It has been criticised ad nauseam the stress test for Geithner. The reasoning was that a «litmus test» could only harm the US banking sector and its share prices: if the results showed a general pass, it would highlight the test’s futility and lack of rigour, and the markets would therefore punish this charade. If, on the other hand, the test singled out banks unable to withstand a worsening of the economic situation (which was both inevitable and imminent), these banks would plummet on the stock market, triggering extremely dangerous panic, amid fears of further Lehman Brothers-style collapses that could hardly be tolerated. But this prediction overlooked the fact that transparency also has a price – and a significant one at that.
The projected figures for the worsening of the situation, used in the stress test, are set out in the table below:
We note that, in the least negative scenario, the US economy is projected to contract by -2% in 2009 and to grow by 2.1% in 2010. In the most negative scenario, the economy is projected to contract by -3.3% and recover by 0.5%, respectively. Another variable is unemployment, which affects the general ability to service debts: between 8.4 and 8.9% in 2009 and 8.8 and 10.3% in 2010. We also see the projected fall in property prices (houses): between -14% and -22% for 2009, and between -4% and -7% for 2010.
Some also question the forecasts themselves, but in general the criticism centred on the futility and/or danger of publishing the results. Well, as things stand today (tomorrow is another matter), the effects of publishing the stress test are clear: greater transparency and confidence, which is translating into increased investor support for the major US banks. And that boost in confidence is a godsend for the world’s largest banking system.
As we mentioned last April in The Banking Crisis II and speculation in the US banking sector, the Obama’s bailout plan dispels the possibility of the major banks going bankrupt. The fact is that this possibility of Chapter 11 Until very recently, it was trading at the share prices of the most high-profile US companies. The credibility of that rescue plan, as well as the publication of the results of the litmus test credible and apparently rigorous (despite widespread criticism), have shed light on the future of the major North American banks.
Anything could happen in the markets over the coming months, but the systemic risk posed by the big banks and the spectre of Lehman Brothers are no longer a factor. Now it is «merely» a matter of fine-tuning the valuation of the goodwill and in any capital increases that may take place. However, the irrational and unfundamental value of the US banking system is proving to be the basis for the current share price, as we said last November. All it took was to dispel the spectre of bankruptcy for the shares to trade well above their intrinsic value. We do not see this phenomenon even in sectors as significant as the automotive industry.
The fact is, we are talking about something as vital as money – and the system that manages and creates it. These are such weighty matters that the mere guarantee of the survival of the major banks means that share prices, which previously reflected the risk of these institutions going bankrupt, have now been surpassed. The fundamental value, just like the size… no always It matters.
We are living in times of widespread impoverishment. The collapse of the system, which began in the summer of 2007, is already wiping out most of the wealth of the upper-middle and upper classes. And the worst thing is that It does so to no avail, as this is not a matter of redistribution but rather of a destruction of wealth, of which many of its owners are not even aware.
As we have said time and time again, personal wealth usually consists of three types of assets: Financial, iProperty and business. Well then, The Tsunami of Impoverishment which is beginning to unsettle many wealthy individuals, regardless of the size of their fortunes, is also unfolding at a macabre moment:
The first leg One sector of the asset market that has suffered enormous losses is the financial sector, as during late 2007 and throughout 2008, investments in the stock market (including structured products of all kinds) and the misnamed ‘fixed-income’ instruments – such as preference shares and perpetual debt – have suffered colossal losses. In this regard, it is worth noting that investors were unethically pressured by salespeople and intermediaries of all kinds. The greed, a lack of knowledge and common sense did the rest.
As far as property is concerned, it is true that prices have already fallen significantly compared with those of a couple of years ago, to which we unconsciously remain tied. However, in our view, we have not yet experienced the sharpest fall in prices. The latent supply arising from the large portfolios of properties that the banks are set to dump onto the market has only just begun. Similarly, multi-property owners, whose income from rents and other sources is being severely eroded, are set to flood the market with properties, a market where demand is – and will remain for many years to come – purely residual. And when that phenomenon occurs and gradually intensifies, we will witness the real collapse in property prices.
Finally, corporate profits have also disappeared in many family-run businesses and corporate assets in general. However, the decline in a company’s value is not only due to falling profits, but also to capital losses on its premises and fixed assets in general. Furthermore, the current climate is often forcing companies to make adjustments that go beyond simply reducing staff numbers and costs; we are referring to substantial changes to their business model. And many companies will not be able to achieve this, thereby resulting in a loss of corporate asset value of almost 100%.
The timing of the wealth drain was largely triggered by financial losses, with the slump in property values and capital losses in business assets coming only once the tsunami had hit the coast. In other words, the financial collapse first affected monetary investments, at a time when there was talk that something serious was happening with credit, but society was still only feeling the effects in the bank statements of those who held securities accounts. Instead, it is the severe social decline that will coincide with the massive fall in property and corporate values.
Obviously, if we add up the losses we are going to see (and are already seeing) across the three types of wealth we have defined, the drain on wealth will be overwhelming and will deal a cruel blow to the efforts of a lifetime. However, few will be aware of the severity of their wealth loss because most will only regard the financial loss as such. And that The ‘head-in-the-sand’ approach to wealth management will prevent them from taking the drastic measures needed to stop a lifetime’s work – or even the work of generations – from being destroyed in this major crisis of the 21st century. The ‘heritage haemorrhage’ has only just begun, and the only antidote is the one we have been recommending for the past couple of years: It’s time for cash to prevent a loss of value, and it is also the necessary first step towards taking advantage of the opportunities that the mother of all crises will bring us (and is already bringing us).
Here’s a puzzle we set you a year ago, and which, unfortunately, has played out in real life time and again throughout 2008 and 2009. I hope you enjoy it and that you’ll point out where our Spanish protagonists’ calculations go wrong.
