The European Parliament has approved tighter ratings agency rules

While everything were well, the rating agencies failed to detect bubbles or danger in the economic systems, and only when the crisis began, they started to see some risks and apply more stricter criteria in their analyses. This caused a multiplier effect which hit the countries stronger, reducing their rating and stressing the funding.

I think it is very positive the fact that the European Parliament had approved stricter rules for the rating agencies. These agencies did not detect the crisis till it exploded and affected the countries, who found themselves punished by the ratings and, however there has been no sanction for Moodys, S&P or Fitch, and that’s why I think that these rating agencies should be penalized.

The European Parliament voted almost unanimously (579 votes for and 58 against) to apply stronger regulation to these agencies to make them more responsible for their errors in case of negligence or willful misconduct. These “rules” will facilitate competition in this oligopolistic industry, which only worked for the interest of the banks, their main clients, and have mercilessly punished many countries, when the main culprits were the banks that were accountable.

When a rating agency downgrades the rating of a country, there is an increase in the risk and in the cost of the future funding; and when the markets are weak, it is much more damaging and difficult for the countries to overcome this spiral.

The new rules will limit the stakes that investors can have in rating agencies, so as to ensure their independence. The rules on rotating the use of rating agencies has been watered down from the initial proposal.

So I think that measures adopted by the European Parliament will be very positive for the transparency of the economy and will reduce the risk of a future financial crisis.

Source| El blog Salmon, European voice.

Image| EU rating

In WLT| What is the Fiscal Cliff?

Is Apple Inc. a bubble?

PUBLISHED ON WELEARNTODAY.COM 

On September 21st, the shares of Apple reached $705 and became the company with highest market capitalization in  history, beating Microsoft, which in the nineties got a capitalization of 620,500 million dollars. Even with  the death of its CEO, Steve Jobs, Apple continued its exponential growth.

Everything was perfect. Despite of the small disappointments that the new Iphone 5 caused in the market, it achieved records in sales in the first weeks. A few days later, the decision of having its own map system seem a disaster, the maps had so many errors that Tim Cook had to had to apologize publicly.

Later, Apple introduced its new product, the iPad mini, smaller and more affordable, to fight against other tablets. In my opinion, this has broken what I really think is a key factor in the success of Apple, the luxury image, which has provided so many benefits to the American firm.

To all of this, we must add that Tim Cook has removed the vice president of iOS and the senior vice president of the physical stores of Apple from the management of the firm.

After these facts, the investors seem to distrust Apple. The shares has fallen $129 in one month.

I think Apple is not longer the technological reference and the absolute leader which become with Steve Jobs. Maybe this is not only Apple’s responsibility (with all of its mistakes) but also the investors, whose expectations about Apple’s products and figures were too high. As well, in the other hand, the competitors are doing the things correctly, making the work hard for Apple.

However, Apple’s figures are still enviable. iPhone’s income (26,910 million dollars) is higher than Microsoft’s income with all of its products (16,008 million dollars). New iPhones and iPads’ sales always beat the previous versions, and although the competence is doing a great job, Apple is still the King of the market.

Maybe if Apple would sell its products cheaper, (iMac, MacBook) would attract more potential customers, but this could break the firm’s exclusivity image which governs the company; Expensive products, not to suits all the budgets

In the following months we will realize if Apple is a bubble or not

The property bubble which threats the world

PUBLISHED ON WELEARNTODAY.COM 

The real estate business has been a secure investment for many countries. It provided great incomes to several countries. Ireland and Spain are some clear examples of these investors; Ireland became the “Celtic Tiger” and Spain was one of the largest world economies being very close to the  G8 countries.

In these countries, banks played an important role to increase the speculative activity, granting low interest mortgages, which often covered 100% of the property value. Later, the American banks, realizing that the business was declining, wrapped those liabilities and sold them to insurance companies, pension funds, etc. However, it all fell apart, and U.S banks had to be rescued by the Government. The same happened in Ireland and is happening in Spain.

Today, China is the threat. Its real estate has been growing at double digits since the eighties and in 2011 represented 10% of the GDP and employed more than 15% of the total active population.

The Asian giant consumed more concrete per capita than Spain in its boom in 2007. If this bomb explodes, it will affect so negatively to the world economy.

According to the estimations, there are more than 64000 empty apartments and it has caused the appearance of ghost cities.  Despite the efforts of the Chinese Government, the real estate price is going down.

In a real estate dependent economy as the Chinese, this could have a devastating impact. The assets value will decline, banks with a high degree of leverage could fail, and those which enjoyed a better cash position could stop lending money.

It would affect the investments dramatically and families would prefer to save their money and reduce their goods and services demand. Companies will need to produce less so unemployment rates will be likely to increase. Unemployment will contract even more the demand of goods and services.  If we take into account that the Chinese economy is a key factor for the American and European economic recovery, the damage to the global economy would be tremendous.

China is too big, and if we like or not, its economy must be supported by the other great economies to avoid a greater world recession.

2012, a hard year for Spain.

Enjoying this long Christmas holidays, I will try, to make an analysis of the New Year for Spain.

An economic miracle is not expected, actually, the only news that we have watched on the news are that, a deficit is expected for the next quarter, the fact that it was an 8% instead of 6% like the socialists said and the famous cuts. For the end of 2012, a small economic growth is predicted, but its impact will be insignificant.

