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

Could a China hard landing end gold's bull run?

Gold has been one of the best performing asset classes for a decade now but recent price declines (it's about 15% down from last year's high) have led some to call the top of the market.

Are they right?  Is there any value left in buying into gold at this stage?  Are the many owners of gold and gold investments like ETFs headed for a fall?

Almost certainly not is the answer but there is a very apparent danger in the short term from a hard landing in China.

To understand why gold will remain in a bull market, consider what has driven gold this far.  Some people crudely characterise gold as an inflation hedge but it's more a form of insurance against monetary collapse and chaos which often leads to inflation.

When governments abuse their currencies and lose fiscal discipline like they did in the 70s it is very difficult to find safe places to put your money. With falling bond and share prices and negative real interest rates at the bank, gold offers a last chance at preserving wealth.

Before the 2008 crash investors bought gold because they saw Central Banks stoking a monetary  bubble which portended some 70s style chaos.  Since the crash worsening government finances and extreme monetary policy have exacerbated these fears and so we have had 10 years of gold price rises without much of the inflation that it is supposed to protect against.

Crucially, on top of gold's appeal to investors as insurance, we have had very low interest rates, often negative in real terms. This negates one of the drawbacks of owning gold - it doesn't earn anything.

Indeed if you want to know when gold is going to peak then the measure to watch is real, inflation-adjusted interest rates particularly dollar interest rates.  If there were any hint that the Fed were going to normalise interest rates at a level a percent or so above CPI then gold would fall a long way in a short time.

But this is not going to happen for a while and the Fed have publicly stated that rates will stay low until 2014.  That will put a floor under the gold price, probably not much lower than where it is now.

The Eurozone crisis makes more money printing likely and is just the sort of thing that gold as an insurance policy is made for, even if in the short term the Euro's weakness is a negative for the US$ gold price (the dollar has been at its highest level for years versus the sickly Euro).

The one cuckoo in the nest could be China. Private sector Chinese demand for gold, like its demand for just about everything else in the last decade, has been relentless and is still growing rapidly.  But a lot of the Chinese economic growth since 2008 has been artificially stimulated by its government, is ill-balanced and unsustainable.

The slowdown this year has been marked and I am sceptical of the soft landing claims.  The papers have been carrying stories like this one about Chinese buyers refusing to take delivery of iron ore and honour commodities contracts - Chinese steel mills defer iron ore shipments.

It is easy to see Chinese demand turning from a positive to a negative for the gold price.  Indian demand, usually a mainstay, has already fallen sharply this year as the economy slows.  But with the financial crisis dragging on with no (happy) ending in sight the overall case for gold is as good as ever.

How many mental problems do you have?

I was delighted to see snooker's great entertainer Ronnie O'Sullivan win the world championship on bank holiday Monday.  Unfortunately I switched on late, just as he was picking up the trophy and giving his post-match interview.  I was surprised to hear him give credit to Dr Steve Peters for his win because I am currently reading Peters' book "The Chimp Paradox" but knew nothing of his work with O'Sullivan.

That book claims to contain a mind management programme for confidence, success and happiness and is endorsed by other sportsmen Dr Peters has worked with like Olympic cyclist Chris Hoy, who says that his techniques helped him win gold.

I read the book because it seemed a rare combination: a self-help book by someone who was scientifically qualified to give advice.  Usually I wouldn't be seen dead near the self-help aisle but I am glad I gave this book a chance because I think it is going to help me with my own mental well-being.

I was specifically interested in finding ways to control my temper - things like shouting at the kids, over-reacting to perceived injustices and ranting about things that are not that important.

The book has helped, by explaining why we get angry and lose control of our emotions at times and how to combat this.  But I found as I read the book that I have much more than anger management issues to deal with!  While looking for tips on staying calm under duress (e.g. severe provocation from the kids) I couldn't help but recognise other things that Dr Peters was talking about.

Essentially he says (time for a massive simplification) that our human, true self is often hi-jacked by the primitive chimp part of our brain and we end up saying, doing and feeling things we don't like very much and regret once the moment has passed.

