Tag Archives: Spain

January 29, 2013 · 8:00 am

Strategy 101 at play in EADS

EADS announced last month, on the 5th of December an overhaul of its Governance and Shareholding Structure. See the press release in which it was announced.

That press release had 7 key points. Each of them would deserve a long discussion. To be honest, I have had long discussions about some of them with colleagues.

The week after the release was made public, I had lunch with a couple of former colleagues, both former strategists and now retired. When discussing together our impressions of the changes and implications, we first talked about the share buy-back (part of the emphasis is mine):

2. Share buy-back

Subject to market conditions and to the approval of the Extraordinary General Meeting, EADS intends to implement a share buy-back program and subsequent cancellation of up to 15 percent of the outstanding EADS shares, divided into two equal and simultaneous tranches bearing the same terms and conditions:

– A first tranche of up to 7.5 percent, which shall be open to all of EADS’ shareholders, other than the parties to today’s agreement; and

– A second tranche of up to 7.5 percent, which shall be reserved exclusively for Lagardère SCA up to 5.5 percent. If the size of the tranche is higher than 5.5 percent, SOGEPA and SEPI will have the right to tender the remainder (based on their pro rata ownership of EADS shares unless they agree otherwise). In the event that SOGEPA and SEPI do not exercise their right, Lagardère SCA could take up to the full amount of the tranche. Finally, in the event that this tranche is not fully tendered by the above parties, Daimler AG will have the right to participate up to the full unused amount of the tranche.”

I have already shared on a previous post Buffett’s view about share buy-backs, thus I will not comment further about in this post.

Then, my senior colleague raised attention to another part of the release, to which I had not paid much attention the first time I read it:

“Certain specific French and German national security interests will be protected through the creation of “national defence companies” holding sensitive military assets, and including the rights of France and Germany to consent to three outside directors to the board of their respective “national defence companies”. Two of such directors of each “national defence company” shall be members of the EADS Board.”

In the release it is explained that France, Germany and Spain have agreed on a capped government shareholding and will have reciprocal pre-emption rights. The composition of the Board of Directors is changed, to 12 directors, with at least 8 independent and 4 coming from these “national defence companies” (2 from each).

Just as a remark, there is no Spanish “national defence company” holding sensitive military assets. There is not an agreement on any director coming from any such Spanish company, though some of the 8 independent ones could be Spanish.

Today two names appeared on the press:

As my former colleague said, let’s play attention to these moves, especially to the second kind of moves. We are going to at least learn a lot and even enjoy the process. Strategy 101 at play in EADS.

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PD: To put the icing on the cake, let me finish the blog post as the press release is finished:

***************

“In the context of this change of governance, and in a separate agreement with the French State, subject to the consummation of the above transactions, EADS has undertaken to consult with the French State before exercising its voting rights at the general meeting of shareholders of Dassault Aviation and has granted the French State a right of first offer / first refusal in case of the sale of all or part of its stake in Dassault Aviation.

The parties to today’s agreement are EADS, Daimler AG, DASA, Lagardère SCA, SOGEPA, Sogeade, KfW and SEPI.”

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November 15, 2012 · 8:00 am

Rio Tinto

Rio Tinto is a river flowing through the South of Spain opening to the Atlantic ocean at Huelva. I had wanted to visit it since long time ago. It is not just any river: it is especially acidic (pH2), it has a high content in heavy metals and as its name points out, it is red (“tinto”), due the iron dissolved in the water.

The Rio Tinto area has been a mining site since ancient times, and it is there that the British mining company, bearing that name, was founded in 1873, when some international investors bought the site to the Spanish government. The mining activity grew so much that at some time it was reported as the biggest mining site in the world (especially for copper).

The influence of the operation in the area reached every corner of life:

  • The ancient village of Minas de Rio Tinto was brought down in order to exploit the underground below it and had to be displaced.
  • A huge train system (over 300km of rails), only second to the national state train system, was built to bring metals to the port of Huelva.
  • The British colony formed by the company workers and managers brought by the owners introduced all kinds of changes in the society: from religion to the introduction of several sports (football, tennis, polo, criquet…).
  • The Mediterranean forest in the area was completely destroyed. Today, the a forest of pine trees, more resistant to the acidic conditions has been planted.

At first, several dozens of children were employed (about 50 under age 10!), salaries would be paid out in coupons to exchange for food from the company, work conditions were deplorable. Years later, partly due to the pressure of organized unions led the company to improve the standards of workers and to provide several social benefits. A major cornerstone was the strike that occurred in the first days of February of 1.888 which ended in the killing of over hundred demonstrators (“Año de los Tiros“).

In 1.955 the Spanish State bought back a majority stake of the operation to the Rio Tinto Company Ltd., which was kept ongoing for some decades, but today is closed.

