Frustrating market

[txitxo]

 

txitxo,

it is DIFFICULT. And men don’t manage difficult things very well. Things should be kept as easy to manage as possible. As soon as they get to be complicated, you can bet on some terrible mistake to be committed and some sort of crash to come.

Tell me of a currency union that really lasted throughout history… not a single one. Because they are extremely difficult to manage, in an already highly complex system like human society is.

If you tell me that the blue/red bonds proposal of von Weizsacker and Delpla is just a tool to keep us from the brink of disaster, while we work our way to a “White House” in Berlin, than I could agree. Vice versa, if anyone (Mr. Soros included) tells me that it might be the final and permanent solution to all our problems… well, then I have to disagree. Because I don't understand it.

The Euro might be the first currency union to be really long lasting, without a political, banking, and fiscal union, but why? I cannot see any true reason.

So, the only questions that matter, imo, are: do you really see a "White House" in Berlin? And, if so, how long will it take us to get there?

Because in the meantime we must go on dealing with difficult things...  :(

 

giofranchi

 

  Gio, of course it is difficult. Nothing worthwhile is easy. But it does necessarily have to be much more complicated than the current workings of the UE. E la nave va.

 

  As a physicist I try to figure out some safe assumption and then build from there. It seems clear to me that a disordered euro break up is, by far, the most costly option for all the decision makers involved. First, it is disastrously expensive for Germany (they get to compete with countries with massively devaluated currencies + Big economic depression on their main customers + Lehman Brothers financial turmoil x10 + enduring hatred from the rest of Europe). So Germany can huff and puff, and they can chastise small countries like Cyprus, but they will not take any steps which make Italy or Spain leave.  Keeping the current stalemate while they can, spending as little as possible, or even leaving the euro by themselves (which would probably bring any chancellor big political kudos) is less onerous.

 

  Now look at the things from the point of view of Spain or Italy. In Spain political parties are huge patronage organisations, with hundreds of thousands of dependants, which require their party to hold political power so that they can get jobs, contracts, etc. Any political party which takes Spain out of the euro, and perhaps out of the UE, reversing all the progress achieved since Franco died in 1975, will be destroyed forever. It is not a question of losing one general election. They will just cease to exist as a political entity, like the PSI or the Democrazia Cristiana in the 90's. It would be almost impossible to any Spanish Prime Minister to make such a move, he'd be deposed internally well before that.

 

  So if you assume that euro break up is too expensive to happen, then something else will, no matter how unpalatable or politically difficult it seems now. And the cheapest option for everybody involved is partial debt mutualisation, some form of QE where needed, and further economical integration. You don't need a political White House to do that. You just need to have a centralised Treasury which holds the strings to each country's purse. And the key to do that is controlling cheap debt issuance. Since that's the lowest "energy" end state, it is the most likely.

 

So which particular trajectory do we take to get there? No idea. You can try figure out how things end, but the actual path is absolutely unpredictable.

 

 

[txitxo]

txitxo,

I think the image in attachment tells the whole story: with the Euro, for Italy to close the gap in competitiveness with Germany, prices should decline by as much as 28.5%. How could Eurobonds solve this enormous problem?

 

giofranchi

 

I know, the same thing happened in Spain. Prices are still pretty high in some areas. Electricity, water has gone through the roof.  But other things are way cheaper.  6 years ago, if you were looking for a reliable electrician, plumber or landscaper, it took weeks to get them to come home. Nowadays is like ordering pizza. You call and they show up 10 minutes later. And fees  are significantly lower. Actual house prices (not official ones) are 50-60% lower. Commercial rents are easily half of what they were in 2007. At some point people are going to realize that you can buy a hotel for a song, staff it with new hires at rock bottom salaries, offer rooms at 30% the price of the competition, and still make good money. Few people are still doing it because of the uncertainty. But the potential for lots of economic growth is accumulating fast.

 

Just to give you a example, you can hire young top graduates, people who would do very well on a Ivy League school, for ~20k/year, including all the employer expenses. They used to get twice that or even three times after a few years on the job. 

Hiring a top-notch engineer in Spain will soon be cheaper than in China. In facts exports are increasing very fast in Spain, so obviously companies are already taking advantage of this.

