Category: Sin categorizar

There has always been a direct link between recession and an increase in part-time jobs. It stands to reason that, at times when employment falls, full-time jobs are replaced by a tricky puzzle part-time jobs, which almost never generate the same income as their previous full-time job.

In the current multi-crisis, this phenomenon is becoming alarmingly evident, and it portends nothing less than a very severe depression. As we can see from the following graph showing part-time employment in the US, the figure has far exceeded the peaks seen during the recessions of 1982–83 and 1991–93. Its upward trajectory is worthy of the mother of all bubbles. And I fear that this bubble is not going to burst; rather, we will have to deflate it through hard work and many years of hardship. Until the dawn of economic expansion breaks and we begin to leave behind the nightmarish situation that surrounds us.

This trend towards an increase in part-time work inevitably leads to a substantial reduction in earnings. The fact is, however, that there are many full-time workers who, once they have lost their jobs, will struggle to find even part-time work. Whether because of their age, their physical condition, their professional qualifications, their geographical location (living in an area where there are no part-time employment options), etc.

In short, we are now witnessing, to our disbelief, a Western society where people are left out on the streets and are beginning to desperately seek out part-time jobs to scrape by. The problem is that these decimated earnings are not enough (and in many cases they are not) to enable these families to put food on the table and pay the rent on a flat in which they are crammed together. But another major problem is the debt that these families have accumulated during the recent ‘golden age’, when the banks and the system led them to believe they were middle class. And there are no part-time jobs that can cover a mortgage, a car and a holiday for which the instalment is still due for the all-inclusive. They will never be able to pay off their debts, and will have to focus their efforts on working part-time solely to buy food and pay the rent for a few years. This is likely to be much longer than would be desirable and than financial institutions are willing to tolerate.

The only priority now for this majority segment of society is to secure a few part-time jobs so they can put a roof over their heads and put food on the table. All other debts are now being neglected. Financial institutions are turning into pseudo-estate agents – acting as everyone’s unwitting money changers, exchanging funds for devalued gadgets and superfluous luxuries. And with balance sheets that are extremely difficult to balance, despite the inflated profits they still report.

Part-time jobs and debt default are concepts that, unfortunately, go hand in hand in a climate of credit abuse. And what we used to call the middle class is now tragically and rapidly being transformed into the poor or lower classes. The dreams of millions and millions of people are being shattered into a thousand pieces as they lose their jobs, their mortgaged or indebted assets, their creditworthiness and, in many cases, their dignity. And we are not just talking about immigrants – far from it.

When the economy is collapsing as it is doing, social impoverishment is merely a matter of time in a deeply saddening countdown. Unfortunately, many are already working part-time.

Thanks to Marco Antonio Moreno's blog, Check on Neoliberalism, I have come to this Guardian article in which, in an interactive and highly visual way, the Ponzi scheme is evident to which we have taken our financial system. This is something we already sensed almost a year and a half ago., This is no longer in doubt. But let us reflect on the famous formula of the Quantitative Theory, classic, simple and as current as ever that this interactive article shows us in its last (8) click:

Being m = the amount of money in circulation; v = the speed at which it flows through the financial system; p = price of things; and q = the amount of output (GDP).

In the expansionary scenario we left behind, financial innovations strongly boosted the flow of money (virtual or real) into the system. But now we are in the opposite situation. The dryness of credit circulation causes consumption to collapse, thus feeding back into the very dryness of money flows. It is therefore inevitable that the velocity of money circulation (v) collapses. The million-dollar question is: What should we do to compensate for the decline of v and that the rebalancing of the formula does not relegate us to extreme poverty? Leaving aside the classical theoretical considerations and taking the rest as variables, we have several options, but all of them very mathematical and unfortunately not very human., as we shall see below:

1. Increase mCentral banks are on board. In discreet euphemisms, but they are doing their job. easings (suggestions for translation welcome) quantitative and qualitative by the bucketload. In other words, everyone against the fire. At the end of the article, I will give you the English definition of these two concepts
2. Increase pPrices (CPI) seem to be sinking or at best staying the same, despite the efforts to make them rise in terms of the prices set by the States themselves: public services, supplies, etc. In other words, demand is falling, but desperate efforts are being made to keep prices afloat so that the little formula does not collapse too much.
3. Increase qProductivity, divine treasure. Spain is the antithesis of what GDP growth should be. But it seems hard to imagine that global GDP can compensate for the formula at all, even if we keep hope in emerging countries such as China, India, Brazil, etc.