«Once upon a time, there were three young American couples who worked and lived in three small, cheap rented flats in the same neighbourhood on the outskirts of Tampa (Florida). Two of the women were Cuban and the other was Mexican. The husbands of the first two were African American, whilst the Mexican woman was married to a divorced Puerto Rican man.
As the three couples got on very well and knew that by pooling their finances they could start thinking about buying a home of their own, they decided to take out a mortgage on a house big enough for all three families. This is the house:
Spacious pool home, 4 bedrooms, 2.5 bathrooms and a 2-car garage. Trayed ceilings in the living and dining rooms. Huge walk-in wardrobe in the master bedroom. Eat-in kitchen with all appliances, including a washing machine and dryer, plus a water softener. Walking distance to the neighbourhood playground. Tiles in all high-traffic and wet areas. Formal living and dining rooms, both with coffered ceilings. Galley kitchen features a breakfast nook overlooking the pool and a trussed-roof lanai. The kitchen is tiled, has a gas hob, a walk-in pantry, 42-inch maple cabinetry and a wrap-around breakfast bar. All appliances included. Spacious family room with a wall for your wide-screen TV. The master bedroom has a coffered ceiling and a huge walk-in wardrobe. The master bathroom has two washbasins, cultured marble worktops, a large garden bath, and a separate shower with a bench seat. The secondary bedrooms are spacious, with fans and lighting in all. Indoor laundry room with a utility sink. The hot water heater has a booster pump for quick response. The pool features an automatic sweep system and a safety fence. There is an outdoor shower by the pool.
Price: 300,000′-$ That’s 100,000 per family. But as the US property market was in a real slump (I’d say the slump has now reached the point of attempted suicide), our friends negotiated a substantial discount of 50,000 $, bringing the final price of the house down to 250,000′-$. For those unaccustomed to thinking in square feet or US dollars, let’s break it down: 211 m² for approximately 163,000′- €163,000. That is to say, €773 per square metre.
Of course there were neighbourhoods and houses that are still much cheaper, but our three families were optimistic about their future and decided to ask Mr Cheater, mortgage broker of a a reputable credit company call Quicken Loans, a mortgage for the full value of the house that would make their dreams come true of enjoying Tampa’s pleasant climate all year round, complete with a private swimming pool. The monthly repayment amounted to 1,726,971 TP4T, that is, three instalments of 575,661 TP4T per month; and with that 30-year-and-one-day mortgage, they were able to pay the previous owner in cash, who quickly went off to get drunk at the dive bar nearest.
Thanks to the discount they secured, and as each couple had applied for a mortgage charitable of 100,000′-$, our friends had 50,000′-$ left over from their initial budget, which they decided to allocate and divide up as follows: 20,000 was put into a joint fund and used to cover the transaction costs, fees and taxes, as well as the refurbishment of the house and the furniture. On the other hand, the remaining 30,000 they They divided it equally, giving 10,000 to each couple. With this money, they decided replace the three old cars which the three couples had been dragging along for years.
And so, with their three new second-hand cars in their brand-new second-hand garage and their brand-new second-hand house, furnished and fitted out with the 20,000′- $ from the mortgage, which they put into a joint fund, they began a new and long-awaited life full of hope.
They were immensely happy in their new home and with their new cars. They worked hard and deserved that standard of living, but now they had to cope with more expenses and obligations than they had ever had before. Mr Cheater had already warned them that he would be ruthless about late mortgage payments. If they wanted to continue benefiting from the ridiculously low interest rate of 5 5/8, they couldn’t miss a single month’s payment, otherwise… Our three couples were very grateful to him for his interest and kindness in finalising the details of the sentence… I mean, the mortgage. Without him, they would never have been able to realise their dream of a house or a car. What a great bloke Mr Cheater is!
A few days later, sitting on the deck by their brand-new swimming pool, they began to do the sums and argue amongst themselves. Something didn’t add up in their figures. The Mexican woman and her Puerto Rican husband began to mistrust the Cuban sisters, who had been in charge of negotiating with Mr Cheater. They argued that the three families had each taken on debt of 100,000, but had spent 10,000 on a new second-hand car. Therefore, once the money they had shared out to replace their old cars had been deducted, their net contribution to the house was only 90,000. That is, 90,000 divided by 3 couples, equal to 270,000-$, which, added to the 20,000′-$ for taxes, expenses, furniture and fitting out the house, gave them a total of 290,000′-$. And yet (or perhaps because of it) the ever-so-kind Mr Cheater had mortgaged their lives to the tune of 300,000′-$!!!
The Cuban sisters, who took care of the mortgage paperwork with Quicken Loans They went over the accounts again and again, swearing up and down that neither they nor their husbands had pocketed the $10,000 that was missing from their accounts. The tension between the Puerto Rican and the African Americans rose to a dangerous level. They also suspected Mr Cheater, whom they went to visit in an attempt to resolve the conflict, but all they achieved was mistrust and threats of seizure from Bill Emerson (Chief Executive Officer), the head of Mr Cheater.
They went through the bills for the three cars, the furniture, the air conditioning, the taxes, and the fees and charges from Quick Loans. Everything seemed to be in order, but with each passing day, the mistrust between them grew to such an extent that they stopped speaking to one another. Life in what had been their dream home turned into a nightmare. Even the way the three cars were parked in the huge garage became a source of fierce dispute, and every morning they would wake up to find some suspiciously new scratch or dent.
Perhaps due to their constant state of tension, one of the Cuban sisters and her brother-in-law lost their jobs. They sold one of their cars at a loss to ease their financial difficulties, as it was becoming increasingly difficult for them to meet their monthly payments of 575,661 TP4T. But after a few months, they were unable to make their payments to Mr Cheater on time and received their first threat of repossession. They agreed to put the house up for sale, though not without a violent row between the Puerto Rican and the unemployed African American. But the attempt to sell it and pay off their mortgage was in vain; the same estate agency who sold them the house only passed on a single offer from a investor for 135,000′-$ in cash.