He also says that self-confidence and performance can be impacted by the chimp's interference as this short clip shows:

So you could say that, by his definition, we have mental problems if we experience emotions and feelings that we don't welcome.  So, when I lose my temper and get angry and later recognise that I overreacted, this is a problem which can be treated.

Some of the other things I recognised that fell into this "unwelcome emotion or reaction" category were:

- stomach-churning feelings of fear and dread at moments which are (if I stop to think about it) not that threatening
- feeling like things are spinning out of control and that I am being swamped by things to do
- undue pessimism
- inability to assert myself or say or do something for fear of upsetting someone
- allowing bad news to ruin a day or a weekend (or a week!)
- struggling at times to relax and enjoy the moment
- being overly harsh on myself and self-critical
- lying awake at night (usually a Sunday for some reason) and fretting about things which, when I wake up, seem silly

That's just a few of the bad mental habits that I recognised in the book that I now think I should work on.  That list probably makes me seem like a screw-up but I think a lot of people would come up with longish one if they thought about it.

If, like me, you think you are relatively normal but have a surprising number of mental traits you would prefer not to have, then consider trying to get rid of them.  Not necessarily with this book but I do think it is very good.

I had always assumed that you can't change your nature and that the best you can do is keep the bits you don't like in check.  I now believe, after reading this book, that all your unwanted mental traits can be turned around with the right approach.

From our website: Massive Spanish tax rises in 2012

Are Spanish bank accounts safe?

MARCH '13 UPDATE:  I wrote this assessment in August 2012 and there have been some developments since.  On the plus side, the Eurozone crisis seemed to ease after the European Central Bank said it would do everything it took to backstop the weaker countries like Spain.  This has made Spanish banks look safer.

On the negative side now we have Cyprus where a Euro-area country has begun confiscating a % of people's deposits without warning and preventing them accessing their accounts.  Could that happen in Spain?  See Could Spain "do a Cyprus" and raid Spanish bank accounts? for the very latest.


The Telegraph recently ran an article entitled "Pain in Spain could spell trouble for expats" asking whether money deposited in Spanish banks was safe.

It's a good question if you live in Spain and have a current account with a local bank and also some or all of your savings in a deposit account.  Perhaps you bank with one of the big banks like Santander or BBVA or one of the cajas which are like building societies (but with less money!).

The article was prompted by a wave of downgrades of Spanish banks by S&P which followed a downgrade of the whole country to BBB+ status the previous week.

Even national giants Santander and BBVA were on the list of threatened banks although they still get a rating higher than the national one.

The article focused on the government deposit guarantee scheme which ensures you get €100,000 back from the government if your bank goes bust.  It suggested that you might want to review if you have assets more than this.  However that only partly answers the question in my view.  How good is the goverment guarantee?

Given that the Spanish government is also deep in a debt mire along with the country's financial institutions, it is unclear whether they have the financial strength to bail out the banks and honour these guarantees.

Spanish national debt is not actually that high as a % of GDP but there are all sorts of hidden liabilities and big doubts over whether government cuts and tax rises will bring it under control or simply make the economy even weaker.  The Spanish have been struggling to sell their bonds at reasonable rates of interest rates and indeed it is only the local banks that have been buyers recently.

Spanish banks have been stepping in to buy their government's bonds using dirt cheap  ECB loans they got in exchange for dodgy property assets.  Just who is propping who up?

There are no guarantees in Spain that inspire confidence - the banks have insufficient capital when compared to the optimistic values they contine to attach to their assets and the government cannot afford to pay its own bills nevermind bail out the banks.  Best therefore to stay clear.

There are plenty of alternative homes for Euro deposits but remember if you live in Spain but park your money offshore then you still have to pay tax on the interest.  It is definitely not a good idea to try and hide interest income because the Spanish tax office has information on all accounts including places like the Channel Islands and Gibraltar.  Given the pressure on them to bring in extra revenues, offshore accounts of Spanish residents are just the sort of place they will look.

