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Inflation, euro and peseta

2012-01-09T09:18:00.000-08:00

Last monday, taking a look at a comic book from 1992 I saw the price (150 pts) and thought about how much it had raised in such a relatively short period (a 24-page American comics, that is, equivalent - costs about € 1.95). Moreover, I thought that people in Spain complain much of the increase in prices since the entry into the euro, but the truth is that prices had also hiked the previous decade, with the peseta.

I will not be the one who doubt to ensure that prices have not risen since the Spain's entry into the eurozone. Actually, they have risen by +31.9%. But it is also true that from 1992 to 2001, with the peseta, prices rose more: a +38.9%.

But the price itself does not tell us much about whether life has become more expensive or not. We always have to study this variable with respect to wage increases.

Thus, the minimum wage from 1992 to 2001 increased by +28.1%. Faced with this, since the arrival of the euro (2002), the minimum wage has increased by +45.05%.

With the above, we can ensure that the euro hasn´t increased in a decade as much as it did the peseta.

However, other indicator for this study would be more useful than the minimum wage: the average wage. Unfortunately there are no data from 1992 to 2011, so we have been forced to use estimated data (for the estimation I had use the CPI and the average annual growth of average wage).

With these data, I arrived a curious result: From 1992 to 2001 the average wage increased by 33.15%. From 2002 to 2011 it has been increased somewhat less: 23.9%.

This means that if you won € 100 in 1992, under the same conditions in 2001 you would earn € 133.1 €. And something that cost € 100 in 1992, it cost 2001 € 138.9. You have lost purchasing power: 5.8 €.

On the other hand, if you won € 100 in 2002, under the same conditions in 2012 would earn € 123.8. And something that cost 100 € in 2002, would cost € 131.9 in 2012. That is, it would cost less, but you also gain less, so the road would have lost more purchasing power : 8.0 €.

That is, we are about 56 euros gross monthly difference poorer than previous decade.

It is from this point of view from which one can justify that the euro has made us lose a higher standard of living than the peseta: Things do not cost more: we earn less.

Margin Call: innocence´s death

2011-12-03T01:56:00.000-08:00

Last Wednesday, finally, I watched margin call. The proyection of the film was followed by a roundtable with the participation of JC Ureta, L. Davila and A. Boixadós.

In the purely visual, the environment of the film could not be better done. The inside of a financial company is as you see there. Depending on the entity will be larger or smaller, but the look is similar, with the Bloomberg screens, Etrali cells, the white, spacious and clean appereance... This film had a good advice.

Margin call begins with layoffs. Luckily, I have never had to live such situation. However, a friend of mine, who works at a major investment bank, told me that is just how it looks: in a matter of one hour, human resources made all the layoffs.

People say this movie tells the story of the collapse of Lehman Brothers. It is true that the analogies are clear: the CEO arriving by helicopter, the CEO is called Tulder and the name of Lehman´s CEO is Fulder, an employee pays the duck (I´m not going to say who is, I don´t want to kill your interest to the film), the subject of MBS, etc. Despite, the film's story is not bankruptcy. "In a fire, the first out the door is not in panic" says the CEO. Margin Call is a history of survival. And the death of innocence at the expense of the survival.

The most interesting thing in this film are the conversations between protagonists. Deep thoughts questioning what is ethical and moral, and how changes the point of view depending on who is looking.

Finally, Margin Call is a story of financial leverage. If we understand "Margin" as the money that the institution ask us, as collateral in order to perform an operation on credit, a "margin call" is when the entity ask us to increase the warranty (because the position goes against us) or obligate us to close positions.

Since I mentioned in other posts, leverage is not bad. But it is a weapon. It depends on who shoots that it is good or bad. But what is certain is that is not usually explained what it is. And here the entities have a great responsibility. And investors still do not understand what the consequences of leverage are and what is the real risk of collapse of leveraged operations.

As for the conference, I missed a deeper reflection about MiFID (European regulation of financial advice, among other things), a deeper reflection on values (or rather the lack of them) and a more focused discussion on the key issue: who pays the price here? However, it was a very interesting conference, chosen to develop a speech for all audiences. I´d found it very successful the commentaries of Lorenzo Davila, noting that the background of the film (Sam's dog, the head of sales) is about the death of innocence. I agree on that.

Anyway, I highly recommend this movie as soon as possible. It is not as old as Wall Street 1 or as unreal as Wall Street 2.

Election´s day

2011-11-18T10:09:00.000-08:00

One person, one vote. This phrase althought is not true in nearly all parts of the world, (but fortunately in democratic countries we are close enough) summarizes the essence of democracy. One person, one vote. This basic principle does not guarantee good government, but it guarantees one relatively fair. This principle is more and more diluted in the increasingly globalized world, giving rise to the new dogma: the market, the vote.

It is increasingly common to find the easy view that the modern world is ruled by "the market". If we try to specify what the market is, will surely end seeing the image of five millionaires with ties, playing a mix between Risk and Monopoly with our planet, laughing and with a glass of Henri IV Dudognon Heritage in one hand and a half-smoked Cohiba Behike on the other.

It is difficult for anyone that has that preconceived ideato understand that if you made just one purchase in your life, even if it is minimal, you are already part of the market. It is difficult for anyone who has this preconceived notion to understand that if ever in your whole life, you have saved only a cent, you are part of the market.

We have argued on this blog in many occasions that in the capitalist world, every cent we spend on buying or every penny we spend to save, is a vote. Each time we consume or save we buy a part of the market and vote how we want it. If you buy a shorts because they are the fashionable brand, and this brand made the shorts in an underdeveloped country and keep the workers in appalling conditions, we are voting for it. In the case of other products such as cocoa, we know that some workers are even children living in conditions of slavery. But companies keep buying chocolate that use that cocoa.

There are alternatives. Even cheap alternatives. What happens is that they are complicated.

The fact is that the more you buy chocolate made with cocoa which has been paid a fair price, the greater the demand for a product made with justice and therefore, the offer will be forced to adjust to these conditions. All this is easy to forget, because you are not aware of that: you are continually choosing the fate of the world.

The same happens when you save. If you buy stocks or corporate bonds, investment funds of countries, or even a deposit, we are giving our vote. We voted for a management that can involve unfair treatment, or for a country that does not guarantee the minimum rights, or for a bank to finance certain businesses.

Everything is connected in capitalism. At the end it is just words: it is the people who decides the color of the world. Of course, we can do nothing and accept that the market is cruel. But the market, like the huge multinationals, is a body without soul, without desire and without morals, it is not a human being. It has the morals that we required.

So every day is election´s day.