Monthly Archives: January 2012

¿Cómo le ha ido a España en esta crisis?

Que España está inmersa una crisis seria no es noticia. Como tampoco lo es que algunas personas lo anunciaban antes de que la crisis en sí llegase.

Hace unos días terminé de leer el libro “This Time is Different”, escrito por los economistas Carmen Reinhart y Kenneth Rogoff, en el cuál leí sobre una anécdota que mencioné de la que escribí en este blog. El libro es una mirada exhaustiva a los distintos tipos de crisis financieras durante los últimos ocho siglos, cubriendo impagos de deuda pública, crisis bancarias, periodos de alta inflación, etc.

"This Time is Different", C. Reinhart & K. Rogoff.

En el libro hablan dan una larga lista de indicadores que permitían ver que la última crisis en la que nos encontramos iba a suceder y citan a varios autores que así lo predijeron. Achacan por tanto la crisis a fallos en la regulación y en las políticas que se aplicaron.

Pero no es de eso de lo que quiero hablar. Sumergidos ya en la crisis, ¿cómo son las crisis?

Tras revisar multitud de casos, los autores, investigan los episodios de crisis en economías avanzadas y emergentes antes y después de la Gran Depresión y la Segunda Guerra Mundial.

La caída tras una crisis:

  • La deuda crece en media un +86% (en términos absolutos) durante los 3 años siguientes a una crisis bancaria.

Aumento de la deuda durante las crisis.

  • Caída del precio de la vivienda en media de -35%, y un período de caída medio de 6 años.
  • Bolsa: la bolsa típicamente alcanza un máximo en el año anterior de la crisis y cae durante los siguientes 2-3 años hasta un -56% en media. La recuperación es prácticamente total tres después del año de comienzo de la crisis.

Evolución de la bolsa durante las crisis bancarias.

  • Crecimiento de la renta per cápita real: se ralentiza antes de la crisis, llegando a caer un -9% en el año de la crisis y los dos siguientes, volviendo a recuperarse en el tercer año.
  • Crecimiento medio de la tasa de desempleo durante casi 5 años hasta un +7% mayor en el valle (en el caso de la Gran Depresión, ese porcentaje se elevó al 16%).

¿Y cómo le ha ido a España en esta crisis?

  • La deuda había crecido un +69% desde 2007 hasta finales de 2010.
  • El precio medio de la vivienda según la Sociedad de Tasación ha caído un -18% desde 2007 hasta 2011.
  • El índice Ibex 35 alcanzó su máximo por encima de los 15.800 en otoño de 2007, cayendo un -56% hasta por debajo de 7.000 en marzo de 2009 (1.5 años después). Llegó a estar por encima de 12.000 en 2010, pero todavía hoy, 4 años y medio después de los máximos, no se ha recuperado (~8.600).
  • La renta per cápita ha caído un -4,6% desde finales de 2008 a finales de 2010.
  • La tasa de desempleo a finales de 2007 era de un 8.3%, alcanzando hoy el 22.85%, un aumento de la tasa de +14,5%.

Por desgracia, una crisis de manual, y en cuanto a las cifras de empleo especialmente drástica.

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Gains with a negative performance?

I wrote some months ago a post in the blog where I showed how you lose money with swings in the market of the same percentage (e.g. -10% followed by +10% or vice versa).

In another post I explained how mutual open-ended funds define and calculate their performance based on the changes in net asset value per share.

In this post I wanted to point at some fine detail: a mutual fund may have a negative performance in a period of time (e.g. a year) yet have gained positive results during the same period. How is that possible?

As I mentioned in that previous post, the net asset value per share of a mutual fund rises and decreases as the aggregate share prices of the stocks in the portfolio rise or decrease. However, each time that there is an addition of capital, it is treated as an issue of new shares at the current price. It doesn’t matter whether those shares are issued to new or old “shareholders”. Depending on whether the net asset value has increased or decreased they are acquiring the new shares at a higher or lower price than they acquired the previous ones.

If it was the case of a company, we would say that shareholders would see their share diluted. In the case of a fund, the share of the ownership is also diluted, but that doesn’t mean a reduction in the net asset value per share, since with the new investment there is an increase of the assets of the fund (and the funds will be invested). Now, let’s see it the case with one example.

Take a fund with only one investor, A, who at the beginning of the year invested 10k€. That would be the assets of the fund at that moment. The net asset value per share could be defined as 100€, meaning that at that point there were 100 shares.