This brings me onto another reason why I would be wary of holding much more than "walking around money" in a Spanish bank account: the authorities are getting desperate and are not afraid to confiscate money from people they suspect of avoiding tax using bank account "embargoes".  Even if you successfully appeal against the tax office when they wrongly make a grab for your money would you want the expense and hassle of fighting to get it back?

Finally there is what you might call the "Argentina factor" - the outside chance that things get really nasty with Spain's economy worsening further, leaving (or being ejected) from the Euro and deafulting on the national debt.  It dosen't take the world's greatest pessimist or cynic to envisage the government in these circumstances reneging on the bank deposit guarantee or repaying euro balances in new pesetas worth a fraction of the account's Euro value.

From our website:  Spanish maternity benefit

Do we need adverts to tell boys not to abuse girls?

That title is not a rhetorical question.  I really don't know the answer and am curious.

The UK government must think that some young people don't know the boundaries of what is acceptable in their relationships because they spent a lot of money on the This is Abuse campaign with such messages as:

- no means no
- physically attacking your girlfriend is wrong
- rape doesn't always involve physical force
- pressuring a girl into sex is wrong

My first instinct is that the campaign should not have been commissioned for three reasons:

- governments already waste far too much money on ineffective but expensive glossy ad campaigns (think about how much they have ploughed into fruitless healthy eating campaigns, if you will excuse the pun).

- the old libertarian view that issues of personal responsibility, morality and behaviour should be dealt with by society, mainly in families, and governments shouldn't interfere.

- the anti-abuse campaign shouldn't be necessary.  How is it possible that large numbers of British males have got to the age of sexual maturity without knowing that it is wrong to force themselves on girls and try to get their own way by physically hurting them and calling them "slags"?

Obviously there are young (and old) men who act in this way and a lot of rape and domestic violence is unreported so probably more widespread than you think.

However that doesn't mean that the perpetrators are unaware that what they are doing is wrong and they need it explaining to them.  Even in this permissive age little kids are told not to attack their peers and call them names even at pre-school.  It would be pretty chaotic otherwise.

No one gets to talking age without knowing it's wrong to hurt people.  Surely they are not going to need someone to sit down and explain to them that this also applies in the field of relationships?

But perhaps I am wrong and a good number of teens are confused about rape and uncertain about what constitutes  abusive behaviour.  In that case then this very slick and thorough campaign would be justified.

But it's a sad reflection on the state of our society and in particular the nation's parenting skills if the government has to step in and explain to boys that behaviour of the kind acted out in this video is not right:

From our website: Minimum age requirements in Spain

Cornered Spain gets desperate

Desperate times call for desperate measures and, as far as country's economies go, things can't get much more desperate than Spain right now.  So it's no surprise to see some government measures being announced that would ordinarily never see the light of day.

Spain's plight is well known - a seemingly endless "crisis" (pronounced cree-see in Spanish) which has resulted in mass unemployment and a shrinking economy.

The immediate problem however is avoiding default. Spain has to sell bonds to finance its deficit and the fear is that if the interest rate on those bonds rises to 7% the government will have to seek a bailout from the EU and the IMF.

Last week's bond auctions saw demand for Spanish debt at 6% so there is not much margin for error.

This is why the government is trying all sorts of things to raise money which are causing massive controversy in Spain.  No one wants to end up being the next Greece but there is widespread anger at some of the measures:

- an amnesty for tax dodgers who can get repatriate funds hidden offshore no questions asked and just pay 10% in tax.  The government thinks it can raise €2.5 billion but everyone else thinks it's unfair.  The opposition want to block it in the courts as "unconstitutional" because it undermines the right to equality among citizens.

- making pensioners pay 10% of the cost of their previously drug prescriptions has caused a huge outcry even though the amount they pay has been capped at €8 - €18 a month depending on their level of income and non-pensioners pay far more (up to 60%).

- As I predicted in February (Spanish electricity bills set to soar) the government has hit energy costs with electric bills up 7%.  They now stand 60% higher than they did in 2007 when the crisis first began.

Will all this keep the bond markets happy?  Probably not as all the pain inflicted by the government just makes it harder for the economy to grow which in turn will push the deficit targets further out of the reach.

