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Juan Toro

Some people love history and some others love anecdotal evidence. Problem often is that not everyone knows how to distinguish between both. Let me show an example related with the stock markets.

Continue reading 'Black Monday Anniversary:'

Juan Toro

The explosion of private equity deals in the last years has generated a fierce debate on its pros and cons. The debate has extended to several issues. Among them, we could name a few such as the relative performance of private equity against alternatives, the agency problems that these deals generate, the excessive indebtment that they originate, or the consequences for employment. The critics suggest the need for regulation to avoid some of the problems.

Continue reading 'Private equity and employment'

Juan Toro

Many in Wall Street, the media and the government have disagreed on Greenspan publicly providing forecasts on the economy. According to Greenspan, there is 33 % percent of probability that this year the US will go into a recession within the year. Where did he get this from? Which dice did he use to calculate that probability? Probably just a dice with six faces and recession written on two of them. Markets moved and surely Bernanke was not very happy. Bernanke wants transparency. But how can this be done with these interferences. His probability assessment came two weeks ago, but this week he extended his road show and in Boca Raton he extended his comments. Greenspan said that subprime problems will spill over to other sectors. The Dow Jones got a hit but it soon recovered.

Continue reading 'Should Greenspan have a blog?'

Juan Toro

Last years the boom of real state prices helped raising household wealth, pushing consumption spending with it. Rising housing prices and lower interest rates have increased the borrowing capacity of households. The increase in borrowing (collaterized against houses) has surpassed the net new spending on housing assets. This is the so-called housing equity withdrawal. People have drawn part of the equity in their housing stock and used those funds for other purposes (consumption). When housing prices start falling, equity withdrawal cannot continue and consumption is negatively affected.

Continue reading 'A quick view on the effect of the real state slump in the economy'

Juan Toro

The US sub-prime mortgage market is facing ups and downs. This is unraveling in the form of: higher delinquency rates, defaults of many of the owners, more than one million people losing their homes, banks owning bad debts (debt collaterized on the faulty home loans), reassesment of risk,… There has been a regulation problem by which many lenders have been allowed to give too easy conditions on loan requests from people that were not able to repay, the so called teaser loans. Regulatory bodies have already step in to cut this and some politicians are even posing the possibility of the Government bailing out many of those losing their houses.

Continue reading 'Mortgage problems might extend to Europe:'

Juan Toro

The recent sell-off in the stock market has put into question a cornerstone principle of modern finance: the principle of diversification. At least this is the way that The Economist magazine saw it (the Buttonwood column). The article appearing this week points out that investors could have diversified very little as most markets plunged. Even the gold market always considered as a safe haven suffered a correction. The only portfolio that could have outweighed some losses from the market rout (at least partly) would have one holding treasuries. The article expresses a worry on the fact that this could be still an issue if we face further financial turbulence.
This view is somewhat flawed.

Continue reading 'The sell off and the principle of diversification:'

Juan Toro

Subprime mortgages and carry trades have been the two nasty words surrounding the recent sell off in the financial markets. The panic was not coming so much on the fall of the Chinese stock market but on the fact that an increase in risk aversion could have ugly consequences in the credit and the foreign exchange market.

Continue reading 'Subprime lending and the stock market rout'

Manuel Gutiérrez

En nuestra Comunidad de Finanzas vuelve a aparecer un tema que nunca dejará de tener vigencia: las ventajas del uso del descuento de los flujos de caja que generará una empresa a la hora de establecer su valoración. Ya hemos dicho en alguna ocasión que la cifra de beneficios es muy fácilmente manipulable, y por esa razón los Cash Flows son una herramienta más útil, basada en operaciones matemáticas que resultan más difícles de modificar al antojo de quien desee trastocar el resultado final.

Sin embargo, el día a día de los mercados financieros nos demuestra que, al menos en el corto plazo, otros muchos factores inciden en la cotización de las empresas, en su precio, que desde luego no debemos confundir con el valor real. ¿Qué ocurre entonces?

Continue reading 'Cash is king'

Hector Rico

¿cuánto más le habría costado a Google ganar la cuota de mercado de YouTube

Continue reading '¡A valorar YouTube !'

Juan Toro

In a previous post we defined and explained the hawkometer. This is measure of the monetary policy stance by a Central Bank. Sigma Derivatives an independent news provider, offers on a regular basis a measure of the hawkometer. In their latest report they show that in the European Central Bank (ECB) the tone of hawkishness has increased going from 5.2 in January to 6.5 in February (see picture below). This reveals a general support for the forthcoming 25 point increase this week and for further tightening to go after March. This message is in agreement with the markets. In Europe markets are pricing in almost 100% of a 25bp for this week’s ECB meeting and just below a total of 40 basis points increases by July.

Continue reading 'The state of the Hawkometer'

Juan Toro

Generally, consumers are free to invest in no matter what asset they are interested in. However consumers need to be either wealthy enough or have limits on the amount they can invest in some specific set of assets, such as hedge funds.

Continue reading 'How wealthy you need to be in order to invest:'