During the next months the market goes down and, along with the market, the fund’s assets. Let’s say that the reduction in value has been of 50% at half-way through the year. This means the assets of the fund would be 5,000€ (belonging to the sole investor, A). Since there were 100 shares, now the net asset value per share would be 50€.

At this low point, another investor, B, invests another 10k€ in the fund. Now, the 10,000€ would buy not 100 shares, but 200 at a price of 50€. The net asset value per share would remain unchanged at that moment, 50€. However, the assets of the fund would now be 15,000€. The total number of shares would be 300.

Imagine that during the second half of the year the performance of the fund is +50%. As I mentioned in the previous post, with consecutive market swings, -50% and then +50%, you lose. However, in this case there as been an investment in the low point and we’ll see what that means to the fund and each of the investors.

The +50% performance means to the fund an increase of its total assets up to 22,500€, or a net asset value per share of 75€ (for the same 300 shares). This is a +50% since mid-year, but a -25% from the beginning of the year. Quite a negative performance. However, the fund has received inflows of 20k€ along the year and has ended the year with +2,500€ of net gains!

For investor A: the year has meant the same -25% in both net assets and performance as he has lived through the whole period the big destruction of value in the first semester and the creation of value in the second, but, with the market swings of equal percentage value, he lost.

For investor B: the second semester has been great, as she has only lived the +50%, meaning a net gain of 5,000€.

Performance of an investment fund.

The asset manager of the fund hasn’t been in the whole a better performer allocating assets than the market, and that is what the net asset value shows. The fund has only gained in absolute terms because there was an investment at the low point.

This is nothing more than one of the points the proponents of the technique Dollar Cost Averaging defend: to invest regularly the same amounts of money to take benefit of bear markets, when the fixed amount of money may afford more shares of a given stock. In that way you don’t need to time the market to benefit of low points.

Or in another way: “Be fearful when others are greedy, be greedy when others are fearful”, Warren Buffett.

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Which NGOs will I support in 2012?

Every January I take one afternoon to direct at least 0.7% of my personal net income to different NGOs. I already explained this in a post last year. In that post I also explained the origin of the figure, 0.7%.

This year, I wondered how development aid was faring taking into account the crisis in which most of the big donor countries are in. You may check the figures at the extensive database of the OECD, or just to get the latest data on Official Development Aid you may check last year’s release announcing 2010 figures (or the report, PDF). The figures of 2011 won’t be released until April, but as far into the crisis as one year ago the fact was that development aid had actually increased, even if still far from the 0.7% committment.

Official Development Assistance in 2010 per country, source: OECD.

Evolution of Official Development Assistance through 2010, source: OECD.

Which NGOs will I support in 2012?

Last weekend I took sometime to make the numbers and select the different organizations. In previous years I directed 0.7% in January and along the year for different reasons I ended increasing this contribution. This year, I am directing already 0.9% of my income in January and again I expect that as the year goes by I will increase that figure. I take the Nordic OECD countries as an example and see the 0.7% as a minimum threshold, not as the maximum goal.

The organizations I have selected this time are:

  • Kiva: a micro lending portal, that I have talked about in the blog sometimes. I added some more funds.
  • Vittana: another micro lending portal, specialized on credits for education purposes, very similar to Kiva in its conception. I allocated some cash last year in it for the first time, and this year I have added more funds, to help some students study industrial engineering.
  • Médecins sans Frontières. I started donating cash to MSF in 2010, in 2011 I became member of the French branch. I renewed my membership.
  • Oxfam: a well-known NGO working “to find lasting solutions to poverty and injustice” to which I already contributed last year.
  • Anti-Slavery: an NGO which works to eliminate all forms of slavery around the world. I find that only the thought of people being slaves in 2012 simply devastating. I already directed some funds to this NGO last year and I was positively impressed to find information about its activities when we visited the Museum of London last year.
  • Fundación Hombres Nuevos: a Spanish NGO working in development projects in Bolivia. It was founded by Nicolás Castellanos who received the prize “Premio Príncipe de Asturias a la Concordia” in 1998 along with Vicente Ferrer or Muhammad Yunus (who later received the Nobel Peace Prize and is credited with the invention of micro credits).
  • Wikipedia: I guess this does not need any introduction, but I will make use of Wikipedia’s self-description: “Wikipedia is a multilingual, web-based, free-content encyclopedia project based on an openly editable model. The name “Wikipedia” is a portmanteau of the words wiki (a technology for creating collaborative websites, from the Hawaiian word wiki, meaning “quick”) and encyclopedia.” This is the first time that I collaborate in its sustaining.
  • Gapminder: in their words “a non-profit venture – a modern “museum” on the Internet – promoting sustainable global development and achievement of the United Nations Millennium Development Goals”, or better “Fighting the most devastating myths by building a fact-based world view that everyone understands”. If you have the chance, take a look at any of the videos of its founder, Hans Rosling, they are truly mind-blowing.

