Monday, December 24, 2012

Minimum alcohol price: Cameron’s dodgy dossier

My respect for the British government sunk to a new low with their recent proposal to set a minimum price for alcohol of 45p.  This would raise the cost of a normal strength can of beer to £1.12 and add around 70p and £2 to bottles of non-premium wine and spirits respectively.  Many cut-price drinks offers would effectively be made illegal.

The move is justified on health grounds. In the words of David Cameron, who is personally championing this  assault on the rights and pockets of consumers, “it is aboutpeople pre-loading on very, very cheap, heavily discounted drink from some supermarkets.”   We are told that research has shown that a 45p per unit minimum would save 2,000 lives and 66,000 hospital admissions over 10 years as well as reducing overall consumption of alcohol by 4.3% .´

These alleged benefits have been so often repeated in the media you would think they are cast iron certainties.  But they are based on some very dubious research which has been completely discredited by an Adam Smith Institute report on the subject (The Minimal Evidence for Minimum Pricing).  I will return to this “research” later, but I recommend anyone who cares about honesty in public life to read it in full.  It is a breath-taking example of government and lobbyists softening up the public with some dodgy headline-grabbing statistics.

It is hard to know where to begin with how vehemently I oppose this proposal and how angry it has made me.  Here is a list of some of the ways I believe it is completely unjust and uncalled for (some of the arguments are lifted right out of the Adam Smith report):

  • It is totally unfair to punish almost the whole country (except teetotallers) by forcing them to pay an estimated £700m extra  a year to retailers and the drinks companies just to tackle a minority problem.  How many people do you know who “pre-load” on cheap booze before going out?  Obviously some do but we must be talking a low single digit % of the country.
  • Whatever this “research” says, it is very unlikely that heavy drinkers and pre-loaders will be deterred by these policies.  I know a few boozers (and used to be one in my younger, wilder days) and they are the last people to be put off by a price hike.  It is the moderate drinkers who have other priorities besides getting hammered who will cut back.
  •  Is a policy to reduce drinking really needed?  Alcohol consumption has been falling steadily in recent years any way, in fact by many times greater than the 4.3% fall claimed in the propaganda, sorry research, that accompanied the proposal.
  •  Even if we drink less because of the minimum will all the health benefits be positive?  Teetotallers die earlier than drinkers on average.  Home brewing and distilling will no doubt rise and may bring some unpleasant side-effects.
  • By everyone having to pay more money for less product the economy will suffer in at least two ways – a loss of jobs in the drinks and retail industries and a draining of demand from the rest of the economy as it is redirected to pay higher drinks prices.
  •  The government already hammers drinkers.  Between duty and VAT, half the price of a £5 bottle of wine goes to the state.  The so-called beer escalator has been one reason why so many pubs have closed their doors.  This policy will punish drinker and the economy again but this time without any of the additional costs flowing through to the government.
  • It is a highly regressive measure.  The poor and modest-earners will be hit much harder than the rich who don’t buy cheap brands and, even if they did, would not notice the increase as  a proportion of their salary.  It’s easy to imagine children going  hungry in some households because their boozing parents have been forced to pay more for their fix.
  • Most government busy-bodying and interference produces unforeseen and undesirable consequences.  Minimum alcohol pricing could for example easily lead to more crime – such as shoplifting and smuggling.  There may be other nasty knock-on effects from the increased poverty caused by this regressive measure such as child malnutrition.

But lots of lives will be saved right?  That’s where the The Minimal Evidence for Minimum Pricing report into the so-called research is so useful.  The evidence for the 2,000 saved lives is extremely scant and, in fact, a closer examination of the facts would suggest that this “trump card” is bogus in the extreme.    Here are a couple of snippets:

-          To support the idea that minimum pricing will reduce alcohol consumption by 4% and this will lead to many health benefits, a key assumption is that heavy drinkers will cut back more than moderate drinkers.  This is not supported by any analysis and actually flies in the face of what we all know to be true – the last people to cut down on their habits (like smoking) are the addicts.

-          The alcohol consumption data in the researchers’ model comes from 2006.  Since alcohol consumption has declined by at least 15% since then, these claims of 4% falls are ridiculous.  It’s already happened many times over.

-          The model also assumes that each % point fall in average consumption produces proportionate health benefits (reduced hospital visits, deaths etc).  In fact the NHS has recorded no such improvement in these figures since 2006 .  The clear implication is that falling consumption is due to the moderate drinkers cutting back (due to high taxes and recession perhaps) while the hardcore carry on regardless.

Please read the report.  You will never listen to any politician, lobbyist or reporter who quotes this kind of research in future without thinking back to it.

Saturday, December 8, 2012

How to be happier: three books, one answer

For those of you with short attention spans and don't want to read the whole piece, here's the best advice I have read about happiness:

Join a group

I have read a few books loosely covering a similar theme: human psychology and all offer very similar conclusions about the secret of happiness or at least one large part of it: regular social interaction with people you like:

The Social Animal by David Brooks

NT Times columnist's survey of scientific advances in the understanding of the brain and how it connects with our success and well-being.  He writes:

"According to research . . . the daily activities most associated with happiness are all social - having sex, socialising after work and having dinner with friends."  He also quotes research that estimated the increase in psychic well-being (happiness) from regularly meeting up with a club or society is equivalent to that of a  $65,000 salary increase.

The Chimp Paradox by Dr Steve Peters

Self-help book by the psychiatrist who many sports stars credit with helping them to win (it's a great book - see my post How Many Mental Problems Do You Have?).

Dr Peters doesn't specifically identify regular social interaction as the number 1 route to happiness but he has a lot to say about "troops", his description of the close circle of friends and family that we rely on throughout our life (like chimpanzees who live in troops).

For our evolutionary antecedents, failure to get on in the troop meant certain death so it's for this reason that chimps are observed spending 30% of their time socialising, primarily grooming each other.  If we don't satisfy this urge to socialise, writes Peters, we are denying our inner chimp a fundamental requirement for a happy life.

Thinking Fast and Slow by Daniel Kahneman

Nobel prize winner's distillation of a lifetime researching human thought and behaviour.  He says the best way to be happy is "to spend more time doing things we want to do with people we like to be with".  He writes about the research done into the effect of increases in material wealth - even winning millions on the lottery only boosts happiness for about a year he reckons.

My experience - I play football once a week (badly) with guys I have known for years and we dissect the game in the pub afterwards, mainly by taking the mick out of each other for mistakes we have made.  On reflection I suppose this is the kind of thing the experts have in mind and I think they are right: it does make me a lot happier.

Maybe I should take up something else but it would have to meet those three criteria: be enjoyable, be with people whose company I enjoy and be regular.  Suggestions on a postcard.

From our website:  UK and Spanish tax implications of a property in Spain

Sunday, November 25, 2012

Spanish tourism feels the heat

It's Spain's number one industry and main source of unemployment so it is merciful that tourism has held up well during the crisis.  But is Spanish tourism about to go into reverse?