That is so obvious it hardly needs stating but what else is the government supposed to do?  Imagine if it just shrugged at the deficit and carried on regardless (which is more or less what the French seem to be doing).

Spain is chasing its tail and it's hard to see it ending in anything other than a bailout.

From our website:  Taxation of rental properties in Spain

The company that will be bigger than Apple

Who or what can stop the seemingly irresistible rise of Apple Inc, now the world's most valuable company by quite some distance (see Top 5 below)?

1. Apple $564 bn
2.  Exxon  $391 bn
3. Microsoft $259 bn
4. PetroChina $257 bn
5. IBM $235 bn

Every quarter seems to bring a surge in sales from a new version of one of the company's smash hit products (iPhone4 in Q4 2011, iPad3 in Q1 2012 and iPhone5 due later this year).

The sales price dipped last week but is still up 600% in the last 5 years.  Crazily optimistic investors?  Not really, profits have gone up faster and the forward P/E ratio is a far from vertiginous 12.8 - lower than it has ever been; see this great chart here.

With plans to transform the TV market and a burgeoning business in content (especially app) sales, Apple is certainly in a sweet spot and the share price is justified.

But what of the longer term?  As Apple has itself shown, a huge amount can happen in 10 years.  Before introducing the iPod and a funkily-coloured range of Macs in the early 2000s Apple was almost an irrelevance.  It's share price was less than $10 as recently as 2004 (it closed over $600 yesterday).

Consumer habits and market trends can change capriciously.  Just ask Sony, which back in the 90s was as dominant in consumer electronics as Apple is now.  It's been in the news this week because it is losing billions, cutting jobs and fighting for its survival.

I can't see Apple sliding back to obscurity any time soon but there are some potential traps ahead.  The proposed move to TV is risky ; most TV makers lose money.  Apple's amazing margins (a solid 40% for several years) will surely come under pressure in the phone and tablet markets as competitors gear up.

Steve Jobs also bequeathed Apple an obsession with "walling off" content inside the iTunes world but consumers (and developers and content providers) prefer openness and freedom.  Trying to have it all might bite back one day.

As for the competitor most likely to topple Apple as the world's dominant company, I nominate Korea's Samsung Electronics ahead of the usual suspects like Facebook and Google.

Looking around a mobile phone shop at Samsung's phones and tablets you might not think them in any way a likely challenger to sleek and innovative Apple.  It sells a similar quantity of devices but not at the profit margins of Apple's premium products.

But take your eyes off those products du jour and look at the bigger picture; in many ways Samsung is a stronger and more rounded company, even though it is valued at only $200 billion to Apple's $580 billion.

Samsung is strong across a broader range of products including TVs which, rather than just talking about it like Apple, it actually does amazingly well in with about 25% of the world market. Look at this state of the art "OLED" TV that it has just unveiled which is every bit as awe-inspiring as the iPad3:

http://www.slashgear.com/samsung-55-inch-super-oled-tv-hands-on-11208794/

It has a dominant and growing presence in memory chips and LCD and LED screens, demonstrating a much wider range of capabilities than its American rival.  I suspect it will make a lot of money from revolutionary new lighting products over the next few years for example.

Consider too the R&D spending figures - Samsung plans to spend over $9bn this year around three times as much as Apple.  Some of this money is going into developing more software skills where obviously Apple has a great core strength.

The software gap will close however while Apple will never match Samsung's prowess as a manufacturer.  It is interesting to note that more than 25% of iPhone is actually made from Samsung components and the proportion is even higher for an iPad.

The company is part of a bigger industrial group which plans to invest  a staggering $41bn and recruit 26,000 new people this year, with 80% of this going into Electronics in the form of acquisitions, research and incubating new technology.

I predict that Samsung will be a bigger company than Apple within 5 years in terms of sales, profitability and market value.  Not an easy one for investors to play however as Samsung is not listed out of Korea.

From our website:  Spanish wealth tax guide 2012













Top 5 companies by market value (Apr 2012)

1 Apple $588.95
2 Exxon Mobil $406.56
3 Microsoft $265.15
4 PetroChina $257.98
5 IBM  $242.17