two speeds. And so as not to panic the markets in the face of such an official statement, the announcement was staged with two guests of stone. The two guests with the largest - and therefore most dangerous - economies in the Eurozone: Italy and Spain.

In this way, the statement manages to give the desired image of North-South coordination. I mean coordination as such, not as an image of unity in any case. After all, it would be strange if the announcement of a two-speed Eurozone were staged exclusively with representatives of the first speed, wouldn't it? Moreover, as if the announcement were not already a hot enough potato in itself, it has been taken up by four presidents, three of whom are in precarious positions at the helm of their countries. Hence the precariousness also of the only apparent control of the situation.

Nor is the tone and vocabulary chosen by Hollande in the the interview a chorus of journalists from the media chosen ad hoc to cover the Versailles announcement (Le Monde, The Guardian, La Stampa and Süddeutsche Zeitung). When the journalists asked the French president why he was staging the announcement together with Merkel, Gentiloni and Rajoy, his answer was precisely scripted: «...the French president's answer to the question was: 'I am not a Frenchman, but a Frenchman.«Angela Merkel and I consult each other regularly. Before all European Councils and on all issues. It is in Europe's interest. But it is not an exclusive relationship. With the 60th anniversary of the treaty being celebrated in Rome on 25 March, it seemed logical to us to associate Italy and invite Spain«. In other words, Hollande and Merkel are managing the decisions, and for the staging (to be in the photo) willingly and graciously associate themselves with Italy (as a gesture of respect and recognition of a historical partner of the EU since its creation) and invite generously to Spain. Both as representatives of those of us who do not belong to the hard core of decision-making or to the high-speed economies. A gesture to reassure a periphery that might otherwise reject such a statement outright as totally alien to it if «someone of its own» is not included in the photo.

We are undoubtedly facing the official recognition of the opening of a melon that no one is even remotely sure how to handle. But whose staging, with representatives of the two speeds hand in hand and in apparent agreement (as it could not be otherwise), should open the eyes of all of us who seem condemned, due to our bad head/economy, to the 2nd speed. At this point we must insist once again on the warnings (here, here y here) that we have been making to investors in order to avoidance of asset depreciation (both financial and real estate) that such a broken Eurozone and 2nd speed inherently entail.

Now that it is no longer taboo or politically incorrect to talk openly about a two- or multi-speed Eurozone, political and financial analysts around the world have begun to publish its possible scenarios. Particularly surgical is the analysis of Wishart, Rojanasakul and Fraher from Bloomberg, in which they present 3 scenarios involving the break-up of the Euro. And 3 other scenarios that would allow maintaining a single Eurozone and a status quo as it is today for some time to come. In any case, we are already in a Europe that is somewhat more realistic and very different from the one that has been simulated for so many years. The 2017 ballot boxes will largely decide when the Eurozone breaks up and the future of today's Europe, which is much better than what happened in the old Europe whose destiny has historically been marked by wars. In the meantime, investors in the south should take safety measures and prepare to live in 2nd gear but enjoying 1st gear assets.

Abróchense los cinturones de seguridad…

Es obvio que la irrupción de Trump en el escenario mundial cambia las reglas de juego en las que bancos centrales y euroburócratas nos habían aletargado. Y su acceso a la presidencia coincide en el tiempo con otros puntos de inflexión que por sí sólos ya merecerían centrar nuestra atención como inversores. Así, Trump potencia y acelera procesos como el Brexit, la subida de tipos del USD y la consiguiente venta de deuda soberana norteamericana, con las consecuencias que ello implica para las reservas monetarias de las mayores potencias mundiales.

Y si por si fuera poco, detrás de Trump está Steve Bannon, que deja la vehemencia de Trump a la altura del betún. El cargo creado ad hoc para Bannon, Estratega en Jefe, le confiere un carácter de hombre fuerte, fortísimo en el entorno del Presidente. No en balde inicialmente debía ser nombrado Chief of Staff, el cargo más influyente de la Casa Blanca, pero por presiones del partido republicano se acabó descartando Bannon en favor de Priebus.

Pues bien, dicho Steve Bannon, contradiciendo la versión oficial del Vice-Presidente Pence, comentó con el embajador alemán en Washington la necesidad de potenciar la relación bilateral Alemania-USA obviando la interlocución europea. Fuentes de Reuters filtraron el contenido de estas conversaciones y aseguran que Bannon y el embajador alemán hablaron de la UE como una construcción fallida y con muy poco futuro. Huelga decir que esta visión coincide totalmente con la del Ministro de Finanzas alemán, Wolfgang Schauble.

Por otra parte, Trump y Bannon potenciarán el Brexit hasta puntos impensables hasta hoy. Y aprovechando la excelente relación del Presidente norteamericano con la familia Real británica, se está planteando incluso la posibilidad de que los USA se unan a la Commonwealth. Un espaldarazo jamás visto a esta unión de Estados que en su mayoría formaron parte del Imperio Británico en el pasado. Y por supuesto, una puntilla para la moribunda UE, que está llevando la pre-negociación del Brexit al terreno de la amenaza y la hostilidad, quizá de manera poco estratégica.

