Saturday, March 24, 2012

Spanish Housing Market

Spain Housing Market in Crisis

Some economic statistics on Spain displayed here, which suggest that it is still in crisis. Worrying times ahead, but great if you want to buy a property in Spain.

Spain Housing Market Statistics

The funny thing about Spain (and Ireland) was that before the 2008 recession their deficit situation was quite good. Of course, this was the consequence of a housing boom which boosted GDP growth and finances, yet, stored up a whole load of problems now. As ever, it’s worth reminding ourselves that irrespective of the efforts of the Government to capitalize the banks, if their underlying assets are falling in value then more capital will be needed.

The key is the Spanish housing market and, things don’t look good.

Spain House Price Index

Firstly, the latest quarterly numbers (general index) for the Spanish house price index is out from the Instituto Nacional de Estadistica

Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2010
Q2 2010
Q3 2010
Q4 2010
New Housing
Existing Housing
General Index

These are annualized numbers which suggest that Spain’s housing market is getting worse.

Furthermore, despite the fall in bond yields since the ECB’s LTRO operations, the banks in Spain are tightening lending conditions.

Spanish Bank Lending

Here is a summary of the Banco de Espana Bank Lending Survey

Q1 2011
Q2 2011
Q3 2011
Q4 2011

This number is just the share of banks tightening vs. easing. It’s a similar type of survey to the one that the Federal Reserve does for Bank Lending.

And, nor is it likely to get better any time soon! 

Spanish Bank Bad Debts

Let’s go back to the Banco de Espana for a breakdown of lending and deposits of credit institutions and, then compare this with how many are classified as doubtful

Eur (bn)
Q2 08
Q3 08
Q4 08
Q1 09
Q2 09
Q3 09
Q4 09
Q1 10
Q2 10
Q3 10
Q4 10
Q1 11
Q2 11
Q3 11
Q4 11

The rise in the doubtful rate is worrying.

The crisis isn’t over for Spain.


House Price Index
Banco de Espana Bank Lending Survey
Banco de Espana Credit Data

Saturday, March 10, 2012

US Employment Data and Why Increased Public Spending Does Not Reduce Unemployment

US Non- Farm Payroll Data

The US non-farm payroll data was very strong but is it broad based? Moreover, what does this data tells us about whether countries should be stimulating employment growth via engaging in public spending?

Firstly, let’s look at average hours worked…

Economagic: Economic Chart Dispenser
BLS Hours Worked Chart

…and moreover the weekly American Staffing Association Index is showing that 2012 staffing levels are tracking significantly ahead of 2009-10-11. You can access the data here

So the overall picture is of a sustained recovery in the US.

An interesting comparison can be made with the Eurozone and the differences between the countries with youth unemployment data…

EU Youth Unemployment Chart

If we accept the start of 2010 as a benchmark, it is clear the countries doing very well (Germany, Austria, Netherlands) and even those showing moderate improvement (France, Finland, Belgium)  are those that have a better Debt/GDP situation.  The countries that are failing their youth are Portugal, Italy, Greece and Spain.

The message is clear. Racking up Government Debt via spending is not the solution to stimulating an economy or generating employment, particularly for the youth.

Thursday, March 8, 2012

Mitt Romney's Presidential Campaign and Flip Flops

The funny thing about Mitt Romney’s presidential campaign is that it appears to have gathered pace after the escalation of negative attacks on him. Of course, the two prominent attacks have been the entertaining Rombo ad which was put out by Rick Santorum and, the infamous $10,000 bet that you can see above with Rick Perry in a presidential debate.

Now what do these things have in common?

Mitt Romney’s Flip Flops

Previously, most of the negative campaigning had focused on Romney’s flip flops. Frankly, I think this is the best approach. However, what these ads do is detract from the previous campaign. In fact, they help to give Romney an image of competence and a tighter definition of his character.

Looking at the $10,000 bet, it comes across as being crass, arrogant and insensitive. Many Americans are suffering financially and, wealthy politicians (not least from a private equity background) throwing around large wagers doesn’t sit well with many voters.  It also suggests he would be alienated from the daily problems of the majority.

However, it does convey an air of confidence and more importantly, competency. He comes out of it looking like a man who, albeit arrogantly, backs up what he believes. Whither the flip flop image?

Similarly, the Santorum Rombo video portrays Romney as a kind of political serial killer. Here is the Rombo video ad...

Unfortunately, for Santorum, this ad backfires because it defines Romney as a focused and concerted individual. Definitively not a flip flopper! Similarly, its light hearted vein attaches an image of comedy to one of the negative charges against Romney. This detracts from the seriousness of what voters may have been thinking about Romney. As for Santorum, it is a tad hypocritical to be putting out a negative campaigning ad that complains about someone else’s negative campaigning!

Santorum’s videos may help shore up his support and, those who think he has the moral high ground but I suspect the floating voters and the ‘undecided’ vote (who always decide elections) are disposed to view all politicians as mud slinging charlatans. They just vote for the least bad candidate.