Mr Cheater lost his job and now works as a head waiter at the The Hard Rock Hotel Casino in Seminole. For their part, our main characters had to return to the outskirts of Tampa to rent flats that were even cheaper than the ones they had left behind just a year ago. This time they only needed two flats, as one of the Cuban sisters had got divorced and moved in with her other sister and her African-American husband, who was still unemployed. In fact, she had been having a secret affair with her brother-in-law for years, but neither her sister nor her former Mexican friend ever suspected a thing.
One afternoon, a few years later, whilst our Puerto Rican friend was watching his Mexican wife and their three-year-old daughter playing with a children’s jigsaw puzzle, he exclaimed, laughing heartily: ‘I know what happened to the 10,000′-$ we were short when we bought the house, my friend!’
I suppose most of you know this too. Those who aren’t sure will have to wait and read your comments.»
There are two things that are infinite: human stupidity and the universe. But I’m not so sure about the latter.
It has not even been six months since we wrote the article «The Broken Bank», which later became a meme which was followed by posts from the leading economic bloggers. At that time, I decided that one day I would write the follow-up that I am publishing today, but I never imagined I would do so after just half a year.
As you may have re-read (I recommend you do this to refresh your memory of what I’m about to discuss), six months ago we were looking for arguments to justify the value of a bankrupt banking system. Of course, these are arguments with no real, accounting or fundamental value; some might even say they have no rational value whatsoever. But six months on, with a modest outlook that we will be expanding upon throughout 2009 and, above all, 2010, the political decision to keep the global banking system afloat with public money is now more than just a political decision. Huge cash injections have already been devised and approved for those whose collapse could prove traumatic. In fact, the ‘state-to-bank’ blood transfusion is already flowing through enormous veins the size of gas pipelines, which have been installed to provide service for longer than we could have imagined or would be desirable.
As we said at the time, this political decision stems from our society’s need for a stable banking system that acts as our banking sector in a Global Monopoly in which we wanted to transform the world. Consequently, the survival of the banks is politically guaranteed by their respective governments. All states have the capacity to bail out some of their banks, but bear in mind that only some states have the capacity to rescue their financial system as a whole. Of course, this requires a central bank of their own and a flexible currency, and the clearest example of this is the US.
In this context, we might conclude that the major banks that make up the core of the financial systems of those powerful and capable states are, in all likelihood, set to survive. In other words, the chances of a second Lehman Brothers occurring are negligible in the short and medium term.
Let’s now recall what we said in «The Broken Bank«: There were too many (perhaps irrational) reasons why the valuations of the major banks in a country like the US would not fall to zero. The risk of collapse has now passed, and the foundations for ridding their balance sheets of the toxic assets that still plague them were laid in a Obama’s public-private rescue plan at the expense of the FDIC (Federal Deposit Insurance Corporation), that is, from state funds. It is true that bids for the toxic assets arising from the bailout plan will be based on private rather than public criteria, but that does not guarantee that the process will be rigorous. Nothing will prevent the banks themselves from, under the guise of independent organisations, act as «private investors» and value those assets at prices high enough to inject sums into their balance sheets that will breathe new life into them. With varying degrees of abuse or discretion, but with a vampiric ability to guarantee the stability of the system. Let’s look at it from the other side: what is not going to happen is that the private entities bidding for the assets will do so at such unreasonably low levels as to cause the failure of certain banks that are meant to guarantee the stability of the system and are the very essence of it. And those private organisations will be as opaque and have such hidden agendas as is necessary to ensure that their proposals are, at the very least, enough to shore up the balance sheets of the major US banks. For every million $, only 3% will actually be at risk from private investment, with the remainder comprising up to 20% in public funds and 80% belonging to the FDIC on a «non-recourse» basis. In other words, the 3% of private capital will bear no liability for the remainder of the money invested should the purchased assets prove to be insolvent.
What we mean by all this is that If we’re thinking of a high-risk speculative investment, perhaps now is the time to buy shares in major US banks which are set to benefit from a pseudo-private bailout scheme, but which will use vast amounts of public funds – effectively as grants – that definitively ward off the risk of bankruptcy. We may well continue to see capital increases that indefinitely weigh down the share price of certain financial sector stocks. But it is also reasonable to assume that the risk to our investment is no longer that the share price will fall to zero, but rather that it will remain undervalued for years. On the other hand, the potential for an upturn, should the toxic assets be sold to a willing buyer – whether genuine or artificially created – is there, more so than ever before in the short history of this financial crisis. And let us remember that the goodwill from the major US banks («a set of intangible or non-material elements of the company that represent value to it»), remains unique amongst those we can find in the listed market. And that very special rescue plan is a intangible asset a real showstopper – and not the only one.
Just six months ago, the ground gave way beneath the global banking system. And today, they are once again standing on ground which, whilst far from solid, might lead us to consider that sector for our more speculative investments. But be careful: this applies only in the US and/or to those institutions whose states meet the requirements mentioned above.
As for RF emissions from those same organisations, if there are any, doubts remain. But that is a topic for another article.
Nos complace mucho recibir cada día más aportaciones de lectores que consideramos que merecen ser publicadas como artículos. Lamentamos no poder publicar algunas que también son de mucha calidad pero que por temática o bien por acumulación debemos descartar. Muchas gracias a todos.
Esta vez os copiamos una reflexión sincera de un profesional del sector financiero que es plenamente consciente, según sus propias palabras, de que: «La visión parecida que tenemos (él mismo y CFO) es incómoda para gran parte del sector». Toda una lección de lucidez en un mundo corporativista de profesionales, que sin embargo no dudan en apuñalarse mutuamente por la espalda a cambio de dinero y/o de un peldaño más en su carrera profesional.