Y en medio de este panorama, las subidas de tipos usd en puertas ya están generando ventas masivas de Treasuries por parte de bancos centrales que hasta hoy habían acumulado cantidades ingentes de ellos. Un cambio de escenario radical respecto a la última década. Y de consecuencias imprevisibles, sobre todo si tenemos en cuenta que uno de los mayores tenedores de deuda soberana norteamericana es el China. Sí, el mismo gigante (entre otros muchos) al que Trump pretende declarar una guerra comercial más que temeraria. Sobre todo pensando en que los chinos tienen el poder de abrir o cerrar el grifo de sus masivas reservas de Treasuries según las necesidades estratégicas de tipos de cambio USD/RMB o las amenazas políticas que a buen seguro veremos en los próximos meses.

Además, en Mayo puede detonarse otra bomba política nuclear y Le Pen puede llegar al poder. Una probabilidad mucho mayor de la que parecen descontar los mercados más visibles (bolsa y bonos), al menos así lo vaticinan hoy mismo desde Bloomberg: «If tail risks are to be believed, the risk of Frexit is larger than what is currently assumed«. Y sin olvidar que Alemania también va a tener en los próximos meses elecciones imprevisibles. Abróchense los cinturones y tomen medidas de seguridad. Especialmente aquellos inversores que creen que la Eurozona seguirá siendo la Eurozona, y los que confían que los euros de su cuenta corriente seguirán teniendo el mismo valor que los de los alemanes.

Front National: The future monetary policy of France and the EU

Yes, yes, we know that Marine Le Pen's proposals are often extreme and even dangerous, at least as far as the model of society advocated by her party, the Front National, is concerned. But any analyst with two fingers of economics in his or her forehead should recognise that the current EU, with its single monetary policy and its North/South divergences growing beyond the point of return, is a dead end. A real cul-de-sac, in spite of the Europeanist financial denialism suffered by Eurobureaucrats, who by the way increasingly defend the current EU with less and less conviction and monolithism. We would therefore do well to recognise that, as far as monetary policy proposals are concerned, Marine Le Pen seems to be handling the drift of the Eurozone more realistically. Her proposals are thus more transgressive but at the same time more courageous, and time will tell if they are also more beneficial for the French and other EU neighbours. Let's see what he proposes in this article of Bloomberg:

Essentially what Le Pen is promising is the takeover of French monetary policy. A return to monetary sovereignty by restoring the powers of the Bank of France and issuing new francs anchored, albeit to a basket of European currencies, as was done for a time with the ECU (European Currency Unit), Do you remember? This basket of currencies set the value of the ECU according to various parameters such as GDP or the weight of the respective countries in European trade. And from its creation in 1979 until the definitive freezing of its value in 1995, various adjustments were made according to the needs of the diverging economies of the member countries. Logical, isn't it? The problem came in 1995, when the intention was to fix this relationship between the ECU and the other currencies immovably (later the real currency, the EURO, was introduced as a 1:1 parity with the ECU). Obviously, since that freeze, the seams of the single currency have only cracked and have been stoned by seas of freshly printed money, suffering all the economic divergences that the North/South reality has shown over the years.

So Le Pen's proposal for a return to the Franc (new French Franc) semi-pegged to a basket of European currencies (new ECU) with a margin of fluctuation makes much more economic and financial sense than the current situation, and it is nothing that those of us of a certain age have not seen before. According to Le Pen, the French state would commit itself to maintaining this fluctuation within a band of +/- 20%. In other words, if the other countries were to do the same, the new Deutschmark would naturally appreciate in value against the currencies of other weaker economies. In other words, the currencies of the South would devalue against the stronger economies of the North. In fact, such a scenario would allow more recessionary and deflationary countries to devalue their respective currencies and revive their economies, generating growth and positive inflation. Et voilà!

The candidate has not yet proposed a timetable for the rest of the Eurozone countries to also adopt the anchoring of their new currencies to the basket/new ECU, but she does warn that if the rest want to continue with the Euro as we know it today, her government would allow the new Franc to fluctuate freely, without even this 20% limit. Warning to sailors north and south,,,,

The Bank of France could issue up to 5% of the money supply annually (similar to the increase that the ECB has been applying proportionally to France, according to Bernard Monot, Le Pen's main economic advisor). About 100 billion new Francs per year, equivalent (just for a start) to 100 billion Euros. This would finance the needs of the French economy and its debt commitments. A sovereign debt that would be redenominated in new French Francs, and which the state would buy back from foreign holders as far as possible.

Monot assures that the French risk premium with respect to the German one would increase but not disproportionately. He believes that the yield on the French 10-year bond would be around 2-3%. France would honour its commitments, as would any other eurozone country that followed in its footsteps. It goes without saying that the French candidate's proposal would make much more sense and reliability if it were applied by the entire eurozone in a coordinated, albeit not simultaneous, manner.

For all those who still think that Le Pen's proposal is yet another of her extremist follies and that the chances of such a future materialising are slim, I am sorry to contradict them, but in Germany there are more and more voices, and very authoritative ones at that, that are increasingly being heard that call for a break with monetary policy in unison with the French policy. And it is not only the «demonic» Franco-German front, but also the Belgian Guy Verhofstadt, The European Parliament's elected Brexit negotiating representative, no less, also calls for the financial break-up of the Eurozone., at least in two parts. Therefore, investors should not forget that, although today our Euro is worth exactly the same as the German Euro, the golden dream of those of us living in the highly indebted and recessionary periphery, i.e. to have the equivalent of Deutsche Marks in our current accounts, is not likely to last much longer. take appropriate measures to avoid such potential devaluations. of southern currencies and assets relative to those of the north.