Wag, the dog!

In this brilliant 90's movie, a US President facing a severe internal problem finds he needs a strong public opinion distraction for political survival. As so, he stages a war to get the People on his side and with their mind away from the real problems.

Every time I watch the Portuguese Government trying to create a standoff with the President, pressing forward a politically controversial debate or using cheap rhetorical words, I remember this movie. As I just a Government runing away from solving a deep economical, financial and judicial crisis. Or covering huge inefficiency and corruption accusations. And I am scared.

Helena

I always liked this woman. I liked the way she spoke, her messages, even though I was really very young - tenish since I heard her. Nowadays, it doesn't surprise me she is a non-affiliated politician. The freshness, senseness and positive realism of her words and actions make her stand apart from the rest of the pack. She is my number one Portuguese politician.

http://cidadaosporlisboa.org/index.htm?no=50050000941,071

Bailout money repayment

It is curious to watch that American banks are starting to pay their bailout governmental funds. It is interesting to watch it from the Portuguese perspective - because we then realise that the US only lent these funds to banks, didn't give them for free. It means funds to banks were just considered a loan (not a giveaway) that banks would need to repay back. Interesting!

http://money.cnn.com/2009/12/14/news/companies/Wells_Fargo_TARP/index.htm?cnn=yes

Anúncio Nespresso - What else?

Usually commercials with celebrities tend to be boring endorsements. Everytime I watch a Nespresso film I grow more admired!

Why is that...

One of the things that really uneasies me is when I listen to politicians complain about something. There we have the country's top law makers, blaming others for not being able to do something - when we have empowered them, we have voted our power of making rules and laws and changes into their hands. And, then, the way they say it "They don't let me do my plan"... but never a sole reference to "I have problems in accomplish what I believe is the best for my country... and was empowered to".

On Aenor and Lusoponte as financial vehicles

The discussion on financial vehicles is definitively on. And is now finally reaching Portugal.

Vehicles are accounting and financial constructions to allow for a credit detachment from the main corporation. They are usually build to ensure credit quality without harming the main corporation debt level - thus lowering financing costs. They played at the forefront of the financial market from the late 90's throughout the past decade. But they were also one of the reasons for the financial market crumble of the last 2 years - the detachments were not as real as the money lending had assumed. Actually, they allowed companies to raise money at a lower cost vs the real incurred risk. And when the projects these vehicles financed came crumbling, it became obvious they were not really independent from the companies that created them - meaning they grabbed and pushed those companies in their fall. Some of the largest bankruptcies over the last year occurred as vehicles were unable to sustain themselves, creating a domino effect on both companies and lenders.

Aenor and Lusoponte are two consortiums put together to build and operate large road infrastructures in Portugal. They were built as financial vehicles, to allow for cheaper financing for both the vehicle (as it presented the infrastructure as a direct guarantee) and the companies behind them (as the debt incurred was not fully consolidated). And they are now in the center of the vehicles discussion in Portugal.

Banco de Portugal (regulatory entity for Portuguese banking system) is asking for an accounting review on this projects and the way some banks (namely BCP, one of the largest Portuguese banks, and one of the most affected by the nowadays crisis) consider them on their lending figures. If those vehicles are fully reflected as actual risks of the mother companies (specially Mota-Engil, the largest represented company), it may change the actual credit picture of those companies and banks. And mean a very different risk exposure image vs the one that is now presented at our eyes. With the subsequent finance cost implications for those companies and banks. But not considering the lessons on vehicles that we learnt over this past year, may simply mean that we are ignoring a huge possible pitfall - the kind of backfire that may give a strong shake to the Portuguese economic system.

http://economia.publico.clix.pt/noticia.aspx?id=1412557

On Aenor and Lusoponte as financial vehicles

The discussion on financial vehicles is definitively on. And is now finally reaching Portugal.

Vehicles are accounting and financial constructions to allow for a credit detachment from the main corporation. They are usually build to ensure credit quality without harming the main corporation debt level - thus lowering financing costs. They played at the forefront of the financial market from the late 90's throughout the past decade. But they were also one of the reasons for the financial market crumble of the last 2 years - the detachments were not as real as the money lending had assumed. Actually, they allowed companies to raise money at a lower cost vs the real incurred risk. And when the projects these vehicles financed came crumbling, it became obvious they were not really independent from the companies that created them - meaning they grabbed and pushed those companies in their fall. Some of the largest bankruptcies over the last year occurred as vehicles were unable to sustain themselves, creating a domino effect on both companies and lenders.