 

So it is not realistic to assume that the existing companies and business with self-devaluate 28%. What's going to happen is that some companies will use the new opportunities to lower prices, and they will beat out of existence those who don't. It is going to be a protracted process, extending for many years. So that's why you need Eurobonds to provide support (and pressure) for this to happen.

 

 

[giofranchi]

  Gio, of course it is difficult. Nothing worthwhile is easy. But it does necessarily have to be much more complicated than the current workings of the UE. E la nave va.

 

  As a physicist I try to figure out some safe assumption and then build from there. It seems clear to me that a disordered euro break up is, by far, the most costly option for all the decision makers involved. First, it is disastrously expensive for Germany (they get to compete with countries with massively devaluated currencies + Big economic depression on their main customers + Lehman Brothers financial turmoil x10 + enduring hatred from the rest of Europe). So Germany can huff and puff, and they can chastise small countries like Cyprus, but they will not take any steps which make Italy or Spain leave.  Keeping the current stalemate while they can, spending as little as possible, or even leaving the euro by themselves (which would probably bring any chancellor big political kudos) is less onerous.

 

  Now look at the things from the point of view of Spain or Italy. In Spain political parties are huge patronage organisations, with hundreds of thousands of dependants, which require their party to hold political power so that they can get jobs, contracts, etc. Any political party which takes Spain out of the euro, and perhaps out of the UE, reversing all the progress achieved since Franco died in 1975, will be destroyed forever. It is not a question of losing one general election. They will just cease to exist as a political entity, like the PSI or the Democrazia Cristiana in the 90's. It would be almost impossible to any Spanish Prime Minister to make such a move, he'd be deposed internally well before that.

 

  So if you assume that euro break up is too expensive to happen, then something else will, no matter how unpalatable or politically difficult it seems now. And the cheapest option for everybody involved is partial debt mutualisation, some form of QE where needed, and further economical integration. You don't need a political White House to do that. You just need to have a centralised Treasury which holds the strings to each country's purse. And the key to do that is controlling cheap debt issuance. Since that's the lowest "energy" end state, it is the most likely.

 

So which particular trajectory do we take to get there? No idea. You can try figure out how things end, but the actual path is absolutely unpredictable.

 

Yes! You might be right! I always look at things from an economic point of view and forget that economics is not all that matters… unfortunately, I am allergic to politics!!  ;)

 

So, here we must make a distinction: on the one hand we have the pure economic cost, on the other hand we have a more general and complete cost (economic + political + societal + etc.).

 

Maybe, as you say, the general cost of leaving the Euro is higher than the general cost of keeping a currency that makes no economic sense. But the pure economic cost of depriving not only one, but many nations of currencies that make economic sense will in the end prove to be much higher than the pure economic cost of leaving the Euro.

 

And, while I see how the Euro can be saved and somehow kept from being an economic tragedy… I still don’t see how the Euro could make any economic sense… that is, of course, without a White House in Berlin.

 

If this is truly the case: cannot get rid of the Euro, because the general cost would be too high, but in the meantime the Euro will go on making no economic sense, then… well, put all your assets in the US, and very quickly!!  ;D

 

giofranchi

 

[txitxo]

 

Yes! You might be right! I always look at things from an economic point of view and forget that economics is not all that matters… unfortunately, I am allergic to politics!!  ;)

 

So, here we must make a distinction: on the one hand we have the pure economic cost, on the other hand we have a more general and complete cost (economic + political + societal + etc.).

 

Maybe, as you say, the general cost of leaving the Euro is higher than the general cost of keeping a currency that makes no economic sense. But the pure economic cost of depriving not only one, but many nations of currencies that make economic sense will in the end prove to be much higher than the pure economic cost of leaving the Euro.

 

And, while I see how the Euro can be saved and somehow kept from being an economic tragedy… I still don’t see how the Euro could make any economic sense… that is, of course, without a White House in Berlin.

 

If this is truly the case: cannot get rid of the Euro, because the general cost would be too high, but in the meantime the Euro will go on making no economic sense, then… well, put all your assets in the US, and very quickly!!  ;D

 

giofranchi

 

  Don't get me wrong, right now the euro makes no sense whatsoever. We are like the countries stuck with the gold standard in the 30's. But making the euro work (i.e. forcing everybody to harmonize their economic policies as if they were a single country through reform and fiscal discipline) is much cheaper than breaking everything up. That's why it will eventually happen.