(Free material from http://www.gapminder.org – mind-blowing as I said)

Before ending this post, I wanted to make two reflections.

First, why do I or why do people/corporations make this kind of  contributions? Sometimes you hear criticism towards donations like “it’s for the tax deductions”, “it’s for marketing purposes”, “to show off”, etc. My personal view is that it doesn’t matter. It might be one or many of those reasons or none. What I believe is that the people in need do need the help and whatever the reason behind a contribution, it is welcomed. I do receive some tax deductions for the contributions for MSF and Oxfam as they’re based in France, not for the others. I also believe that the real contribution is the time dedicated by individuals working in cooperation, in the field, etc., in the end all what we give is a small percentage of our income / revenues.

Second, why do I write this post? Again, someone may think it’s show off. I’m fine with that. My goal is to get at least a reader to take a look at one of those NGOs, to think about dedicating her/his 0.7% to development aid… If I manage to do that, and I am sure I will (it worked in the past :-)), this post will be worth the time spent in writing it.

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Trickery, deception and women

CIA Manual of Trickery and Deception.

The official “C.I.A. Manual of Trickery and Deception“, by H. Keith Melton and Robert Wallace (248 pages), is a book based on a manual prepared by the former magician John Mulholland (1898-1970) and commissioned by the C.I.A. during the Cold War to equip its agents with undercover communication and deception techniques they might need in operations against the Soviet adversaries.

I received this manual as a gift from a close friend about two years ago. The first thing that one learns in it is the common and incorrect belief that “the hand is quicker than the eye“. As the magician explains:

“In fact, the hand is much slower than the eye, and for deceptive purposes, neither should move quickly. An illusion is primarily mental, not visual; when magicians and spies fool the minds of the audiences, eyes observe only what the performer intends.”

We should replace quick and clumsy movements that would attract attention by employing psychology, misdirection, and a natural sequence of steps to create an illusion.

A thing about the book that struck me was that, after some chapters explaining several tricks, the manual dedicates two chapters for special aspects of deception for women. That isn’t intended because women cannot perform certain tricks, but because performing some tricks in the same way a man would perform them might be suspicious and attract attention in some cases. I’ll share one example.

One of the tricks to pour some powder into another cup is by emptying the back of wooden pencil (where usually there is the small rubber) and fill it with powder. The pencil is kept in some pocket and brought into the scene with the excuse of scribbling anything or making some sketch in order to help yourself with an explanation. I found this very natural in me. Anytime I want to explain something I take a paper and a pen and draw something.

The book included a provision for women employing this trick. A woman would need to carry two pencils. One with the little hole with powder and another one untouched, apart from that the pencils shall be identical. Why is that? Not because the woman cannot draw a sketch or because she would need two pencils, but because if the woman was to be facing a man and she would use a pencil to sketch something as part of her explanation, it is very likely that the man would ask for that pencil in order to amend the woman’s sketch!! So the woman would need to have a second pencil to replace the first one before the man takes on the pencil with the little hole in order to avoid that he notices the trick.

Allow me not to explain more tricks in this post, otherwise I’ll lose the edge I currently have over you in our encounters, an edge that clearly you’ve failed to notice :-).

Finally, you may wonder why this friend chose this book as a gift. Me too.

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Savings and consultants

Last Friday, I wrote a post about a measure by the US DoD to produce efficiencies by publishing the actual cost of the preparation of each report and study in the front of each document.

As part of that same  “Defense Efficiencies Initiative” launched in 2010 by former Secretary of Defense Robert Gates, there were as well the following two:

“[…] immediately cut the dollars allocated to advisory studies by 25 percent.”

“[…] cut the size of the staff support contractor cadre by 10 percent per year for three years […]”

Another report (1) by the Congressional Research Service  [PDF, 86KB] assessing the efficiency of Gates’ initiatives found these ones as the ones with the higher potential savings for the DoD.