Desde que conocí su página web y su blog he mantenido cierta inquietud por seguir leyéndoles e interés por conocerles. Creo que lo que más me ha llamado la atención con respecto a otras páginas, no ya de banca privada sino de “family office”, son leer algunos planteamientos más cercanos quizás a la sociología que a los ya conocidos discursos habituales. Y es que no debemos olvidar que estamos hablando de seres humanos, que además, tienen un patrimonio y requieren ayuda de algún profesional porque consideran que en esa materia la persona-entidad a la que se dirigen saben más que ellos, o necesitan delegar porque el tiempo no es ilimitado y se ha de priorizar.
Utilizando el artículo pasado sobre consignas bancarias me gustaría hacer algunos comentarios y reflexiones. Me identifico básicamente con su opinión pero fue interesante ver la crítica razonable de DJ y posterior contestación. No es fácil ir contra el sistema, creo firmemente en el tu ganas, yo gano, ganemos todos, pero también es excesivamente común el yo gano, yo gano… Desde años atrás, antes de terminar la carrera ya consideraba al sector financiero un “maravilloso” destructor de patrimonios, pero por descarte de lo que uno no quiere hacer y también por gusto, acabe en él y de alguna manera no he conseguido dejarlo. Mi visión de la vida y de las personas, algo ingenua, idealista y un tanto altruista, así como mi constante inquietud me ha impedido moverme sin crítica (constructiva) hacía el sector financiero y otros.
Nos movemos en sociedad, empresa, política, entre lo legal y lo no legal. Si permanecemos en la primera opción, aparentemente todo parece correcto y si además te forras, adicionalmente eres muy listo. Legal es, vender un producto muy ilíquido como un plan de pensiones sin una planificación y estudio adecuado, eso sí, con el reclamo de un estupendo juego de sartenes. Legal es, poder suscribir fondos internacionales con una comisión de entrada del 5%, si el folleto así lo contempla. (Aquí ya estamos hablando de alta Banca Privada). En este caso, ilegal sería robar directamente al cliente pero creo que sería un comportamiento más honesto por parte del “asesor”. Ser un idealista, purista del sector financiero y estricto con ciertos principios, créanme si les digo que no es nada fácil, a mí hacerlo, me supuso un coste personal y profesional importante, pero ya sabemos que se aprende y se crece más con los malos momentos.
Creo que tampoco es la clave y la diferencia, trabajar para un banco versus asesor independiente. He conocido muy buenos profesionales ligados a entidad y también he trabajado cerca de banqueros privados independientes que tenían libertad de acción, y de los cuales no dudo esfuerzo y capacidad de trabajo diario, pero a los que no me hubiese atrevido a confiar a nadie ni un porcentaje mínimo de su patrimonio. Eso sí, gracias a estos incautos clientes las cantidades que ganaban algunos de estos asesores eran ordinarias. En fin, profesionales con éxito, no?. A mí no me lo parecen, y es que la diferencia y ahora más que nunca la marcan las personas. Estamos ante una situación económica global crítica y compleja pero una parte de ella, al menos a lo que el sector financiero e inmobiliario se refiere, es una crisis que tiene su origen en la falta de responsabilidad e integridad, en la codicia, en el acceso al dinero fácil y rápido… Creo que la Banca Privada tiene una oportunidad única de reformarse, las ventas de humo habituales deben dejar de serlo, además de ser necesario un cambio en la manera de trabajar. Se empieza hablar hasta en conferencias de banca privada de clientes. Suena bien, pero también sé que se siguen manteniendo las tradicionales prácticas de colocación, búsquedas de altos márgenes y beneficios en el corto plazo.Como concepto es interesante, y desde luego creo que le acompañaría bien palabras como criterio, sentido común, integridad, compromiso, responsabilidad. Realmente es algo bueno a aplicar a la profesión, útil para construir las recetas de estrategias de inversión que nos comentan y también para el día a día personal. A esto, le añadiría para terminar de dar valor, o al menos intentarlo, saber manejar la psicología del cliente, la nuestra y la del propio mercado. Y es que tener el CFA, CAIA, EFA y 7 master en finanzas y mercados financieros está muy bien, pero una vez que conoces a los actores del mercado la forma de dar valor al cliente creo que está más cercana a la psicología que a la técnica.
Realmente confío que con el golpe que ha dado el “tsunami financiero” se produzca ciertos cambios, por lo pronto, una cura de humildad y de prudencia. No nos engañemos, son muchas las víctimas de la banca privada. Seguro que más de un empresario que lo único que ha hecho es trabajar toda su vida, ha visto como su Tir del 12% que sacaba con sus “hortalizas”, se veía reducida radicalmente por unos tipos con corbatas y gemelos a juego, que hablaban con anglicismos y cierta soberbia porque eran bastante más importantes que este honrado señor, al fin al cabo, ellos trabajaban en “private banking”. Con todo, estos, igual tenían canas, porque también está la versión más joven que con aire de suficiencia y sin rubor alguno, mal gestionan el patrimonio de sus clientes bajo la confianza de una carrera, un master, una autoestima alta y cierta arrogancia, además de tener unos superiores que lo fomentan.
Y esto es banca privada que es lo que por importe y patrimonio han experimentado más sus clientes, pero no hay que olvidarse nunca de aquellos otros que andan por banca personal, comercial…y es que para cada individuo su importe es importante, 50.000 € o menos para uno puede ser el 100% de su patrimonio y exige el mismo respeto, rigor y seriedad que 5.000.000 € que puede ser el 10% de otro o su 100%. Pero no quiero que mi visión resulte negativa, tan solo quería acompañarles en su reflexión y sentirme quizás a la vez acompañado. Aprecio mucho la vida y a las personas y por ello quiero ser ante todo optimista, pero creo que la responsabilidad, solidaridad, integridad, respeto, sentido común y buena educación se descuida más de lo deseable en muchos estamentos de la sociedad, y personas grises y destructivas en demasiadas ocasiones mantienen un papel excesivamente protagonista en la forma y en el tiempo. Reciban un cordial saludo y enhorabuena por su blog.
