Limited Service

For the next week and a half the writer will be busy (barring the inclemencies which are sure to arrive) with the olive harvest. In an emergency, he can be found about a kilometre east of point A on the map.




In the meantime, readers might want to think on the following point:

1). What if the gains to had from the control of electricity have finally sunk themselves deep into the realm of Diminishing Marginal Returns?

On a less somber note (especially for those in NYC), our friends at Carter & Cavero Old World Olive Oil have a stand at the Shops at Bryant Park - 42nd between 5th and 6th. They're located in section G. Clicking on their name at here will provide a nice overview of what they have on offer.

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Storage

What we like most about FT Alphaville is their writers' ability to regularly haul out really interesting items that would escape the attention of any but specialists in a given field. Last Thursday's piece on petroleum inventory is a case in point.

Beginning with a contrarian take on recent decreases in gasoline stocks in the U.S., the entry moves on to a report on the enormous profitability of Dutch tank farm operator, Vopak (in the process introducing us to a blog by the name of Climateer Investing).

Of course, storage* of any kind is the business to be in during a deflationary recession in which oversupply of everything (including money itself) is the norm - hence the huge operating profits of not only Vopak, but the banking system itself (albeit on a somewhat shaky structure) and the excellent returns from precious metals and the endless demand for bonds, both sovereign and corporate.

Interestingly but not necessarily significantly so, for the electricity generating business the only method of increasing storage is to construct plants that can reliably supply energy on demand. Solar (except to some small degree solar steam generators) and wind, where so much money has gone in recent years, do not qualify in this regard.

*Other arrangements include the farmers' fields one can see from the northbound train into Madrid stuffed to the gills with brand new unsold cars or the huge increase in part-time employment everywhere. This latter is not only a much cheaper storage of labour than paying overtime to an overly pruned workforce but is the very real-world advantage of the German unemployment insurance system (although perhaps not as good as the Spanish method of calling up your nephew and throwing him one of those 50's from that wad you've got stored in the cookie jar when you need some help).

Vopak chart from Yahoo!

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Life's A Beach

The indispensible Kalebeul has directed our attention to an article in La Vanguardia which relates Spanish Attorney-General Cándido Conde-Pumpido's defense against charges that the number of municipal corruption prosecutions is skewed against certain (opposition) parties. Speaking before the nation's congress, he provided a brief statistical analysis of the work performed by his underlings.

We've done a brief rework, with a bit of information that might be useful to readers not familiar with the Spanish political landscape, of Carlos López' derived 'Corruptómetro' - including the amazing record of the now defunct Marbella political party, GIL.* We hope Mr. López doesn't mind our scooping up and editing part of his Google spreadsheet.

Our adaptation is below.



Readers might note that there seems to be some relationship between a high score and proximity to a beach heavily populated with foreigners. Someone with a bit of time on their hands might wish to do the same study, adding provinces or regions to the mix. The current one lets the national parties off the hook in, for example, Andalucía (PSOE) and Valencia (PP), in which local interest parties are not widely represented.

*Marbella city council - run as a private fiefdom by Jesús Gil's self-named party for about 15 years - has, at any given point in time, about 27 councillors serving the polity. A total of 17 make this list.

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Playing Hardball

Today's tidbit from real estate portal, El Idealista, has the president of the Cataluña branch of the Association of Real Estate Professionals, Joan Ollé Bertrán, complaining that the banks and cajas are imposing punitive terms on house buyers intent on purchasing a home from anyone other than the financial institution itself.

Included in this, according to that gentleman, would be higher commissions, higher spread over euribor, the inclusion of a euribor floor below which the interest rate becomes fixed, and so on. As Mr. Ollé puts it (translation ours), '...this practice consists in establishing different conditions of access to a mortgage in function of who is selling the property in question...'.

This should come as no surprise to anyone, should it? It would be very interesting for the banks to have gotten rid of as much of their current stock of debt-for-equity real estate as possible by the time, say in two years, that they are going to have to deal with the continued dysfunction of promotors and builders recently put on life support with loan extensions and modifications.

However, among the potential negative consequences of this policy stands out the effect it is going to have on property valuations as vendors not affiliated with banks, such as private parties, will have to calculate the difference in available terms into their price, in the end placing moderate, but continued, downward pressure on property values in general - particularly in areas with a large overhang of unsold homes.

Another item from the same source earlier this month announced that Tulipp was getting out of the business of organizing Dutch auctions of properties. The reason is that too many vendors were raising their asking prices before entering in these events in which the sale price is bid downward. As the article puts it, a flat ...with an initial price of 300,000 euros. At that moment it was listed in idealista.com at 270,000 euros. Desperate? Or just, plain stupid? We suspect the latter.

The two charts are of the latest data in the home sales series from the INE - to the end of September. The ten-month long range continues intact for both new and used residences. The rolling twelve-month line shows a drop. This reflects last fall's temporary spike in activity. Expect, barring emergencies, both lines to be flat - at about 220,000 and 180,000 units, respectively - by the time November's figures are published in the new year.