Probably not, despite a fall in tourist numbers announced recently by researchers FRONTUR.  Overall tourist numbers were down 3.2% in October when compared to last year.

But October is not a key month for the industry and the same survey recorded an increase overall for the first 10 months of the year (total numbers up a healthy 3.1%).

Spain is a tourism superpower with only France attracting appreciably more visitors from overseas every year.  Spain gets twice as many visitors annually when compared to the UK for example.   This is unlikely to change rapidly - Spain has the infrastructure, the regulars (like those that visit their holiday homes or relatives) and a solid brand based on decades of delivering relatively cheap "sun and sand" holidays for families.

But on the flipside Spin needs tourism more so any signs of weakness are a big worry.  Delving into the recent report does suggest a few causes for concern.

There are some big regional variations with some regions, like Catalunya and the islands, doing well but others such as Andalucia (down 7%) struggling.

 Andalucia and its Costa del Sol is an area I know well and I have been a frequent visitor to its hotels and resorts.  It is a big generalisation but I think it represents a weak link in Spanish tourism.  There are a lot of very average hotels and beaches and the Costa del Sol seems to be relying on basic packages and low prices to attract families and those on a budget.  There is not a whole lot to appeal to the choosier, better off segments of the market.

And then there is the question of where all these tourists come from.  Here too the chart suggests a cause for concern:

The UK accounts for fully a quarter of all Spain's overseas visitors, easily the biggest market.  The Brit numbers are down on the month and stagnant for the year.

Maybe that's because of a lack of disposable income in Britain, or perhaps down to the higher flight prices and taxes.  The worry is that Spain has become a bit unfashionable in Britain given all of the alternatives available in more glamorous and interesting settings.

Whatever the cause it is clear that Spain needs to work at maintaining, never mind growing, its tourist base.  The cheap and cheerful sun and sand holidays won't do it.  Marketing more heavily outside of Europe and going upmarket might.  And that is exactly what the tourist ministry is pushing for.

From our website What to do if you get a letter from the Spanish tax office

Monday, November 12, 2012

Mendes is the latest British hero to light up 2012

It's a bit premature for annual reflection but I already know my abiding memory of this year will be: the union jack.

In Britain 2012 was the year when every business and organisation decided that flag-based marketing was the way to go.   Is there any product or service that has not been flogged by wrapping it up in a union jack?

The reason is pretty obvious.  An outpouring of patriotism and national pride as a result of the Diamond Jubilee, running a successful Olympics and numerous sporting successes.

The British Sports Personality of the Year has been a hotly discussed topic for months because the competition is so intense: Wiggins, Murray, McIlroy et al.  Lord Coe and Dave Brailsford are being hailed as visionary heroes.

The new Bond film, Skyfall, has kept the feelgood factor going a bit longer.  I enjoyed the film enormously despite not being a Bond fan.

It's a rare critical and popular smash which triumphantly brings the legend back in front of a worldwide audience just weeks after the inspired Olympics opening ceremony stunt with the Queen.

Not only does the film reflect the usual Bond traits of insouciance in a crisis, cool charm and dry humour that we like to think of as typical of the British at their best, it is also set mainly in Britain (London and Scotland). The stars are also a reminder of another thing we have to be proud of: great actors. Besides Craig, Judi Dench and Ralph Fiennes are very good.

The theme song is no classic - more a homage to the 60s classics that made Bond music as much loved as the films.  But it is good and is another reminder of a British success story: Adele is comfortably the world's most successful music artist of the year as she was in 2011.

I also defy anyone to not feel a stirring of emotion when the iconic Aston Martin makes an appearance even though it does stretch plot credulity somewhat (how old was Bond when he got it?).

The success was not inevitable.  Bond films have fallen flat before, as recently as 2008's Quantum of Solace.  It's not easy to make a film that works with the grain of the Bond legend, includes all the trademark elements and also makes for a satisfying, coherent and modern film in its own right.

That Skyfall does that and more is a credit to the director Sam Mendes. I shall be looking for him in the end of year Person of the Year lists.

From our website: Spanish tax service for individuals

Thursday, November 1, 2012

Stimulus doesn't work. Just look at Spain

As the stimulus versus austerity debate rolls tiresomely on, it is a good time to reflect on what government action did for Spain's economy after the crisis hit four years ago.

Spanish unemployment hit 25% recently.  The government is bankrupt, the banking system bust and the economy is shrinking.  Only an ECB promise "to do all it takes" is preventing a slide toward default and chaos.

As with most Western countries the proximate cause of the crisis is the debt-fueled bubble that preceded it, with the property market at its core and low Euro interest rates enormously exacerbating the problem.

Unlike Brown's Britain, Spain did not compound the problem by running  a large government deficit during the boom years.  The Spanish government was running a surplus in 2007 and the public debt to GDP ratio was a respectable 36% so, according to Keynesian logic, the government was well-placed to rescue the economy from the effects of private sector deleveraging.

And the government has tried lots of stimulus in response to the crisis.  Between 2008 and 2010, before the austerity drive started, the government spent like a drunken sailor: national debt ballooned by more than €200 billion in two years (20% of GDP).

Super low interest rates sent mortgage costs tumbling and thus artificially boosted private incomes.  The government passed laws to allow people to defer their mortgage loans and escape foreclosures.  There were huge public works programmes and schemes to boost car sales (see Spanish car sale worst for 15 years).

If stimulus worked as expected these measures should have allowed the private sector to recover and allow the government to start withdrawing support and begin rebuilding its own finances.

But we are as far away as ever from a private sector recovery.  All those stimulus measures worked for a while but just postponed the day of reckoning.   Spain got no lasting momentum from those so-called boosts - they are just left with the debt.

Car sales are a perfect example of the futility of government action and the damage it can do in the name of stimulus.

Before the crisis hit Spanish car sales regularly topped 1m vehicles a year.  When the bubble burst predictably car sales crashed too, falling 18% in 2009.  The government responded with Plan RenoveE - a subsidy dressed up as a green initiative - and this programme did support increased sales while it ran.

But what good did it do?  Sales last month were 35,000, the lowest on record.  Year on year sales are down an incredible 37%.  The government is trying to revive the subsidy scheme even though it can ill-afford to and must know though that the only permanent effect will be to increase the national debt.

This is just one example.  The public work schemes helped some workers to stay in a job for a year or so but, now the money has run out and the government is cutting at all levels and raising taxes, the unemployment picture is worse than ever with no end in sight.

Arguably worst of all was the various policies to prop up the housing market.  Banks hid their losses for four years until the Bankia scandal showed just how close the whole system was to collapse (see Are Spanish bank accounts safe?).

Only then did the banks face up to their bad debts, begin liquidating and seeking new capital.  A few households might have escaped foreclosure for a time but the full force of "deleveraging" is now being felt and will be more severe than it would have been with an immediate clear out after the property boom ended.

Imagine if the Spanish government had adopted a different path in 2008: concentrated on economic reform instead of increasing public spending, cut out public sector waste, forced the banks to deal realistically with their bad debts and forsworn any quick fixes to help individual sectors.

