Monthly Archives: May 2010

May 25, 2010 · 8:00 am

Highest house prices in 300 years

I remember having seen this graphic in an article published in NRC Handelsblad (Dutch leading newspaper) on November 2007, “Highest house prices in almost 300 years”.

Highest house prices in almost 300 years, published in NRC Handelsblad, 10 Nov. 2007.

Now, some thoughts come to mind:

  • Once adjusted for inflation, we see the prices have moved during last 300 years in a range from 500k€ – 2.5 M€… so, the highest price is merely 5x the lowest price. In other words, house prices are relatively stable… Should it be otherwise? What worth/assets are extracted from a house?
  • If you would have put those 500k€ in the year 1650 in some stock or deposit that assured you a 1.5% above inflation, by the time the article was published, end 2007, you would have around 103 M€, 40 times the price of that house at highest housing peak in Dutch history… there will still be people considering houses a good investment.
  • Not to mention what would have happened to the family who had set up a business back in 1650 and had continued with it all along these 300 years.

Already that summer, in August 2007, we had a warning on the ongoing bubble in the stock markets…

Note: the translation of the graphic was provided by Google and later checked by Luca… (it wasn’t me, not yet).

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May 23, 2010 · 8:00 am

Las casas son para invertir y no para vivir.

Como nota de humor en medio de la crisis, y para abundar en el argumento de que las casas no pueden ser un vehículo de inversión, pego el texto de un email que circulaba en verano de 2006 y que a mí me llegó a través de mi amigo Álvaro mientras estudiábamos en Sevilla:

“Me he decidido a coger mi máquina del tiempo y contaros como van las cosas por el futuro:

Afortunadamante no se han cumplido las previsiones de tantos agoreros burbujistas y la vivienda en España ha seguido subiendo un 17% anual durante los últimos 50 años, de este modo nos hemos convertido en el país mas rico del mundo, porque por ejemplo un ático en la castellana cuesta mas que el estado de California y el palacio imperial de Tokio juntos; claro que ya nadie vive en la Castellana ni en ningún otro sitio de Madrid, por que esas casas son para invertir y no para vivir.

Yo por ejemplo aunque trabajo en Madrid me he comprado un piso de 40 metros la mar de apañao en un pueblo del Norte de Burgos, que con la autovía queda a un paso; para pagar la hipoteca nos hemos juntado con otras tres familias: un notario casado con una catedrática de universidad, un subinspector de hacienda casado con una abogada del estado y un magistrado del supremo (subcontratado a traves de una ett) casado con una arquitecta. De este modo destinamos cinco sueldos a la hipoteca y uno para vivir; estamos contentisimos con la compra porque aunque al principio nos está costando un poco luego seguro que ni se nota, además desde que lo compramos hace un año ya ha subido un 17% y por si fuera poco la mujer del notario esta de buena que lo flipas.

Aunque profesionamente no me va mal (soy director general adjunto de una multinacional, aunque también subcontratado a traves de una ett) la verdad es que la inflación que sufrimos al ser el país mas rico del mundo hace que nos tengamos que apretar un poco el cinturón; de todos modos es cuestión de acostumbrarse, cuando tuvimos que empezar a comer chopped de lagartijas todos nos quejamos y ahora se le da vuelta y vuelta en la plancha y tan rico que queda. De cualquier forma, aprovechando que han bajado la edad laboral a los 10 años a ver si saco al churumbel del colegio y lo meto en la ett, que un sueldo mas seguro que ayuda para la hipoteca.

Mi sueldo es de 2.000 tochos netos, el tocho es la moneda que sustituyo al euro cuando nos echaron de la UE a patadas (que fea y que mala es la envidia) y se cotiza a un centimo de euro. En la caja fuerte del banco de españa ya no se guardan lingotes sino ladrillos, que en este país han demostrado ser un valor mucho mas seguro y rentable que el oro.