Today, Rio Tinto has a very different interest, as it serves scientists from NASA to study the bacteria living in the extreme conditions of the river. This helps them in studying the plausibility of life in Mars under similar conditions.

The landscape is unique, striking. We took several pictures of it and I share some of them below:

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The village has a wonderful mining museum, a train tour through the mining complex (11km route and back) along the river, a small mine can be visited (entering 200m into it) and a typical British house of the time is also open for tourism. It is a very interesting tour for a day (different packages starting from 10€; just ~60 km from Seville).

We also recorded some 5 videos along the train tour. See the first one here (you may find the rest at my Youtube channel):

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November 12, 2012 · 8:00 am

Hotel Room Sports (Creativity)

At the beginning of the year, as a yearly goal I decided to keep on learning new things. One of the actions I took was signing up for some courses (in Coursera platform).

The courses were great, the way of learning is very encouraging: with videos, small and bigger assignments, online forums, students from all over the world helping each other, aspiring career starters and retired people wanting to learn something new together in a global class.

I followed them for some weeks but finally I was unable to keep up with them and dropped. I felt frustrated for that.

Some weeks ago a friend forwarded some information about some other online course from Stanford University Venture Lab. I decided to follow a couple of them, including “A Crash Course on Creativity” taught by Tina Seelig.

Those of you who know me well might think “a course on creativity, how unlikely of Javier?”. Well, I decided to join it because I thought it could be fun… and some of the assignments are fun!

In this post I wanted to first raise awareness of this kind of free education and, secondly, to share the video I took last weekend in Seville for an assignment. Enjoy:

What was the assignment about?

“Your challenge is to use TWO HOUSEHOLD ITEMS of any type – to come up with a brand new SPORT. Use your creativity to generate something you have never seen before.

 You will be evaluated on your creativity and presentation. Deliver a drawing, photo, or video demonstrating the sport. Feel free to include a short description.”

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November 4, 2012 · 8:30 am

Looking at History through US Foreign Military Sales

If an alien came to Earth and had to quickly make sense of the last half century of History, he could get a first glimpse of geographical hot spots and changes of regime by looking at US Foreign Military Sales program data (please refer to my previous post for an explanation of the program and sources of data).

For example, take the figure below. It shows the historical data of FMS deliveries (in thousands of $) from 1970 to 2010. As you can see deliveries stopped in 1980. What is even more telling, in the 4 years to 1979 (from 1976-79) the arms sales delivered to this country represented a whole 34% of the complete US FMS program over that period (see the total volume of deliveries in this graphic from a previous post). Which country do you think it coud be?

Which country could this be?

This alien, combining these data would know that something that happened in that country, from representing a third of military sales to not taking part in the program ever again… you may have guessed right: Iran, where the Islamic Revolution started in 1978, the Shah left the country in 1979 and at the end of that year the hostage crisis started.

Having taken a look at the graphic of Iran, find below the one for Iraq:

 

In the graphic you can see that from 1970 to 2005 there were not FMS agreements and deliveries from 2006. Nevertheless you can see that during the 1970’s and 1980’s there were commercial arms sales to Iraq from American contractors (this is also published by DSCA), which deliveries stopped altogether in 1990 (invasion of Kuwait in August 1990 and subsequent first Gulf war). Then, once the second Gulf war had changed the regime, commercial and FMS sales restarted from 2003.

There are plenty of cases to look at: Cuba not forming part of FMS since before 1970, Russia neither (though receiving commercial arms since 1992), Spain having been always part of FMS program (including during dictator Franco’s time) but which agreements surged in 1982 with the order of 72 McDonnell Douglas F/A-18 fighters (the same year in which it joined NATO), Chile, Venezuela, China…

Russia: never part of FMS.

Before concluding this post let me show again the distribution of FMS deliveries during the last 60 years per region (shown in the previous post) and a table with the main receivers in each region:

FMS Sales per region (1950-2010, source: DSCA).

FMS Agreements per region and selected countries (1950-2010, in k$ – source: DSCA).

Which have been then the top receivers of FMS Arms sales agreements in the period 1950-2010? In order:

  1. Saudi Arabia (16.9% of global FMS program)
  2. Egypt (7.3%)
  3. Israel (7.1%)
  4. Australia (4.1%)
  5. Korea (South) (4.0%)
  6. United Kingdom (4.0%)
  7. Turkey (4.0%)
  8. Japan (3.7%)
  9. Germany (3.3%)
  10. Greece (2.7%)

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May 25, 2012 · 8:00 am

Where do you come from?

WordPress introduced a feature showing the geographical origin of the visits to the blog back in February (find below a map offered by WordPress – the host service of this blog). After 3 months, I decided to take a look at those stats.

Readers’ origin map provided by WordPress.