Yes the immediate effects would have been drastic - a deeper recession, more foreclosures and probably worse public sector finances for a while.  But that was four years ago.  By now things would have bottomed out and there would be growth on the horizon instead of endless stagnation and self-defeating austerity.

Keynesians will read this and say it is the Euro that's done for Spain and it is unfair to blame government attempts to stimulate its way out of recession.  They are mostly wrong.

It is true that Eurozone membership has been a disaster for Spain but the damage was done by low interest rates during the boom not since (see Eurodoubters are being proved doubly right).  Since 2008 rates have mostly been set low to bail out Spanish debtors.  Spain does have an overvalued currency which is part of the problem but Spanish exports have actually been doing well, even now growing at double digit pace.  It is the efforts to end the recession with stimulus that have done the most damage.

When you see an American or British commentator trying to sell the benefits of government action to "fight" a weak economy, remember what has been done to Spain in the name of stimulus and reject them.

From our website: Changes to Spanish Tax Form 210

Tuesday, October 23, 2012

EU's migrant rules prove the referendum case

So Scotland is to get an independence referendum to be held in 2014.  For people like me, who want a referendum on Britain's (England's?) place in Europe, the wait goes.

But the case for EU withdrawal or radical renegotiation is growing by the day.

Take last week's news that the EU is trying to force the UK government to pay benefits, including pensions, to any EU citizen who applies for them.  The EU wants to stop Britain applying its "habitual resident test" to ensure that foreign claimants are genuinely settled in the UK and have paid taxes here.

I think you would be hard-pressed to find more than 2% of the British electorate who would support paying benefits out to foreigners who haven't contributed anything to the country beforehand.  But our democratically-elected government is being forced to do so by the European Commissioner for Social Affairs, an unelected Hungarian who we have no influence over whatsoever.

And this is not some minor irritant.  Control of public spending, given the size of the deficit and the challenge of funding growing numbers of retirees, is crucial if the UK economy is to survive never mind thrive.

The EU would argue that they are sticking up for the rights of immigrants but the best way to ensure that is to have clear, fair and properly enforced rules to reassure the host country's citizens that they are not being taken advantage of.

A group of Tory MPs recently proposed a scheme where UK immigrants would earn their rights to benefits, housing and healthcare over time by working and paying taxes.  They might have added that the immigrant would lose these rights (and ultimately their right to reside in Britain) if they committed any crime.

This might seem tough but it would transform the immigration debate overnight.  The suspicion that immigrant communities are a drain would lift.  Now the very word "immigrant" suggests a burden and a problem but perceptions can quickly change with some clear rules.

Immigration should be a massive plus for Britain.  Not just the cultural vibrancy it brings but hard economic benefits - an improved dependency (worker to non-worker) ratio, a better workforce for our companies and lots of imported skills, capital and connections.

A scheme where residency rights for all immigrants, both EU and non-EU, were dependent on contributing to the system and staying on the right side of the law would ensure that immigration delivers these gains and regains popular trust.

But the EU wants us to go in the opposite direction which will further undermine perceptions of immigrants and make mugs out of honest taxpayers.  I wish it was a Referendum on Europe we were getting ready for in 2014.

The People's Pledge - EU Referendum Campaign

From the website:  Service for Spanish autonomos

Sunday, October 14, 2012

What two years flying Ryanair will do to you

Not really me (it's been a while since I was 36 for one thing) but I do fly Ryanair a lot.

You would think two years commuting back and forth between Stansted and Malaga at Michael O'Leary's convenience might take its toll.

Well yes and no.

The downsides to no frills air travel are well known - minimal leg room, a dash for seats, luggage nazis monitoring your hand luggage etc

All true and I can't say that I am a Ryanair fan exactly.  There is a certain arrogance about them; they can be almost defiantly rude and wilfully careless of what their passengers and the public think.

My theory is that they like all the bad headlines (like Woman forced to pay £200 to print boarding tickets) because of a perverse kind of logic.  If they can be so awful to customers and still book out their routes they must be the cheapest.

And they usually are.  That's my first plus point - I shop around and they usually come out cheapest although less so nowadays.  All the "cheap" airlines are a lot more expensive than they were only a year or so ago.  That's partly the government's fault for putting up the tax remorselessly.

Another plus for me is that, once you know the system, the journey is quite predictable.  You know they are strict about hand luggage and pack accordingly.  You know you have to get in the queue early to get a good seat (or pay for Priority).   You know you have to print your boarding pass.

Finally they have been amazingly punctual.  I literally cannot remember the last time they were late either flying into or out of Malaga.  It was certainly over a year ago.  I have recently started to fly out o Gatwick with Easyjet on a Friday evening (better flight time) and they have been late twice on the trot.

(UPDATE: the first time I flew Ryanair after I published this blog I was delayed by about 45 minutes.  I should not have opened my big mouth!)

So (and it pains me to say it because of their lousy attitude) - two cheers for Ryanair.

From our website:  Spanish income tax

Thursday, October 4, 2012

7 reasons to doubt the oil optimists

Recently I wrote about "Trough Oil": the idea gaining  ground that Peak Oil pessimists were wrong and that oil going to become abundant and cheap in the coming decades.

I laid out the causes for such optimism in the original article but in this follow up piece I am focusing on the counter-arguments: why increasingly hard to satisfy oil demand will continue to keep oil prices high for decades.

1.  The current oil price

If new sources of supply are coming and demand is set to fall, why is the oil price so high?  Even with a hard landing in China, crisis in the Eurozone and world trade volumes crashing the oil price is stuck well over $100 a barrel for Brent crude.  Most oil traders expect it to remain so for the next couple of years at least - forecast.  By comparison weak demand conditions have ushered in $20 or even $10 oil in the past. These market insiders are telling us that the oil market fundamentals are still tight.

2.  Maybe production did peak in 2005

Oil production has actually risen in recent years but look behind the numbers and there have been changes since the middle of the last decade.  Production growth has slowed despite trillions of dollars of investment and Saudi Arabia, long seen as the world's "swing" producer, pumping at record levels.  See chart here:  world oil supply is not growing very much.

Secondly the proportion of oil output that isn't actually oil has increased.  Natural gas liquids are the main alternative to crude but have about 70% of the energy value which is why they sell for less.  Others include ethanol which is only viable thanks to what I would argue are crazy and damaging government mandates which are becoming increasingly controversial as food prices rise.

3. Production costs put a floor under the price

All the new sources of supply people are talking about come at a price and it is not much lower than $100 in many cases.  For example the Canadian tar sands oil extraction process uses a lot of water and energy to make something usable and this can cost $60-80 a barrel.  Approximately 2 million bpd now comes from this source so it's not small beer.

Other new sources such as US shale production, including 0.5 million bpd from the Bakken fields on the US/Canadian border, are cheaper but they still use a lot of water and energy and exact an environmental price critics say.