After an inoperable and useless government, which has not known how to face the economic crisis for a few years, the biggest issue that Mariano Rajoy’s government must solve is the unemployment. Spain can’t afford that figure, like the King Juan Carlos said in his Christmas speech, “it is morally unaffordable” because unemployment rates are not only macroeconomic rates but behind them, there are families. That way, rich creation is impossible. The government must have clear ideas, and decide its direction and act consequently, doing a labor reform which flexible the market.

Mariano Rajoy will have to take many unpopular decisions; wage freeze, raise the taxes sanitary compensations, etc. These decisions will cause the anger of the labor unions and will go on strike after some catastrophic years without doing anything, just waiting for the conservative government of Partido Pupular

Instead of demanding, we should think about our obligations, not with the State, but with the weakest, these 5 million of unemployment people (those who will be never helped by the labor unions) and help to improve, together, without asking the impossible, because there is no money.

After a year, when the situation have improved, those cuts will have to disappear gradually and try to find a good way in the medium term trying to benefit from the economic improvement in the EU, and we should not forget the tourism, which was the main responsible of the Spanish Economic Miracle which we lived in the sixties, taking into account not only our good weather and rich culture, but also our infrastructures. But we should be also focused in the long term, investing more in R+D+I and being more efficient and productive. A rich country does not investigate why it’s rich, it’s rich because it investigates.

So, we must trust Mariano Rajoy’s government, to leave this crisis behind

Are the Spaniards going to enter in the new century anytime?

Today, reading an article about the Spanish low productivity made me think about the investment in R+D+i (Research, development and innovation) and I realized that in Spain, we almost do not know what that means, and there is no doubt that the relationship between innovation and productivity is inversely proportional, besides, with the current high competition what makes the difference is innovation.

Regardless the current financial crisis that Spain is suffering, the investment in R+D+i has been always very low, much lower than in the EU, EEUU and Japan. The countries which invest more are the Scandinavian, Germany, Austria and EEUU which have known to keep this potential innovation despite of the financial crisis and have connected salaries with productivity.

The main problems to invest in innovation in Spain are that the companies closest to this sector only represent a 1% of the GDP. The economic system, formed by small and medium enterprises with one to ten employees, that is why integrating in innovation for these companies is almost impossible; this task is developed by international subsidiaries in Spain or Spanish firms like Repsol, Acciona or Telefónica.

Another big problem caused by this low investment is this “brain drain”, which is not only the reason of the lack of talents and the economic and development lost, but also the fact that thousands of students are educated at our public universities, investing in materials, laboratories, lecturer’s formation and then we do not provide the option of finding a job related to their studies, so, the emigrate and another country hire then without any education cost. Does it have any sense? I do not understand why an education is provided, all those costs/investments for nothing. Would not it be better if we invest more in R+D+I and get something back and grow, learn and enter in the 21st century?

We should think in something more that construction industry.

Currency war

It is not unknown the great Chinese economic growth, but maybe is not so known the cold war which is being fought between USA and China due to the currency devaluation to increase their exports.

Some specialists do not want to call it war, but the truth is that the “old red phone” is now of the hook

United States has been living above its possibilities, its expenses were much higher than its returns, however, now is trying to save, but the consumption is lower, for that, exporting is so important, to keep the economic growth, that is the reason why USA is trying to devalue the Dollar, to make it cheaper for the other countries and make their purchases in America cheaper.

At the same time, the Dollar devaluation is not in the interest of China, because its currency would be more expensive and its exports will decrease and it will have to increase the intern consumption and save less that is why China is also trying to devaluate the Yuan and buying American debt, and here is another reason why the Americans do not want the dollar to increase its value, because they will have to pay less for its debt.

Summarizing, China wants to devaluate its currency, other Asian countries which do not want to have a disadvantage (including Japan) are doing the same, USA does not stay behind, so, who is losing more in this war is the Euro because countries like Greece, Spain, Portugal, Ireland and Italy do not want a revaluated Euro, because the need to export to avoid their economic problems. If the Euro price increases, they sell less. In this war, nobody wants to lose.

Let’s hope this war to finish, because the history tells us that in the thirties, the consequences of a similar war were not very positive.

Should we fire government employees?

Despite of the current economic crisis, Goldman Sachs and J.P.Morgan have announced a new recession in 2012, besides the low Spanish production. In these saving and cutting times some voices are claiming to be able to fire government employees in the case of a bad economic situation or low productivity. Should we fire government employees? Greece has been the first country to announce a massive public employees dismiss.


Everybody has had to tighten their belts, I think that the fact of firing people due to their low productive or the economic crisis is totally logic and advisable

If a private sector employee is not productive and could be fired, why a public one can’t? The public administration is that, public, and it is very bad managed specially if we take into account that in Spain, we have a government employees excess and a poor production, paying an employee for doing nothing have no sense.

I do not share the idea of being invulnerable just for passing an exam and receiving a salary for your entirely life and doing nothing in return. In the other hand, it is very sad to have that dream, my target is not just receiving a salary but also consider myself useful, satisfied with what I do and have the chance of growing and learning, knowing that I am not stealing anybody.

I’d outsource some public functions, this way we could save a great amount of money and specially we would be more competitive and increase our low productivity.