Tras las guerras atómicas provocadas por los propietarios de vpo de andalucía la población ha quedado reducida a 5 millones de españoles y 50 millones de ecuatorianos trabajando de paletas, se han seguido construyendo 800.000 viviendas anuales (la construcción supone ya el 98% del PIB) y ahora tocamos a unas 20 viviendas por habitante (casi todas vacías porque como dije son viviendas para invertir, no para vivir) . El 90% del suelo esta ya urbanizado y se plantea empezar a construir ciudades en el fondo del mar (no se puede vivir en el fondo del mar, así que serían ciudades solamente para invertir) . Esto es lo que en el mundo se conoce y admira como “el milagro español” y es objeto de numerosos estudios y tesis doctorales en el campo de la psiquiatría. Cada año nos visitan miles de estudiosos de la mente humana de todo el mundo. No me extrañaría que muchos de esos científicos se quedasen porque la verdad es que como en España no se vive en ningún sitio.

Y eso es todo lo que os puedo contar de lo que os espera; voy a ver si cazo unas lagartijas para cenar

Viajero del futuro”

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May 20, 2010 · 8:00 am

A house is no investment

In a previous post I commented that in times of crisis it was much better to have your investment in real assets than in government bonds. I gave the typical examples given by Bestinver managers: real assets being portions of an enterprise (stocks), chairs, and pencils, even houses…

While this is true in order to make sure you keep the value of your assets through the crisis period, it is another story when we are talking about investing as in “To commit (money or capital) in order to gain a financial return”. Then I dare to say that buying a house is no investment. When buying a house there are not goods or services produced for others in the hope of a profitable sale; so if someone buys it in the hope of realising some profit that is pure speculation.

After having said this, I wanted to share two graphics from Case-Shiller Home Price Indices for American houses since 1890… In the first graphic you can see that after adjusting for inflation at the end of the 20th century, in absence of crisis and booms the value of a house was nearly the same than 100 years before, merely 10% higher. Why should it be higher if no goods/services are produced? Then you can see the boom that took place in the 2000’s up to mid 2006. That was pure greed and speculation.

Case-Shiller Home Price Indices for American houses, 1890-2006.

In the second graphic you may see the prediction made based on Case-Shiller Home Price Index. The prediction is pretty simple: there is no reason to forecast that homes prices have to stabilise at a higher point than the average of the past 120 years… other way to say that a home does not generate any value (still, it doesn’t destroy value either!).

Case-Shiller Home Price Indices for American houses, 1890-2009 and forecast.

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May 18, 2010 · 8:00 am

Stocks vs. Bonds, 200 years

Some weeks ago I had two different conversations with friends. The issue: whether Greek bonds would be a good investment given the yields they are being offered at. I then argued that I didn’t think it was a safe investment, that many countries had defaulted payments, and as a value investor in the making I tried to explain that a much better investment would be to find out there some great stocks at a big discount.

I was also looking for some graphics to send them to prove the point. I had seen those graphics at the annual investors’ forum of the asset management firm Bestinver in different years. They represented how different the outcome of an investment would be for a person living either in Germany in the 1920-30’s or in Argentina in the last 15 years in case this person had invested in the stock market or in government bonds, supposedly safer.

In both cases the investment is much better off when it’s composed of stocks, as they represent a portion of a real company that continues to operate after the crisis and the currency devaluation/hyperinflation period that typically follows. The value of the investment in bonds is suddenly reduced to nearly zero… At that time I didn’t find any of those graphics in the Net, but the other day I found a similar one. Here it goes (note the scale is logarithmic):

Stocks vs. Bonds, 200 years comparison.

Please, note the difference especially between German and Japanese bonds and stocks. But also with US and UK stocks and bonds the difference persists.

The managers of Bestinver year after year repeat the same example: in those situations is much better to be invested in real assets, be it portions of an enterprise (stocks), chairs, and pencils, even houses… all these are assets that once the crisis is over will retain the value they have. However the paper money has no value once the nominal value is devalued.

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May 15, 2010 · 11:00 am

Starting up an airline?

Some days ago I came across a post in the blog of Randy Tinseth, VP Marketing  for Boeing Commercial Airplanes, where he explains the concept of StartupBoeing and invites entrepreneurs to take up the opportunity. StartupBoeing is a website which offers information to entrepreneurs in order to help them build their business plan or run their operations. As it is stated in the web itself:

“The StartupBoeing team assists entrepreneurs in launching new airlines. From concept through launch, StartupBoeing offers guidance, review, analysis, data, resources, contacts, and referrals to qualified startup airlines.”