It is the marginal cost of the last couple of a million bpd that matters when it comes to setting a minimum oil price and that cost is rising.

Peak oil was never about oil "running out" - it's more that the big (easy) fields are declining faster than new sources can be economically developed.  That assumption still looks to hold and preludes the possibility of the oil price ever returning to much below 80$ whatever the economic conditions.

4.  Technical challenges are growing

This is a similar point to 3. but is about the difficulty and danger of extracting new reserves rather than the cost, particularly when it comes to deep sea drilling.  The Horizon disaster vividly illustrated what can go wrong with deep sea drilling but perhaps even more pertinent is to look at the reserves Brazil intends to exploit off its Atlantic coast.

These are so large (50-100 billion barrels or even more) that they alone count as one of the major reasons for Trough Oil optimism.  To put that number in context that is perhaps 1/3 of another Saudi Arabia.  But the catch is there are thousands of feet of salt rock between the ocean floor and the oil trapped beneath it.  Much of the oil is beyond a depth that even "ultra-deep" rigs are currently able to go (7,500m to about 10,000m) and the deeper you go, the more pressure and the more risk.  The Horizon disaster happened at just 1,500m.  New techniques and perhaps a $1 trillion may be required.

None of this suggests the fight to keep the world's thirst for oil satisfied is going to be either cheap or easy.

5. Declining consumption in the West will be more than offset

One of the main focuses of optimism on the demand side is that  oil consumption in the West is on a declining trend even allowing for the effects of the economic crisis.  It is true that high prices, recession and more efficient cars have combined to reduce oil consumption slightly in the US and other developed markets (but by less than 1% between 2000 and 2010 according to one chart I saw).  But this has been more than offset by rising demand from China and other fast-growing countries and I expect this to continue.

In the short term I am a China bear and I think the troubles that afflict that country will have big knock-on impacts through places like Brazil and Indonesia.  However long term there is nothing that will prevent the economic rise of the developing world and the consequent increase in competition for scarce resources.

It might be a bumpy ride but the big picture is still one of hundreds of millions of people emerging from relative poverty to something approximating a middle class lifestyle with its attendant consumption patterns: a richer diet, more travel and especially buying a car.

6. Oil producers keep more of their own oil

One of the key warnings of Peak Oil pessimists is that the problem of declining output by traditional producers is that they will increasingly consume more of their oil domestically leaving less for export. This was one of the main arguments convincing me that from now on oil prices would stay high and it would get tougher and tougher to supply demand.

And it's playing out just the way the doomsayers predicted.  Middle Eastern consumption of oil rose by 55% during the first decade of the millennium more than cancelling out the small declines in the West.  Saudi Arabia, which burns oil to generate electricity to power air-conditioning units and water desalination plants, now consumes 3 million of it's 11 million b/d total output.

7. Carry on guzzling

Transport, including aviation, accounts for about 75% of oil demand.  Despite gently declining car use in the West and more efficient vehicles being mandated by governments, demands for oil to fuel transport globally is almost certainly going to rise in the coming decades as it has done for decades past.

We have already discussed the essential reason for this - the growing size and power of the middle classes in the developing world.   The only thing that could prevent a remorseless rise in underlying oil demand - apart from the BRICs and other fast-growing countries going into rapid economic decline which seems unlikely - is a switch from petrol/diesel to something else.

Oil optimists point to clear signs that governments and  leading major manufacturers are getting behind electric cars.  Other alternatives to oil are natural gas, hydrogen and even liquid air.

But the odds are that they will all remain a niche for the relatively well off or environmentally-concerned.  This is not because there won't be technical advances in, for example, batteries but because the petrol car economy is so embedded (at such a vast sunk cost) that even a superior form of automobile technology would face a massive struggle to overturn it.

Consider vehicles powered by liquified natural gas which have been around for decades.  They do not require any great leaps forward in technology, new refueling infrastructure (many filling stations already sell it) or a new fleet of cars (petrol cars can be converted quite cheaply).  And gas - in the US at least - is 1/7th the price of oil.  But only a tiny fraction of the US vehicle fleet is powered by gas.

In summary - the global petrol engine population will continue to faster than the increase in fuel efficiency; oil supply from the "easy" sources of the past will continue to dwindle and prices will stay high.  This has important investment implications but that will be for another post.

From our website:  Spanish pension benefits 2012

Wednesday, September 19, 2012

Stansted passport queues set to return

UPDATE:  18th November.  Unfortunately the predicted long queues at Stansted passport control are indeed starting to become reality.

I have come through twice in the last week and both times there were large queues.  Each time was late at night and the queues, while not long enough to get in the newspapers like earlier in the year, were extensive (and annoying) for a quiet day in November (hardly peak season).

Last night there were not that many passengers but still long queues because they only had two desks open which confirms the suspicion that they are cutting back on staff numbers.

On a final note of discontent, I tried to use the automatic passport control gates and, on both occasions, something went wrong with the machine reader and I had to go through the manned controls.   Lots of other people seemed to be having the same problem with this technology which is presumably "the future" for passport control.

Original article:

I regularly pass through Stansted, coming back and forth from Spain, and this Summer have been pleasantly surprised by the lack of serious queues at passport control.

But enjoy the speedy passage through immigration while you can - it may not last.

According to a chatty immigration officer I spoke with last week the queues are set to return as early as this month.

She explained that the Summer's surprisingly short queues were down to extra staff being drafted in by the UK Border Force when things got out of hand in the Spring and made some awkward headlines:  Long passport queues unacceptable.

The extra staff, some of which were drafted in from other parts of the UK Border Force, are said to be reassigned back to their normal roles which will leave the queues to mushroom again.  I hope not as I have a lot of flights planned including a return through Stansted on Sunday night.  We'll see.

Similar reports of forthcoming queues at Heathrow:

From our website:  Spanish Tax Services

Wednesday, September 12, 2012

Spanish pound shops need to raise their game

Britain's pound shops are much better than the Spanish equivalents - the equally ubiquitous but drab and uninspiring "Chino" supermarkets.

This matters because the sector is one of the retail sectors' rare growth sectors in tough economic times.  Spain's consumers and the Spanish economy generally could benefit from a revolution in the cheap and cheerful sector.

The UK pound shop sector has been revolutionised in the recent past with the rise of chains like Poundland and 99p Store. The  additional buying power they have has enabled them to expand their ranges and especially to offer more branded products.

Crucially the big manufacturers have been encouraged to make lines especially for the sector so you get Head and Shoulders shampoo for a pound albeit in slightly smaller bottles.

They are also very dynamic, always looking for new offerings so customers never quite know what to expect.  You often end up going in to buy one thing and coming out with half a dozen bargains.  On my last trip - to stock up on sweets for the kids (honest) - I was delighted to also walk out with two DVDs of the original Spiderman TV series which my kids love and which cost 5 times as much on Amazon.

Even celebs go to Poundland these days according to news reports.  Hard to imagine Spanish celebs going to their local chinese bazaar.  These never have anything branded or different and the presentation is woeful - like the contents of a Chinese container vessel have just been dumped into a cavernous warehouse.  Not everything is that cheap either.