 

[giofranchi]

I know, the same thing happened in Spain. Prices are still pretty high in some areas. Electricity, water has gone through the roof.  But other things are way cheaper.  6 years ago, if you were looking for a reliable electrician, plumber or landscaper, it took weeks to get them to come home. Nowadays is like ordering pizza. You call and they show up 10 minutes later. And fees  are significantly lower. Actual house prices (not official ones) are 50-60% lower. Commercial rents are easily half of what they were in 2007. At some point people are going to realize that you can buy a hotel for a song, staff it with new hires at rock bottom salaries, offer rooms at 30% the price of the competition, and still make good money. Few people are still doing it because of the uncertainty. But the potential for lots of economic growth is accumulating fast.

 

Just to give you a example, you can hire young top graduates, people who would do very well on a Ivy League school, for ~20k/year, including all the employer expenses. They used to get twice that or even three times after a few years on the job. 

Hiring a top-notch engineer in Spain will soon be cheaper than in China. In facts exports are increasing very fast in Spain, so obviously companies are already taking advantage of this.

 

So it is not realistic to assume that the existing companies and business with self-devaluate 28%. What's going to happen is that some companies will use the new opportunities to lower prices, and they will beat out of existence those who don't. It is going to be a protracted process, extending for many years. So that's why you need Eurobonds to provide support (and pressure) for this to happen.

 

My experience with the businesses I know of in Italy unfortunately is quite different… The cost of doing business in Italy is not higher than in Germany, because German entrepreneurs are smarter or harder working that their counterparts in Italy… The cost of doing business in Italy is higher, because Italy as a society wastes a lot more resources than the German society does… That’s it! Italian entrepreneurs are among the most capable and brilliant that I know of!

The austerity that was imposed on them last year with Mario Monti’s government did nothing but put them out of business… The combination of an overvalued currency and a fiscal pressure among the highest in Europe (that is to say among the highest all over the world!) is a killing formula for every private initiative, because they tend to shrink net margins to almost zero… Well, as if it weren’t enough, Mr. Monti last year decided that the right move was to increase the fiscal pressure even more… ::) And now, businesses should decrease prices by 20+%?!  ???

You say that also costs could come down by 20+%… but that is as far from the reality I must live with everyday as it could get… No cost of my firm’s has basically come down… not electricity, not gas, not software or hardware costs, not labor: please, if anyone would like to explain to syndicates in Italy that the cost of labor must come down, you are very welcome!! Because everyone who has tried until today has miserably failed… Ah, I almost forgot… taxes: they have increased and are still increasing! VAT is going to 22% from 21% by next July… And the reason is we are not the German society… if we were, our costs would be as low as the Germans’ and Italy would deserve a currency as strong as the Deutsche Mark!

We have not been Germany for centuries… Would you now bet on the fact that we will start behaving like Germany in the next 10 years, and reduce our costs accordingly?! Because, with a common currency, if we do not achieve that goal, there will be no one left to do business in Italy 10 years from now…  :(

 

giofranchi

 

[meiroy]

Spain is in a full-on Depression, not unlike the 1930's in the U.S...

 

The unemployment numbers from Spain are completely unsustainable... Hunger is growing in Greece as well. People are hungry and we know what that means. Either it explodes or austerity is stopped. Imagine how the markets will react if tomorrow it is officially announced austerity failed and they are changing a direction...

 

Hotels are still a little pricey though (Idon't think the depression in US had hotels at such lofty prices). I checked Madrid about a week ago and it is comparable to other major European cities

 

http://www.theatlantic.com/business/archive/2013/04/spain-is-beyond-doomed-the-2-scariest-unemployment-charts-ever/275324/

 

"Five years after its housing boom turned to bust, Spanish unemployment hit a record high of 27.2 percent in the first quarter of 2013. It's almost too horrible to comprehend, but 19.5 percent of the total workforce has not had a job in the past six months; 15.3 percent have not in the past year; and 9.2 percent have not in the past two years. You can see this 1930s-style catastrophe in the chart below from the National Statistics Institute."

 

[txitxo]

The cost of doing business in Italy is higher, because Italy as a society wastes a lot more resources than the German society does… That’s it! Italian entrepreneurs are among the most capable and brilliant that I know of!