RM
Sólo me cabe añadir que no debemos confundir patrimonio con dinero en efectivo. Y que la banca privada difícilmente se va a ocupar de nuestro patrimonio no dinerario (ni siquiera algunos pseudo-family offices). Si nos ocupamos exclusivamente de las inversiones mobiliarias podemos hacer añicos nuestro patrimonio y el de nuestros herederos descuidando el patrimonio inmobiliario y empresarial. Y que un excelente empresario suele ser un mal gestor de su propio patrimonio.
Nos enorgullece enormemente que nuestro humilde blog sea capaz de generar este tipo de reflexiones por parte de profesionales como RM que abandonaron en su día el camino fácil para seguir el camino correcto. Su éxito, y no otro, es el verdadero.
P.D. La cantidad de videos en youtube sobre banqueros es enorme y sólo hemos realizado una pequeña selección. Nos perdáis el 1er sketch de Monty Python.
Given the debates and discussions in which almost everyone feels able to have their say – even pseudo-financial politicians – I think it would be beneficial to share with you all an exercise in humility and realism regarding the future financial situation.
To recognise that, in the known system, rebalancing the quantitative formula: mv = pq (I’d recommend that those of you who haven’t read this article yet do so first) It can come about in various ways It is a rational and honest approach. So too is accepting that the creation of money in circulation and the increase in M1 may be insufficient to achieve that rebalancing, but it may also be excessive. And the uncertainty is even greater if we recognise that political, financial and monetary measures of an unprecedented nature are being applied to the formula, and therefore with consequences predictably unpredictable. And we should also bear in mind that the systemic changes we have been implementing – most of them out of necessity, or even without a clear understanding of what is happening or of their significance – may mean leaving behind models such as the essential and mathematical ones mv=pq. In favour of what? Only God and/or humanity will say.
The massive bailouts, the absurd and lethal leverage we have been experiencing (and which we are still experiencing and will continue to experience for a long time to come), and the rapidly escalating global crisis mean that the only realistic short-term solution to systemic collapse is an increase in m, whilst keeping our fingers crossed that he makes a full recovery v based on a trust founded on our short-term memory.
Even so, the question that underlies all financial and intellectual discourse and debate today is whether these movements will lead to p whether we will continue to experience deflation or, on the contrary, see almost apocalyptic hyperinflation within a few years. In fact, many are already pricing in this imminent rise in prices and take it for granted that deflation’s days are numbered. Paradoxically, perhaps the q is the variable over which human beings have the least control through their leaders, even though it depends entirely on us as a collective.
If, despite the crisis, the decline in macroeconomic indicators stabilises and, furthermore, the velocity of circulation remains unchanged, an increase in the money supply would obviously lead to inflation. But The same increase in the money supply could persist in a deflationary environment if productivity and the velocity of money remain low.. Why might they remain in a precarious situation? Because of a deepening crisis that is undermining confidence and dampening consumption, whilst at the same time taking a heavy toll on GDP figures. Let us not forget that the lifeline of global economic growth – the emerging economies – is also facing serious problems. For example, China’s growth of 6.1% in the last quarter is inflated by deflation estimated at 2.3%, leaving real growth at a modest 3.8%. Nor should we overlook the obvious fact that the increase in m may occur to a greater or lesser extent, and that There is no benchmark whatsoever for determining the extent to which the supply of money in circulation is abundant or scarce. To claim that hyperinflation is imminent is just as reckless as claiming that, in a forest on fire, the imminent arrival of the fire brigade (an increase in m) will not only put out the fire but will also cause severe flooding in the surrounding area (an increase in p). Without knowing how much water they are going to use, and without taking into account the dryness of the conditions, the wind, any rain that might fall, etc. In other words, neither the other variables in the formula nor the extremely complex global uncertainties that will play a decisive role in the future development of the global economy.
We simply regard this as a possible scenario, but one that is by no means certain. Faced with such an uncertain scenario and in such uncharted territory, as we forge a path towards a new system, we must not assume that hyperinflation is inevitable as a result of the rise in M1, since the variables in decline from mv=pq can perfectly well offset an increase in the money supply which, moreover, no one is in a position to quantify or pinpoint in time.
We cannot even be sure that mv=pq Let this be the equation that governs a new system towards which we are heading without even realising it. And there is no other way forward than to abandon a system that is broken, as we set off towards an unknown destination with our saddlebags full of expansionist economic theories that may not serve us well wherever we are headed. Or perhaps they will, but only after thorough revision.
Our wealth can thrive and grow perfectly well in a deflationary environment, whilst at the same time preparing us for possible short-term hyperinflation that we may never actually see. Deflation, inflation… all I know is that I know nothing.
An interesting city, without a doubt. An oasis between the desert and the sea, between tradition and vice, between business and leisure. A place where almost everything remains to be done, but where there is money to do it.
The crash in the property bubble is proving to be a major blow, and offices and homes priced at 20,000 $/m² are becoming increasingly rare. They are by no means immune to the crisis, but there is one factor that sets them apart: The United Arab Emirates (UAE) is a wealthy state amidst a growing wave of sovereign defaults. And that distinguishing factor could prove vital if this global crisis drags on, as is to be expected.