Before the euro came along there were "100 centime" shops (about 60 c) which stuck mostly to the pound shop model, allowing for inflation.  The "hypermarkets" we now get in Spain charge pretty random prices with some of knick-knacks costing 60 or 70 cents but some going up to €1,80 or €2.

The bigger ticket items (like big Christmas present toys or electrical goods) are risky purchases even when the price does seem right as the quality is so variable and there are no guarantees.

I could be way out of touch here and maybe there are Poundland equivalents in parts of Spain that I don't know about.  But in the areas I know Spain is being badly served and needs a bargain-retailing revolution.

From our website:  Taxation of rental properties in Spain

Sunday, September 2, 2012

Trough oil?

After decades of "Peak Oil" talk and warnings about  a global energy crisis, it has become fashionable to claim the opposite: we are awash with the stuff and a  supply crunch has been postponed indefinitely.

This is especially interesting to me as an investor because I largely bought into the Peak Oil theory.  Permanently high oil prices and the knock-on effects of depleting oil supplies have been something of a cornerstone of my thinking about the economic future.  It's why I made what has so far turned out to be a great call on Shell shares last year - How to ease the pain of high fuel prices.

Roughly speaking the Peak Oilers claimed that oil production would peak at 85 million barrels a day (bpd) around the middle of the last decade as production rates from big fields declined.

There is no shortage of oil left in the ground but most of the big easy discoveries have been exploited and it would be increasingly hard and expensive to keep up production levels.  With demand from the developing world, especially China, growing fast a crunch loomed and prices would sky rocket.

As we all know this happened to some extent.  Chinese consumption alone rose by 4 mbd in the 2000s and the world's oil producers struggled to keep up which culminated in $147 a barrel oil in 2008 and $100+ prices most of the time since despite the economic crisis.

The 90s when oil went down as low as $10 and rarely exceeded $10 seem like another era and one that will never be repeated.

But crucially producers have responded and oil production has increased. The high prices have attracted trillions of dollars in investment in traditional oil producing countries (Saudi Arabia is producing record amounts), new frontiers (e.g. in Africa),  and in deepwater drilling.

Throw in a recovery in production from Iraq, which recently became the second biggest producer in OPEC, increased production of "non-conventional" oil extracted from tar sands and new techniques to  increase recovery rates from old fields and you can see why production has continued to increase.

A lot of the "trough oil" talk has been driven by the view from the US where exploitation of shale gas and oil has been something of a game-changer.  US oil production peaked at 10 mbd in the early 70s and had been in steady decline to about 5mbd until recently when output started growing again.  Imports have been reduced by a third and there is talk of the US being self-sufficient in a few years.

But supply is only one side of the price equation; what of demand and especially this insatiable demand from the developing world?  Even on this front optimists see trends that could make oil abundant and cheap again.

I have even seen one article in the New Scientist predicting that, by 2020, oil production will start to fall not because of a lack of accessible reserves but because demand will be declining.  That's a radical claim: an oil crunch will be avoided not because we will find new sources of supply but because the world will - in their words - "dump the pump".

Two reasons are offered:  increasingly fuel-efficient cars, either because of regulations or through consumer choice, and the rise of the electric car.

Developed world oil demand has started falling already including in the US.  Partly that is due to the economic crisis but a trend towards fuel efficiency is a factor and is set to become even more significant as new laws take effect.

Consider US CAFE standards which mandate the average fuel efficiency of cars sold as measured by miles per gallon (mpg).  When CAFE first came in during the 70s the requirement was 18 mpg and this was increased gradually to 27.5 mpg by the 2000s although Bush refused to raise this not very demanding target higher.

Obama has not been so lenient on the car industry and the next target (due 2016) is 35.5 mpg.  Even stricter CAFE laws will bite from 2017 leading to cars with an average 54.5 mpg and a forecast decline of 11% in US oil demand.  The EU has passed similar laws focused on average CO2 emissions across manufacturers' fleets.

So that's how Peak Oil could become Trough Oil - multiple increases in supply meets dwindling demand.  Well that's the theory.  But should we buy into it and, for example, sell oil stocks which would surely tank in a world of Trough Oil?  While there are some undeniably interesting facets of the argument I am sceptical but I'll set out the reasons why in another post.

From our website:  Spanish non resident tax

Wednesday, August 22, 2012

Mining stocks and China's hard landing

A quick update on some comments I made about China's economy in June: China and the miners - place your bets.
It was a time when the argument over China's faltering economy was finely balanced: would growth rates dip and quickly recover (soft landing) or could China be on the cusp of something more serious?  I suggested that buying mining shares rather than China funds - like Glencore and Anglo Pacific - was a good way to go if you were feeling bullish.

Events since, including lower than expected industrial output, export and inward investment numbers, have pushed the debate decisively in the direction of the China bears.

So have mining stocks declined?  Not really.  Glencore and BHP are up 20% and 15% respectively since my article at the end of June.  Anglo American is down but there are special factors including a disputed copper mine in Chile. Anglo Pacific is up 8%.  Iron ore, coal, oil and copper prices are all up sharply.

So in the short term it looks like the correlation between poor Chinese economic data and mining assets doesn't hold.  However stock markets are forward looking and much of the China bad news had been factored in by the time of my article.

The latest rises represent bounces from previous setbacks not renewed optimism.  The bounce has been attributed to a belief that the Chinese government will ease policy to keep growth rates up and especially sanction another slew of infrastructure projects which are resource intensive.  Another factor is a growing belief that the ECB is prepared to act decisively to head-off the crisis in the Eurozone probably by buying Spanish and Italian sovereign debt.

Where now?  In the medium term it's hard to be wildly optimistic about the Euro situation whatever the ECB does.  As for the bigger question of how long can China keep growing at 8% plus it seems that the authorities will pull all the levers necessary even if that means maintaining the economy's hideous imbalances in particular the bias towards wasteful investment (nearly 50% of GDP) in property and infrastructure.

Meanwhile the big miners are scaling back on some of their expansion plans to reduce the threat of oversupply.  Share price meltdown averted?  For now maybe although it doesn't feel like the right time to pile into resource stocks particularly after recent gains.

From our website:  A guide to Spain's autonomo system

Sunday, August 19, 2012

Spanish savers: government to the rescue?

Last week I wrote about the Spanish savers who are set to lose everything because they were sold preference shares in their banks which have subsequently gone bust - New fears over Spanish bank accounts.

I said that it was worrying that the government was not prepared to step in and help despite the fact that the policies were blatantly missold to the vast majority of retail investors who thought they were just deposits with lock in periods.

It seems like I may have jumped the gun and surprisingly underestimated the Spanish government on this one.  According to an article in the FT they are going to ensure that most small savers are repaid in some form.

The concession is complicated by the Memorandum of Understanding the Spanish government signed with the EU prior to receiving access to up to €100bn of bail out money for their financial institutions.  This envisages bank preference shareholders taking their losses in full and there are restrictions on what can be repaid e.g. no more than 10% more than the current market value of the shares.