The austerity that was imposed on them last year with Mario Monti’s government did nothing but put them out of business… The combination of an overvalued currency and a fiscal pressure among the highest in Europe (that is to say among the highest all over the world!) is a killing formula for every private initiative, because they tend to shrink net margins to almost zero… Well, as if it weren’t enough, Mr. Monti last year decided that the right move was to increase the fiscal pressure even more… ::) And now, businesses should decrease prices by 20+%?!  ???

You say that also costs could come down by 20+%… but that is as far from the reality I must live with everyday as it could get… No cost of my firm’s has basically come down… not electricity, not gas, not software or hardware costs, not labor: please, if anyone would like to explain to syndicates in Italy that the cost of labor must come down, you are very welcome!! Because everyone who has tried until today has miserably failed… Ah, I almost forgot… taxes: they have increased and are still increasing! VAT is going to 22% from 21% by next July… And the reason is we are not the German society… if we were, our costs would be as low as the Germans’ and Italy would deserve a currency as strong as the Deutsche Mark!

We have not been Germany for centuries… Would you now bet on the fact that we will start behaving like Germany in the next 10 years, and reduce our costs accordingly?! Because, with a common currency, if we do not achieve that goal, there will be no one left to do business in Italy 10 years from now…  :(

 

giofranchi

 

  Gio, most of the things you describe happen in Spain too. An established company, which is paying "old" high salaries and cannot change anything will have lots of trouble ahead. So quite a few companies are firing everybody (hence the very high unemployment figures), moving to a better new location with 1/2 the previous rent and reopening again. Right now you can create a new company from scratch with much lower costs because office rent is extremely cheap and salaries for highly qualified personnel are much lower.

 

  And yes, the unions are so out of touch with reality that you have to pay a secretary significantly more now than 5 years ago. But that's going to change after some of the measures in last year's labor reform kick in. And young, highly qualified engineers, programmers, etc. which are not so bound by union rules are asking 1/2 of what they used to. You have lots of construction companies setting up a front office in Brazil because it is much cheaper to do engineering work here than there.

 

  The internal market is dead, and it will be dead for years, but if you are exporting, this is the best moment to create or expand your company in the last few decades. El Corte Inglés, Spain's retail behemoth, is having lots of trouble whereas dynamic companies like Mercadona (which is soon opening stores in Northern Italy and other European countries) are growing at a fast pace.  My point is that this "new" economy will grow and eat the "old" one, based on the pre-crisis rules and which is basically impossible to reform. It has to. Because of the pressure from Europe, and the fear of leaving the euro, governments will keep reforming, however reluctantly, until there is economic growth. 

 

 

[valuecfa]

Spain is in a full-on Depression, not unlike the 1930's in the U.S...

 

The unemployment numbers from Spain are completely unsustainable... Hunger is growing in Greece as well. People are hungry and we know what that means. Either it explodes or austerity is stopped. Imagine how the markets will react if tomorrow it is officially announced austerity failed and they are changing a direction...

 

Hotels are still a little pricey though (Idon't think the depression in US had hotels at such lofty prices). I checked Madrid about a week ago and it is comparable to other major European cities

 

http://www.theatlantic.com/business/archive/2013/04/spain-is-beyond-doomed-the-2-scariest-unemployment-charts-ever/275324/

 

"Five years after its housing boom turned to bust, Spanish unemployment hit a record high of 27.2 percent in the first quarter of 2013. It's almost too horrible to comprehend, but 19.5 percent of the total workforce has not had a job in the past six months; 15.3 percent have not in the past year; and 9.2 percent have not in the past two years. You can see this 1930s-style catastrophe in the chart below from the National Statistics Institute."

 

I'm aware of the statistics, but from a tourist/outsider's perspective the changes are hardly noticeable, which i find unusual given the severity of the stats, and the strength of the Euro. Though Spain is the 2nd largest tourist destination in the world.

 

My brother went to San Sebastian last summer and also walked around Madrid for half a day while waiting for his connection. He said, "Aside from a lot more anti-austerity demonstrations that Spain hasn't changed much from last time we were there about 4 years ago. The restaurants were still full of people (including locals), and prices at restaurants/hotels were still high" (except Southern Spain, of course).

 

While the stats are horrible, and unemployment is ridiculously high, the first hand comparisons are hardly what one envisions of the great depression in the US.