In short, given the dryness of the financial system, collapse can only be avoided by increasing the rest of the variables. until the restoration of the expansive equilibrium (or imbalance).. Global production can only be saved by the emerging countries. But with the first world (a creaky definition) in a deep depression, it seems very difficult for emerging growth to compensate to any great extent. They are our only hope, and yet double-digit growth is already history. Crisis, not collapse, is also hitting these countries. As for prices, those that can be set by governments will probably rise disproportionately. But falling consumption will drag prices down, and the average will hardly rise above the minimum required for bureaucrats and optimists to be able to boast that the recession is behind us. If it does happen, it will be intermittent, as in the 1930s at best. And as for the increase in money in circulation, one need only read the news. Central banks issue, exchange money for junk, buy sovereign and tainted debt, etc. Some voices even pointed to new modalities in the increase of the m, The central banks' own debt issuance, for example. For the first time in history, both qualitative and quantitative concepts are being applied at the same time.:

Quantitative easingIncrease in the size of the balance sheet of the central bank through an increase in its monetary liabilities that holds constant the average liquidity/riskiness of its asset portfolio.

Qualitative easing: Shift in the composition of the assets of the central bank towards less liquid and riskier assets, holding constant the size of the balance sheet, and the official policy rate and the rest of the list of usual suspects.

It will now be clearer to understand why I have said that the options for compensating for the fall of v in the formula are more mathematical than human. We are already living, even if many still want to think that in a year or two everything will be back to the «...".«normality«The "depressive spiral" is going to be very difficult to escape from without leaving behind many victims. Of all kinds. Both sides of the equation will be greatly diminished.. The question is whether we should continue with an inflationary growth model like the one we have been following. mv=pq, or, on the contrary, we can create wealth sustainably without reaching the absurd supra-generational loop of bubble-collapse-bubble. But just as a politician is unlikely to think of sacrifices and government decisions that will yield results beyond the terms of office in which he or she can be re-elected, we cannot be expected to devise economic systems that are sustainable beyond our own generations. If we are offered the possibility of patching up the known system, so that we and our children die of old age without living through a liquidity trap and a collapse of the Financial System, how many would gladly accept? My admiration for those who would prefer to purge all our guilt now and sow, sacrificially in the coming decades, a new system from which our grandchildren and beyond would benefit, but personally I confess that I find it difficult to think beyond the future of my children.

Only he who builds the future has the right to judge the past.
Friedrich Nietzsche (1844-1900)

If you don't think about your future, you won't have one.
John Kenneth Galbraith (1908-2006)

«I'm looking for a job.» This is the phrase that is taking hold across the Western world, particularly in Spain. Jobs lost due to the economic climate – to put it mildly, the punishment we all deserve – will not be replaced by new ones. A job is rapidly becoming a true luxury that must be cherished like a treasure.

However For many, work is still a right that an evil, exploitative entity cruelly denies them in exchange for greedy profits, and for which we must fight through protest, threats and social pressure.

For the long-term unemployed, this inability to find a new job is an unmitigated tragedy. However, not everyone who still has a job realises that they hold a gem that is very difficult to replace, and very few make a substantial effort to boost their productivity in an attempt to keep their job. Nevertheless, such efforts do not guarantee job security either, and it is possible that the damage to the business is so severe that redundancies or closures will be devastating. The fact is that for many companies, any reaction in terms of labour productivity – if it occurs at all – comes too late.

The bar for securing new jobs in the near future – and indeed right now – is rising day by day. In other words, wages for highly qualified staff are falling, whilst competition for unskilled roles is fierce and candidates are disproportionately well-prepared for those tasks. Supply and demand, after all, but they turn into harsh realities accompanied by deeply personal tragedies.

In this setting, I read an article by Putabolsa with the straightforward title «Looking for work» which I would like to modestly highlight here. I find it a sincere and honest piece, though in my view somewhat overly defeatist, written by someone who is a leading figure in the world of stock market blogging in Spain. Yet another example of how a situation is unfolding that has long been on the cards. I recommend that you read it and don’t miss the nearly hundred comments of all kinds received on the post in question, some of which come from the most prestigious bloggers in this country. As for me, Cesc, I’ll repeat what I already told you in comment number 59 (although I know that isn’t the point of your article). All the best, and see you soon. I’ll leave you with a pithy quote from that article:

«If you're one of those who still have a job, whether it's a crap job or a a real treat »It's a really well-paid job – count yourself lucky, believe me."

Bitchbag.

