Financial Crisis? Nope, not here, it's more like Armageddon!

Madrid

28 October 2009

I'm finally beginning to realise how very close to disaster we came a year ago. We are still experiencing the after-shocks of the Lehman failure. Bank lending was very tight this past February and I was anecdotally telling people in the City of London that the banking houses in Madrid had been very lonely places, there wasn't anything going on.

Well, my friends, the truth is that there is still not all that much going on. Here in Spain we are at about 20% unemployment, highest in the EU. In my business, renewable energy, the price of assets is softening and the number of them on the market (for re-sale or for sale after construction) is growing. Owners who six months back were willing to sit on an investment, expecting that prices would begin to rise and that terms would evolve in their favour if only they held out, are now needier, they haven't seen many serious buyers and they haven't closed many deals. The terms are becoming more favourable for buyers and prices are, at a minimum, not rising.

This is not just a shift in my perception of what's happening, it's an important augury of what's really developing out there; there's a realisation taking hold that this is going to take a while to work out. The physical evidence supports this belief; the answer to what actually is going on in the economy is 'not much'. We are seeing a continuation of 'life support' activities, which you'd expect: groceries, fuel, agriculture. What we aren't seeing is what we did expect would be happening by now: a return to some form of normality in the rest of the economy. Naturally, we expected construction to lag; well, actually, to remain comatose for at least another 12 to 18 months. What we didn't expect was that everything else would be hurting. Deals just aren't happening and I think that's for two reasons: banks are not lending (at least they aren't lending easily and without extensive questioning of the deal) and buyers are very much more conservative than they were (and than we expected them to be at this point). The buyers are running scared. The due diligence is longer and more exhaustive. The desire to reduce the number of unknowns combined with a bull market in risk aversion has slowed the pace of business to a dangerously slow speed.

Sclerotic banks, needy sellers, conservative buyers: the way it stands now, we are going nowhere quickly. You cannot make buyers less conservative or quicker unless they've got some confidence in the economy as a whole. Banks are the only part of the dysfunctional algorithm that can be artificially stimulated. The upshot is clear, Governments have got to stimulate credit, they have to get banks to open the taps. Sellers will move enough in price and on terms to stimulate the buyers if they think the banks have enough confidence to lend.

So, are banks the bad guys in this picture? Yep, you betcha! There is no ambiguity; they got us into this mess and they are doing very little to get us out.

The photo-voltaic industry in Spain benefits from a feed-in tariff that is guaranteed by the Spanish Government for 25 years. What that means is that if you can get your solar cells producing correctly and the power you generate is evacuated into the grid, you will get paid. Unless it's got what they call trackers (little machines that turn the solar cell modules so that they get more sun), a photo-voltaic plant has, essentially, no moving parts and is undoubtedly the least risky way to produce power that there is. In other words, if you get your modules in place, there is not much that is going to stop you generating power and if you do, the Spanish Government guarantees you'll get paid. For a lender it doesn't get any better -- the deal is transparent, tick some technical and legal boxes and you've got a nice, steady income.

With these pluses, you'd expect that the photo-voltaic business, along with other renewable energies, would be one of those that would go through the crisis without much damage. Of course the industry isn't immune, a lot of sellers are construction companies that were battered by the residential bubble and have to liquidate assets to improve the balance sheet so, what do they sell, the assets they think will realise the most value, their renewable projects. Still, there is nothing fundamentally wrong with the business (except maybe some over-enthusiasm on the part of Government when they first thought up these rich tariffs). Why can't we get things going then?

The answer is, again, simply that the banks aren't moving. Like deer in the headlights they are simply watching Armageddon hurtling towards them. They think that by strengthening their balance sheets they will survive and any loans they make now apparently do nothing towards that end. But, the fact is that theories about what percentages you need to be safe are all simply calculated risk assessments. The presume that we won't go over some financial cliff where all of those guesses (for that, in the end, is all they are) about bad loan reserves and so on are just so much statistical nonsense.

So, how do we get things going? Really simple, in my view; make some loans, prudent ones, but make them and make them soon! We've got to get money moving or we're really going to face some serious troubles.

Baby Einsteins?