Aenor and Lusoponte are two consortiums put together to build and operate large road infrastructures in Portugal. They were built as financial vehicles, to allow for cheaper financing for both the vehicle (as it presented the infrastructure as a direct guarantee) and the companies behind them (as the debt incurred was not fully consolidated). And they are now in the center of the vehicles discussion in Portugal.

Banco de Portugal (regulatory entity for Portuguese banking system) is asking for an accounting review on this projects and the way some banks (namely BCP, one of the largest Portuguese banks, and one of the most affected by the nowadays crisis) consider them on their lending figures. If those vehicles are fully reflected as actual risks of the mother companies (specially Mota-Engil, the largest represented company), it may change the actual credit picture of those companies and banks. And mean a very different risk exposure image vs the one that is now presented at our eyes. With the subsequent finance cost implications for those companies and banks. But not considering the lessons on vehicles that we learnt over this past year, may simply mean that we are ignoring a huge possible pitfall - the kind of backfire that may give a strong shake to the Portuguese economic system.

http://economia.publico.clix.pt/noticia.aspx?id=1412557

Leveza e preocupação

O Ministro das Finanças português comunicou ontem que o défice orçamental será superior a 8% no exercício de 2009. Se a leveza com que um número desta magnitude é comunicado é preocupante, mais o é a noção da eficácia mínima da alavancagem do endividamento público - este 'fosso' orçamental, que deveria ser um acelerador do crescimento português em tempo de crise, mais não fez do que manter o decréscimo da economia portuguesa ao mesmo nível da performance de parceiros da União Europeia bem mais saudáveis. Isto, perante um autêntico 'monstro' de endividamento do Estado português que, não ignoremos, terá que ser pago no futuro (ainda na nossa geração, ou na dos nossos filhos).

O FMI e a EU têm sido muito claros no caminho que Portugal deve seguir com vista ao controlo da sua situação financeira, e ao caminho para a retoma económica - no entanto, os seus conselhos (que face à nossa situação deveriam realmente ser considerados mandatórios) têm sido continuamente ignorados, e mascarados com pequenos fait-divers.

http://economia.publico.clix.pt/noticia.aspx?id=1412279

O comportamento irracional do mercado

A very interesting Time article, about the way the market behaves. I must say it is mostly aligned with my personal thoughts - that the market is a lot less rational than economical theory states!

http://bit.ly/4HgmvG

Irish Government to cut expenditures

With a probable 12% deficit (and after several years of strong economical growth and governmental budgets surpluses) the Irish Government is set to huge central expenditures cuts, reestructuring the public administration, reducing army effectives and taking a hard stance on social benefits control. A measure many European Governments with less severe deficits but a consistent history of them should probably take.

http://economia.publico.clix.pt/noticia.aspx?id=1389120&idCanal=57

My own highway

I just traveled on a highway where I had (many times) the impression that mine was the only car on it. Which highway was this? The A8 and its extension to Aveiro (and then Oporto). With such a route being so scarsely traveled, the question is why is the Portuguese government planning to spend hundreds of millions of dollars on a third highway between Lisbon and Oporto. In a 'resources famine' situation like Portugal is now enduring, this seems to be an avoidable and highly questionable investment, that is not demand driven (remember A8 is almost 'desert')...

The MBA and the Fisherman

This is a parable I have crossed with in the last few days. It is widely know, and by no way, am I the writer of it...

"A Harvard MBA was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large yellow fin tuna. The MBA complimented the fisherman on the quality of his fish and asked how long it took to catch them.

The fisherman replied “only a little while”.

The MBA then asked why didn’t he stay out longer and catch more fish.

The fisherman said he had enough to support his family’s needs.

The MBA then asked, “but what do you do with the rest of your time?”
The fisherman said, “I sleep late, fish a little, play with my children, take siesta with my wife, stroll into the village each evening where I sip wine and play guitar with my friends – I have a full and busy life.”

