Portuguese Sales law (that applies to retail stores, namely apparel ones) institutes very useful and important practices (including consumers protection), but there is one centuries-old rule that I am still to understand – the Sales period. I am still to understand how useful this is for free market, or if it is only a rule to prevent real market competition, by barring any strong discount from a ‘maverick’ retailer, thus keeping prices artificially high…
Sunday 28 December 2008
On Sales
Portuguese Sales law (that applies to retail stores, namely apparel ones) institutes very useful and important practices (including consumers protection), but there is one centuries-old rule that I am still to understand – the Sales period. I am still to understand how useful this is for free market, or if it is only a rule to prevent real market competition, by barring any strong discount from a ‘maverick’ retailer, thus keeping prices artificially high…
Sunday 14 December 2008
The difference between right and left
It is time I let you know one thing. I consider myself a left guy, on what comes to political orientation. It may be a surprise to you (or some of you) as some of the positions I reflected so far are not what you would usually expect from someone who is left winged. So, I think it is time I let you know what I consider to be at the root of the categorization.
Many people usually consider State intervention in the economy to be the cornerstone of right & left differences. When I look at local politics (specially in Portugal) I am not sure this to be a decent categorizer. Basically because what I see nowadays is what usually is considered a political centre that stands out for market liberalization (with little or no difference between major political parties all over Europe – look at PS and PSD in Portugal, Tories vs Labour in UK, PSOE vs CDS in Spain, …it is not their attitude towards market economy that differentiates them), and then the wings, right and left, that share (curiously) common ground on what concerns economy – when it comes down to the real thing, they both share the common passion about government intervention in the economy, based on differently phrased same reasons (look ant Alberto João Jardim in Madeira and the Communist Party positions in Portugal, Berlusconi economy policies in Italy and you will see what I mean). And if you think right into it, when you look at the far wings, you realise they have exactly the same positions – pure stately run economies (we all had the opportunity to see this come into practice during the XXth century – only with different names). So, in my opinion, when it comes down to the Earth, it is not market interventionism that differs both positions.
One might say that then, it is the attitude towards social support policies. When you think about this, I kind of have sympathy for this differentiator, as one might tend to think that left winged supporters would favour stately run social policies, while right winged would favour the private sector taking responsibility on this – either by making a business of it or through privately funded charities. Still, I think that the difference on that comes more from a continental cultural background than from political orientation differencies – with American and English social cultural based individuals more willing to take social support responsibilities on their own, and continental Europe ones assuming the State will run it for them (using tax funding). And when you think about it, in Europe, one of the interesting things is that self proclaimed left winged oriented persons are exactly the ones who say are more willing to join an ONG to help on social issues.
No! What I consider to be the prime differentiator between both wings is the attitude towards Safety vs Freedom. I consider left winged persons the ones that are more willing to commit part of their safety for having freedom of speech – who clearly favour it. The ones who say that it is more important to have and express an opinion without being controlled or checked out on it. Those who say you don’t need a safety camera on every corner, because it would mean a far greater control of the State on your own private lifes. And, by contrast, right winged individuals don’t want to compromise safety, and are willing to be watched and on their scanned on their opinions for that. When you think about it, it is a very powerful differentiator. It allows you to differentiate political positions on a relevant dimension, that really suits political orientation – look at the Green parties positions on these subjects, or Tories, or Republican vs Democrats and you will understand I am right.
And, naturally (and check my writings if you want to check it) I consider myself left winged. Someone who thinks economical and social development is intrinsically connected to the ability to share one’s opinion with others, and willing to run certain individual safety risks to make sure we can keep this marvellous freedom of speech that prompted worldwide ideas sharing and growth over the last 2 centuries.
Many people usually consider State intervention in the economy to be the cornerstone of right & left differences. When I look at local politics (specially in Portugal) I am not sure this to be a decent categorizer. Basically because what I see nowadays is what usually is considered a political centre that stands out for market liberalization (with little or no difference between major political parties all over Europe – look at PS and PSD in Portugal, Tories vs Labour in UK, PSOE vs CDS in Spain, …it is not their attitude towards market economy that differentiates them), and then the wings, right and left, that share (curiously) common ground on what concerns economy – when it comes down to the real thing, they both share the common passion about government intervention in the economy, based on differently phrased same reasons (look ant Alberto João Jardim in Madeira and the Communist Party positions in Portugal, Berlusconi economy policies in Italy and you will see what I mean). And if you think right into it, when you look at the far wings, you realise they have exactly the same positions – pure stately run economies (we all had the opportunity to see this come into practice during the XXth century – only with different names). So, in my opinion, when it comes down to the Earth, it is not market interventionism that differs both positions.
One might say that then, it is the attitude towards social support policies. When you think about this, I kind of have sympathy for this differentiator, as one might tend to think that left winged supporters would favour stately run social policies, while right winged would favour the private sector taking responsibility on this – either by making a business of it or through privately funded charities. Still, I think that the difference on that comes more from a continental cultural background than from political orientation differencies – with American and English social cultural based individuals more willing to take social support responsibilities on their own, and continental Europe ones assuming the State will run it for them (using tax funding). And when you think about it, in Europe, one of the interesting things is that self proclaimed left winged oriented persons are exactly the ones who say are more willing to join an ONG to help on social issues.