Some of these shares trade at below 50% of face value so saver could still be taking a big hit.  However the outlook has definitely brightened for them and it slightly increases general confidence that the government will protect the retail depositor more generally whatever happens.  If it can afford to.

From the website:  Spanish tax form 210

Monday, August 13, 2012

New fears over Spanish bank accounts

A little while I wrote about the security of Spanish bank accounts in the midst of the rapidly worsening economic situation in Spain: Are Spanish Bank Accounts Safe?

The gist of the article was that although there are government guarantees for deposits up to €100,000 I wouldn't be too confident because, in a worse case scenario, the government might fail to honour the guarantee or even pay up in devalued pesetas.

The latest twist in the tail concerns savers who have lost their savings without any recourse to the government deposit insurance, because they have been sold preference shares in their bank.

These were sold as if they were just deposits with especially good rates of interest but they have turned out in fact to be risky securities which would not pay out at all if the bank went under.  That's exactly what has happened in some cases, especially the giant Bankia which had to be bailed out last month leaving "preferential shareholders", mostly innocent savers, wiped out.

I have read that there hundreds of thousands of these preference shares in private hands.  But if your money is in a proper bank account then you should still be able to claim on the government deposit insurance if your bank goes to the wall.

There has been no suggestion that the government will step into help preferential shareholders which does rather support my view that Spanish government bank deposit guarantees might not be honoured if things get really bad.  No wonder it is said that tens of billions have already been shipped out of the country.

From our website:  Changes to Spanish tax form 210

Wednesday, August 8, 2012

Oh no, Brown and Osborne have morphed into Geordon

They reportedly hate each other but the current and former Chancellor are increasingly merging into one.

No one was more fiercely critical of Brown as Chancellor than me and that was in the boom years as well as the the recession which followed.

I hoped George Osborne would draw a line under the Brown years and set Britain on the right course.  But increasingly it seems there is little to choose between the current Tory economic policies and the Labour ones that left the UK in ruins.

Read these five criticisms of recent Treasury policy and decide who they apply to, George or Gordon:

Out of control public sending - The Chancellor has allowed public sector spending to rise remorselessly as a % of GDP to the point where half of the UK economy is taken up by government spending, 20% of that financed by borrowing which never seems to come down, making a mockery of the "austerity" or "iron" Chancellor reputations.

Blame the foreigners - once it was the US for the sub - prime crisis which had the temerity to burst the UK's bubble and now it's the Eurozone for slowing demand for British exports.  Convenient scapegoats for a disastrous performance by the UK economy and its chancellors.

Laissez faire monetary policy - The decision to farm out responsibility for monetary policy to the Bank of England was widely-praised but it looks to me like an abrogation of responsibility.  How can you claim to be running the economy when the most important policy decisions (QE, interest rates) are made elsewhere?      The B of E has a government set inflation-target of course but this is deeply flawed and takes insufficient account of asset bubbles, money supply, the exchange rate and absolute levels of indebtedness.  The unspoken rule of the Chancellor seems to be that the B of E is free to adopt whatever monetary policy it likes . . . as long as it is loose.

Tricks and wheezes  -  There used to be a time when Chancellors announced programs which changed the face of the country - think Lawson's tax reforms in the late 80s and Healey's change of course in the late 70s.  Now we get short term fiddling and little games to try and "wrong foot" the opposition.  Lots of knockabout political point scoring and short term initiatives, nothing substantial for the long term.

As a footnote there are two members of the government who ARE making important reforms with long term economic ramifications  they are just not in No 11 (Gove - Education, Duncan Smith - Welfare).

Off balance sheet finance - why raise money transparently and honestly through the tax system when you can finance pet projects on the never never via dubious PFI schemes, Infrastructure Banks?  These schemes look like they are giving the taxpayer something for nothing but, as we are finding out with PFI-financed hospitals, they will come back to bite us in the end.

Can't decide which criticism belongs to whom?  It's because increasingly they  apply to both equally. Brown and Osborne have morphed into one terrifying being.  Heaven help us.

From our website:  Starting a business in Spain

Saturday, July 28, 2012

A health problem that made me sit up and take notice

I spend lots of my time at airports waiting for planes and I rarely sit down.  Even when an opportunity presents itself I prefer to pace around or just stand and stretch a bit.  The way I see it, I am shortly going to be glued to a seat for several hours and a voluntary sit-down is the last thing I need before the journey.

It seems like my anti-sitting stance (if you will excuse the pun) is backed up by hard science.  That's if you believe the reports in the press about new evidence suggesting sitting more than three hours a day can take 2 years off your life.  Apparently you can take off another 18 months if you do a lot of your sitting in front of the TV.  Sorry Homer.

Some exercise during a day of heavy sitting doesn't seem to counteract the effects of long motionless periods: the results were similar for people who exercised and those who didn't.

You have to question the statistical value of taking an average lifespan difference and applying that to individuals.  Presumably this 2 year figure relates to a sample of lives examined where some "sitters" died very young because of possibly related issues (heart attacks, obesity, dementia, cancer, diabetes) but some lived to a ripe old age.  Just because the average worked out to two years doesn't justify the "sitting takes two years off your life" headlines.

Some other scientists have also cast doubt on the findings saying that the results take insufficient account of associated lifestyle factors - people who sit a lot are maybe more likely to have other unhealthy habits so don't pin all the blame on sitting.

But it was a worrying finding for several reasons not least of which is the fact that I spend at least 10 hours a day seated.

It was a serous study covering over 150,000 people for several years.  The findings fit in with previous research (see this Australian study reported here - Sitting too long raises death risk) and frankly what you might intuitively think:  humans weren't designed to sit for hours staring at screens and there will be a cost.

Brits are among the least active people in the world according to this chart:

But the it is in America where the issue of sitting too long has provoked the most discussion.  There is even a trend towards standing at work which is supposed to offer a myriad benefits such as weight loss, better attention spans and less back trouble.  Office supply shops sell adjustable desks which allow you to stand or sit.

As ever with these health trends there are contradictory voices which cast doubt on the benefits of standing and studies which show it has little or no effect.

One thing that is no in dispute is that modern man and woman is not active enough full stop; sitting for long periods is just an extreme manifestation of this.  

So I am going to try and make myself get up and walk round the office at least three times an hour.  Sounds a lot but when you consider that you get up naturally quite a lot any way it is not such a hard thing to do.  If I get up to go to the printer I go a long way round the office and I find more reasons for standing up and stretching my legs, like getting a cup of water.

From our website :  Beckham's Law survives

Thursday, July 19, 2012

Spanish families squeezed for €415 more tax

€415.  That's the estimated annual cost per household of the increase in IVA recently announced by the Spanish government to try and close the fiscal deficit.

The general rate applicable to anything sold in the country apart from reduced or VAT-free categories (see below) is up to 21% from the current 18%.