 

 

[txitxo]

Spain is in a full-on Depression, not unlike the 1930's in the U.S...

 

The unemployment numbers from Spain are completely unsustainable... Hunger is growing in Greece as well. People are hungry and we know what that means. Either it explodes or austerity is stopped. Imagine how the markets will react if tomorrow it is officially announced austerity failed and they are changing a direction...

 

Hotels are still a little pricey though (Idon't think the depression in US had hotels at such lofty prices). I checked Madrid about a week ago and it is comparable to other major European cities

 

http://www.theatlantic.com/business/archive/2013/04/spain-is-beyond-doomed-the-2-scariest-unemployment-charts-ever/275324/

 

"Five years after its housing boom turned to bust, Spanish unemployment hit a record high of 27.2 percent in the first quarter of 2013. It's almost too horrible to comprehend, but 19.5 percent of the total workforce has not had a job in the past six months; 15.3 percent have not in the past year; and 9.2 percent have not in the past two years. You can see this 1930s-style catastrophe in the chart below from the National Statistics Institute."

 

  Well, real life case in Granada, which officially is close to a 40% unemployment rate. Interviewing about two dozen people for a maid position, about half of them say "No thanks, I am not interested" when they know that the job involves a formal contract, because they are receiving unemployment or health benefits. Many, many people, specially in Southern Spain are working in the black economy. That's why things don't blow up.

 

  This is the worst crisis since Franco died, no doubt about that. There is huge human suffering, specially because people bought houses at totally absurd prices and Spain's mortgage are not non-recourse, so you get evicted and still get a big chunk of your salary seizen by the bank until you pay off all your debt. You have upper middle class families which had lived comfortably for decades suddenly being thrown into the low class. But there is no hunger (thanks to the dedication of NGOs) and amazingly little crime. Last thursday there was a national call to surround the Parliament to protest against the situation. The government was very scared, because it received lots of publicity, and they sent 1400 policemen there to fight the demonstrators. Do you know how many people showed up, in the country with 60% youth unemployment? Around 1000. And many of them had white hair.

 

  I live near quite a expensive mall which was opened last year. Go there on a weekend. It is impossible to find a seat in the terrazas. Have a look at the bars and restaurants in downtown Granada. Yes, business is not as good as usual, prices have gone down. But the people drinking nice Rioja and Ribera and eating tapas don't look like a picture out of "The grapes of Wrath".

 

I've been a huge pessimist regarding Spain since 2004. We sold our apartment, have been renting ever since. I got totally out of Spanish stocks in 2006. Two years ago I braced myself for an euro break up. They've cut my scientist salary by 20% in the last 3 years and it is getting nearly impossible to get a research grant, no matter how good you are. My research institute is losing all the young people, no idea when we will be able to hire them back. I am pretty sure than unemployment will increase for at least another year and the economy will contract this year or probably the next. Things look ugly as hell. But whatever little intuition I have as a value investor tells me we are starting to see some light at the end of the tunnel, and it doesn't look like another train coming at us ..:) So after 7 years, when my screens produce Spanish stocks, I buy them...

 

 

[Packer16]

If you don't mind me asking what are some of the cheap stock you like in Spain?

 

Packer

[valuecfa]

Spain is in a full-on Depression, not unlike the 1930's in the U.S...

 

The unemployment numbers from Spain are completely unsustainable... Hunger is growing in Greece as well. People are hungry and we know what that means. Either it explodes or austerity is stopped. Imagine how the markets will react if tomorrow it is officially announced austerity failed and they are changing a direction...

 

Hotels are still a little pricey though (Idon't think the depression in US had hotels at such lofty prices). I checked Madrid about a week ago and it is comparable to other major European cities

 

http://www.theatlantic.com/business/archive/2013/04/spain-is-beyond-doomed-the-2-scariest-unemployment-charts-ever/275324/

 

"Five years after its housing boom turned to bust, Spanish unemployment hit a record high of 27.2 percent in the first quarter of 2013. It's almost too horrible to comprehend, but 19.5 percent of the total workforce has not had a job in the past six months; 15.3 percent have not in the past year; and 9.2 percent have not in the past two years. You can see this 1930s-style catastrophe in the chart below from the National Statistics Institute."