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Apples And Peaches

This weekend's really good bit of flame bait from Barry Ritholtz (in which he creates a brand new category of human being - the Ayn Rand Asshole) led, predictably and intentionally to a beautiful round of nonsense in the comments section. One that caught our eye came from Mr. Ritholtz himself as he happily flopped about in the muck that reflexively rushed toward his doorstep.

The top 1% of this country have it pretty damned good — they own multiple homes...

Coincidentally, this goes a long way towards explaining how fruitless the comparison of American and Spanish housing statistics is doomed to be.

The writer of Ibex Salad lives in 6-unit apartment block with no particular outstanding features. A rundown of the real estate assets owned by the strictly middle class residents (although we could perhaps exclude the typically property-rich and cash-poor señorito andaluz presently populating these pages with preposterous propositions) should prove interesting. From the ground floor up:

Apartment 1: Retired middle class couple who live most of the year in Pamplona (in a flat which they own), dividing their travelling between here, Cazorla, and another place they own in a beach town in Alicante;

Apartment 2: Family of four consisting of a high school teacher and a social security doctor and their two children. They own three homes in this town;

Apartment 3: This writer and his wife, a school teacher, who jointly own three homes. (May soon be four if the writer can subtly find a way to ease the recently installed mother in-law's passage to the promised land);

Apartment 4: A single school teacher with residences here and in Granada;

Apartment 5: Two-child couple. He is the manager of a caja de ahorros and she an oficial at a property registry. Their home plus the down payment made on a detached house that may take years to be built;

Apartment 6: School teacher plus recently unemployed husband and a baby. They own the flat and a couple of acres with a dilapidated farmhouse a few miles out of town.

These are not the rich folks referred to in The Big Picture, so how does one go about making comparisons? Directed clearly at Mr. Sánchez' very astute comment in our next-to-last post, here are a few suggestions - at least regarding the impediments facing anyone trying to rationally compare apples and peaches. The following list is neither complete nor organized in any particular way.

1). Because carrying costs, among other factors, make owning more than one residence less appealling to Americans, new construction in the U.S. - except in periods of speculative frenzy - generally reflects demographic changes;

2). Along the same lines, except in the case of first-time buyers or those buying to later rent out to tenants, all purchases end up also registering a sale. That's two transactions on the books;

3). Quite frequently, the sale and subsequent purchase of a home by American families will involve moving up the ladder a bit in terms of price. This is generally known as 'upgrading';

4). The same behaviour in Spain (in which very few places are more than a five hour drive from an ocean beach) would involve buying a holiday apartment. This 'upgrade' creates only one transaction that should be booked against the two that result in the U.S. in the case of purchases that are not a result of outright relocation;

5). There is a marked, if not measured, cultural tendency in Spain to not convert to cash inherited houses, even if they are not to be used. Mere generational change, without the added extra of population growth, creates demand for new housing. With estate planning gifts and actual inheritances producing about 12,000 property transactions a month, rain or shine, the effect should not be underestimated;

6). The existence of open borders in the EU as well as lots of cheap and short flights from northern Europe to any of eight or nine airports along the Mediterranean makes it very hard to calculate exactly how big the home buying market is in Spain;

7). Except in the cases of wealthy parts of Florida, New York or southern California, this is certainly not how it is in the U.S. The American market is defined by the population of the country.

We could go on.

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Hmmmmm...

Courtesy Materias Grises.

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Cherry Picking

Readers whose native language is not English might not know that the expression, 'cherry picking', refers to the practice of using out-of-context and unanalyzed data to prove what is proposed as a hypothesis but is, in reality, a foregone conclusion. The habit is widespread among the chattering class. Here's an example.

An article in the real estate promotion website, El Idealista, again mentions another frequently cited comparison between the United States and Spain. Departing slightly from the usual story that there are an equal number of unsold new homes in this country as in the U.S., this version of it is that (translation ours) '...in recent years, 860,000 new homes have been started in Spain while in countries like the U.S., with nearly seven times the population, work was begun on 1.1 million dwellings'.

The source of this information was a recent speech given by the chairman of the economics and business department of Pompeu Fabra University, José García-Montalvo. Given that this gentleman's webpage motto is: "Without data you are just one more person with an opinion", we are thinking that a bit of statistical background to this glaring disparity might be of use to readers who do not wish to be lumped in with that crowd of noisy uninformed.