Beneath this headline-grabbing rise is a second increase to the "reduced" rate category of taxable goods and services which goes up from 8% to 10%.  This 25% hike in tax is important as it is the rate applicable to such things as some food and non-alcoholic drink, health products, transport, entertainment etc that ordinary people consume every day.  So it will really make everyone feel poorer and reduce spending power right through society.

This reduced rate also applies to new build construction so a new house will cost an extra 10% in tax on top.  This does not apply until 2013 as the previous government brought in a temporary VAT cut to 4% for new homes which expires this year.

And that's just IVA of course.  Spending cuts have targeted unemployment benefits and the pay of public sector workers.  The latter seems bound to lead to strikes.

Another move, specifically at the request of Spain's new fiscal masters in Brussels apparently, has been to abolish the offset of housing costs versus tax except for buyers of property post-2006.

Economists foresee the already shrinking economy declining further as a result of the new hits to demand, with forecasts of recession through to 2014.  No surprise there but there is a surprise, to me at any rate, in the size of the expected contraction.  For example the IMF is talking about a 1.5% fall in GDP this year and actually growth of 0.6% next year.  Hardly Greek style-collapse but the IMF have been wrong before.

If they are right and Spain can muddle through with the economy merely stagnant while these deficit measures take effect and the banks are sorted out then perhaps a full blown bail-out or euro exit can be averted.

I have my doubts.  Looking around the country it seems like there is an air of desperation and bewilderment among the population even before these latest tax rises and spending cuts.  Big price rises across the board, wage and benefit cuts, higher income tax, regional spending cuts etc will surely crucify what is left of economic confidence.  And I wouldn't rule out the Spanish people rising up and demanding that some of the measures are reversed as the pain becomes too great to bear.  We'll see.

From our website:  Allowable business expenses in Spain

Saturday, July 7, 2012

Fifty shades of the same old same old

One way to judge just how phenomenal a cultural phenomenon is, is to start typing the person/scandal/film etc into Google and see how many letters it takes to predict what you are looking for.

Right now typing "5" into Google brings up 'Fifty Shades of Grey' - an impressive one character score which handily beats 'Jesus' which requires three characters to predict.

This is the novel which, unless you have been living in a darkened room with a blindfold on (a bit like the heroine of the book probably), you will know is the fastest selling book of all time - excluding Harry Potter.  A remarkable achievement for a book which is aimed only at the female half of the population and which, unlike the Potter series, is not being bought by the vast young adult market.

I haven't read any of the trilogy but I am always fascinated by the phenomena of bestsellers and have read a few articles like this one: Why women love Fifty Shades of Grey.

The thing that interests me about the story of Fifty's success is not its adult content but rather the fact that it has been universally panned as a piece of writing, even by its readers who have then proceeded to rush out and buy the other two books in the trilogy.

We are not just talking about some highbrow (and probably jealous) literary reviewers slagging off the quality of the prose.  Dan Brown's 'Da Vinci Code' and JK Rowling came in for this kind of criticism but people were still captivated by the story and the fictional worlds the authors had created.  Most of us recognise that the popularity of a book has little to do with elegant writing of the kind that say Sebastian Faulks* is capable of.

* - great author but with a woeful Google test score of 10

But the criticism of EL James' novels is of a different order.  It's not just the prose style that gets a pasting.  I saw one article which estimated that 95% of online reviews were negative, criticising the plotting, characterisation and even the much-hyped sex scenes.

Just look at the parodies that are springing up such as "Fifty Sheds of Grey" on Twitter which is an inspired collection of snippets from the book as written by a gardener.  Sample: 'I lay back exhausted, gazing happily out of the shed window. Despite my concerns about my inexperience, my rhubarb had come up a treat . .'  or 'Lady Christina bit her lip as she eyed my dripping brush.  Somehow I knew it wouldn't be long before I was touching up her gazebo'.

The book is a joke, but  an amazingly successful one.  Obviously the press hooha about the adult content and the natural desire to see what all the fuss is about are now driving the sales to warp speed, but there must be some core appeal particularly to explain the success of books two and three.

Distilling all the explanations I have read about what this appeal might be, it seems that the romance rather than the eroticism is the key: how will the relationship between the two leads work out?  Will she?  Should she?  In other words the staple content of all romantic fiction since time immemorial.  The genius lies in the choice of a novel and daring device for creating the romantic tension: the hero's dubious sexual predilections.

Readers can read a very old and hackneyed fictional form and feel they are reading something fresh, original and controversial.  It's the same trick that works in every field of entertainment - put a new twist on an old favourite - but it's devilishly hard to do so hats off to EL James.  Now back to the parodies:

Spanish wealth tax 2012

Wednesday, June 27, 2012

China and the miners: place your bets

“A crisis is an opportunity riding the dangerous wind” goes a Chinese proverb.

For investors who want to make money out of one of the century's biggest and most profitable themes - the commodities boom led by China - now is a time of great opportunity and risk.

There is an apparent opportunity because the mining shares that have done so well are relatively cheap after several months drifting lower.  And risk because the cause of the share price weakness, the slowdown in China, could yet end in a crash.

The China-boom-or-bubble debate has been a hardy internet staple on business/investment chat sites for several years.  Perhaps only the inflation-deflation argument has generated more heated argument.

On the one side you have the China bulls who believe the country's thirty year 10% annual growth record is good for another decade or more yet.  They call the current slowdown a blip and claim normal service will be resumed later in the year as government stimulus measures kick in. These include the first interest rate cut for three years and a car subsidy program.

The China bears fret that the incredible China boom is literally that - too good to be true - and that Chinese growth is unsustainable  Just like Ireland, Spain and Japan, a boom underpinned by cheap money and property speculation will give way to bust.

"Dubai times a thousand" was how a renowned bear (Jim Chanos) put it but he said that 2 years ago and, although property prices have come down in some top tier cities, the general crash he predicted has yet to materialise.

I lean towards the side of the bears but it is an oft-observed fact that the economic phenomena that seem unsustainable can persist for much longer than you think.  People have been calling the demise of the US (and Japanese and UK) sovereign debt markets for years.  They may be proved right eventually but you can lose a lot of money shorting something prematurely.

As for the bull case, I have a lot of time for Dr Stephen Loeb and he is in the "blip" corner.  His article "Silver, Copper, Gold and China" states the case for continuing China growth and a recovery in commodities (and miners) very well.

If you are persuaded by his argument and think the commodities boom has a lot further to run, then now would be a good time to back your judgement and buy ETFs which hold physical commodities like gold and copper which have suffered recently.  Loeb is very keen on silver which has a key industrial role in for example solar panel production.

Another option is the shares of mining companies.  Obvious choices are highly diversified giants quoted in London such as BHP and Anglo-American.  In the past I have had profitable dealings in mining royalty holder, Anglo Pacific (AFP), which has recently been marked down due to some specific problems at a coal mine which it will recover from (see here).

