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Francisco Lopez Lubian

Quizás os pueda interesar algunas de la opiniones que desarrollo en un artículo publicado en Cinco Días.
Comentarios son bienvenidos.

Juan Toro

This question is hanging around in the media. Today the UK Daily Telegraph addresses the issue in article that I attach. According to the newspaper some Spanish banks would have followed the path of Northern Rock if it had not been by the very active lending role played by the European Central Bank in the last quarter of the year. Spanish banks have been issuing record volumes of mortgage backed securities during the last quarter of the year. According to the article, Spanish banks have not been able to place these issues within an open market much affected by the credit squeeze and have resorted in the ECB discount window. Repo operations using these bonds as collateral have provided Spanish banks with liquidity. Most probably this liquidity would have not be found in the open market were asset backed securities have been much denostated.

This practice has been considered by many as a disguised rescue operation. Whether this is the case will be revealed when these short term loans (by the ECB) have to be rolled over.

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Juan Toro

I believe you all have seen what has been going on in the markets and everyone is pretty puzzled about the swings. Last week ended with the fiscal proposal by Bush to stimulate the economy (investment deductions and rebates) in an attempt to boost the economy and avoid a recession. This seemed good news for the market. But just before the Friday closing of markets in the US , news appeared claiming that rating assessment on monoline firms (such as AMBAC and MBIA) could be downgraded. This monoline firms are bond insurers. The book value of the bond portfolio of many banks depend heavily on the financial muscle of these companies. So revisions on the credit quality of monoline companies would imply further write downs by banks and more financial distress.

Continue reading 'A week of panic'

Juan Toro

Soc Gen reported today a 7 billion dollars write-down because of a rogue trader. Someone within the prop trading group of the bank disguised a trade that is going to cost the bank half its capitalization. This is a big number. A loss bigger than those accounted by LTCM and Amaranth when they got into troubled. We will soon know more details about the affair but generally the explanation of risk mismanagement is straightforward. Someone (this someone is later called a rogue trader) holds a trade with a risk profile that is unknown to the risk manager either because the latter does not follow the positions of his group correctly or because he does follow them closely, but does not understand their implications. This latter reason is explained in terms of sophisticated derivative positions. The final conclusion is that: the trader fooled the manager. This probably happens more often that reported, though it is only reported to the press when it ends up in huge losses.
Who else did the rogue trader fooled? It seems it fooled the Fed. Or so the street is saying and the market is confirming with a steep rise in the stock market. The story is that the Soc Gen debacle forced the Fed into an emergency move by making officials think it was a situation of a market crash. Officials at Soc Gen said that the firm “discovered this at the same time as the market was plummeting.. We really had to settle those positions as fast as we could and we did so during the three days crisis that you all witnessed”
It seems the rogue trader fooled a lot of people. Having said that, the economic numbers are still there.

Francisco Lopez Lubian

Aunque es cierto que en las tres semanas que llevamos del 2008 se ha producido una espectacular pérdida de valor económico en los mercados de renta variable, no es menos cierto que en los años anteriores el aumento y creación de valor en las empresas ha sido muy relevante.

El crack de estos días, ¿se ha llevado todo el valor creado en los últimos años?.

Continue reading 'LA CRISIS EN PERSPECTIVA'

Francisco Lopez Lubian

Cenando ayer con un amigo, consejero de un importante banco español, me comentaba un hecho que me parece revelador de la condición humana.

“En los años en que las acciones se han ido revalorizando a ritmos del 15-20% anual” –me decía-, “a ningún accionista se le ocurrió llamar interesándose por lo que pasaba con la cotización. En estos últimos días, en cambio, la situación ha cambiado...”

En momentos como los actuales, con caídas records en los mercados financieros y aparente estado de convulsión permanente, conviene no perder la perspectiva. Como ya comenté en días anteriores (8 de enero), las métricas de CVA y de Rentabilidad para los Accionistas (RA) ayudan a entender toda la historia.

Continue reading 'LA CONDICION HUMANA'

Francisco Lopez Lubian

Hace un año, los principales bancos de inversión echaban carreras para ser el primero en anunciar beneficios récords. En 2006, el conjunto formado por Goldman, Bear, Morgan, Merril y Lehman tuvieron un incremento del 47% sobre los beneficios netos de 2005. Como es sabido, 2007 ha puesto el modelo de rentabilidad bajo sospecha y los mismos bancos han experimentado en su conjunto un decremento de beneficios del 62%.

Continue reading 'FREE LUNCH?'

Francisco Lopez Lubian

El uso de opciones sobre acciones como una forma de retribución a directivos es un tema que ha sido objeto de polémica en los últimos años La teoría enseña que esta forma de retribución variable ligada a resultados ayudaría a compaginar los intereses de los empleados con los de los propietarios o accionistas de la empresa, incentivando a los gestores hacia la toma de decisiones que generarían valor económico añadido. Por otra parte, para la empresa serviría como elemento de retención de buenos gestores, en un entorno caracterizado por un alto grado de competencia y movilidad. Sin embargo, la aplicación de este esquema retributivo no está exenta de problemas.