No! What I consider to be the prime differentiator between both wings is the attitude towards Safety vs Freedom. I consider left winged persons the ones that are more willing to commit part of their safety for having freedom of speech – who clearly favour it. The ones who say that it is more important to have and express an opinion without being controlled or checked out on it. Those who say you don’t need a safety camera on every corner, because it would mean a far greater control of the State on your own private lifes. And, by contrast, right winged individuals don’t want to compromise safety, and are willing to be watched and on their scanned on their opinions for that. When you think about it, it is a very powerful differentiator. It allows you to differentiate political positions on a relevant dimension, that really suits political orientation – look at the Green parties positions on these subjects, or Tories, or Republican vs Democrats and you will understand I am right.
And, naturally (and check my writings if you want to check it) I consider myself left winged. Someone who thinks economical and social development is intrinsically connected to the ability to share one’s opinion with others, and willing to run certain individual safety risks to make sure we can keep this marvellous freedom of speech that prompted worldwide ideas sharing and growth over the last 2 centuries.
Wednesday 10 December 2008
I feel deeply shocked
I just went to a mass market store, an Auchan one right in the centre of Lisbon. In the gift-wrapping queue, I had the rare opportunity of having an eye-opener. There was a person there, asking the clerk to wrap some gifts: a shower gel, a deo and a soap bar. All wrapped separately. What I usually consider to be primary needs goods, for that person, were a worthy gifts.
Sometimes, but seldomly, I have the unique opportunity of living an eye-opener event. This time, I had the feeling of living on a privileged golden-World… and struggling to understand how the rest 90% of the Portuguese Population that has a lower income live.
"Of all the preposterous assumptions of humanity, nothing exceeds the criticisms made of the habits of the poor by the well-housed, well-warmed, and well-fed." - Herman Melville
Sometimes, but seldomly, I have the unique opportunity of living an eye-opener event. This time, I had the feeling of living on a privileged golden-World… and struggling to understand how the rest 90% of the Portuguese Population that has a lower income live.
"Of all the preposterous assumptions of humanity, nothing exceeds the criticisms made of the habits of the poor by the well-housed, well-warmed, and well-fed." - Herman Melville
Tuesday 9 December 2008
On tax reduction vs public investment
This is a major discussion nowadays, in the economic world. In the settled storm (that resembles a lot that of the 20’s and 30’) should State interfere through a tax reduction or public investment? In other words, should the State run the investment or create the conditions for the private sector to do it by itself? I will give you my opinion.
I think the State should pursue strategic investment that allows for national development (especially that that doesn’t interest the private sector, due to its limited immediate payback – and please, remember this is the real World and not economic theory, so don’t say that if it doesn’t have a payback, that is because it shouldn’t be done; we all know that private investors don’t see the long term and aren’t as patient as the State), but create even better than usual conditions for private investment to flourish and create growth generating opportunities.
We know that public sector usually is not the most efficient investor (it doesn’t always run business at a desirable low cost, through, usually, a responsibility dilution) and, especially in Portugal, has shown a bias to major public works investment (usually highways or other major infra-structures) that sometimes raise an eyebrow on its neediness… Still, I don’t say it should cut back investment – I say it should take a closer look to what is really necessary and keep it (the incredible work that has been done on alternative energies is remarkable, and I am sure it will pay off for future generations) and get rid of the rest (I am still to be convinced that there isn’t any more efficient alternative to Montijo airport…)!
And then it should, basically, lower taxes. Generate more available private money to be invested in the economy. People usually have that capability – they invest their own money in what they consider to be the best investments. Sometimes private money gets well invested, and it pays off, other times, it doesn’t – and one moves on. But usually it does it on a much more efficient way than public sector. And it should really be the economy growth motor.
So, when EU (and Portugal) says no to tax cuts (and prefer public investment to it), let me say that it raises my eyebrow.
I think the State should pursue strategic investment that allows for national development (especially that that doesn’t interest the private sector, due to its limited immediate payback – and please, remember this is the real World and not economic theory, so don’t say that if it doesn’t have a payback, that is because it shouldn’t be done; we all know that private investors don’t see the long term and aren’t as patient as the State), but create even better than usual conditions for private investment to flourish and create growth generating opportunities.
We know that public sector usually is not the most efficient investor (it doesn’t always run business at a desirable low cost, through, usually, a responsibility dilution) and, especially in Portugal, has shown a bias to major public works investment (usually highways or other major infra-structures) that sometimes raise an eyebrow on its neediness… Still, I don’t say it should cut back investment – I say it should take a closer look to what is really necessary and keep it (the incredible work that has been done on alternative energies is remarkable, and I am sure it will pay off for future generations) and get rid of the rest (I am still to be convinced that there isn’t any more efficient alternative to Montijo airport…)!
And then it should, basically, lower taxes. Generate more available private money to be invested in the economy. People usually have that capability – they invest their own money in what they consider to be the best investments. Sometimes private money gets well invested, and it pays off, other times, it doesn’t – and one moves on. But usually it does it on a much more efficient way than public sector. And it should really be the economy growth motor.
So, when EU (and Portugal) says no to tax cuts (and prefer public investment to it), let me say that it raises my eyebrow.
Monday 8 December 2008
“Government saves BPP to safeguard international image of Portugal”
This was the main title of Expresso, Portugal’s reference newspaper, last week. It refered to a plan (sponsored by the Portuguese government) to avoid the bankruptcy of a Portuguese investment bank.
First of all, let me mind about the plan on itself and how it developed in BPP recent history.
BPP is one of Portugal’s investment banks (and probably one of the largest that dedicates solely to this kind of operation, without the deposits & loans safety net that the main consumer banks in Portugal have), mainly responsible for private fortunes investment management. With its current size and shape, it poses little risk to the Portuguese banking system altogether. And at a first instance, the State ruled out any intervention to help this bank, based on this justification – and, lets be honest about it, it was a decision that made sense. Without any signicant risk to the majority of the populations savings (and the participants on it being warned and admittingly running the risks a higher payout implied) and the overall banking safes and loans system, it made little sense for the State to be running into higher external debt compromises (in an already over indebted economy) to safeguard such an entity.