The MBA scoffed, “I am a Harvard MBA and could help you! You should start by fishing longer everyday. You can then sell the extra fish you catch. With the extra revenue, you can buy a bigger boat. With the extra money the larger boat will bring, you can buy a second one and a third one and so on until you have an entire fleet of trawlers. Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing and distribution.

“You would need to leave this small coastal fishing village and move to Mexico City, then LA and

eventually NYC where you will run your expanding enterprise.”

The fisherman asked, “But, how long will this all take?”

To which the MBA replied, “15-20 years.”

“But what then?”

The American laughed and said that’s the best part. “When the time is right you would announce an IPO and sell your company stock to the public and become very rich – you would make millions.”

“Millions.. Then what?”

The MBA said, “Then you could retire – maybe move to a small coastal village, sleep late, do a little fishing, play with your grandkids, siesta in the afternoon, stroll into the village in the evenings…”

Don't lose track...

Surprise!!

According to the Portuguese Competition Autorithy, EDP (the electrical monopolist company in Portugal) practices unfairly high prices in the energy market due to lack of competition...

A keen eye of the EU Commission

The Comission announced today that it issued formal "Excessive Deficit Procedures" against a number of EU countries that overpassed the 3% limit (namely Spain, France and Ireland). This may be understood as a signal that the Commission will keep a keen eye on this issue, despite the deflactionary pressures and the mounting crisis. Still, some caution should be used on this procedures - after all, some public investment might be benefic to counterattack this crisis.

http://economia.publico.clix.pt/noticia.aspx?id=1377008&idCanal=57

Bad perspectives

An estimated 4.1% decline in the GDP, unemployment rate soaring to 11% in 2 years, low productivity, weak political leadership, a system plagued by corruption, slow and ineffective justice, low educational levels, low social commitment...

It seems Portugal is having a bad time. Let's see if it this is the low point, and work to ensure we can start climbing the mountain from the 'place' we are standing in.

http://economia.publico.clix.pt/noticia.aspx?id=1375905&idCanal=57

Microcredit in Portugal

Microcredit is a relatively new word, first used in the seventies to name a specific type of loan, of a relatively low amount, given to poor people, so they could gain some economical independence. It was initially designed to provide access to credit to people who were so poor they wouldn’t be eligible to any in the traditional banking system. Microcredit started in Bangladesh, through Muhammad Yunus and his Graemeen Bank, and since then (and supported on the positive impact it had on millions of Bengali households), it has spread over the entire World as a viable way to have a positive impact in the poor population, giving them credit to put their best efforts and creativity in action to run away from poverty claws – and all of this under an economical Liberal method!

As all new successful theories, some Portuguese banks have started their microcredit programs, crediting themselves as an adaptation to our country reality of Graemeen’s methods. The problem is, I must say, I am not sure if those programs were really designed to give a chance to Portuguese poor people or are just a good publicity stunt for the banks involved.

Of course microcredit in Portugal has been able to change lives. It provides the means (usually a €5000 limited credit) to people with good ideas and will to push it forward and make a new business that will get them out of poverty and into financial independence! And that is something absolutely amazing! My only question is why was it only conceded to 1100 persons since it started in 1999 in Portugal…

If we want it to work, we need to get it near ordinary people, make it simpler. That was one of the secrets of Graemeen’s success, and one of the most important things the Portuguese microcredit process was unable to capture…

On leveraging living standards through future generations earnings

What is happening now on the global economy had to be long awaited. The way we were improving our life was a "glass left on the beach". Not that living better, increasing our life standards has any problem - it is quite the opposite, really! But the way we have been doing it over the past decades is probably questionable.

There is nothing wrong is living better! But we should primarily do it by incorporating in our living patterns our own productivity rise, or the expected product that we will achieve through our life (and that is a mechanism of credit leveraging, that has a natural, but usually assumed risk). In the last few years (especially in the last decade), we have seen a strong surge in consumption, that was possible through debt leveraging - but one that was not only considering our own productivity, but the product of the future generations. Not that it would happen directly for a short term consumption (like a LCD TV screen or even a car)! No! What one would do was to buy a house, counting on its appreciation, that was supported by a general feeling and urge to buy - that's the market working full scale. But at one point, houses were not being bought in one's family actual income, but on what one (and the market) would believe it would value in the long run - hence, what one would believe future generations would be willing to give to buy it. If we really think about it, on the limit, one would be pricing the house at an infinite price.