The first thing I thought was “yes, there is the opportunity to lose your investment”. To be fair, Tinseth points at different moments the difficulty of the business and that it is tough to start-up an airline. Airbus does also have the same concept available to entrepreneurs, in this case is called: Start Me Up.

I looked for the last industry outlook from the International Air Transport Association (IATA), the industry association. The figures are appalling (see the table below):

IATA Financial results of the last decade.

Airlines around the world have lost during the last decade 50 billion dollars, with only 2 out of ten years with profits. On average the net profit, loss in this case, was -1.4% of the revenues (over 4 trillion dollars in the decade). Of course, there are airlines making profits, but the industry is not doing well (just remember the last achievements of G. Díaz Ferrán).

I then remembered this other comment from Warren Buffet about the airline industry since its inception:

“I made the comment that if a capitalist had been present at Kittyhawk back in the early 1900s, he should have shot Orville Wright. He would have saved his progeny money.

But seriously, the airline business has been extraordinary. It has eaten up capital over the past century like almost no other business because people seem to keep coming back to it and putting fresh money in.

You’ve got huge fixed costs, you’ve got strong labour unions and you’ve got commodity pricing. That is not a great recipe for success.

I have an 800 (free call) number now that I call if I get the urge to buy an airline stock. I call at two in the morning and I say: “My name is Warren and I’m an aeroholic.” And then they talk me down.”

So, yes, if you are considering whether to start-up an airline, do yourself a favour: call that 800 number, and put your cash somewhere else where it returns more than -1.4%…

The one thing we should definitely praise from these initiatives is the information resources available to the general public, something commented by readers of Randy’s blog and a purpose expressed in the Startup website as well:

“StartupBoeing.com also has a wider purpose as a resource to pass on information to our customers – and also as a resource for existing airlines, financial institutions, consultants and the leasing community. It’s a place for neutral industry data. We want to help make the industry healthy and make airlines safe, reliable and profitable.”

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May 11, 2010 · 8:00 am

Budgets and Gadgets

A couple of Sundays ago I was discussing with my father about Spanish public debt, budget deficits, etc. We both had some figures in mind and I also had some others recorded in the mobile phone, from a conference I had attended at EOI Business School some months before (see the slides below).

Over the table, my father and I were trying to figure out whether the Spanish public debt could reach or not 75% of GDP in two years from now: “given that budget is around 35% of GDP and public debt is around 53% of GDP, then if budget deficit is 12% this would add to the public debt no more than 4% debt over GDP a year”… at that moment I missed having had at hand a detailed view of the Spanish Government Budget of 2010. I wanted to have some TreeMap of the budget like the one I had recently seen from the US 2011 Budget request at The New York Times website.

So I put myself into it. Google docs spreadsheet has among its many gadgets the possibility to draw a Tree Map which is precisely what I wanted to have. First I used some already prepared data from the my job to see how it worked, and, once I saw it was easy, I gathered the data about Spanish Government from the following website (of which I also liked much the way of presenting).

I had seen some treemaps before at the job, but so far not so many outside. So, the main purpose of this post is not to talk about budgets, but to let you know about this gadget which maybe useful in your job. You may see below the gadget I prepared and if you click on it you may see the detailed figures for each one of the chapters, grouped by category.

The one thing I didn’t like much, again, is that WordPress.com is not enabling its users to directly embed this kind of gadgets into the blog… but this has a simple solution that I keep postponing…

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May 9, 2010 · 8:00 am

Europe Day

Today is the Europe Day or Schuman Day. To celebrate this I wanted to share some pictures and thoughts.

The first time I travelled abroad consciously was in 1995, on trip I made with an aunt, two cousins and my brother to Germany. I remember one picture we took of us on the Germany-Austria border (already then; the only thing indicating that we were coming to a different country was a signpost). I remember the act of crossing a border as something special.

Last Easter, on a trip to Brazil, we had to cross the border between Brazil and Argentina in order to see Iguaçu falls from Argentina. Again, this act of crossing borders felt special. When was the last time I had to cross a full-fledged border, with a police stand post in either side of the borderline? (The term “full-fledged” includes police, long queues, waiting for almost an hour…).