Still, some days later of Banco de Portugal announcement that it would not extend its safety umbrella to Banco Privado Português, the same entity (BdP) sponsored a ‘privately ran’ refunding programm to secure BPP. On this programm, the major Portuguese private banks (some of which are dangerously tied to the Government, like Caixa Geral de Depósitos and Banco Comercial Português) lended the required amount to BPP, and then, using the stately developed safety net, refinanced themselves through signed off State secured credit lines.
I don’t think I need to stress how a… curious move this is. First of all, the State (already debt-buried due to a latent bad management over the last 50 years) is applying the Portuguese People money (ours, the one we all pay in our taxes) to safe a non-strategical bank – let me point out that (if you haven’t by now) I would have a different approach for a bigger, more risk-systemic prone institution. Portugal should take a closer look to its debt level – that is dangerously high! That means carefully judging what investments to make and loans to take.
Then, as Expresso title refers to, the institutionalised fear of bankruptcies in Portugal – from which this case is an example. I am not for bankruptcies. But the point is, they exist for a reason – it is the way the economy gets rid of unproductive investments. When a State acts to prevent them, it is maintaining economic garbage that weights in the overall system, consuming useful resources that could be more value generating elsewhere.
This fear of letting the economy flow (and act on a paternalistic way towards private investment), laggards Portugal’s development. It is on the root of our extremely low economic growth over the past 30 years. It is true that Portugal (unlike most of Western countries) is not on a recession – but, the point is, we don’t experience (and aren’t expected to) any GDP growth over 1% in the last few years and foreseable ones.
The US are on the midst of a major economy crisis. But, read my words, they will come out of it as a rocket in just a few years (I would say 2). Portugal, on the other hand, is maintaining GDP value – but will keep as a slow laggard once the storms calms down. And you don’t change things if you don’t let the economy follows its course and acts on unproductive investments.
First of all, let me mind about the plan on itself and how it developed in BPP recent history.
BPP is one of Portugal’s investment banks (and probably one of the largest that dedicates solely to this kind of operation, without the deposits & loans safety net that the main consumer banks in Portugal have), mainly responsible for private fortunes investment management. With its current size and shape, it poses little risk to the Portuguese banking system altogether. And at a first instance, the State ruled out any intervention to help this bank, based on this justification – and, lets be honest about it, it was a decision that made sense. Without any signicant risk to the majority of the populations savings (and the participants on it being warned and admittingly running the risks a higher payout implied) and the overall banking safes and loans system, it made little sense for the State to be running into higher external debt compromises (in an already over indebted economy) to safeguard such an entity.
Still, some days later of Banco de Portugal announcement that it would not extend its safety umbrella to Banco Privado Português, the same entity (BdP) sponsored a ‘privately ran’ refunding programm to secure BPP. On this programm, the major Portuguese private banks (some of which are dangerously tied to the Government, like Caixa Geral de Depósitos and Banco Comercial Português) lended the required amount to BPP, and then, using the stately developed safety net, refinanced themselves through signed off State secured credit lines.
I don’t think I need to stress how a… curious move this is. First of all, the State (already debt-buried due to a latent bad management over the last 50 years) is applying the Portuguese People money (ours, the one we all pay in our taxes) to safe a non-strategical bank – let me point out that (if you haven’t by now) I would have a different approach for a bigger, more risk-systemic prone institution. Portugal should take a closer look to its debt level – that is dangerously high! That means carefully judging what investments to make and loans to take.
Then, as Expresso title refers to, the institutionalised fear of bankruptcies in Portugal – from which this case is an example. I am not for bankruptcies. But the point is, they exist for a reason – it is the way the economy gets rid of unproductive investments. When a State acts to prevent them, it is maintaining economic garbage that weights in the overall system, consuming useful resources that could be more value generating elsewhere.
This fear of letting the economy flow (and act on a paternalistic way towards private investment), laggards Portugal’s development. It is on the root of our extremely low economic growth over the past 30 years. It is true that Portugal (unlike most of Western countries) is not on a recession – but, the point is, we don’t experience (and aren’t expected to) any GDP growth over 1% in the last few years and foreseable ones.
The US are on the midst of a major economy crisis. But, read my words, they will come out of it as a rocket in just a few years (I would say 2). Portugal, on the other hand, is maintaining GDP value – but will keep as a slow laggard once the storms calms down. And you don’t change things if you don’t let the economy follows its course and acts on unproductive investments.
Tuesday 25 November 2008
Ignoring the consumer usually is not the brightest strategy
It is often rightfully considered when of the most powerful industries in the World. Detroit motorbusiness generates anually a higher income than a wide number of independent and sovereign countries all over the World. But what it seemed like a rocksolid business, is now trembling and asking for (the U.S. much hated) governmental hand.
A crutial mistake that lead to this situation was a classical one. And one we all wouldn't be expecting of such giants - but maybe thats what traditionally happens to giants, they grow so much that they lose sight from who buys their products.
The Big-Three Detroit automakers (Ford, General Motors and Chrysler) have lost their consumer focus. It is as simple as that. They thought they could control the market, the cars people would demand forever, ignoring the World that was evolving around them, like shuting themselves from whatever happened out there. Well that wasn't true, and now Detroit is learning the lesson.