Many people believe it is a macabre exaggeration to suggest that in Spain, as in other European countries, more or less widespread street unrest could be seen in the coming years or even months. Some cannot even bear to hear about it, even though they do not consider it an exaggeration. They simply prefer to continue looking – albeit from a great distance now – towards the longed-for Disneyland in which we were living until a year or two ago. Some are only just beginning to feel the effects of the recession in its many forms first-hand (on their household finances): unemployment, falling property values, losses on financial investments, business losses, payment defaults, a drastic drop in household income, etc.

In economics, the future is rarely as predictable as it is today, and even less so when we try to guess what will happen on a global scale. This time, it’s very straightforward. Unemployment will continue to rise in 2009 and beyond. Households will have less income and fewer resources. People will work longer hours for less pay – and that’s if they’re lucky. The so-called middle class will return to the very place from which it emerged: the lower-middle or working class, with its harsh hardships and meagre prospects for progress. Just like in the old days.

The other day I was talking to a businessman about this bleak social future, and he said to me: «In Spain, we’re not going to learn our lesson; the middle class will weather the storm and carry on with its reckless habits of producing little and getting heavily into debt.» But I suppose not. That inertia, ingrained in the virtual welfare state, is going to be corrected the hard way. Not only will the social crisis last for one or two years, but we will not be able to survive without radically changing our way of life through many, many casualties. And when we say casualties We are talking about companies that vanish off the map, fortunes that are wiped out, and modest household incomes that are literally left out on the street. And what will happen to these millions of people who are left without any means of support? It is not hard to guess, provided we do not bury our heads in the sand. The former middle and lower-middle classes, whose unemployment benefits are about to run out with no prospect of securing any other income, will have no choice but to turn to crime, emigrate (where to?) and, at the same time, protest and make their discontent known. At first, this will take the form of more or less organised demonstrations and strikes of all kinds, but after a few months, this social emergency affecting millions of people will lead to street riots and a breakdown in public safety. Common sense tells us that the immediate future lying ahead of us cannot be any different, even though we are inclined to look the other way.

The venue will be a unimaginable hell for the generation of young people who bought and owned everything, thanks to credit and their ancestors’ savings. But that will be his subjective view, and in reality we are heading towards a scenario that is all too familiar in Central and South American countries – in other words, neither hell in the strict sense nor unimaginable. South American society has existed for many decades with virtually no middle class, comprising a small, affluent minority and a poor majority who struggle to get by and make a living (not a life of luxury) as best they can. And let’s not even mention African society, which doesn’t even attain the status of society. In the East, too, we can find examples of societies facing difficulties that are a far cry from the Western welfare state we are familiar with. But it is perhaps easier to extrapolate our imminent future by looking at our Latin American counterpart.

Generally speaking, public safety in these South American countries leaves a great deal to be desired. And it cannot be otherwise in countries where the majority of the population lives in precarious conditions. We can improve and soften the image we have of these countries as we see fit before comparing it with what we anticipate will happen in Spain. We might think that our precarious situation will stop halfway towards the current situation in any South American country, or that recovery will come even before we reach that halfway point. But this is the direction we have taken, and no other.

I suppose some of you will say it’s an exaggeration to talk of riots in Spain, but the unrest that has started in Greece and France will undoubtedly reach our streets. It’s only a matter of time. There are currently more than 1,000,000 families in Spain in which all members are unemployed, whether they are receiving benefits or not. And we are only seeing the tip of a growing iceberg that is still being fuelled by public subsidies. A macabre countdown to waking up from a dream into which many were already born. This means they are unaware of any other way of life, and that the shock will be far more traumatic. These generations will try in vain to revolutionise the world (through unrest) in pursuit of a once-in-a-lifetime dream, with no other point of reference for what the world of the 20th century was like before these young people were born. This generation will soon begin to ask itself: Is there life beyond credit? And the answer is ‘Yes, but it’s much worse, my dear friends’. Welcome to the real world, No more blue pills.

The shock caused by this recession amongst young people of the ‘credit generation’ does nothing to improve the prospects or the timing for a global recovery; quite the contrary. And the effects of this scenario on middle- and high-income households are becoming increasingly evident day by day if we analyse the situation honestly and rigorously calculation of changes in net worth in the past, present and future.

In the following graph from dshort.com We can see how the four most devastating crashes in the modern history of the global economy have unfolded over time. The chart shows four colours corresponding to the downward trends of:

1. The Oil Crisis from 11 January 1973 to 3 October 1974.
2. This is the dot-com crash, which lasted from 24 March 2000 to 9 October 2002.
3. The Crash of '29 and the Great Depression, from 3 September 1929 to 8 July 1932.
4. The collapse of the current credit bubble, from 9 October 2007 until an as yet undetermined date in the future.