I have travelled abroad lately, but apart from controls in airports we normally don’t get to see this so often, at least not in Europe. The last time I went through this was between Croatia and Bosnia on a trip in 2007, nevertheless there was minimal infrastructure on that border. The previous time was on 2003, when I crossed the Estonia-Latvia border by bus or the Macedonia-Kosovo one on foot.

After having crossed the border, already in Argentina, I remember I made a comment to Juan Pablo, the driver (quite a Boca fan!), along the line of when would those borders in South America disappear… his reply: “that cannot happen; South America is really only two countries, Argentina and Brazil, and if that was to happen, the day after thousands of people from Peru, Bolivia would be coming here…”.

This slideshow requires JavaScript.

I remember having heard similar comments in Europe both in 2004 and 2007, when two waves of Eastern European countries entered the European Union…

I was looking through some numbers in the Wikipedia (with data from I.N.E.): amongst the 29 the main inflows of immigrants in the period 2001-2008 only 3 corresponded to immigration from the countries that became part of the Union during those years: Romania (1st), Bulgaria (9th) and Poland (16th). Of the 14 most numerous groups living in Spain there are again only 3 from Eastern European countries: Romania (2nd), Bulgaria (8th) and Poland (14th).

Leaving aside the discussion of the benefits of that immigration, I just wanted to see whether that fear had materialized. I don’t think so.

There will be a day in which Juan Pablo will cross the Brazil-Argentina line without any stops and then he may as well be surprised when he encounters a full-fledged border somewhere else.

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May 7, 2010 · 8:00 am

Ethical Banking

I attended yesterday a conference by Joan Melé at EOI Business School. It caught my interest by its title “Dinero y conciencia: ¿A quién sirve mi dinero?” (Money and conscience, who benefits from my money?), even though I didn’t know the presenter nor the bank he works for.

I want to make some reflections of yesterday’s experience:

  • The first one as a Toastmasters member: I applaud the decision of the speaker to stand up, not using notes or a power point presentation and managing to get the focus of the audience on him and his message for over an hour and half… we witness many conferences in which the experience is not so enjoyable.
  • The next reflection is to praise the move by EOI Business School towards web 2.0 made some months ago. As an alumnus of the school I must say that it’s very motivating to see the number of activities organized, the topics covered and it’s very convenient the way they are publicized in the different channels: EOI web and blogs, Facebook, streaming TV channel, Twitter… and because of that, because you can actually watch the whole of the conference or catch a glimpse of the main messages, I will just add very few ideas that I took for reflection and some sources the presenter cited.

Regarding money itself, the speaker structured his speech in the three main uses of money: to buy, to save and to donate.

  • When buying: he proposed the exercise of thinking “what”, “why” and “where” to see how our purchasing decisions affect others (low wages, pollution, exploitation…). He made the case for an economy based not so much in consumption of material things but cultural and intellectual ones: e.g. we happily pay 30 euro for a dinner, would be pay the same to be read poetry?
  • Regarding saving he noted the positive side of it: planning for future expenses. The other side of the coin being “fear of the day of tomorrow”: what will happen that we won’t be able to face? Nothing: Whatever comes, we will be able to face it. This reminds me to Charlie Munger comment on Berkshire Hathaway shareholders meeting when he said that he became comfortable […] after he realized he could survive hardship, “Maybe you should get your feet wet with a little more failure”. We lack some entrepreneurship…
  • The speaker did not want to go in deep about donating, except pointing that handing large inheritances to offspring can be more harmful than positive to them and society.

Some ideas to take away:

  • There are no leaders to solve our problems; it’s the turn of civil society to take action. It’s the time for the Globalisation of conscience.
  • The responsibility for what happens around us is ours, we need to first change ourselves.
  • We are the crisis of 3 billion people since dozens of years ago.
  • Need to bring back the role of banks as agents that relate people: savers with entrepreneurs in order to create wealth with profits as a by-product not as the one and only end.
  • Need to start and epidemic of courage and enthusiasm.

Finally, some reports, articles and documentaries he cited:

One final quote from Charlie Munger to end this post: “The secret to happiness is to lower your expectations.”