You can't really ignore consumers. Detroit has gone after a model of creating people's demand for their products, and ignoring trends that influenced what people wanted from their cars. It would come on a time when consumers would become more and more sensible to environmental issues, more and more cash strapped to ignore that their cars costed a fortune just to fill the gas tank (of increasingly high-priced petrol, due to oil supply shortage and increasing demand). You couldn't think that you could drive demand forever for big gas-guzzlers in front of consumers eyes and sharpen their teeth for the cars they made - not the cars people would want to buy!
And you can't ignore competition. Especially when they have heard consumers. Especially when European and Japonese car makers are selling cars in the U.S. that they know are right in terms of marketing trend and people will demand in the medium term (when they realize those cars cost less, are better quality-built and more fuel consumption efficient ones).
Detroit has always been an inspiration for marketeers all over the World, with Henry Ford leading the pack of brilliancy in building a great industry from realising what the consumers really demanded. Now, the U.S. automakers are again presenting and remembering a valuable lesson the marketing World shouldn't forget.
Tuesday 18 November 2008
A hint on a possible coalition?
The words were pretty surprising, and let me be sincere about it, I personally think that it is the kind of blunder that can end any political career. But, when Manuela Ferreira Leite, the main opposition party leader, today said that it could be good to have a 6-months periods without democracy, she could be hinting at a bigger and bolder move than just a quick slip of tongue and thought towards more far-right wing (or far-left, don't forget it...) ideals or utopias.
Portugal is immersed in a crisis that goes well beyond the turmoil that affects the World's economy nowadays. With a 100% debt weight (GNP index), around 5% annual debt service (thus meaning, that something like 5% of all that we produce is used to pay interest....), a sharply unfavourable foreign trade sheet, sluggish (at best) economic growth over the last few years, weak productivity, an annual and consistent Office budget deficit,... Portugal is struggling to keep alive on the international scene.
Everyone knows that huge reforms are needed to correct this situation, a gigantic task that every Portuguese knows to be of epic proportions... and every Portuguese knows will take its toll on any government. So, wouldn't it be good if a government had such power for a finite period of time to tackle those reforms?
The so called "Central Block" was an early 80's government coalition, between the two biggest Portuguese political parties (closer to social democrat values), in a time when the Portugal was also in a severe crisis, paying the price for getting out of an old-fashioned government and economic system to a revolution in a increasingly high competitive and changing World. Who lived it knows just how difficult it was to put this country up for running back again.
Such a coalition nowadays would be particularly positive. It could bring the stability to put those much needed reforms running, to a point when there would be no turning back. Could it be what the country needs? I am not sure, but the situation surely looks grim, with several disfunctionalities erupting from too many systems in our nation, with structural problems highly visible in Justice, Treasury, Economy and Education. Maybe the time as come to propose something radical to fix things up.
Just a few words of caution:
- such a coalition would only work out for a short period - after some months (luckily at least two years) it would break down, amid internal turmoil, as natural ideological differencies would start to erupt, and both parties would try to become dominant. A major characteristic with such a solution would be that this would still be a democracy, and that natural differences would flair up - fortunately!;
- though such a coalition would be positive at a legislative and executive level, it shouldn't interfere with the other major State power - judicial one. Courts and police should maintain its independence and the coalition should be closely scrutinised on its activities by the judicial and presidential institutions;
- both parties should be prepared for a rough time. Public opinion would not adhere to many of the proposed politics (remember this is one of the major reasons reforms are still to implemented), and they should be brave enough to sail through the consequences... and know that at the end of the coalition, both would have lost a significant share of voters.
I am not sure at what Manuela Ferreira Leite wanted to say. But maybe she was hinting that such a solution would be possible with her on the helm of PSD. Lets hope it that was what it meant...
Wednesday 5 November 2008
How a small stone throwed to the lake can generate a large wave that changes the shoreline
"Nothing is stronger than an idea whose time has come" - Victor Hugo
http://en.wikipedia.org/wiki/Rosa_parks
http://en.wikipedia.org/wiki/Martin_Luther_King,_Jr.
In 1955, a middle-age bus driver stood up and moved to the back of the vehicle, towards a 42 year-old black working mother. The words and actions that ensued changed the United States and the World, granting equal civil rights to a group of people that always had been put aside. We can recount everything that followed, the 60's and 70's struggles, the positive discrimination legislation in some areas to counter the negatively bias that was rooted in society, the politically-correct movement, the gradual acceptance of differences, the large impact the media had on culture and the way hip-hop became fashionable. But the point is, that small rock that was thrown more than 50 years ago, in a semi-obscure corner of USA, reached the lake shore today, when Barack Obama was elected, ending the landscape for years to come.
50 years ago, James Blake and Rosa Parks had no idea what would happen. But when one has any doubt about what the importance of individual actions on the World, I think this one says it all. It let the trigger go, and ignite that idea whose time had come.
http://en.wikipedia.org/wiki/Rosa_parks
http://en.wikipedia.org/wiki/Martin_Luther_King,_Jr.
Tuesday 4 November 2008
For the People, by the People, through the People
I am not sure who will win the Presidential Race in the US (though I have a hunch...), but, whatever happens, let me say how joyful it is to watch such an electoral turnout in a mature democracy. It is really amazing to watch people queueing for 2 hours, in the rain and cold, waiting for their turn to vote. In a democracy old of 230 years, it is great to understand that these People still believe that their individual vote will make the difference!
Monday 3 November 2008
Auditing
When you audit a company, when you certify their figures, what you are doing is stamping your credibility on it. You are shouting to the World "You all know me, and you know I don't lie. And I hereby say that, having thoughly examined this company, it, on itself, is not lying".