Mitt Romney’s Presidential Campaign

These shifts in attack on Romney have helped portray him, rightly or wrongly, as competent. And an appearance of competency matters. It matters a lot.
The key issue in the presidential election will be the economy and, this should play to Romney’s strengths. Moreover, the US public appears to want deficit reduction and growth. To accuse Romney of being a flip flopper on these issues is a powerful charge, but to portray him as being insensitive doesn’t matter so much, as long as he comes across as capable and competent.

Note that one word keeps coming up here and, there is a reason for this. I’m rather taken with the work of Alex Todorov and, how facial expression influences our judgment of a person.

How We Judge Presidential Candidates

When I write ‘we’ I do not mean the reader of this blog. If you are reading this, you are likely to be a discerning individual who is taking the time and interest to look into political matters. You are highly unlikely to be a floating voter who is politically uninformed. Nor do you make political decisions based on an amorphous viewpoint that is adjusted by an ongoing mental agglomeration of a series of sound bites on television.  I suspect that elections are decided by the latter.

Indeed, the work of Todorov, according to Daniel Kahneman in ‘Thinking, fast and slow’ is that in the US

This result was confirmed in many other countries. Notably, competence was a far better predicator than likeability. Voters are seen as combining an image of strength and trustworthiness to formulate an opinion on competency. And ultimately, it is competency that counts to the kind of floating voter that will decide the US presidential election.
‘70% of the races for senator, congressman, and governor, the election winner was the candidate whose face had earned a higher rating of competence’

Romney’s opponents are doing him a favor!   


Kahneman, Daniel  'Thinking, fast and slow' , Penguin Group 2011

Sunday, March 4, 2012

Self Selective Feticide

An amazing article linked here on the practice of aborting baby girls and how it is and will affect demographics and gender relationships in future.

This is one macro indicator that China and India will not be particularly proud in leading. Their ratios are astonishing. Although, South Korea provides some comfort thanks to its reversal of trend.

An example of the sort of implication for the world is given in the quoted passage (page 15)...

'China's persistently elevated SRBs, for example, stand to transform it from a country where as of 2000 nearly all males (about 96%) had been married by their early 40s to one in which a quarter (23 percent) are projected to be never married as of 2040'

The social implications of this sort of event are significant, particularly in countries like India and China which are still likely to have large amounts of poor people. A population with lots of young unemployed men struggling to even satiate their feelings of inadaquecies by generating self confidence by sexual conquest, is indeed a recipe for trouble.

Of particular note is that Islam does not prohibit abortion. Moreover, the rates of boys/girls in emerging markets is being somewhat replicated in certain. ethnic communities living in the West.

The link is well worth a read.


Eberstadt, Nicholas  'The Global War Against Baby Girls' in The New Atlantis Fall 2011

Hugh Hendry Interview

An interesting interview with Hugh Hendry whereby he discusses his views and approach to investing. I like Hugh Hendry, even if I don’t agree with his macro outlook. Unlike many of his peers, Hendry is always discerning about risk and comes across as being genuine in trying to align his interests with his investors. This is very rare in the investment industry.

Hugh Hendry Hedge Fund Manager

He is a hedge fund manager in the true sense of the meaning. Hendry manages risk and tries to generate absolute returns. Whilst the whole of the industry claims to do this, the reality is they usually sacrifice this principle (if they ever had it) at the altar of trying to generate sexy returns. It’s hard to be too critical because if that’s what investors want, then that is what they will get!

Hugh Hendry Track Record

However, Hendry appeals to a more concerted risk adverse investor and, from his returns it shows.

Unfortunately, I can only see returns from CF Eclectica Absolute Macro Fund which shows 6.9% in 2010 and 11.7% in 2011. The biggest monthly drawdown was 5.2% in March 2011 and, the biggest rise was 6.8% in July 2010. Thus far, in 2012, it is down 1.6%

This interview is interesting because it raises some several points, some of which are rather cynically inevitable.

Private Equity

Hendry thinks Private Equity is unattractive because it involves tying up money in illiquid investments which could then not provide enough incentive for the manager to generate returns. In other words, the manager is not kept on his toes by the threat of investors redeeming easily.

The interviewer then goes to highlight that Hendry actually saw investors redeem money in 2008 despite the fact that Hendry made them money! Hendry put this down to the fact that they had lost money elsewhere and may have needed cash to support this.

This is consistent with my experience.

Hedge Fund Redemptions

The sad fact is that when the global economy is in a funk, wealthy people lose money across a range of their assets. Property prices go down, their businesses make losses and other financial investments lose money. So when investors see one of their assets going up (for example with Hendry) they feel obliged to cash in.

Moreover, many of them may have put money with Hendry precisely because they felt he was able to generate money in a downturn and now they prefer to be correlated with the global economy because they see upside.

The irony of it all is that if Hendry had insisted on locked-in investment, he wouldn’t have the problem of short term redemptions. He is trying to do it properly and give investors the freedom to redeem at short notice. A laudable aspect, but unfortunately it has its downside!