In fact, Dubai has no oil (or very little) and its wealth comes from the capital, Abu Dhabi, another of the seven emirates that make up the country. The question is: why hasn’t the growth and boom of Dubai been channelled into the capital, Abu Dhabi, itself, given that it is this emirate that foots the bill? The answer is religious. Both the capital and the rest of the country wish to keep their distance from the debauchery and excesses of Dubai. The aim is to confine the widespread consumption of alcohol and the almost total relaxation of religious customs and prohibitions to that lawless (Islamic) city: Dubai. All that’s missing is gambling to increasingly outdo Las Vegas.
But returning to the impact of the crisis on the city that has seen the most recent development on the planet, we would say that having a wealthy state behind it makes a huge qualitative difference when it comes to facing the coming years. It is true that many projects have been put on hold indefinitely, and that over the next five years, Dubai’s growth will bear little resemblance to that of the past five years. However, the construction of the planned infrastructure will remain in excellent shape during these years of crisis, and this will go a long way towards helping Dubai overcome the current global recession. The state will not go bankrupt, even if it were to have to bail out its own banks. Its public deficit is non-existent because it was never balanced through taxation of society; rather, its wealth stems from vast natural resources in the form of crude oil and natural gas. Therefore, Society will suffer, but it will not drag the State down with it; quite the contrary, in fact.
We’re not saying that investing in property in Dubai is a good way to safeguard our wealth – far from it. But perhaps, as a speculative investment, Dubai may offer added value in the future, once prices have fallen to more reasonable levels. Because whilst we’re still in the thick of this crisis, Dubai will continue to build all the necessary infrastructure so that, when we emerge from it, the city will be in an even more privileged position compared to the rest.
The fact is that this crisis is bankrupting many states, which will find themselves increasingly unable to even maintain their respective countries’ infrastructure as the recession drags on. It is unthinkable to devise a plan for significant growth at a time when national coffers are as leaky as a sieve. Unthinkable for everyone except for a few exceptions such as Dubai, which has the UAE behind it, with firm and clear political resolve, despite a crisis that affects only those states that rely on tax revenue – in other words, the vast majority.
If the future lies in the East, a paradise halfway between East and West stands a good chance of becoming a world-class holiday, leisure and business destination. Right at the heart of an opulent and extremely wealthy Middle East, whilst the world continues to run on fossil fuels.
When we wake up from the nightmare of depression, the global picture will be nightmarish, except in a few parts of the world where the miracle of economic growth will have continued against all odds, fuelled by petrodollars. It is these places that will shape the speculative future.
It will come as a surprise to many to realise that, over numerous periods and for a long time, we have experienced decades in which stock market returns have not outperformed bond returns. It is important to emphasise that we are not saying it is more profitable to invest in bonds than in shares, nor the opposite, as it essentially depends on the economic cycle we happen to be experiencing as investors. And we must remember that our lives as investors are short compared to the long-term charts that can cloud our judgement. A generation’s ability to generate wealth that can be invested in the stock market or fixed-income securities is usually limited to a few decades, assuming we are able to hold assets, remain consistent and disciplined, and also enjoy a long life in which to make such investments. In short, the circumstances of most ordinary people prevent them from reaping the long-term benefits of either market, with a few exceptions. Another matter is the intergenerational transfer of portfolios, which is usually rare and only relatively common in the case of vast fortunes.
The following chart shows the cumulative relative performance of shares compared with bonds over the last 207 years. The periods during which the stock markets did not exceed their previous high are marked by horizontal lines. High Water Mark.
We must also analyse specific periods that reveal more than a simple glance at the chart would suggest. In fact, the life of an investor consists of nothing more than small segments of very long-term charts such as this one. Any investor who had entered the S&P 500 market; between 1980 and 2008, and up to January 2009, would have achieved worse returns than if they’d invested in the 20-year US Treasury bond (20Y T-Bond), also relative to January 2009. Surprising, isn’t it? Well, there’s more. If we go back 40 years, to 1969, investors in 20-year bonds would still have outperformed those in the stock market right up until January 2009 (even though bonds went through a very rough patch during the 1970s).
As we can see from the graph, out of the 207 years of historical data, there are three long periods during which stock market returns did not outperform the 20-year bond: 1803–71, 1929–49 and 1968–January 2009. That’s a total of 129 years out of 207. Remarkable. Statistically, therefore, it is highly likely that, throughout the investment lives of our ancestors and our own, we have at least partially overlapped with periods in which equities have not outperformed fixed income. Compound interest works wonders over the long term, and although our memory may be short and selective, history is full of long periods in the markets when, to say the least, flat.
Where do we stand at the moment? Nobody knows, but the fact is that we’ve come out of a period of stock market bubble-like excesses that have led to a crash, and we don’t know when it will bottom out. Of course, a crash like the current one usually brings with it rebounds and the beginnings of new rallies, during which investment in fixed income is clearly outperformed. I would therefore not want this article to be interpreted as a defence of one type of investment over another – not at all. It is simply an observation of some data that has surprised us and which need not necessarily occur in our investment lives (which, incidentally, we do not know how long will last either). Furthermore, as we always say, we are facing a scenario of systemic collapse that will usher in a new world of investment, where the charts from the last 207 years are likely to be of little help to us. It also seems reasonable to think that, in the near future, we will learn a lesson from the excesses and stock market bubbles of the last 50 years, during which the world has never stopped expanding and inventing new ways to generate credit, financial engineering and virtual wealth.
To conclude, I would point out that when analysing all this data, we must bear in mind that the risk premium typically required for investment in the stock market is that it should exceed the yield on the 20-year government bond by 5%. We must also bear in mind that the rally from January 2009 (the end date of the chart) to the present day significantly improves the returns on stock market investments. And finally, dividend yields from equity investments have not been taken into account either.
Nor can I resist reminding you that long-term wealth growth will depend to a large extent on the returns we are able to achieve on our property and corporate assets, as financial growth is merely one part – albeit a common, yet unfortunately minor, part in these times – of our total wealth.