27 October 2009

Madrid

To our horror, we've just learned that the 'Baby Einstein' videos from Disney (actually, I've been fairly busy recently and this is the first I've heard of them) do not work. Nope, you cannot put your baby down in front of the television, turn on the video while you have a beer, cook dinner or read pornography and have your baby come out at the end of half-an-hour a budding genius. Apparently the American Pediatric Society (or Association?) doesn't think you ought to have baby in front of a screen at all during the first two years of life. I believe, technically, that the Pediatric Society has actually contacted the American Association of Podiatrists on the matter because of a serious concern about Disney having put their foot in it.

So, what was happening in Baby Fido's mind as he sat in front of the screen? From the very little I've read (and I mean the very little I scanned, this is an issue I'm milking because it strikes me as silly), it appears that the infant viewers were simply overwhelmed by the colors, noises and movement on the screen. They do not 'get' much or any of it; they are, seemingly, mesmerized by the videos and sit there, just like adults, their minds turned into some sort of flickering screen-induced mush, staring gape-mouthed until their parents recall their existence and turn off the machine.

Too bad there is no such protection for adults; I've been known to sit there stupidly watching one repeat of Friends after another, completely bereft of any indication of sentience, letting the noise and the color and the movement on the screen wash over me, just like junior.

Gordon Brown likes Nick Griffin .....

24 October 2009, Madrid

Nick Griffin appeared on 'Question Time' because Gordon Brown and other Labourites wanted to encourage interest in the BNP. Every vote for the far-right is a vote that the Conservatives lose. Gordon will lose this coming June unless he pulls every sneaky, underhanded, low-down political trick he can think of. Even then, though, I think the disgust level across the country may just be high enough that he'll be looking for something else to do this coming summer.

Ups and Downs of a Broken Leg

24 October 2009

Saturday, Madrid

Most of what goes on when you have a broken leg is not all that positive. I broke my left leg ingloriously in four places, managing to twist myself into a knot on a flat piece of sidewalk outside my office. It took two hours of surgery and enough screws to open a hardware store to put me back together. I then had a week on my back in the hospital, another week at home, still on my back and, finally, a trip back to the hospital to put on a semi-permanent cast of fiberglass. I now make my way around on crutches, I'm not allowed to put any weight on the broken leg for another three weeks or so.

I've learned that Madrid is not very friendly for disabled people. I suspect this is a fact about much of the world of which I was, heretofore, blithely ignorant. It's even hard to get into the hospital – I had to wait outside for an orderly to come and get me with a wheel chair, the steps are not friendly and the ramp is a marathon without a rail to hang on to. I cannot go to my favourite cafe near the office because the steps in and out are very steep. Getting into the office itself is a chore – there are two very short flights of steps before you get to the lift but neither has a rail for support so I have to call a colleague to come down and lend me his arm so I can hop up the stairs without risking another broken leg.

Our apartment is called an 'atico' and, in local usage here in Madrid, that means it occupies more than one floor on the top level of the building. After the first two times of hopping perilously up and down from the main to the bedroom floor and, simultaneously, scaring the hell out of myself, I figured out that discretion called for me to sit on my butt and scoot up and down, step by step. It looks undignified but it has taken most of the risk out of getting to my desk, to my bed and to the living room.

Bathing is a very long and involved process – I yearn for the luxury of just standing under a shower and letting the hot water just run and run (not very 'green' of me but I promise to do it only once).

I get up early, no one told me that there would an irritating amount of relatively minor pain that would affect my sleep. I put on my robe and have figured out how to make coffee and take a cup of it to my desk (I fill a big glass half full with coffee, put it in the pocket of my robe and try to hop smoothly back to the desk where I then pour the coffee into a smaller, more convenient vessel for drinking).

Everything takes a long time and I get tired. I weighed about 220 pounds when this began. I've probably lost about 15 or so pounds but its still quite a work-out to use my crutches to go any distance – I can certainly feel my shoulders and upper body getting stronger. And, that's one of the upsides of all this – I'm actually getting in better shape! I do, however, need more naps!

I just went for a brief walk – out the door of our building, down to the end of the block, a few minutes rest on the edge of a planter and back. I think it's time for another nap.