It should be noted that the graph shows, on the vertical axis, the percentage decline from the benchmark index’s previous high. Meanwhile, the horizontal axis shows the duration of these falls, with the figures corresponding to trading days. It should also be noted that the Crash of ’29 is based on the Dow, whilst the other three are based on the S&P 500.

What conclusions can we draw from this chart? For example, we have now seen a 50% decline in as few trading sessions as occurred during the Crash of ’29, whereas the other two declines took many more weeks to unfold. In other words, the steepness of this fall is, so far, only comparable to that of 1929.

On the other hand, we must also bear in mind that the cause of the current crisis is not confined to a specific sector, as was the case in 1973, namely the energy sector (an interesting article from 1975 on the subject), or in 2000, technological (El Mundo’s 2000 Year in Review). As we have mentioned on previous occasions We are facing a multifaceted crisis involving deleveraging and a liquidity trap on an unprecedented scale. Moreover, in a world that is more globalised than ever before, and of course in no way comparable to what happened in 1929.

We should also bear in mind that the chart of the 1929 crash only depicts the main bear market cycle from 1929 to 1932. Under no circumstances can we limit the effects of the Great Depression to the 800 trading sessions covered by the chart, as we must remember that it represents the percentage decline from the previous high. But the harsh reality of the Great Depression lasted right up until the US entered the Second World War following the attack on Pearl Harbour. Therefore, if we compare the current situation with what we see in the 1929 chart, the current depression could last far beyond the 800 sessions shown. And I am not suggesting that we will see a continuous market decline like that of the 1929–1932 period (although we are well on the way to it), but rather that even with intermittent, slight and fleeting price recoveries, the period during which we will be traversing a desert of bullish financial investments may be even much longer than what we see in this simple chart.

Our current economic downturn is without parallel, and so this comparative exercise is highly speculative; however, we should bear in mind that the 800- or 1,000-session period shown in this chart represents nothing more than a single phase of the Great Depression of 1929. And as we have already said, the current crisis is underpinned by unprecedented factors that could make the depression even deeper and longer. However, the current wave of globalisation may have harmful effects by amplifying and prolonging the crisis, as has been the case so far, or, conversely, it may play a decisive role in bringing about a much swifter and more remarkable recovery. Only time will tell.

In the meantime, we should be highly sceptical of predictions of an imminent recovery based on absurd cyclical statistics, drawn from the past and/or recent times, from when the world was capitalist. Today we still do not know what to call the direction we are heading in, but it is something else, a new era where liquidity seems to be the only currency in circulation so far.

Traditionally, the currencies of economies under strain have depreciated against those of stronger countries facing fewer problems. This monetary policy has often come to the rescue in economic situations where countries were on the brink of collapse. It has served as a safety valve inbred when the pressure had become unbearable or highly dangerous. It was an unwritten rule for countries that had not behaved themselves, had not done their homework, or had simply been unable to keep pace with the growth and economic discipline of their neighbours, whose economies were more advanced and sound. Economy ministers have always known that: Before you go down the drain, you lose value but keep playing. In other words, what we would call today a downgrade of a country’s entire economy, but with a certain Outlook positive.

But that was in a bygone era, when every state had its own currency, its own ammunition to be detonated at the whim of its government. The rest—the real powers—heard the explosions in the distance, notched another mark on the handle of their economies, and carried on with their own business.

Today, globalisation has led us to a fully interconnected world, where there are only two major currencies (USD and EUR) and a couple of secondary ones (the yen and the pound). The rest are mere speculative sideshows (with apologies to the CHF or the Yuan and their artificial exchange rates). In this modern landscape, moreover, finance is more interconnected than ever. And we have seen this play out disastrously with the global spread of toxic assets. The global credit crisis has spiralled into a liquidity trap that it seems we will only be able to alleviate by inflating against the clock amidst a crushing depression.

At this point, I hear (read) some voices nostalgically calling for the peseta to be devalued, just as we used to do in the old days when things took a turn for the worse. The very Paul Krugman laments in his NYT blog that Spain cannot devalue. But doing so during a recession is not the same as doing so during an economic boom; it is not the same to devalue when debt levels are moderate as it is to do so unilaterally under the current circumstances M3, not at all (Note that the following chart covers the pre-crash period, i.e. up to June 2006). Who would want to invest in Spain by buying debt that could depreciate in an environment where that is not possible? And if that funding drain were to occur, Spain would be unable to finance itself at a critical moment. Improving our export capacity would be of no use whatsoever, because our economy would already be dead in the water.