(Continuación del artículo anterior)Pero ¿qué puede hacer el ciudadano de a pie en este dramático y a la vez apasionante proceso? Como tú bien dices, DJ, deberíamos intentar en la medida de nuestras posibilidades ser parte activa y no pasiva en este escenario. Opinando, actuando a nuestra escala. Y lógicamente intentando mantener nuestro patrimonio al márgen de pérdidas de valor. Estando muy atentos para poder beneficiarnos de alguna oportunidad, que pasará ante nuestros ojos mimetizada como nunca entre las noticias y acontecimientos nefastos del día a día. Si mantenemos nuestra cabeza y nuestro patrimonio fríos, al márgen de pérdidas y ajenos al estrés de la afectación negativa, estaremos en la mejor disposición para diseñar y aplicar la estrategia más conveniente en cada momento. Vamos a necesitar estar libres de las minusvalías que están afectando al 99,9% de patrimonios, tanto en inmuebles, como en empresa o en inversiones financieras. Sólo así podremos mantener la capacidad óptima de análisis que necesitaremos para procesar unos acontecimientos que jamás habíamos imaginado y a la vez encontar algún diamante entre la arena. Y sólo así podremos también paliar los cuatro problemas que citas en tu artículo: Falta de objetivos claros, de perspectiva, y ausencia de rigor y espíritu crítico.
Llegados a este punto podemos equivocarnos una y otra vez. Algunos tendrán mayor acierto y/o suerte que otros, pero si hemos partido de una base en la que nuestro patrimonio queda al margen de las minusvalías que sufren día a día la mayoría, si conseguimos pertenecer a ese 0,1% de patrimonios que tienen liquidez y no sufren pérdidas de valor en sus activos empresariales ni en los inmobiliarios, estaremos en una situación muy privilegiada para afrontar esta Nueva Era. Si por el contrario sufrimos el sedentarismo patrimonial, análisis estratégicos erróneos, y perdemos valor en inmuebles, empresas y también en nuestras inversiones financieras, posiblemente no sobrevivamos (patrimonialmente) para poder gestionar nuestros activos con unas nuevas reglas de juego y un nuevo tablero.
Antes de que alguien lo pregunte, recordaré que la receta para mantener un patrimonio al margen de las pérdidas inmobiliarias, financieras y empresariales deberá diseñarse a medida de cada familia. No obstante podemos mencionar que el sentido común nos dice que debería evitarse la tenencia de inmuebles en mercados como el español, la de empresas endeudadas y/o con escasa ventajas competitivas en este entorno de crisis, o la asunción de riesgos financieros que pueda derivar en pérdidas significativas. Esto es fácil de decir pero de ardua y compleja ejecución.
En la mayoría de casos es un proceso de muchos meses, pero que debería haberse iniciado ya desde hace año y medio, cuando el sistema financiero mundial crujió como nunca y cuando las pérdidas eran más asumibles. Fijaos en las fechas de los artículos en los que advertimos desequilibrios nunca vistos; o cuando denunciamos el hundimiento inmobiliario; o incluso cuando la bolsa sufrió sus primeras convulsiones que popularizaban el grave estado de salud del Sistema que muchos de nosotros ya empezamos a conocer desde el verano del 2007. Dices que no conoces a nadie a quien la crisis no le haya pasado factura, que haya conseguido mantenerse al margen de minusvalías patrimoniales. Te diré que la mayoría de nuestros clientes lo han conseguido o están en proceso de ello, sin embargo una minoría sólo lo han conseguido parcialmente debido a la especificidad del patrimonio o a la falta de decisión, agilidad y determinación para adaptar sus activos a las necesidades del momento. Pero es totalmente cierto que estos clientes de CFO suponen una excepción y que la mayoría de mortales siguen deambulando como zombis, perdiendo valor patrimonial sin ni siquiera ser muy conscientes de ello. Desde este blog intentamos abrir los ojos a aquellos que no nos conocen personalmente, y lo venimos haciendo con un bagaje de más de 250 artículos escritos desde unos meses antes de que se evidenciara la crisis de crédito y se popularizaran términos como subprime, titulización, CDS y un larguísimo etc. Pienso sinceramente que es muy interesante releer lo que publicábamos a medida que el sistema se iba desmoronando.
Lo que comentas de contabilizar las economías domésticas como si de una empresa se tratara es muy parecido a lo que hacemos con los patrimonios y sus respectivos Balances Vitales. Herramienta básica para determinar las necesidades y estrategias a seguir por un patrimonio para crecer a largo plazo y para satisfacer a sus propietarios.
Creo que este artículo complementa convenientemente el anterior dentro de la responsabilidad debida de un artículo que es publicado. Si alguien desea profundizar más en algún tema en concreto, ya sabe que puede contactar vía correo electrónico y realizar cualquier consulta. Espero que nuestros artículos sirvan de orientación en medio del caos del que ya hablábamos hace dos Navidades. Y que se encuentre en ellos ideas y reflexiones útiles para analizar el mundo económico, evitar pérdidas patrimoniales y orientarse en el caos desde la perspectiva del Big Picture y a largo plazo. Incluso en tiempos convulsos la gestión patrimonial no es cómo empieza sino cómo acaba.
Nota: Debido a la extensión de este artículo, lo publicaremos en dos partes.
En respuesta al anterior artículo de Boquerones Fritos (VII), comenzaremos diciendo, DJ, que en tu comentario haces reflexiones que sería muy interesante plantearse desde el escepticismo más absoluto. Me explico: Hablas de «solucionar el problema«. Y cabría preguntarse si queremos solucionarlo volviendo a nuestro orígen de lujuria crediticia, de financiers and investors jugando a ganar sin producir. Quizá lo más aséptico sea seguir y sufrir con mucha atención la quiebra del sistema. No digo que deba ser así, sólo que no tengo tan claro que nos convenga una solución que nos devuelva al bienestar virtual de donde venimos, una solución de ilusionista, de píldora azul.