Credibility is central to auditing business. There is nothing on it as one reputation. And one earns it through years of meticuluous and successful books examinations, warehouse stock counting, documents and bills checking and cross-checking. It is not easy to achieve. And it is one's most important asset in this business. People will hire you for your reputation, for the undisputable stamp of quality you put on ones results, for the beyond any doubt assertion you do to their books.
So there isn't anything more important than its reputation and credibility for an auditor. Still, it is interesting to see a situation like the Banco Português de Negócios', where you can find competent auditors who did their business and even contradicting their hirers intention issued warnings on their situation (like Delloitte did in 2003, and being 'fired' for that) and others who, for 4 consecutive years, referenced the 'good health' of BPN's accounts - something we now are sure wasn't the true.
The auditors performed their job at BPN - some of them rather poorly. Because of that, the faulty auditors credibility is not much of a value nowadays, and all the companies it certified over the last years are shadowed by its bad practice - their accounts are not trustworhty anymore. Let's see where this ends up for this auditing company - but we all watched what happened to Andersen a few years ago on Enron's...
Sunday 2 November 2008
A word on Banco de Portugal
As the Portuguese central bank, BdP should be the central guarantee of Portugal’s finantial system. Still, over the last few months, a number of worrying situations as occurred, the ones BdP should prevent.
1) Today’s announcement that Banco Português de Negócios will be nationalized as from tomorrow, is the last word on a very confuse situation evolving this bank – and a clear sign BdP should have acted earlier. BPN has always been a somewhat misty institution, a less than clear actor in Portuguese banking system, with a confuse shareholder list, not fully-disclosed operations, an aggressive stance on companies acquisition and an incredible list of exotic actives (including an impressive collection of Miro’s modern art paintings). In 2003, Deloitte (BPN auditor at the time) had already issued an alert to the extreme weakness of some of the bank’s ratios – not only BdP didn’t act on the warning, but it also let Deloitte relationship with BPN be terminated and replaced by a new auditor (which never issued any warning nor acted on what we now know was irresponsible banking management). Still, despite this incident, and the surmounting and increasingly worrying news that were coming from BPN, never (before June this year, after a very harsh warning from BPN new Board, directed by Miguel Cadilhe, a former Portuguese Finance Minister) as the BdP acted or investigated or audited BPN by itself;
2) A similar attitude was taken on BCP issue. We now know that BCP has acted on a very unclear way in a number of occasions, namely funding the buying of its stocks by investors in order to strengthen the ‘decision hard core’ and undisclosed offshore operations. Despite the high profile of the bank and its much speculate driven high share value, the BdP never audited the bank’s bills or operations;
3) Over the last few years, Portugal has steeply increased its debt ratios, that now surmount closely to 90% of the country’s GDP. Default situations are on the rise, together with loans signed on to pay for other loans,… Still BdP is failing to take any way of action on this problem, particularly on luxury or near-luxury products acquired through high-interest credit to consumption.
These 3 issues, unrelated should be enough to call for action on Banco de Portugal way of dealing with the nowadays and actual situation of the Portuguese economy, but special the financial system it regulates. We all should pay close attention to this issue on the next weeks.
2450 Million Euros
It is one of the most incredible features of Portuguese economy. We all learned in college that the State is usually a reputable entity, that assumes all its debts and pays them fully at the contractual time. Well… not the Portuguese one.
After years of irresponsible cash flow management, the State debt to the private sector surmounts at… 2450 Million euros! Lets not try to drive this to small politics – this isn’t a problem solely of this government, or the one before, it is an issue that has been initiated decades ago, but in which each individual government since then is responsible for not being able to tacke. Delays on payments from public sector hospitals to suppliers, not paying contracted work on schools assistance, or construction works or… whatever. It is something that runs across all the Portuguese economy. A huge problem waiting to be tackled, that consumes valuable resources from the private companies, shifting money from investment to cover the hole of money that the public sector owes them.
Now, as recession threatens (? – I think its already here) to plague the Western world, and cheaper loans are gone, the Portuguese government decided to announce another program to end public sector debts – a even greater need nowadays, that would enable the affected companies to stop loans to cover this hole, while injecting money in the whole economy. But how is this going to work? A major question mark arises, even because some of those debts were not contracted directly from government-dependent offices, but by Towns or semi-public institutions like hospitals.
So, the word is… let me wait and see.
After years of irresponsible cash flow management, the State debt to the private sector surmounts at… 2450 Million euros! Lets not try to drive this to small politics – this isn’t a problem solely of this government, or the one before, it is an issue that has been initiated decades ago, but in which each individual government since then is responsible for not being able to tacke. Delays on payments from public sector hospitals to suppliers, not paying contracted work on schools assistance, or construction works or… whatever. It is something that runs across all the Portuguese economy. A huge problem waiting to be tackled, that consumes valuable resources from the private companies, shifting money from investment to cover the hole of money that the public sector owes them.
Now, as recession threatens (? – I think its already here) to plague the Western world, and cheaper loans are gone, the Portuguese government decided to announce another program to end public sector debts – a even greater need nowadays, that would enable the affected companies to stop loans to cover this hole, while injecting money in the whole economy. But how is this going to work? A major question mark arises, even because some of those debts were not contracted directly from government-dependent offices, but by Towns or semi-public institutions like hospitals.
So, the word is… let me wait and see.
Wednesday 29 October 2008
Yunus
I was lucky enough to get an invitation to Muhammad Yunus conference today at ISCTE. I must say I was thrilled to meet and hear from the man who started that revolution that is microcredit, and received the Nobel Peace Prize award for his efforts on ending poverty. I love the simple idea of "don't give him the fish, but help him learn on how to fish it", and the simple paradigma that is a banking system grounded in trust on mankind. For the (still) strong idealistic guy that lives in me, these are ideas that are worth the World. And to meet the guy behind them was an unforgettable opportunity.
