{"id":3745,"date":"2014-04-08T00:48:02","date_gmt":"2014-04-07T22:48:02","guid":{"rendered":"https:\/\/clusterfamilyoffice.com\/blog\/?p=3745"},"modified":"2014-04-08T00:48:02","modified_gmt":"2014-04-07T22:48:02","slug":"la-doble-moral-de-las-burbujas","status":"publish","type":"post","link":"https:\/\/clusterfamilyoffice.com\/en\/la-doble-moral-de-las-burbujas\/","title":{"rendered":"The double standards of bubbles"},"content":{"rendered":"

\"\"We all shudder (or should shudder) when we contemplate the possibility that our money is invested in assets whose prices are at what is known as a \u00abbubble\u00bb, i.e. at levels far higher than their real intrinsic value, the result of unfounded speculation. Investing in bubbles is the mistake we all want to avoid at all costs, because if they burst, the losses will be irrecoverable or, at best, it will take decades to recover the value lost. Because, if the capacity of those assets to generate Value does not increase considerably, those prices at which we buy wildly will not occur again without the help of a new bubble on that same asset, which may never happen or take more years than our own investment life<\/a>. Therefore, the losses we risk are permanent and not temporary.<\/strong>\u00a0And the time it takes for our investments to recover from temporary price declines (which can occur in virtually any asset).\u00a0is inversely proportional to the intrinsic value of those assets. Y\u00a0<\/span>is the big difference between investing well and investing badly.<\/span><\/p>\n

<\/p>\n

For despite the fact that we all seemingly agree that the creation of bubbles in the price of any asset is a bad thing that investors should shy away from<\/strong>, is not always measured by the same yardstick. Let us explain. It is obvious that there are bubbles that the politically correct discourse and the media, manipulated to disseminate certain messages in line with this discourse, demonise in a ham-fisted manner. For example, the price of Bitcoins or the square metre of real estate in prime areas of Shanghai. Although they are very different assets, we agree that their price has a large speculative component, marked by supply and demand, which distances them from their reasonable intrinsic valuation.<\/p>\n

However, there are other assets also trading at bubbly prices that are not only not demonised by the politically correct discourse, but are even supported and disguised with pseudo-economic reasoning so that the bubble goes on and on,\u00ab he said.\u00abfor the good of all<\/em>\u00ab. We are referring to assets such as peripheral (and other) debt, or real estate bubbles such as the Spanish one, which in the recent past were officially and politically justified until they burst and beyond.<\/p>\n

Both the Spanish real estate of just a decade ago, and the peripheral debt of today, are assets that are and were traded at prices far higher than their intrinsic value. But the official discourse of politicians and the media camouflaged and camouflages them as false economic prosperity. We must remember the messages that both the government and the banks and influential media launched 10 years ago, justifying that Spanish real estate was paid at prices that we will take decades to see again (and when we do see them, the purchasing power of those euros will probably be much lower). All the influential official, banking and journalistic discourse of the time was happy to frolic in that property bubble. The dumbest person made money buying and reselling real estate, the banks made money without even considering the risk of the operations, any employee could afford the luxuries of a businessman, any entrepreneur looked like the businessman of the year, and the state made billions in that bubbling maelstrom. Anyone who dared to question this pleasurable dynamic, warning of the bubble, was an unpatriotic, uninformed ashen man, or simply an idiot who missed the opportunities to get rich that were passing under his nose. Does the culture of the \"pelotazo\" ring a bell? The presidents of the day even hobnobbed lasciviously with Bush and Cameron, claiming a place in the G8 in the midst of the bubble delirium.<\/p>\n

But of course, the bubble, despite the attempts to perpetuate it by the politically correct discourse, the banks and the media close to power, came to an end. And it is common knowledge that it took millions of families with it, who are still up to their eyebrows in debt a decade later. Or in the best of cases it took with it an important part of the invested wealth of the population (either in real estate or in businesses based on a bubbling bonanza with no solid economic foundation).<\/p>\n