Using 2007 through 2nd quarter 2009 Spanish home sales data from the INE and American figures for the same period from the U.S. Census Bureau and the National Association of Realtors and comparing them, for the sake of ease, with CIA World Factbook estimates of current population in both countries, we come up with the following information:

1). Of the 12,776,000 total homes sold in the U.S. since December 2006, 1,448,000 were new;

2). In the same period here, 1,534,000 homes got new owners - 717,000 of these were newly built;

3). Put otherwise, 11% of total sales in the U.S. involve new construction. 47% in Spain;

4). Summing all, both new and second hand, sales over the period in both countries and calculating this as sales per 1,000 residents we find that the United States' figure of 41.59 only slightly outperforms the 37.86 registered in Spain. Much of this difference might be explained by the Census Bureau's rather peculiar methodology, which counts signed sale contracts as actual 'sales', regardless as to whether they are actually consummated. The widespread use of clauses making deals contingent on the buyer's success in selling his or her current residence causes this data to grossly overestimate the number of actual sales in a slow market in which it is difficult to match transactions over the typical 90-day closing period - this not to mention the number of buyers who merely walk away from what is turning into a bad deal as prices drop.*

Did somebody mention something about data and opinions?**

*Add to this the higher birthrate in the U.S., and the consequent lesser proportion of people of home-buying age, this comparison draws even closer in real life. And after all that, there is a very large difference between Spanish population estimates and those of the CIA, this time turning the tide against Spain in this regard.

**We, in fact, were rather surprised to read that Mr. García-Montalvo hauled out this canard. His now disappeared blog, MontalvoLand, was generally a pretty good read.

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Journalism

Readers might have noticed that we, at times, have taken umbrage at the imbecilic content which postures as news and analysis in both the mainstream press and the (usually indistinguishable but for the shiny patina of sanctimoniousness beneath which it operates) blogosphere. Today, for a change of pace, we'll outline a complaint we have about practitioners of the journalistic profession itself.

Yesterday, a reader kindly informed us that this writer's name had recently cropped up in two very widely read English-language publications. We recall the situations perfectly. The first was the result of e-mail and telephone conversations, initiated in May of 2007, by a Barcelona-based American freelancer. The second, fruit of an e-mail received mid-summer this year and in interview conducted in late August. In both cases, not only did we agree to speak (for whatever that might be worth) but we also gladly did a fair amount of groundwork or actual research on their behalf.

Not that we don't feel a little smug and self-satisfied at seeing ourselves referred to and quoted in both the Wall Street Journal and BBC News, but the fact that the first piece was published in April of 2008 and the latter at the beginning of this past October and that in neither case were we informed of their publication - despite assurances in that regard - leaves us with a bit of a sour taste in the mouth.

Readers can find the WSJ piece here, and the BBC's here.

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A Humble Prognosis

A few items have caught our eye as we scan the foggy landscape for guidance...

1). Despite the fact that the long-short portfolio on the right hand sidebar is performing admirably (returns generally above or in line with the index, but volatility at 40% of the latter), the fact is that it is the short side that is generating all the returns. The longs are performing execrably;

2). Searching the Madrid exchange and the Eurostoxx 50 for additions to make, the only buy candidates to be found are either in the energy or the insurance sectors - which, incidentally, are the only items showing minimal vital signs in the entire play. Everything else (even reasonably healthy looking things like BBVA - in the chart) is in some stage of uglifaction - at least by our measures;

3). On Friday, The Motley Fool published a piece, entitled The Waterloo of the Bears, in the wake of the prior day's S&P 500 joyful 2.3% reaction to American GDP figures;

4). And best of all, the recent Globe and Mail piece touting a new bit of day trading software for the home gambling market. The tell-tale phrase - The meteoric rise of stocks so far this year has summoned the decade-old spirit of a past rally: the day trader. The reporter, inadvertantly, has nailed it on the head - legions of five-minute punters, labouring under the burden of a built-in long bias, are returning to the market.

All in all, it might be time to get on the other side of that one.

Astute readers will note a slight change in the aspect of the portfolio graphic on the right. We had suspected that there was an error in our spreadsheet for some time - and finally found it. Returns, and volatility, have been lowered somewhat. Too many years of using canned programs to calculate this stuff and we'd forgotten how to cook our own. Our apologies.

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Avoid Disappointment - Book Your Seat Early

Tuesday's Jaén province edition of El Ideal notes that only 20% of the 4,500 eligible have applied for the 420 euro central government subsidy made available to all the unemployed that had run out of all other options available - the most hopeless of the destitute, so to say. This echoes the 35% figure for the same in the province of Huelva, as reported by Huelva Información on Saturday.

The most convincing explanation for this unexpected outcome - in a country sporting a depression-era unemployment rate of 18% on the back of GDP deceleration of 'only' 3.9% and these two resulting, incomprehensibly, in a total systemic loan default rate of 4.93% - comes via the requirement that those that sign up for the Programa Temporal por Desempleo e Inserción attend retraining courses to aid in their reinsertion into what will most certainly (chuckle, chuckle) be a radically transformed Spanish economy come the end of the crisis.

That the resource most scarce for many of the eligible, at least in these two provinces, might be the free time available to attend class serves as further evidence of our belief that a far from insignificant proportion of Spain's catastrophic unemployment rate is merely fruit of business owners and workers placing the burden of the recession squarely on the shoulders of the government's fiscal deficit.

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