 

  Well, real life case in Granada, which officially is close to a 40% unemployment rate. Interviewing about two dozen people for a maid position, about half of them say "No thanks, I am not interested" when they know that the job involves a formal contract, because they are receiving unemployment or health benefits. Many, many people, specially in Southern Spain are working in the black economy. That's why things don't blow up.

 

  This is the worst crisis since Franco died, no doubt about that. There is huge human suffering, specially because people bought houses at totally absurd prices and Spain's mortgage are not non-recourse, so you get evicted and still get a big chunk of your salary seizen by the bank until you pay off all your debt. You have upper middle class families which had lived comfortably for decades suddenly being thrown into the low class. But there is no hunger (thanks to the dedication of NGOs) and amazingly little crime. Last thursday there was a national call to surround the Parliament to protest against the situation. The government was very scared, because it received lots of publicity, and they sent 1400 policemen there to fight the demonstrators. Do you know how many people showed up, in the country with 60% youth unemployment? Around 1000. And many of them had white hair.

 

  I live near quite a expensive mall which was opened last year. Go there on a weekend. It is impossible to find a seat in the terrazas. Have a look at the bars and restaurants in downtown Granada. Yes, business is not as good as usual, prices have gone down. But the people drinking nice Rioja and Ribera and eating tapas don't look like a picture out of "The grapes of Wrath".

 

I've been a huge pessimist regarding Spain since 2004. We sold our apartment, have been renting ever since. I got totally out of Spanish stocks in 2006. Two years ago I braced myself for an euro break up. They've cut my scientist salary by 20% in the last 3 years and it is getting nearly impossible to get a research grant, no matter how good you are. My research institute is losing all the young people, no idea when we will be able to hire them back. I am pretty sure than unemployment will increase for at least another year and the economy will contract this year or probably the next. Things look ugly as hell. But whatever little intuition I have as a value investor tells me we are starting to see some light at the end of the tunnel, and it doesn't look like another train coming at us ..:) So after 7 years, when my screens produce Spanish stocks, I buy them...

 

Granada has always been a great bargain for tourists. There used to be a great little hole in the wall tapas bar there call La Bella y La Bestia. You get a free order of tapas of great quality, for every order of a €1 or €2 beer. I hope it survives the downturn.

[txitxo]

If you don't mind me asking what are some of the cheap stock you like in Spain?

 

Packer

 

  Well today Repsol came up at the top of my screen. Statistical investing does not work that well with megacaps (the markets are more efficient for them) so I will not probably buy it. But in the last few months I've bought and still hold Adveo, Prim and Duro Felguera,  bought and sold Vueling for a nice short term profit and also some Portuguese stocks: Corticeira Amorim and Sonaecom. 

 

 

 

[txitxo]

 

Granada has always been a great bargain for tourists. There used to be a great little hole in the wall tapas bar there call La Bella y La Bestia. You get a free order of tapas of great quality, for every order of a €1 or €2 beer. I hope it survives the downturn.

 

All drinks in Granada bars come with free tapas...that's why Granada is one of the top destinations of the European Erasmus college exchange program...having lunch or dinner just involves going our for some beers...

[muscleman]

If you don't mind me asking what are some of the cheap stock you like in Spain?

 

Packer

 

  Well today Repsol came up at the top of my screen. Statistical investing does not work that well with megacaps (the markets are more efficient for them) so I will not probably buy it. But in the last few months I've bought and still hold Adveo, Prim and Duro Felguera,  bought and sold Vueling for a nice short term profit and also some Portuguese stocks: Corticeira Amorim and Sonaecom.

 

No Banco Santader?

[txitxo]

If you don't mind me asking what are some of the cheap stock you like in Spain?

 

Packer

 

  Well today Repsol came up at the top of my screen. Statistical investing does not work that well with megacaps (the markets are more efficient for them) so I will not probably buy it. But in the last few months I've bought and still hold Adveo, Prim and Duro Felguera,  bought and sold Vueling for a nice short term profit and also some Portuguese stocks: Corticeira Amorim and Sonaecom.

 

No Banco Santader?

 

Nope. I think they are the safest bank in Spain, but I just don't fish in those ponds.

[rjstc]

If you don't mind me asking what are some of the cheap stock you like in Spain?