Nearly everyone working in a big corporation can sympathise with such initiatives, having sometimes wondered where is the added value of certain reports or the cost/benefit of shiny consultants’ teams brought in to solve an important issue based on noise-affected inputs received by insiders in too-short time to digest them only to produce yet another costly report and leave having created barely anything else but costly entropy.

A former colleague has a wall in his office covered by a collection of tens of leaflets from what he calls “strategic consultants”. I took on his habit of picking those leaflets, and even though I don’t collect them I do publish them in my Twitter account from time to time:

That much for the perceived value of consultants.

(1) Cost of Congressional Research Service assessment not available.

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Savings and reports

Yesterday I had a hilarious conversation with 3 work colleagues on the cost of several things: ranging from the cost of having 30 people enclosed in a day-long meeting to the cost impact of having the toilets of a whole office building not working for two days (cost measured by the extra time needed for fulfilling physiological needs).

This reminded me of the US Department of Defense’s “Defense Efficiencies Initiative” launched in 2010 by former Secretary of Defense Robert Gates.

One of the initiatives was to:

“[…] publish the actual cost of the preparation of each report and study prepared by DOD in the front of each document. “

See the implementation in the picture below:

Cost of DoD Strategic Management Plan FY 2012 - FY 2013: $169,010 (FY 11 dollars).

The cost of preparing the Department of Defense Strategic Management Plan FY 2012 – FY 2013 was $169,010. You may see the document here [PDF, 1.6MB] and judge by yourself whether you find it worthy of those 169k$.

Now, imagine if in the next crowded meeting you are attending the first slide of the first presentation said “Gentlemen, with this meeting today we’re consuming: xxk€”. The same applies for IT systems down, facilities not operating as they should, etc.

NOTE: Researching and writing this post took me about an hour. The cost of that hour? You name it 🙂

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Course des Rois

Villemur-sur-Tarn is a small village by the river Tarn, about 40km North from Toulouse. Last Sunday I went there early in the morning to take part in the Course des Rois, a 10km race that was organized there.

Last time I ran a race in January it was in 2002, in Torrelodones, another “King’s Race”. I remember that a week before I had missed the 2001 San Silvestre due to a sprain in the ankle. By the time the race in Torrelodones came I could not rest anymore and I ran it with the bandage still on.

Villemur-sur-Tarn is close to the wine-region of Fronton, another village about 10km South from it. The first runners that were subscribed to the race received a bottle of red win. Yeah, I won something at a race! Even before starting!

After several pains in the Autumn, I went to the doctor and got an x-ray of the waist. It showed a difference in the length of the legs of ~7mm. Then I went to a podologue who made a couple of orthopedic soles for me. They partly correct that difference in length plus improve my stepping (I tend to supinate or under-pronate).

I started using the soles about two weeks ago. The podologue told me “start using them little by little, don’t go and run on them 15km at the first trial”. Well, I ran 7km. Then other 7km, etc… These days I am having pain in the left knee. I guess that it was not used to the level of effort it is required now. While it gets used to it, it hurts as hell every time I start running.

On Sunday, when I arrived to Villemur, I started warming up about 20 minutes before the start of the race. I almost couldn’t bend the knee. Then I was jogging very softly, and the pain was that that my body wanted me not to take part in the race. I felt like crying. Luckily I was alone in the race and didn’t have to talk to anyone in those moments. Only in my head I was thinking “it’s ok, some minutes of pain while warming up and then it’ll get better”.

It got better. During the 1st kilometre I could stand it so I continued with the same rhythm until km 2.5, when my body broke into sweating and I stopped feeling cold. From then on, feeling warm and more comfortable, I looked at the rest of the race with a more positive look.

I went along with some groups of runners until feeling comfortable with them and going ahead to catch another group. I repeated this process about 3-4 times, with a final increase in the pace at about km 7.5, when I tried to make it below 47′. In the end, I did 47’09”.

I’m very happy with the time. Had I launched the pace increase before I might have made it. This is nearly 1 minute faster than in Brax 6 months ago and some 20 seconds faster than the end of the half marathon of Toulouse last September. I’m training with more difficulty these days, but it seems that I haven’t lost punch for the races. This race also helps me to measure the level of fitness with the McMillan calculator I use, in order to estimate training paces.

You may want to see performance of the race measured by Garmin and the following pics:

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