Well, as we said above, today we are also experiencing the sponsorship of one of these politically correct bubbles, the peripheral debt and, to a lesser extent, that of other parts of the developed world: Peripheral debt and, to a lesser extent, that of other parts of the developed world. Is not the price of Greek sovereign debt, for example, a bubble? Remember that this is a country in bankruptcy patched up by the EU, whose bond today pays a 10-year yield of only 6%! And what about Portuguese, at 3.82%; Italian, 3.15%; Spanish, at 3.13% or even French at 2.02%. None of these economies can justify these derisory yields on solvency grounds. Nor does the Japanese economy, with debt abused to the point of satiety and a 10-year yield of 0.61%. To give an example, the solvency of the South Korean state is far greater than that of Spain, and yet Mr Market is demanding a higher 10-year yield. Another example, this very week, the 5-year US Treasury bond has traded worse than the Spanish 5-year bond, as Mr. Market himself commented. Gurusblog in this article<\/a>. Insane, i.e. bubbly.<\/p>\n

Why does the market quote such inconsistencies with respect to the price at which the real value of the asset (in this case its greater or lesser creditworthiness) is quoted? First of all, we must not forget that Mr. Market (that is, all of us together) is a schizophrenic<\/a> and which fortunately is most inefficient. But it is also true that this inefficiency when it comes to listing assets whose intrinsic value is much lower, at bubbling prices, is induced and fuelled by the political and banking discourse, as we mentioned before, and conveniently amplified by the media close to the establishment<\/em> (which happen to be the most influential in public opinion). And this unrealistically high price is used to reinforce the discourse of false security and solvency, which in turn feeds back into the bubble itself. All in the \u00abcommon interest\u00bb, since no one is interested in seeing the naked king, i.e. insolvent peripheral debt, trading at risk premiums that would greatly accelerate default or default. mass confiscation<\/strong><\/a>. A similar argument to the one that was made a decade ago when nobody was interested in stopping the real estate bubble from inflating more and more.<\/p>\n

Let us not forget that any investor who wishes to obtain a good return while minimising the risk of permanent losses should flee from any asset that smells like a bubble, be it a Spanish bond or a property at 50,000 dollars per square metre. Because reality is stubborn, and sooner or later we will wake up from the slumber into which central banks - or real estate sectors - temporarily lull us. And as with any bubble, its progression is unhealthy for the system, even if it means bread or survival for today. But the double standard is more present today than ever. It does not matter that real estate prices in Spain have not yet fallen enough, or that we are more insolvent than Korea or the USA, the official discourse of politicians, banks and the media (Spanish and European) will try to convince us that the risk premium has fallen on its own merits, that real estate is already at a bargain price to restart the prodigious decade, and that Spanish banks are - once again - the most solvent in the world. This time, really, really, really good?<\/p>\n

A friend recently commented to me, discussing the recovery of the peripheral economy: \u00ab... the peripheral economy is recovering...\".\u00abIf the politicians, the banks and the media, with their highly knowledgeable analysts, say so, it must be true...no?<\/em>\u00ab. Another victim of the double standard of bubbles. But however sponsored and politically correct a bubble may be, it is still a potentially deadly trap for any self-respecting investor. It is only a matter of time before central banks lose interest and\/or control.<\/p>","protected":false},"excerpt":{"rendered":"

Todos sentimos un escalofr\u00edo (o deber\u00edamos sentirlo) cuando contemplamos la posibilidad de que nuestro dinero est\u00e9 invertido en activos cuyos precios est\u00e9n a niveles de lo que se conoce como una \u00abburbuja\u00bb, es decir a niveles much\u00edsimo m\u00e1s altos que su valor intr\u00ednseco real, fruto de una especulaci\u00f3n sin fundamento. Invertir en burbujas es el […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[38,51,45,41,42,39,40,47,37],"tags":[],"class_list":["post-3745","post","type-post","status-publish","format-standard","hentry","category-actualidad","category-banca","category-asesoramiento-deportistas-artistas","category-economia-y-finanzas","category-estrategia","category-crear-mi-propio-family-offices","category-gestion-financiera","category-gestion-del-patrimonio-inmobiliario","category-reflexion"],"_links":{"self":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/3745","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/comments?post=3745"}],"version-history":[{"count":0,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/3745\/revisions"}],"wp:attachment":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/media?parent=3745"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/categories?post=3745"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/tags?post=3745"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}