Pensando en el absurdo de que debiéramos aconsejar a algún gobierno o al mismísimo G-20, lógicamente no sabríamos por dónde empezar. La protección de un patrimonio en el momento actual es un juego de niños en comparación con la solución que nos pides. Probablemente tan sólo podríamos intentar diagnosticar la situación desde nuestra perspectiva y experiencia personal. En ese intento por determinar dónde estamos y a qué nos enfrentaremos te diré que deberíamos olvidarnos del mundo que conocemos. Estoy convencido de que no hay vuelta atrás y de que hemos abandonado definitivamente el modelo financiero conocido. ¿Qué haríamos y qué recomendaríamos? ¿Para qué? ¿Para volver a algo que se ha demostrado insostenible y temerariamente irreal? Sinceramente no tengo claro cuál sería el objetivo de nuestro asesoramiento surrealista a un G20 que debería liderar el futuro. Intuyo que nuestro consejo debería contribuír a crear y a sumar en un Sistema mejor que el conocido, pero no debería pretender encontrar el camino de vuelta, entre otros motivos, porque probablemente no exista.
Seguramente será inevitable una gran dosis de sufrimiento social en una latitud tan poco habituada a ello como el mismísimo Occidente. También comentas que quizá no queramos explicar con detalle nuestra opinión respecto a lo que nos espera y, a pesar de que mayoritariamente venimos explicándola artículo tras artículo en los 250 que ya hemos publicado en los últimos 2 años, en parte es así. Pero no por evitar compartir gratuitamente nuestra opinión al respecto, nada más lejos. Sino porque quizá diríamos cosas que no sería responsable publicar en un medio que, aunque modesto, tiene cierto alcance. Nuestros clientes, tanto los que pagan como los que atendemos gratuitamente, saben cuál es nuestra opinión exhaustiva sobre el escenario actual y las propuestas de futuro detalladas y adaptadas para cada uno de ellos. Y también debo decir que, como no puede ser de otro modo, no todos comparten nuestra visión de la situación que nos está tocando vivir ni de las perspectivas de futuro.
El deterioro del Sistema evoluciona a velocidad de crucero, con unas inercias de petrolero que hacen que a la mayoría les pase inadvertida la irreversibilidad del colapso del sistema financiero conocido. En el mejor de los casos retrocederemos muchas décadas en la riqueza creada. Y quizá sea precisamente porque sólo aparentaba estar creada y en realidad estaba simulada por un apalancamiento basado exclusivamente en el beneficio unigeneracional.
El órden cronológico viene siendo el siguiente: Colapso del sistema bancario propiciado por una burbuja crediticia en cuyo interior se encontraba otra burbuja inmobiliaria (USA y algunos países europeos y asiáticos). Para evitar este colapso bancario los Estados decidieron que Lehman Brothers sería el último y único gran cadáver que el Sistema se podía permitir. Por tanto las finanzas de los Estados se han puesto al servicio del rescate del sistema bancario. Hoy estamos en el proceso de colapso de los Estados con menor capacidad de aguante, tanto para el rescate de sus entidades como para la propia resistencia al desplome de sus cifras macroeconómicas (paro, PIB, morosidad, delincuencia y disturbios sociales, etc.) Entre estos primeros países que quiebran, los hay con y sin divisa propia con la que intentar paliar sus situaciones extremas. Algunos ya vienen siendo mantenidos a flote por Estados o supra-Estados cercanos que no pueden permitirse que sus vecinos estallen por los aires. Pero la cuenta atrás es inexorable para los más débiles y también para los que fueron más imprudentes y menos rigurosos durante los años dorados que acabamos de enterrar hace menos de dos años.
Posteriormente vendrán también las urgencias extremas de los Estados con mayor aguante. Y de ahí, dependiendo de la suerte que hayan corrido los más débiles, debe surgir la semilla del nuevo Sistema. Quizá sencillamente porque más allá de los Estados llamados primeras potencias no hay nada más, fin de trayecto, game over. Por eso será el momento determinante de la creación del nuevo Sistema. Las incógnitas son tantas y tan importantes que se nos hace imposible predecir con cierta consistencia las directrices que pueden regir este nuevo sistema. No obstante parece lógico pensar que Oriente en general y China e India en particular tendrán mucho que decir en el Nuevo Orden Económico Mundial que veremos en pocos años. También el medio oriente petrolífero, al menos mientras el mundo sea dependiente de los combustibles fósiles.
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As we mentioned last April in The Banking Crisis II and speculation in the US banking sector, the Obama’s bailout plan dispels the possibility of the major banks going bankrupt. The fact is that this possibility of Chapter 11 Until very recently, it was trading at the share prices of the most high-profile US companies. The credibility of that rescue plan, as well as the publication of the results of the litmus test credible and apparently rigorous (despite widespread criticism), have shed light on the future of the major North American banks.
Anything could happen in the markets over the coming months, but the systemic risk posed by the big banks and the spectre of Lehman Brothers are no longer a factor. Now it is «merely» a matter of fine-tuning the valuation of the goodwill and in any capital increases that may take place. However, the irrational and unfundamental value of the US banking system is proving to be the basis for the current share price, as we said last November. All it took was to dispel the spectre of bankruptcy for the shares to trade well above their intrinsic value. We do not see this phenomenon even in sectors as significant as the automotive industry.
The fact is, we are talking about something as vital as money – and the system that manages and creates it. These are such weighty matters that the mere guarantee of the survival of the major banks means that share prices, which previously reflected the risk of these institutions going bankrupt, have now been surpassed. The fundamental value, just like the size… no always It matters.