 

Packer

 

  Well today Repsol came up at the top of my screen. Statistical investing does not work that well with megacaps (the markets are more efficient for them) so I will not probably buy it. But in the last few months I've bought and still hold Adveo, Prim and Duro Felguera,  bought and sold Vueling for a nice short term profit and also some Portuguese stocks: Corticeira Amorim and Sonaecom.

 

No Banco Santader?

 

Nope. I think they are the safest bank in Spain, but I just don't fish in those ponds.

 

Any thoughts about Panalpina or Semapa? Also curious about how short or long term gains on stock sales are handled in Spain. Thanks

[txitxo]

 

Any thoughts about Panalpina or Semapa? Also curious about how short or long term gains on stock sales are handled in Spain. Thanks

 

None of them popped up in my radar. Short term gains are taxed at the personal income rate, which goes up to 52%, long term gains at a rate from 23% to 27%.

[meiroy]

Spain is in a full-on Depression, not unlike the 1930's in the U.S...

 

The unemployment numbers from Spain are completely unsustainable... Hunger is growing in Greece as well. People are hungry and we know what that means. Either it explodes or austerity is stopped. Imagine how the markets will react if tomorrow it is officially announced austerity failed and they are changing a direction...

 

Hotels are still a little pricey though (Idon't think the depression in US had hotels at such lofty prices). I checked Madrid about a week ago and it is comparable to other major European cities

 

http://www.theatlantic.com/business/archive/2013/04/spain-is-beyond-doomed-the-2-scariest-unemployment-charts-ever/275324/

 

"Five years after its housing boom turned to bust, Spanish unemployment hit a record high of 27.2 percent in the first quarter of 2013. It's almost too horrible to comprehend, but 19.5 percent of the total workforce has not had a job in the past six months; 15.3 percent have not in the past year; and 9.2 percent have not in the past two years. You can see this 1930s-style catastrophe in the chart below from the National Statistics Institute."

 

  Well, real life case in Granada, which officially is close to a 40% unemployment rate.

 

Thanks for adding some color.  How do you explain this? The actual unemployment rate is far lower than 40%, i.e. unreported earnings?  I think that's quite common in tourist destinations.

 

What about cities in Spain which are not tourist attractions and depend on non tourist industries?

 

 

[giofranchi]

  The internal market is dead, and it will be dead for years, but if you are exporting, this is the best moment to create or expand your company in the last few decades.

 

Well, try to imagine how good it would be, if you had your own currency!!  ;)

 

Anyway, txitxo,

I really hope you are right! I certainly don’t want to live in a society constantly mired in depression… I really hope your “new” economy will grow and eat the “old” one!  :)

 

But I know and understand very few and very simple things… I understand that a country, in which the cost of doing business is high, and which cannot be competitive on prices, because of an overvalued currency, is in deep trouble. This even a child can understand.

How the “new” economy will grow, which fruits it will bear, at which costs, and when… it really is beyond me! I don’t understand it, and I stay away from things I do not understand.

Instead, I go for “the sure thing”: as long as I can find some bargains there, all my firm’s capital will stay in the US; if this market keeps roaring upward, forcing me to sell my investments, I will accumulate USD and an ever increasing stake in FFH.

 

giofranchi

 

[txitxo]

 

Instead, I go for “the sure thing”: as long as I can find some bargains there, all my firm’s capital will stay in the US; if this market keeps roaring upward, forcing me to sell my investments, I will accumulate USD and an ever increasing stake in FFH.

 

giofranchi

 

 

 

  Well, we have almost perpendicular bets...Basically all my stocks are in Europe, precisely because of the pessimism, which  produces very low valuations and I only own FFH in NA, because I see too much optimism there.

 

  Of course I don't invest based on a narrative...I use cold statistical analysis, and my screens are systematically spitting out Spanish and Portuguese companies, something which didn't happen a few years ago. But I try to make sense intuitively of what the numbers tell me.

 

  And talking about the "new" economy eating the "old", soon you'll see Mercadona stores in Northern Italy, this a grocery chain which has been growing steadily in Spain since the crisis started, they've become are the largest operator in Spain and are now expanding overseas...whereas behemoths like El Corte Inglés and others are suffering terribly with the crisis. Vueling, a low-cost air company, ate a big chunk of Iberia's business away. And you are starting to see that in other areas too, with "low-cost" bar chains, etc. We are not there yet, not by any stretch. But at least you can see the outline of a path...