But, after watching the cool, confident but sober manner of Mr Yunus, hearing him talk for about one hour, what is really into my mind now is... and simply this revolucionary microcredit idea started. Just by trying to help some persons on the village next to the university (on a pretty naif way). It was the commercial bankers refusal (and the grounds on how they explained the refusal) that ignited it all. Not a very genius, inspirational moment of thought while trying to figure a theory to overcome global poverty, but the need to help those few people that were needing it just around the corner... and then intelligently (and seeing the problem on a totally different way from the people around him) walking the path that opened before him, tackling each small opportunity to help people to master their own faith, solving new problems, finding new simple solutions, and then, after some years, you realise you just changed so many persons lifes! And you are so proud of it! So proud, that it is your prime achievement, not the Nobel you didn't mention in your entire lecture.
Thanks Mr. Yunus! Let's work, on small steps, on helping just a few (wasn't it Mother Theresa who said "If you can't feed the whole world, then, feed just one"), each one of us, towards that vision of yours: that our children need to go to a Poverty Museum to see poverty, because there isn't such in the World anymore...
P.S- And a very special and warm thanks to Rita, for getting me the invitation.
Tuesday 30 September 2008
On sustainability
Sustainability is one of those fashionable words, that is often use in a somehow vague concept, void of real meaning. It is usually connoted with a vaguely good intended environmental concern, with little real economic or political meaning. I truly believe this is about to change.
One of the main critics that is being appointed to the US financial system (that is basically now on the verge of something close to a collapse) is it’s short sightness. The major argument is that over the last few years, the investors have been more concerned with the immediate annual (and quarter) results of a company, than with its capacity to achieve its objectives steadily, year after year. That a big revenue in a year would be more important than a substantially lower income, achieved on a more (lets start using the word) sustainable way. This is natural – if a company would show any sign that it would not perform accordingly with our expectancy of a high income, we could shift our investment to another one that would. More importantly, we could scavenge a company of its resources to ensure that annual high income, and then shift our money accordingly to a similar one – and we could do this year after year.
The point is, on a given moment (and it seems this is it), the company’s urgency to ensure the annual figures would implode. That the companies would no longer be able to ensure those high demanded dividend and share price gains, because they had eroded their investment capability, by shifting money from sustainable long-term revenue construction to immediate results and stakeholders profits. This, with the shareholders complacency, shown through huge bonuses and prizes to top management, and regulatory agencies and companies ‘amen’.
I truly believe this is really about to change. At least for the next years, I believe we will all be able to learn from our mistakes on this issue, and build a capitalism that is a lot purer – we all have learnt in college that every share price incorporates not only immediate gains, but also the expectancy of futures gains, through ‘sustainable’ management practices. We have forgotten about that, blinded by the light of huge profits right on the next quarter. But I think we will learn the lesson, that for long-term gains on a limited resources economy (like any), we should put investment on creating real assets first, in order to gain economic sustainability.
One of the main critics that is being appointed to the US financial system (that is basically now on the verge of something close to a collapse) is it’s short sightness. The major argument is that over the last few years, the investors have been more concerned with the immediate annual (and quarter) results of a company, than with its capacity to achieve its objectives steadily, year after year. That a big revenue in a year would be more important than a substantially lower income, achieved on a more (lets start using the word) sustainable way. This is natural – if a company would show any sign that it would not perform accordingly with our expectancy of a high income, we could shift our investment to another one that would. More importantly, we could scavenge a company of its resources to ensure that annual high income, and then shift our money accordingly to a similar one – and we could do this year after year.
The point is, on a given moment (and it seems this is it), the company’s urgency to ensure the annual figures would implode. That the companies would no longer be able to ensure those high demanded dividend and share price gains, because they had eroded their investment capability, by shifting money from sustainable long-term revenue construction to immediate results and stakeholders profits. This, with the shareholders complacency, shown through huge bonuses and prizes to top management, and regulatory agencies and companies ‘amen’.
I truly believe this is really about to change. At least for the next years, I believe we will all be able to learn from our mistakes on this issue, and build a capitalism that is a lot purer – we all have learnt in college that every share price incorporates not only immediate gains, but also the expectancy of futures gains, through ‘sustainable’ management practices. We have forgotten about that, blinded by the light of huge profits right on the next quarter. But I think we will learn the lesson, that for long-term gains on a limited resources economy (like any), we should put investment on creating real assets first, in order to gain economic sustainability.
Monday 22 September 2008
On Deco Boycott
It comes to no surprise that Deco (the major Portuguese consumer association) is calling for a boycott on gas, during the next few days. It is a natural reaction, on the face of the latest developments on gas prices (see … for a quick analysis). Still, its effect shall probably be very limited:
- The refered boycott, is scheduled to take place only on Saturday. So it will have a very limited effect on major gas companies’ revenues. The income that will not happen on Saturday will simply move forward to Sunday or anticipated to Friday;
- That comes as, essentially, there is no real alternative to gas in the Portuguese individual transportation market. People move essentially by car, and I would say that 99.9% of all cars have gas as their main source of fuel and power. So, again, if you use it but don’t buy it to restock of fuel, you will simply do it on another day. And consumers can’t expect to extend the protest, because gas is nowadays a first need good so… people will buy it after a (short) while. In the end of the month, this boycott will not affect companies revenues at all;
- And it will not affect the companies, because, they operate essentially in a duopoly. Even if one of the minor competitors launched a price war, trying to enhance on the media attention on it, it would have a limited impact. It is the two big players that count on this war, and we have already seen that they both maximize their profits by shadowing each other moves. So, if Galp doesn’t decrease its prices, then Repsol will not do it neither.