But we know our planet lives on finit resources - is one of the basics pillards of the economic theory. We had real warnings on this issue - but only a few were able to relate the "ecological footprint" to its economic consequences. When you say that if everyone would consume like the US, then you would need 3 Earths, what you say, is that available resources aren't enough to withstand that consumption pattern! Of course, not everyone in the World is living like a western citizen - but the point is that the global economy was already consuming above its generational fairshare, above the share of resources it should to allow for its safe and sustainable replenishment (if you have any doubts, please, think about one of the pillards of our economy, our number one energy source, oil). Basically, we were (and we are) consuming part of the resources that should be used by our children, and our children children.

Another way to see it, usually more 'economy wise', is when you measure debt burdens on families. From 2001 to 2004, the debt burden of a tipical middle income American family rose 33.1%. 33.1% in 3 years! Such a growth increase was to incurred to support (not short term luxuries, as one should expect) but to cover for heavier borrowing in house investment. By 2004, american families were facing a 108.4% debt/income relation - the first time in the US (at least in modern times) that debt would exceed income. That meant the american family spent more than 18% of their income in servicing debt... (data from a "Center for American Progress" report, written by Christian E. Weller in... 2006). The same happened in Portugal and throughout the rest of the western economies. When we let debt climb to become such a burden, what we are doing is conditioning the future generations choices and living standards, by compromising nowadays the share of resources that should be theirs on their own time.

What we are seeing nowadays is a strong market correction. We have leveraged our living standard in the expected earnings of future generations - we are now stoping our irrational growth, and dropping it to more rocksolid nowadays production. And, as always has been, that is called a recession.

-12.7%

We just had news on Japan's economy performance on the last quarter. A 12.7 percent contraction is simply to bad of a figure to easily walk over. Specially when we are talking about the world's fourth economy. We all hope it is only an effect of what happened... and not a sign of what lies ahead!

Homosexual marriage

It is incredible how the Portuguese government has brought up this new subject over the last few weeks, as new flag to be waved and fought for the next legislative elections. It seems this new theme is just a way to introduce entropy in electoral debate, to divert from the more urgent debate on the economy and the country’s strategy for the next years to come. Don’t misunderstand me – I think the homosexual wedding is an important topic, and, as a matter of fact, I am for it. But, I also believe that we shouldn’t be diverted to focus on what we want our country to become, and how do we want to do it. Topics like economic strategy, corruption fight and legal system effectiveness and functionality are much more important and urgent to discuss.

-2%

A 2% GNP decrease, though expected and aligned with what we have seen from the Western European economies, is a bad start to this crisis…

Let’s see what this will develop to during this year, but one thing is certain, Portugal will need to learn how to close its fists, grasp its teeth and fight out this stillness that evaded it the last decade.

A gigantic prisoner dilemma?

Part of a recession is explained because people fail to consum, being afraid of what will happen in the future - and, so, prompting it. That means that if everyone start buying and consuming again we would be able to lift off from recession, right (yes, I know I am being simplistic, but lets keep this simple for the analogy, ok?)? Easy, right? No! Hard! Because, as in any prisoner dilemma, the problem is that people in such situations (without perfect information and synchronisation) will not act as one sole body, but as billions of individual and independet decision-takers, afraid of giving the first step, consuming, just for eveyone else to be stopped and holding for their savings safe shore, so not enabling the economy to get back to growth and leaving the first brave consumier crippled in debts...

It will take massive energy and resources to give back consumers their confidence, so we can see not only an isolated first step, but many ones, as the 'prisoners' get the same information and thrust forward on the economy. It won't be easy. But it will be done!

Save Miguel

For years, Portugal's cork industry has quietly and helplessly seen its main application been attacked and swept away by the plastic industry. The arguments ranged from price issues (true on the short term) to the environmental unfriendiness of the business (when, in fact, is one of the most sustainable and eco-friendly industries).

Now, the Portuguese cork industry is fighting back. Thankfully.