Even so, some people recklessly lament the flexibility that a national currency offered in a 20th-century economy. But I don't think so, dit would no longer be feasible to assess, and not just because the euro has replaced the peseta or because it would deter investment. But also because if the EU as a whole were to devalue the euro, it would only make sense to do so against the $. Let me explain: to devalue a currency, it must be done in relation to others that serve as benchmarks – the currencies that lead the economy of the region. Nowadays, globalisation means we can no longer talk in terms of zones, regions or states; we must now adopt a global economic perspective. Therefore, when considering devaluing a currency, we must first identify at whose expense we are going to devalue it. And here we face the big problem: Which are the global benchmark currencies, the benchmark against which to devalue? Who is the dominant power, the driving force of the world today? We would never have thought that these questions might cause us to doubt, would we?

To those who believe that the world’s number one currency is the US dollar, and that the US economy remains the leading one, I would say that there are probably no better options than that, but that we arrived too late. The gradual devaluation – if we can call it that – that we have seen in recent months (and years) is that of the $ itself, particularly against the euro (and even cUsing the yuan as a strategy). And yet the US economic figures are still in freefall. The pound is also plummeting in the City, whilst the yen is paying the price for having been the whipping boy of the carry trade globally, particularly among investors in North American markets.

At this point, it is clear that both the USD and The GBP is depreciating de facto against the euro and the yen, thereby devaluing their currencies in the eyes of the EU. A Europe adrift economically in a scenario where its engine (Germany) has stalled and its transmission (Britain) has broken down; and also a Japan that is shedding a battered yen in a deflationary environment it has known all too well for two decades, and in which it knows how to navigate better than we do.

To speak, therefore, of devaluation, as this concept has traditionally been used, it is now obsolete in a world where The economy is supranational. Today, perhaps we should consider the ability of economic regions (as opposed to states) to devalue their major currencies at will. And in a situation as critical as the current one, we are faced with a kind of «foolish the last«. Others will prefer to see these falls in the USD and GBP as the fallout from the deteriorating state of the US and UK economies, as a form of collateral damage. But in reality, it is more a case of collateral benefit: a covert, new-generation devaluation underpinned by the EUR and YEN. And its effects are no longer as soothing as they were in the Era of Devaluations—far from it. But they will certainly be very harmful to the «the last fools» in this gloomy scenario.

The American Patient continues with prognosis uncertain whilst we Europeans remain at the foot of their bed. And some Spaniards look back fondly on those days of currency devaluations, when being the ‘tail-ender’ (Spain/Peseta) allowed us to make a reset in our beloved currency when we were up to our necks in water. But not now. Now we’re at the tail end of a lion (EU/€) that drinks from saucers of milk and licks the wounds of the American patient. The era of devaluation is behind us; today, it is the world that is losing value in a global ‘Corralito’.

No, BHO isn’t an acronym for any bank that’s been bailed out, nor for the latest scam or bankruptcy. We’re referring to Barack Hussein Obama.

It is rapidly turning into a storm. The whole world is pinning its hopes on the first black president of the US to pull us out of the economic mess we have got ourselves into. He is so much more than just the new president Made in the USA. It is the New Black Hope, multi-ethnic, part of a global and diverse world that strives for sustainability but lacks resources and is in freefall.

Even in his earliest decisions as president, he is encountering very little opposition. He has all the credit in the world (a paradoxical notion) to perform miracles that will likely prove disappointing in the long run, but which, for now, represent Hope with a capital H for countries rich and poor alike. Criticism, discord and conflict will come, but his enemies and natural opponents do not yet dare to tarnish his immaculate aura. In other words, Barack has not yet disappointed anyone. And he hasn’t, not only because there hasn’t been time, but because fans and opponents (both domestic and international) see in this man a different kind of US president, one who has had to govern under unprecedented and extremely difficult circumstances for the world. Logically, the first to shatter this global harmony will be, and indeed are, the fundamentalists: Islamists, Republicans and even Catholics (in fact, the Vatican has already been quick to criticise the decision to allow stem cell research, one of the first decisions taken by Obama’s administration), as well as other relatively marginalised minorities.