I am not claiming that this will not have an impact on gas prices on the country. Probably, Galp will marginally decrease its prices and Repsol will follow, allowing both sides (gas companies and Deco representing the consumers) can claim victory. But, and again, the only real way to change this comfortable price position from the companies would be to boost competition. And that asks for a clever government intervention, easing fusions between minor players, reconsidering on gas concessions for the two major companies (forcing them to sell stores) or making the market attractive enough for a new player to enter in (not very plausible). If this isn’t done, then the market will keep playing as it is. To maximize revenue and company’s profit by playing at high parity prices.
- The refered boycott, is scheduled to take place only on Saturday. So it will have a very limited effect on major gas companies’ revenues. The income that will not happen on Saturday will simply move forward to Sunday or anticipated to Friday;
- That comes as, essentially, there is no real alternative to gas in the Portuguese individual transportation market. People move essentially by car, and I would say that 99.9% of all cars have gas as their main source of fuel and power. So, again, if you use it but don’t buy it to restock of fuel, you will simply do it on another day. And consumers can’t expect to extend the protest, because gas is nowadays a first need good so… people will buy it after a (short) while. In the end of the month, this boycott will not affect companies revenues at all;
- And it will not affect the companies, because, they operate essentially in a duopoly. Even if one of the minor competitors launched a price war, trying to enhance on the media attention on it, it would have a limited impact. It is the two big players that count on this war, and we have already seen that they both maximize their profits by shadowing each other moves. So, if Galp doesn’t decrease its prices, then Repsol will not do it neither.
I am not claiming that this will not have an impact on gas prices on the country. Probably, Galp will marginally decrease its prices and Repsol will follow, allowing both sides (gas companies and Deco representing the consumers) can claim victory. But, and again, the only real way to change this comfortable price position from the companies would be to boost competition. And that asks for a clever government intervention, easing fusions between minor players, reconsidering on gas concessions for the two major companies (forcing them to sell stores) or making the market attractive enough for a new player to enter in (not very plausible). If this isn’t done, then the market will keep playing as it is. To maximize revenue and company’s profit by playing at high parity prices.
Sunday 21 September 2008
Lender of Last Resort
People are eager to compare the current nowadays economic crisis with the 1929’s Great Depression. Though they are right in a number of issues (but don’t forget, that we are 3 seeing 3 crises interacting together, and not just a ‘bubble implosion’ in the house and stocks market, there is a huge difference in one point.
In the aftermath of the Great Depression, the political power and economic thinkers joined forces, in order to establish a system that would prevent such a huge disaster to happen again. A number of measures were the result of that thinking. And, though the World is facing a very tough moment, it is reassuring to see that this system is really working, and helping us to avoid a major falldown like the one we have seen in the 30’s.
Things like the separation of both banking systems (the investment one and the safes and loans one) is preventing this crisis to really impact on the money people have trusted their banks as deposits – of course the impact is big in terms of investments in risky assets (like structured funds, stocks,…), but the money people put aside as safe is still there for them.
But the major change is that, from the beginning, the State knew it should get a grip on the Economy. Of course there was resistance at the beginning to interfere in the economy - that is not our economic doctrinal. But, after a certain point, there was a generalized believe (and no discussions based on theory) about what should be done. And that intervention was based on the Central Bank, the economy center of all countries economies, the regulator of financial activity, with a role that was much strengthened by Keynes and others thoughts on the aftermath of 1929.
Besides the responsibility of regulating the banks and financial institutions, the Central Bank as 2 powers that are much in hand in a situation like this: act as an insurer of people’s deposits in financial institutions that go bankrupt (ensuring that, even if one’s bank is gone, is money will not entirely be jeopardized) and the ‘Lender of Last Resort’ role. This, that we have seen in action on the last few weeks in a number of occasions (namely in AIG case), means that the Central Bank of a country (this case, the US Central Reserve) will act to lend money of buy troubled institutions, preventing their bankruptcy, their default in the case of financial obligations to other institutions, and thus, stopping the bankruptcies cascade that could follow the falling down of a major institution.
The crisis is deep, and it will take years to overcome. But, thanks the lessons we have learnt from the past, it may not be as painful as before. Still, the task is huge, and from the actions that will be taken in the next few weeks, it will depend its depth and length.
http://economia.publico.clix.pt/noticia.aspx?id=1343470&idCanal=57
In the aftermath of the Great Depression, the political power and economic thinkers joined forces, in order to establish a system that would prevent such a huge disaster to happen again. A number of measures were the result of that thinking. And, though the World is facing a very tough moment, it is reassuring to see that this system is really working, and helping us to avoid a major falldown like the one we have seen in the 30’s.
Things like the separation of both banking systems (the investment one and the safes and loans one) is preventing this crisis to really impact on the money people have trusted their banks as deposits – of course the impact is big in terms of investments in risky assets (like structured funds, stocks,…), but the money people put aside as safe is still there for them.
But the major change is that, from the beginning, the State knew it should get a grip on the Economy. Of course there was resistance at the beginning to interfere in the economy - that is not our economic doctrinal. But, after a certain point, there was a generalized believe (and no discussions based on theory) about what should be done. And that intervention was based on the Central Bank, the economy center of all countries economies, the regulator of financial activity, with a role that was much strengthened by Keynes and others thoughts on the aftermath of 1929.