Continue reading 'OPCIONES SOBRE ACCIONES: MALAS NOTICIAS'

Juan Toro

The fears of recession in the US have been announced from a few fronts. Those fears have not attained Europe, with the exception of the UK, that shows the same softness in its economy as the US. However history tell us that there is some sinchroinicity in business cycles in the US and Europe, with the US preceding European economies in the downturn and in the booms. Recent report released by Merrill and Goldman pinpoint weakness in the US economy predicting recessionary movements within 2008. Data is still non conclusive and future economic data will tell were the main economies are heading.

In this environment it seems that investment opportunities dry out and asset allocation becomes harder. Analysts offer some receipes for this stormy times. These would be:
a) Buy utilities (defensive sector) and sell financial (most fragile sector in this time).
b) Believe in the decoupling story of emerging economies and bet on these markets. The decoupling story maintain that emerging economies have initiated a new economic era where they can live with downturns in the main economies (US, EU,…) without suffering the consequences. According to this theory current signs of weaknesss will not spillover to these economies.
c) Gold a usual is another option though it has been bid up heavily recently.
d) Last, check on some currencies such as the pound that might suffer the same rout as the US dollar.

Because of the forward looking feature of financial markets, many of these strategies have already paid off, though still there is some room for many of them. The list can still be enlarged and they all the share the same spirit, buy some protection.

Juan Toro

For the doomsters, there is always a picture. Here goes one from Merrill on the relationship between recession and unemployment growth. Though I agree on the gloomy picture for the US economy given credit conditions and potential effect on consumption and investment, I would not make the inference Merrill tries with the below picture. Employment data has always been tricky and volatile. I would be more comfortable with level comparisons (unemployment level/employment level) rather than a possible outlier on unemployment growth.

Continue reading 'Recession? A simplistic view'

Francisco Lopez Lubian

Con el fin de año aparecen numerosos análisis y rankings sobre la rentabilidad de las empresas que cotizan en bolsa, y sobre las propias bolsas, que suelen centrarse exclusivamente en la variación en el valor de capitalización bursátil. Sin embargo, la creación de valor para los accionistas es algo más complicado.

Continue reading 'RENTABILIDAD PARA LOS ACCIONISTAS'

Juan Toro

The FT recently surveyed a bunch of economists to know their position on a few crucial questions (housing, public finances, the evolution of the economy,…). This is an exercise that the media tends to do at the end of the year to evaluate the path of the economy in the coming days. The heterogeneity on the answers is wide. As it should be in any predictive/thought exercise though there is ground for common agreement.

On the housing market most expect a sharp fall which will affect consumption. A notable exception is Danny Quah that sustains: “Spending patterns for most households have recently become more sophisticated, certainly compared to 20 years ago. Outside a small fraction of the population, whose spending overall is even proportionally smaller, most people will smooth out these housing-market fluctuations and simply carry on as before”. I will follow the crowd and believe that there is less smoothing one can do when your wealth (real state wealth) drops.

On the main economic worries for the next year, most agree on the credit squeeze and related problems (stock market crash, housing market,…). Danny Quah remains an exception. For Professor Quah the three main economic worries are:

a) US and EU protectionism
b) Global Climate Change.
c) GLOBAL Information infrastructure.

On the issues public finance should address, there is much more diversity. There is one economist that just passes (I Pass!). But very interesting are Buiter´s recommendations for the UK. He suggests to:
* cancel the Olympics.
*Move to a continental European system of financing health care through mandatory universal health insurance.
* Reduce public spending on higher education in return for allowing universities to set student fees freely.
* Where possible, close UK consulates and embassies abroad and let the EU diplomatic representatives do their job instead.
As one can see, there is a lot of diversity that enriches discussion. I leave the link for all questions and answers.

Economists Survey
The results in full
Q1: What are the 3 main risks to economic stability in 2008?

Q2: How does the credit squeeze change the job of central banks?

Q3: How deep will the correction be in the housing market?

Q4: How far is it possible to ignore short-term inflationary pressures?

Q5: What needs to be donewith the public finances?

Q6: Are emerging economies the next global bubble?

Q7: To what extent will the US election affect the world economy?

Francisco Lopez Lubian

“El año pasado los analistas valoraban a las empresas de Internet como si todas fuesen a triunfar. Ahora nos valoran como si todas fuésemos a fracasar. Ni una cosa ni otra”
(Edward Lenk. CEO de e-Toys. Agosto, 2000).

En mi opinión, estas palabras del máximo ejecutivo de la entonces existente e-Toys, son un buen reflejo de la sensación que tienen muchos directivos sobre cómo valora el mercado a ciertas empresas, en determinados momentos.

Continue reading 'SHOW ME TIME'