All these hardline voices that have been attacking—and will continue to attack—the Obama administration from the very outset and in a systematic manner, and who fail to see in this leader the only driving force capable of pulling the global economy out of a long depression, are irresponsible and short-sighted. They are unable to look beyond their religious beliefs, racial hatreds and political animosities, and/or are incapable of distinguishing the Bush era from the new world that is taking shape with this involuntary re-founding of capitalism. Fundamentalism, in all its diverse and harmful forms, is incompatible with the Big Picture, with a global and tolerant vision of humanity. Sadly, that is the way it is. That is who we are.

However, I am certain that the Barack Hussein Obama phenomenon will prove disappointing in the long run. It cannot be otherwise, since today he embodies the hope of a new world that we are unlikely to be able to reconcile with a global economy that has been dealt a fatal blow. But facing the bleak future that lies ahead of us without the hope, faith and enthusiasm for the Obama phenomenon would be far worse. Because the chances of getting through this with bearable suffering depend on believing, hoping and fighting for our future alongside a different kind of world leader, like Barack. I am not talking about the merits of Democratic policy over others, nor of the merits of the the American way of life with regard to European or non-Western lifestyles, not at all. I’m not even talking about politics. I just want to point out that globalisation has also reached the realm of global political leadership, and it has done so at a time when we need it most.

One indication of the scale of the Obama phenomenon is that his supporters in Facebook At the time of writing, they have over 4,442,988 followers. But what is truly spectacular is that this figure, growing at a constant rate, increases by more than one and a half followers per second whilst the US sleeps, and reaches almost 2.5 new followers per second when it is daytime there… Spectacular. Even its name Barack Hussein Obama, ... inherently embodies the global nature and diversity that it generates debate and controversy. The Obama-Facebook relationship is an example of concepts that did not exist until very recently, and further proof of the exceptional nature of the Barack phenomenon.

We are, regrettably, living through historic times in the financial system and the global economy. We are the only ones to blame. The road to recovery will be long and arduous, but the best way to set out on it is by drawing on whatever hope and conviction we have left for the near future. The BHO Effect It is something we should all be promoting, whether out of conviction, for the common good, or simply out of a basic instinct for survival. And, of course, by convincing ourselves that, even though many will fall by the wayside, we can achieve recovery and it is not a pipe dream: Yes We Can.

P.S. Just for fun: During the Bush era, the White House was living in the technological Stone Age, despite wanting to rule the world. As the saying goes Dans in his article: «…if the boss (Bush) doesn’t set priorities in that regard because he’s technologically illiterate, nobody takes any action…»

Here’s another anonymous article that has been sent to us as a comment, and in it we see a real-life example of a falling knife. What, in our view, warrants consideration is the position taken by the fund manager/adviser throughout the entire process of the fall in value:

«I’ve been meaning to write a post about Cintra all day after seeing how badly it’s been hit over the last few days. It closed today down 9%, and I’ve finally decided to share my thoughts on the stock with you. In fact, I’ve been talking to my friends about Cintra for over a year now. I started following it back in December 2007, at an investors« meeting organised by Credit Suisse, where the bank recommended investing in the stock market and specifically highlighted Cintra as a »safe« stock. I still have the piece of paper with the recommendation for the share when it was trading at around 12 euros. I kept it because I was convinced that a bear market was on the horizon and I wanted to test the bank’s predictions. Since then, I’ve kept asking the CS fund managers about the share on a regular basis. When the share price hit 6.5 euros in the summer, I asked, with a touch of sarcasm, whether the bank still recommended it. The manager pulled out all the stops, like a good salesman, to convince me that it was an extremely safe investment, and that the bank had recommended it all along. His exact words were: »We recommended it when it was at 8.5, and now that it’s at 6.5, we recommend it even more.« From there, the fund manager launched into a whole spiel about how good Cintra’s business is, how stable its revenues are (I don’t agree with this, but never mind) and the conclusion was that the stock market was behaving irrationally and that Cintra would return to its target price of 13.5 shortly. My response is that I’ve never asked the stock market to behave rationally because it never has; and that I’d rather wait another year to see what happened. Today, Cintra closed at 3.76?. If, back in December 2007, I’d have listened to the bank, I’d have lost 70% on a stock that was supposedly »safe’. Thank goodness I used my own judgement rather than the bank’s. I’ve never been so glad not to have bought a share. I’ve just received an email from Renta4 forecasting theoretical falls as low as 2.3. Given that, the clear floor is 0, but I’m sure it will bottom out before then.