In these three months the blog received slightly above 7,700 visits; over 2,000 came from the United States and above 1,300 came from Spain (my country of origin). The top ten countries of origin summed up 75% of the visits (USA, Spain, UK, France, Germany, Canada, NL, Australia, Ireland & India). Following the famous “80/20 rule” or a Pareto distribution, the top 20% of the countries of origin summed up 85% of the visits (out of 117 countries).

Pareto distribution of blog readers per country of origin.

Finally, I had the curiosity to analyze the origin by world region. For this purpose, I compared the proportion of readers to the proportion of world population, internet users and internet penetration per region (internet users/population).

Blog readers, world population, internet users and internet penetration.

Europe, mainly due to Spain (my family and most of friends’ origin), is overrepresented (higher % of readers in relation to internet users). The other two regions overrepresented among readership are North America and Oceania, this must be due to the fact that most of the blog’s articles are written in English. Those three regions are also the ones where internet penetration is the highest.

China. In the last 3 months my blog only received 8 visits from China, that is 0.1% of the visits. China with over 1.3 billion inhabitants represents almost 20% of the world population; it counts with over 500 million internet users, over 22% of  the total; and the internet penetration is above 38%. China is clearly underrepresented among the countries of origin of the readers of the blog (0.5%). Shall I start writing more about China or in chinese language?

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October 12, 2011 · 8:00 am

Hyperinflation and defaults in Europe

In my previous post, I purposefully selected Germany as the case of country that would need to be kicked out of the Europe due to its fiscal irresponsibility. Surely, most of you think the situation today is just the reverse and thus it was just a bit of irony…

… well, I wanted to come to it at a later point, in this post, to share the following graphic from the Wikipedia in which you can see the hyperinflation lived in Germany’s Weimar Republic between 1921 and 1923:

Weimar Republic hyperinflation. Source: Wolfgang Chr. Fischer

The explanation in the Wikipedia is astonishing, I recommend that reading.

The situation only stabilized when the Retenmark indexed to gold bonds was introduced at the end of 1923, by then there were notes of 1,000,000,000,000 marks (and even so there were two other cases of higher hyperinflations in History, in Hungary and Zimbabwe!).

Even though during those hyperinflationary years the Weimar Republic Germany did not default, Germany did so in 1932 and 1939, being those of the latest defaults in Western Europe… later than the latest from Greece or Portugal, as can be seen in the following table.

Sovereign Defaults in Europe. Source: Reinhart and Rogoff, “This time is different”, via Credit Suisse.

Finally, you may also see in the table that now, after 72 years since the end of the Spanish Civil War, we are living the longest period since 1800 (and second longest since 1500) that Spain has not defaulted on its debt! I am not sure whether this should be a source of calmness or worry.

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October 12, 2010 · 8:00 pm

My 2009 tax receipt

Some days ago, my friend Bruno tweeted a very interesting article about a proposal by the American think tank Third Way to enclose a kind of tax receipt detailing the taxpayer the use the administration had given to her funds (see the original receipt in the previous link).

Therefore, this post is not an original idea but the application of that proposal to the case of Spain and me as the taxpayer.

To build the “tax receipt” I used 2009 figures. The source I used for a detailed breakdown of Spain’s budget is the same one than a I used in a previous post: a good infographic from lainformacion.com.

 

My 2009 income tax and social security receipt.

 

Some curiosities:

  • I (and you too) paid more than double for unemployment subsidies (504 €) than to foster employment (195 €),
  • I spent 440 € to pay off public debt,
  • I paid 119 € for health… I consider that cheap; in 2009 I actually went to the doctor couple of times and got some vaccines partially subsidized.
  • I paid 201 € in defence and 37 € in defence-related R&D… taking into account that my salary partially comes from there, I wouldn’t mind more of it to be spent there.

One final remark: the government when decreased functionaries salaries in spring was looking with those measures to cut ~15.000 million € in about 1.5 years… this would mean about 220 € per inhabitant / year… where would you take those 220 € from my 2009 bill?

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September 2, 2010 · 9:00 pm

How rain determines olive tree economics in Tunisia

“The North of Tunisia is the most fertile region. There it rains about 1,000mm per year. In the middle about 200mm. The South is almost deprived from rain with only between 0-50mm of rain”. More or less these were the words we heard from Mohammed, our guide in Tunisia for 3 days, no less than 3 times. You can “see” that with Google Earth already.

Tunisia.

He also went on to explain that the olive leaves are a symbol of wealth and that Tunisia was one of the main producers (5th in the World, after Spain, Italy, Greece and Turkey). So, after hearing all these explanations and seeing so many olive trees in the fields along the road trips, I started to notice the difference between the olive trees in the North and the South, and mainly the difference in the distance in which they are planted from one another.

Seeing the landscape I thought that (even if they did it unconsciously) these people were using some scientific approach there. I must say that I have no clue about agriculture and olive trees, but let me elaborate.