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May 4, 2010 · 10:00 am

Bits of the World in Brazil

While in Brazil last Easter, I read in my guide that in the city of Sao Paulo lived the largest Japanese ethnic group outside Japan. My first thought was: that’s not surprising; by heart I made the following reasoning “if Sao Paulo is among the six or seven biggest cities in the World and we exclude Tokyo and Chinese cities… there is a chance of 15-20% of it being Sao Paulo”.

Later on I was told that in Sao Paulo also lived the biggest communities of several other nationalities… yes, the same rationale could apply (I guess it would come a point where not every nationality could have their largest community abroad in Sao Paulo… but I found no way to prove that).

This may give us an idea of the diversity of the city as well as the country, Brazil… and that is something you keep feeling when you visit it… you suddenly see something and tell yourself “I have seen that somewhere else…”. Like if there were wormholes connecting different parts of the World… Be it music, food, architecture, clothing, traditions…

Let me focus on some examples:

The first two examples are related to Japan.

  • See the Japanese traditional gates (or Torii), both in Japan (this case in the island Miyajima) and in the Japanese neighbourhood in Sao Paulo.
  • Note the striking similarities of procedures used to push people into the subway coaches both in Sao Paulo and Tokyo (in this case I was later told by my sister that in a TV programme about Spanish living abroad it was commented that the metro of Sao Paulo was inspired by the one in Tokyo).

Japanese gates, Torii, in Sao Paulo and Miyajima.

People queueing in Sao Paulo and Tokyo subways.

The next striking example is one that I already posted about: the Banespa tower in Sao Paulo compared to the Empire State Building in New York (you almost wouldn’t notice the difference if it wasn’t for the height of ESB).

Banespa Building (photo by Felipe Mostarda) and Empire State Building (photo by David Shankbone).

Other very similar example is found between two elevators: the Lacerda elevator in Salvador de Bahia and the elevator of Santa Justa in Lisbon… here the main difference is the queue and pricing… in Lisboa you may wait 30 minutes and pay over 1 euro, while in Salvador you wait less than a minute and pay 0,15 R$ (this is 6 euro cents!)…

Elevators of Santa Justa (Lisbon) and Lacerda (Salvador).

Similar experiences can be found as well inside two different markets: the Sao Paulo Municipal Market and Mercado de San Miguel in Madrid, the first one offering a wider variety of products (including good Spanish jamón in the “Emporio Arabe”?!?) and the latter a more upscale atmosphere. (If at the market in Sao Paulo, do not miss the codfish pastel and mortadella sandwich at Hocca bar!!).

Municipal markets in Sao Paulo and Madrid.

Lastly you all know the Cristo Redentor in Corcovado Mountain, Rio de Janeiro… there is a similar Christ in Lisbon, just at the opposite riverside from Praça do Comerço (though I admit that in this case it is in Lisbon where you think “oh, I’ve seen this somewhere else”).

Christs in Rio de Janeiro (being overhauled) and Lisbon.

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May 1, 2010 · 12:20 pm

A different view of the World

At work I often use different lists of countries by aircraft fleets, GDP, military expenditure, etc. Sometime ago I thought that it would be interesting to produce those kind of maps in which the area of the country represents the value of a variable: cartograms. Surfing through the internet you may find different websites with lots of cartograms to download, explanations about the method to produce them and even some applications that you may use to produce your own cartogram.

Today I have been playing with one of these applications. These are three of the cartograms I made:

  • In the first one: area represents GDP (in purchasing power parity) whereas colour shows GDP per capita (again in PPP).
  • The second one shows: military expenditure (PPP) as the area of countries whereas colour shows military expenditure as a percentage of GDP.
  • The last one has area representing again military expenditure (PPP) and colour showing military expenditure per capita (PPP).

Area showing GDP (PPP); colour showing GDP per capita (PPP).

Area showing Military Expenditure (PPP); colour showing Military Expenditure as percentage of GDP.

Area showing Military Expenditure (PPP); colour showing Military Expenditure per capita (PPP).

The data I used comes from extractions I made from the CIA World FactBook in 2007-2008, which used estimated data of different years, mainly 2006.

The application I used is made by MAPresso, and the quickest explanation on how to work with it I found it in this blog.

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