I think Cintra’s bottom is near, although I can’t say exactly where, and I don’t think anyone can predict it. Even so, I still don’t dare to buy. The spectre of a takeover by Ferrovial is the main reason. I also think you shouldn’t buy a stock in free fall on the assumption that it will bottom out just because you know it will. The fact is, Cintra’s share placement reminds me far too much of Terra’s IPO. I have no doubt that Cintra, unlike Terra, has real assets. But as things stand, what Cintra has most of all is DEBT! I reckon Ferrovial is going to wait for Cintra to fall as far as possible before reabsorbing it, and I doubt you can make any money from that operation unless you have inside information on when and at what prices. Let someone tell me they made money from Terra’s plunge into the abyss or from its takeover by Telefónica.

What do you think? I’m sure many of you would want to buy «tangible assets» at a good price given those figures. That’s why this is a clear example of the stock market not behaving rationally, isn’t it? «

Regardless of any comments that may arise regarding the specific figure, I found this text to be a clear example of what the world of financial advice is like today. Renta4’s projections may well be just as unreliable as those made in their day by the managers at Credit Suisse, although their accuracy may differ incidentally. Or do we perhaps think that Renta4’s advisers are more competent than those at CS? It’s simply that this time, in this specific case, it happened to be their turn to get it right, and we’d have to see what they recommended regarding Cintra when it was at €12. And vice versa, because we could say the same about CS’s advisers. But we mustn’t view these recommendations solely as a means of raking in commissions (though that does happen), but rather recognise that the advisers, brokers and fund managers at financial institutions – who spend their days in front of a few screens, who go to bed and wake up with share prices on their minds – genuinely believe in the soundness of certain securities. In other words, it’s not all about prostitution as well as the recommendation (committees), there are also other components such as the incompetence, the poor risk management, the inexperience (youth), the gambling addiction, etc…

Of course, we can find the same shortcomings in managing our own equity investments, assuming we can shield ourselves from the influence of external advisers (friends and acquaintances, the press, radio and television, financial blogs, etc.). But with one exception: the selling out of investment decisions in exchange for commissions. The Juan Palomo administration, however, in many cases it inevitably compensates for the absence of such corruption with an increase in incompetence. Self-management is not immune to the other dangers mentioned either, but in some cases, such as that of our anonymous subject, it has managed to safeguard the investment against wind and tide.

I simply can’t resist recommending that you read it again the article we published in September 2007 and note the distinguished names mentioned: Alberto Espelosín (Head of Analysis from Ibercaja Gestión) and Gustavo Trillo (Head of Management (from JPMorgan Asset Management Spain and Portugal) among others. A great many investment vehicles and instruments – which a huge number of savers accepted at face value – depend (or did they?) on all of them.

Having said that, let’s talk about CINTRA…

Many are predicting that global rate cuts, even to zero, will do little or nothing to pull us out of imminent deflation. In fact, Japan's benchmark has shown that in its specific case this has been, and indeed is being, the case. And it should be borne in mind that Japanese deflation has taken place in an environment of global expansionary economies. In other words, it has been a persistent deflationary island in a global inflationary sea. This will certainly make a difference with respect to what can happen in a globalised deflation and depression (with the emerging countries' permission), where it will be even more difficult to emerge from the depression without growth benchmarks throughout the West. So if selling money at 0% has proved incapable of pulling Japan out of recession when it had the rest of the world on its side, growing and inflating strongly, it seems even more difficult to grow in a global recessionary environment. Yet some wonder how Japan's economy would be today if the yen rate had remained at the same level as the $ or €? We will never know... or we will.

Turning to the West, evidently current monetary policy is extrapolating the Japanese strategy to the rest of today's recessionary world, with the $ rate already below 0.25% and the € rate already at 2% and falling. At this point several scenarios could be expected:

1. That the near 0% cost of money reactivates world economies towards higher consumption, inflation and eventually positive growth. This scenario would of course be a long way off, and the main difference with respect to the Japanese failure would be the global recession. Common sense would tell us that if Japan has not succeeded in an expansionary environment, the West will be even less likely to succeed in this global multi-crisis depression. However, it is true that we are repeating the same failed strategy but in a different scenario. Worse. But even so, there is hope that some imponderable or butterfly effect could lead to a better outcome than the Japanese evolution.
2. That lending money for almost 0% not only fails to revive economies, but also harms and deepens deflation. Some theories are already out there (I recommend reading Marc Vidal) who argue that a lower cost of money will do little or nothing to improve consumption, while it will bring down costs. This lowering of costs will be passed on to selling prices, thus contributing to a further deepening of deflation. Thus, we would enter a dangerous vicious circle, which could only be stopped by a very strong constant growth in consumption (as a consequence of lower prices/recovery of purchasing power) and excessive public inflation. Note that in this scenario the post-deflation scenario would also be extremely complicated.