  • “1 mm rain a year” means that in one square meter during one year 1 liter of water is collected.
  • The surface from which each of the trees is collecting water must be proportional to the distance (d) between them: (π/4)*d² [m²].
  • I assume the water (volume) one olive tree needs along the year must be proportional to its size (volume)… then, the water they can collect is limited by the rain (mm) and the distance among trees: k*(π/4)*d²*r. Where “r” is the quantity of rain measured in mm of water, “d” the distance and “k” a constant.
  • Their size may be limited by the rain (if in the South is too dry?), by the distance if they are too close to each other, by genetics of these kind of tree (?)…

So, imagine that we are in two regions in which the annual rain is over the minimum so the olive tree can realize to its “own potential” (olive trees having the same size), then:

  • The farmer in the region with less rain must be aware that he shall plant the trees with a distance (d2) between them of: d2 = d1*√(r1/r2), where “d1” is the distance in the rainy region [m], and “r1” and “r2” are the quantity of rain in each regions [mm].
  • So, if I see olive trees the same side in the North (1,000mm, region 1) and Middle (200mm, region 2) of Tunisia, the larger distance in the Middle region should be around √5 = 2.23 times the distance in the North.

As we go to drier regions (Middle, region 2, or South, region 3), it may be that the final size of the tree is smaller and the distance will have to be larger.

  • If the less than 0-50mm in the South was still enough to have large olive trees, then the distance should be over 20 times the distance that we see in the North. However, I cannot tell you, since we didn’t go the most Southern part of Tunisia.
  • If the 200mm of the Middle is not enough water to have that large olive trees then, you could either calculate the size of the tree by planting at different distances in relation to the sizes and distance in the North, or knowing the maximum size you may get you could get the distance at which you have to plant the tree…
    • tree2 = tree1*(r2/r1)*(d2/d1)²… if I guess the distance is about double (by seeing in the pictures), then (for a rain of r2=200mm) the tree2 near the Sahara would have a volume of about a tenth of the tree in the North. May well be true by seeing the pictures below.
    • If we knew beforehand that the tree would only get to reach a tenth of the size, we could calculate that the distance would need to be double.

Even though I am sure there are many more aspects impacting the growth and productivity of olive trees, if I were in Middle / South Tunisia starting from scratch and not knowing anything: I could start sizing the number of trees I could plant in my garden or how big they would grow, how much olives I would get from my land, etc…

Apologies to the experts in the field for the charade that I may have just written, but it was fun playing with the numbers.

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August 6, 2010 · 12:00 pm

A400M and B787 static tests

Airbus Military completed on July 22nd in Getafe (Spain) one of the most extreme cases of its A400M structural tests: the maximum wing up bending until reaching the ultimate load, defined as 150% the most extreme load the plane is expected to experience while in service.

Some months ago, another development aircraft the Boeing 787 achieved the same.

Even though, the loads that A400M will experience in service will be higher than those that the 787 will face and thus the ones tested in each case were consequently different, see the difference in the flexion of each wing.

As engineers working in military developments will never be tired of explaining: a military aircraft is a completely different animal, not just a civil one painted in military camouflage.

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July 9, 2010 · 8:00 pm

Ask octopus Paul to invest for you

By now, everybody probably has heard about the octopus Paul picking winners of World Cup football matches. So far, it got right all the results of Germany. Today it picked Spain as winner of the final next Sunday. See the video of its memorable performance in CNN.

First thought: what a monumental charade this is! Second thought I had today at work: what if Paul was picking stocks for an investment fund?

The thought is not that out of the box: Burton G. Malkiel in his 1973 book, “A Random Walk Down Wall Street” (which I strongly recommend), suggested that a blindfolded monkey throwing darts to select stocks wouldn’t do worse than professional fund managers.

The Wall Street Journal went a step further and tried to prove the point. They did so organizing the 6-months Dartboard contest in 1988, a contest that continued along 14 years in more than a hundred 6-months periods. They didn’t use a monkey but the newspaper staff and they weren’t blindfolded. Nevertheless, the stock picks were quite random. See the explanation of that fun story in this article from Goergette Jansen a few months before the contest was to be finished in 2002.

So, how did the “monkey” do against the pros? Dartboard picks won the contest 39% of the times while pros won 61% of them. So, the pros got better results the majority of the time. Nevertheless, think that 39% of the times you would have been better off leaving your investments decisions to the darts, a monkey or octopus Paul (call it the way you want) than professional managers who get paid to maximize your returns… uh.

After those 14 years, pros racked up an average of 10.2% gain while the darts got a 3.5% gain (this is way better than my company-sponsored BBVA pension fund…).

So, next time you jokingly comment on Paul, think that you might as well ask him where to put your money and even get better results than when listening to the advice of the broker of your bank…

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