Besides the responsibility of regulating the banks and financial institutions, the Central Bank as 2 powers that are much in hand in a situation like this: act as an insurer of people’s deposits in financial institutions that go bankrupt (ensuring that, even if one’s bank is gone, is money will not entirely be jeopardized) and the ‘Lender of Last Resort’ role. This, that we have seen in action on the last few weeks in a number of occasions (namely in AIG case), means that the Central Bank of a country (this case, the US Central Reserve) will act to lend money of buy troubled institutions, preventing their bankruptcy, their default in the case of financial obligations to other institutions, and thus, stopping the bankruptcies cascade that could follow the falling down of a major institution.
The crisis is deep, and it will take years to overcome. But, thanks the lessons we have learnt from the past, it may not be as painful as before. Still, the task is huge, and from the actions that will be taken in the next few weeks, it will depend its depth and length.
http://economia.publico.clix.pt/noticia.aspx?id=1343470&idCanal=57
Thursday 18 September 2008
2 is usually a simple number
Especially if you studied economics, this is true. Do you remember how 2 dominant players played on a free, low-growing, undifferentiated market?
On a free market dominated by two players, there is only one way to play – this, of course, considering their objective is to maximize revenue and profits! If such a case, then the way to do it is basically mimicking the moves of each other. Never be too audacious or bold, especially if you don’t have any real differentiator. If one of the 2 players is the strongest, then this should dictate market rules, and the other would simply follow. This way guarantees the stability of the market, and higher revenues, through low investment and balance of market share. It is simple, don’t do radical moves, and we will both endure success on this cash cow.
This is something that seems is escaping the comments on the Portuguese consumer gas prices latest moves. The point is, this market is dominated by two players, Galp and Repsol, which really take the bulk of the market – all other players are considerably smaller, non-organized and don’t really have a nationwide strategy behind their moves. Gas is absolutely undifferentiated, a real commodity, that is even sourced out from the same suppliers (Petrogal refineries in Sines and Leça da Palmeira), and marketing efforts have been put behind more on consolidation of position (ensuring consumer loyalty through cards and points programs) than on trial and market share wins. The only major differentiators in this market are localization and… pricing. Though placing is the only investment that really is capable of generating additional revenue, share and margin improvement, it is pricing that is under the spotlight nowadays. That is because consumers don’t realize why, after severe price increases over the last few weeks, now that oil price is tumbling down, gas prices basically sit the same. But the point is… this is 100% at what we should expect, given the circumstances – theory has predicted it 100% sharp.
When you let two players dominate the market, this is the probable outcome. They will play to increase income, minimize investment and assure larger profits. They will reflect supply price increases on end prices to the fullest, and be shier on price decreases. And the second biggest player will always mimic the biggest, with hours or days of delay. It is the way to maximize profit – and it is 100% legal! They don’t need to do cartelization or unruly agreements to get special advantage positions in the market – the market is theirs by nature of play, since they are only two.
The only way to prevent such a rule on the market is not by setting price boundaries like some suggested. Is increasing competition . A third player would unbalance the market, and ensure price competition. The only issue is where to source this third player from, to compete on a small, no-growth, low revenue margin, on the outskirts of Europe…
On a free market dominated by two players, there is only one way to play – this, of course, considering their objective is to maximize revenue and profits! If such a case, then the way to do it is basically mimicking the moves of each other. Never be too audacious or bold, especially if you don’t have any real differentiator. If one of the 2 players is the strongest, then this should dictate market rules, and the other would simply follow. This way guarantees the stability of the market, and higher revenues, through low investment and balance of market share. It is simple, don’t do radical moves, and we will both endure success on this cash cow.
This is something that seems is escaping the comments on the Portuguese consumer gas prices latest moves. The point is, this market is dominated by two players, Galp and Repsol, which really take the bulk of the market – all other players are considerably smaller, non-organized and don’t really have a nationwide strategy behind their moves. Gas is absolutely undifferentiated, a real commodity, that is even sourced out from the same suppliers (Petrogal refineries in Sines and Leça da Palmeira), and marketing efforts have been put behind more on consolidation of position (ensuring consumer loyalty through cards and points programs) than on trial and market share wins. The only major differentiators in this market are localization and… pricing. Though placing is the only investment that really is capable of generating additional revenue, share and margin improvement, it is pricing that is under the spotlight nowadays. That is because consumers don’t realize why, after severe price increases over the last few weeks, now that oil price is tumbling down, gas prices basically sit the same. But the point is… this is 100% at what we should expect, given the circumstances – theory has predicted it 100% sharp.
When you let two players dominate the market, this is the probable outcome. They will play to increase income, minimize investment and assure larger profits. They will reflect supply price increases on end prices to the fullest, and be shier on price decreases. And the second biggest player will always mimic the biggest, with hours or days of delay. It is the way to maximize profit – and it is 100% legal! They don’t need to do cartelization or unruly agreements to get special advantage positions in the market – the market is theirs by nature of play, since they are only two.
The only way to prevent such a rule on the market is not by setting price boundaries like some suggested. Is increasing competition . A third player would unbalance the market, and ensure price competition. The only issue is where to source this third player from, to compete on a small, no-growth, low revenue margin, on the outskirts of Europe…
Why
The first question that arises to my mind is exactly the one written in the title above. Why? Well, the reason is pretty simple. Though I have already some blogs, I feel that those are on a very different mood of what I intend with this one. One of them is a collection of bad jokes on the same word, another one a sarcastic view of the World and the third about how I get rid of stress every week. But this intends to be different. This is where I want to seriously comment on the news that are coming on the press, about the World, but primarily about Portugal. Don’t doubt, this will be about politics, economics and society. And, especially, about my personal views on those.
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