Finally I am intrigued by Glencore which always seems to be in the headlines, most recently because of its on-off merger with Xstrata.  It's shares have slid by almost a third in just a couple of months.  The markets have been a bit dubious of this company I think partly because it's profits derive from trading commodities as much as producing them and the trading bit is somewhat opaque.  However there is no doubt that the people who have built up Glencore, including multi-billionaire Ivan Glasenberg, are extremely smart and ambitious.

Buying Glencore would be a triple play on a China recovery, a successful conclusion to Xstrata merger and on the company's management.  Too rich for my blood but the share price, at under £3, makes it tempting.

From our website:  Massive tax rises in Spain for 2012

Sunday, June 17, 2012

Super bid premiums are a vote of confidence in UK shares

With UBS equity strategists talking about a 20% chance of a "black cloud" scenario (mainly involving Eurozone calamity) leading the FTSE down to 3,500, it might seem an odd time to be touting UK shares.

But a bit of news from the oil sector last week gives British shareholders cause for optimism.  Cairn Energy agreed to buy a small North Sea oil company called Nautical Petroleum last week but had to pay a 50% premium to the pre-bid share price to get the deal.

That's been greeted favourably by analysts covering both Cairn and the company being acquired, so it sounds like a fair price and Cairn are not believed to have overstretched in valuation terms looking at the price per barrel of oil it is potentially getting for its £414m.

So does that mean that some UK companies are well under-priced?  If hard-headed oil companies are prepared to pay 50% more for assets than the current market value then there is certainly a case to be made in this sector even though there is some weakness in the oil price right now.

This video clip with an industry observer ends with an interesting exchange about Premier Oil, a much bigger North Sea specialist which has recently had a somewhat depressed share price:

Premier Oil has been an acquirer itself this year but the analyst reckons it is not too big to be on the receiving end of a bid and I would expect a large premium to its current share price if that were to happen. It has big output growth in the pipeline and was boosted by recent UK budget changes to encourage North Sea investment. As a bonus it has just announced a big find in the North Sea which should boost its value still further: Cove announces Carnaby oil discovery.

And the bid premiums have not just been restricted to oil company acquisitions.  When IT Group Logica was taken over in May, its share price soared 62%.

Buying companies in the anticipation that you will benefit from a bid is a dubious strategy and can lead to years of frustration, a good example being Smith & Nephew which has been a permanent "possible target" story for many years.  Even Sainsburys has been the subject of more bid rumours than it has sold hot dinners.

But the prices that companies are prepared to pay for other companies does offer encouragement that quality stocks are not intrinsically overvalued right now whatever the short term outlook.

From our website:  Starting a business in Spain

Saturday, June 9, 2012

Malaga Airport's response to the crisis? Jack up prices

I find Malaga Airport a somewhat irritating and depressing place.  Very big, new and modern it may be but it's hard to escape the feeling of being a captive market for the shops and restaurants that, almost without exception, charge eye-wateringly high prices.

Obviously I am not naive enough to expect airport prices anywhere to be low or comparable with those in the real world.  But Malaga Airport takes the art of fleecing innocent travellers to a new level.

When you land at the airport and come out of the arrivals hall there is a duty free shop which has a refrigerated beer display unit selling San Miguel.  As I often arrive late and enjoy a beer after a long journey, I   could be considered part of the target market for the beer selling tactic but I have always been put off by the price - €9 for 6 small cans, about 350% more than the same beer would cost at the supermarket.

It's the same all over the airport with sandwiches, drinks and snacks at the top end of the range and too rich for my blood.  The prices in the London Airports are at or just above normal high street prices but the Malaga Airport prices are so high it smacks of an attempt to fleece foreigners.

Even cigarettes in the Duty Free shop, an area which is supposed to offer travellers a chance for a bargain, are about 15% more than the normal "estanco" prices.  There is actually an estanco just opposite the terminal entrance which sells cartons of cigarettes at normal, not airport rip off, prices.

As for the shops selling souvenirs, fashion items and electrical goods, they are a joke.  They are so expensive that you rarely see them doing any business.  Even the fast food outlets like Pizza Express and Burger King are expensive - I quite often see holiday-makers pulling faces when they see the prices on the boards.

In these times of grave economic and financial crisis for Spain (see Spain's Fred Goodwin has sunk his country's credibility) you might have thought that there would be plenty of deals available, cut-throat competition and desperate bids by retailers to get the punters buying.  But in the airport and beyond I don't see much different - the restaurants in tourist areas are actually quite expensive and the retailers seem pretty much the same complacent bunch as ever.

As for the beer in the arrivals hall - I noticed on my latest trip that they had at last done something about the prices . . . put them up.  Now €9,60 for six small beers.  Cheers!

From our website:  Will you get caught not declaring Spanish tax?

Thursday, May 31, 2012

Spain's Fred Goodwin has sunk the country's credibility

If there was any doubt that Spain is headed the way of Portugal and Ireland (if not quite Greece just yet), the Bankia affair has just removed it.

The country is in dire straits and the public face of the disaster is Rodrigo Rato (roughly translated as Roland Rat) who was forced to resign as boss of Bankia when it was forced to seek a €19bn government bailout.

With strong echos of Fred Goodwin he walks away with a cool €12 million or so in compensation and accrued pension benefits.  He was only at the bank a year and, while he can't be blamed for the property losses which sank the mega-bank (they were accumulated long ago by the various dodgy institutions that were roped together to form Bankia), he is certainly culpable.

This bank had already been recapitalised once when it took the opportunity to raise €3bn from the markets (i.e. pension funds and private investors who have now been almost wiped out).  The bank continually lied to the outside world about the true extent of its losses even declaring a profit of €300m just months before an external investigation revealed the true scale of the disaster.

A parliamentary inquiry and a judicial investigation into criminal charges have been called but the rat will scurry away from the sinking ship unharmed no doubt.

The Spanish public are angry and somewhat scared I think.  They have every right to be on several counts:

- Spain obviously doesn't have the money for the bailout and its European "friends" are not about to stump up

- The scale of the losses at this one bank tells the markets that the dire predictions about the Spanish banking sector as a whole (€200 billions of undisclosed write-offs) might not be far off the mark

- Spain has lots of similar hidden liabilities like the unpaid bills of its regional governments (€37 billion they say but no one knows) and a €24 billion slush fund I wrote about recently (are Spanish electricity bills about to soar?)

- But the worst thing is that the government's credibility is also sunk along with Rato's.  The previous administration encouraged the initial merger and the current one signed off on a much smaller recapitalization only days before the final shocking denouement.

The markets have given up on Spain and the spread over German bonds (the extra interest that Spain has to pay for its borrowings) is now at a record 5,4%.  It would be much higher if the markets were not wary of the ECB suddenly changing course and directly intervening in bonds markets; that is the only thing making Spain other than a one way bet.

This risk premium - la prima de riesgo - is now watched by the public like football scores or lottery draws.  They know that the game is almost up - financial chaos and humiliation is inevitable unless the ECB or Germany come up with some kind of deal.  And fast.

From our website   A guide to Spanish pension benefits
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