 

[giofranchi]

  Well, we have almost perpendicular bets...Basically all my stocks are in Europe, precisely because of the pessimism, which  produces very low valuations and I only own FFH in NA, because I see too much optimism there.

 

  Of course I don't invest based on a narrative...I use cold statistical analysis, and my screens are systematically spitting out Spanish and Portuguese companies, something which didn't happen a few years ago. But I try to make sense intuitively of what the numbers tell me.

 

  And talking about the "new" economy eating the "old", soon you'll see Mercadona stores in Northern Italy, this a grocery chain which has been growing steadily in Spain since the crisis started, they've become are the largest operator in Spain and are now expanding overseas...whereas behemoths like El Corte Inglés and others are suffering terribly with the crisis. Vueling, a low-cost air company, ate a big chunk of Iberia's business away. And you are starting to see that in other areas too, with "low-cost" bar chains, etc. We are not there yet, not by any stretch. But at least you can see the outline of a path...

 

Well, of course as a trader who jumps into statistically cheap stocks and sells when they reach FV, what you are doing makes a lot of sense! And you surely follow a system very well thought out and effective! So, no doubt that’s what you should be doing!  ;)

 

But you already know my perspective: I was talking to those who invest in a company and “don’t care if the market stays closed for 10 years”… For those people CONVICTION is everything. And I don’t see how you can muster any conviction about the business climate in Europe today… at least, I am sure I cannot!

 

giofranchi

[Palantir]

Even if market keeps going up, there are still cheap stocks available.

 

 

You could also be like me and buy expensive stocks and rationalize it.

[txitxo]

 

But you already know my perspective: I was talking to those who invest in a company and “don’t care if the market stays closed for 10 years”… For those people CONVICTION is everything. And I don’t see how you can muster any conviction about the business climate in Europe today… at least, I am sure I cannot!

 

giofranchi

  Well, I just think, as Templeton said, that you should try to buy "at the point of maximum pessimism", at at least as close to it as you dare to get...

[txitxo]

 

Thanks for adding some color.  How do you explain this? The actual unemployment rate is far lower than 40%, i.e. unreported earnings?  I think that's quite common in tourist destinations.

 

What about cities in Spain which are not tourist attractions and depend on non tourist industries?

 

  The higher the unemployment rate, the bigger the share of the shadow economy. Nobody knows which is the real rate, but I doubt that the average is much higher than 20%, which is already bad enough. This is certainly the worst unemployment situation in Spain's recent history. But many older folks have decent pensions, so they help out with the mortgages, expenses. Without family solidarity this would have been much worse.

 

In general, anything related to housing is indeed going through a 30's Depression, from former workers to owners underwater. People went from owning a new house and a BMW (or a Porsche Cayenne) to asking for food handouts at the local charity.  But the rest of the economy is not doing so badly, and in fact, due to the reforms, some parts of it are actually improving or at least accumulating lots of growth potential once the tide changes.

 

 

[rjstc]

 

Thanks for adding some color.  How do you explain this? The actual unemployment rate is far lower than 40%, i.e. unreported earnings?  I think that's quite common in tourist destinations.

 

What about cities in Spain which are not tourist attractions and depend on non tourist industries?

 

  The higher the unemployment rate, the bigger the share of the shadow economy. Nobody knows which is the real rate, but I doubt that the average is much higher than 20%, which is already bad enough. This is certainly the worst unemployment situation in Spain's recent history. But many older folks have decent pensions, so they help out with the mortgages, expenses. Without family solidarity this would have been much worse.

 

In general, anything related to housing is indeed going through a 30's Depression, from former workers to owners underwater. People went from owning a new house and a BMW (or a Porsche Cayenne) to asking for food handouts at the local charity.  But the rest of the economy is not doing so badly, and in fact, due to the reforms, some parts of it are actually improving or at least accumulating lots of growth potential once the tide changes.

 

As bad as some things are such as supposedly in Great Britain, I would say things might actually be improving. In late 2012 I purchased BARRATT DEVELOPMENTS PLC ORD GBP0.10 for 1.88 pounds. It's now about 3.20. For a property owner/developer they seem to be coming out of the "Depression". Prices of homes, profits, sales are trending upward.