In addition we don't seem to be in a position to do so either to implement other strategies that, at present, we are not even able to theorise with any criteria. There is little described, empirical and referenced basis for deflationary developments, margins for manoeuvre and policies to be followed to correct a depression. There are no consensual resources, despite the fact that we have theorised at length about it. Nobody taught us to live in deflation. Capitalism was invented to grow, to overheat and correct excesses cyclically. With the misalignments we have seen in the last century. But a post credit-abuse liquidity trap multi-crisis in a globalised world goes beyond the macroeconomic fiction of the textbooks. the most imaginative eminences. A kind of Double-dip recession has come and no one knows how it happened.

Most of us probably remember the tales of yesteryear told by our grandparents, and even those our parents still tell us today. These stories often involved great hardship and difficult lives that shaped who our ancestors are or were. However, despite everything, the usual answer to the key question is that those times were also very happy. A happiness found in many ways but based on simple, austere things which, nevertheless, lit up their lives and still form part of the indelible memories they pass on to us.

Some of us listened intently and remember those heart-warming stories as a glimpse into a bygone world, very different from our own. Others may have forgotten most of those tales, or perhaps never even wanted to listen to them properly, probably out of sheer disinterest in an ancestral way of life that was unlikely ever to return for anyone. Ours is a world that is now globalised, modern, technological, interconnected, fast-paced, opulent, international, excessive, and so on… We can describe it with countless adjectives, all of them a world away from the tales of our ancestors.

These current, excessive conditions have pushed us to the limit. To the limit of capitalism in the First World, and yet to economic ostracism in the Third World. Nevertheless, it has also spurred the rise of emerging nations, which may well prove to be the West’s salvation in this Great Global Depression into which we have plunged through our own folly. But focusing on the First World, where we are fortunate enough to live, we may well have to endure a certain regression that would be all too familiar to our grandparents. We may once again see a homeowner as a wealthy family, just as in those days when everyone lived in rented accommodation, except for the rich or those from «good families». A time when the middle class was known as the working class and was the norm in a society where everything was in short supply and the future lay ahead.

Setting aside the differences in time and technological and other forms of progress, what is clear is that the consumerism that existed in the developed world until just a few months ago is now a thing of the past. It was unsustainable, at least within the current form of capitalism. And it was not sustainable for the class that, for the first time in Western history, has become the largest: the middle class. Never before had the developed world seen a majority social class that not only had no shortage of resources but also possessed such purchasing power. Perhaps because society has never had such a high capacity for borrowing, and perhaps also because the economies of developed countries broke historical records time and again, in a cyclical pattern, during the second half of the 20th century and up until 2006/2007.

Now it’s time to weed out the excesses, overheating, bubbles, fraud, inefficiencies, speculation, incompetence, abuse, debt, squandering, reckless consumption, and so on and so forth… We will return, albeit partially, to the hard work of our grandparents (let’s forget about the 35- and 40-hour working weeks), to massive rents, and to seeing the owners like the privileged minorities they once were. A a middle class that has been scaled back in favour of an expansion of the lower-middle class, or what our ancestors always called the working class. It will no longer be common for the middle class to go on holiday to the Caribbean, spending a year’s wages—which may well turn into unemployment benefit; or that any young person on a thousand-euro-a-month wage will buy a brand-new car with plenty of horsepower and air conditioning using the salary they will no longer earn over the next four years. But the problem is not losing one’s job and being unable to travel or buy a car (though that is part of it). The problem we have failed to identify during these years of expansive blindness is that we have consumed the wealth produced in the past (savings), present and future. We’ve squandered our future, wasted, I'd say. In the coming years Consumerism will come back to haunt us.

If we are optimistic, we might think that we are perhaps beginning the process of overcoming systemic problems (let us hope so), but society is only just beginning to feel the corrective effects of the destruction of wealth that accompanies every depression. A virtual wealth that we have foolishly consumed over the last couple of decades in pursuit of a deeply misunderstood pseudo-happiness. We may therefore, in the coming years, return to what the States of the pre-welfare, the pre-American dream. And let’s hope that this time we won’t have to wait for a world war to end before we can lay the solid foundations for new excesses.

A fool who recognises his own folly is a wise man. But a fool who thinks himself wise is, in truth, a fool.

Siddhartha Gautama ((563 BC–486 BC) Founder of Buddhism.