The inverse loyalty scheme

Over the course of the past few years we have been repeatedly netflixed by the lady who runs the shop right in front of our house.

Each time we show any kind of propensity to repeat purchase specific items over the medium term, she raises the price of said items*, presumably for us only — so more or less the opposite approach to the coupon schemes run by the big UK chains like TESCO.

And whenever this happens I stop buying the item in question forthwith, as if to demonstrate that the apparent convenience offered by her tienda (if I tripped up on the cobbles outside my front door I'd probably end up at her counter) will not so easily translate into economic captivity.

Now I'm not a total codo — I can spot a value-added shopping experience when I see it (Waitrose over Tesco say) — it's just that I am not really seeing it here. And unlike our old friend in Federal lock-up, I don't have an inherent problem with differential pricing schemes, even 'gringo' prices (though V has actually had the worst experience of hikes), it's just that I don't care to be gamed in this way, and would have thought that our response might have put a stop to it by now.

We're down to a few items where the opportunity for opportunistic margin grabbing are limited; eggs for example. I stopped buying milk there last week when she upped the price by another Q0.50, thereby handing the Bodegona a 20% price advantage.

When it comes to the afternoon bread session, I try to intercept the van before it reaches the shop. Firstly, this permits me to ensure that all the pirujos, bolas, champurradas etc. that we buy are fresh, because the tienda-owner likes to pad out one's purchase with a few odds and ends left over from the morning, or even the previous afternoon. That's if she is willing to sell you any bread at all unless you have made a prior arrangement to reserve Qx from each delivery.** The bread that has not been firmly set aside will be sitting there in its basket, but she will be extraordinarily reluctant to part with it, perhaps because she will need it to add a few squishily stale rayaditas to tomorrows orders.

*In the case of red wine, she stopped stocking my preferred brand of Chilean plonk and instead started offering another label which costs Q15 more.

** This sort of lock-in might work for the majority of our neighbours — who are nothing if not slaves to routine — but our dietary habits and timetables are generally more flexible, so I want to be able to impulse purchase my bakery products.

2012, here we come.... (#17)

And here's a chart from another continent that tells a scary story. Chinese GDP figures released this week might seem to suggest the possibility of a softer landing over there, but when you look at the way real GDP and nominal GDP have diverged since 2008, there are clear signs that things may actually be getting bubblier.

2012, here we come.... (#16)

Today the can-kickers took it to another level, kicking the can with the can in it further down the road, via a de facto delay to the EU summit and the decision everyone kind of hopes it will come up with.

Meanwhile, MoneyGame published what it describes as the 'new scariest chart in Europe' (above), with the following commentary:

Greece, in a way, seems like a lost cause. Everyone knows it will default in some way or another. But while Greece might theoretically be ring-fencable, nobody thinks Italy is...

2012, here we come.... (#15)

Gold traders are reportedly more bullish about their prospects next week than they have been for several months.

Maybe they have heard the latest audio message from Rapture prophet Harold Camping who remains set in the view that the end will come before we've even said hello to 2012. Having been largely wrong about May 21, Camping has turned his attention to October 21, next Friday, which he cautiously predicts will be "the final end of everything".

This time "the end is going to come very, very quietly," Camping affirms, without such telegenic collateral effects as earthquakes, volcanic eruptions and catastrophic tsunamis.

And fortunately, "There will be no pain suffered by anyone because of their rebellion against God," (even commodity speculators), because "he has no pleasure in the death of the wicked."

2012, here we come.... (#14)

The panic is starting to take hold...

Campero's image 'adjustment'

Severo is about right in this instance.

Having worked with companies like Shell that protect and venerate their brand/marque with a near religious devotion, this update from los Gutiérrez strikes me as reckless, whatever its relative merits aesthetically.

When you choose to revamp rather than refresh you are often showing premeditated disrespect for those customers who have, in some cases, a lifetime's worth of emotional investment in your brand.

It matters less for B2B firms, but leading consumer brands always try to make iterative changes where there is something in the design that signals backward compatibility. I'm not really seeing it here.

I note that their main corporate website has yet to make the leap, so either PC intends to roll out the new image regionally (something one of the world's leading brand owners like Shell is unlikely to contemplate), or they are being a bit chicken, and want to test the waters in Texas with a potentially more yufe-ful customer base before admitting to a brand desecration back home in the motherland.

2012, here we come.... (#13)

Fools' errands and fools' gold...is how leading American historian John W. Dower has characterised both post the 9-11 military-statebuilding adventures and the financial collapse of 2008.

These were parallel phenomena in his mind, because both were grounded in historical amnesia and an ideological commitment to the notion that we have somehow slipped the usual constraints, allowing free makets alone to take full control of both political and economic systems.

So perhaps it isn't so hard to see why some of our fellow Europeans have tended to regard the resulting mess as largely an 'anglo-saxon' problem. This allowed them to erect an imaginary Maginot line between themselves and the consequences of this anglophone shallow-mindedness, and now that it has been definitively breached, they are only just starting to realise how much trouble they are in.

When the crisis first broke regulators ordered European banks to increase their liquidity buffers and most of them did so by investing heavily in government bonds, seen then as comparatively risk-free as well as highly liquid. Meanwhile, believing that the problem lay elsewhere, the French and the Germans went about the recapitalisation of their banking system with a lot less enthusiasm than their US and UK counterparts.

Now almost half of the €6,500bn stock of eurozone sovereign debt is showing signs of heightened credit risk and this particular, highly interconnected part of the global financial infrastructure is surely carrying the greatest exposure.

As Jeremy Warner put it recently in the Telegraph:

BNP alone has a eurozone sovereign debt exposure of some €75bn, amounting to roughly 6% of total assets, including €14bn of Greek debt and €21bn of Italian government bonds. And that's just BNP. The other two major French banks, SocGen and Credit Agricole each have exposures of a similar order of magnitude. Collectively, French banks have €56bn of Greek sovereign bonds alone. They've so far only written down this Greek debt by around 20%, or in line with the restructuring agreed at the time of the last bailout.

2012, here we come.... (#12)

Jason O'Mahoney in Marketwatch yesterday:

"It’s kind of like being on a family safari: There’s a herd of elephants charging towards you, but your young kids just love the cute elephants and if you shoot them they’ll never forgive you. Yet if you don’t shoot them, there’s a very good chance the elephants will trample both you and your whole family. Welcome to the choices facing the leaders of the European Union."

Later in the article the author manoeuvres his elephantine prose into a new metaphor of impending yet (supposedly) avoidable calamity:

"There are some who argue that if Captain Smith had turned the Titanic into the iceberg and rammed it direct, the move would have damaged the ship but left it afloat while at the same time destroying his reputation. Today, Titanic would be a metaphor for a crazy captain who annoyed 2,223 passengers, instead of a maritime disaster. Europe’s leaders don’t need the benefit of historical hindsight. They can see the disaster coming and they know that the only way to save the ship is to go at it with overwhelming force, even if it destroys their political names in the process. The iceberg is looming out of the night. It’s time to decide."

Nada Haces Por Mí

Mexico is one of three nations which spring to mind sharing a pronounced pop-cultural obsession with efflorescent females.

Juan Carlos Lozano's video for his new solo rolo Nada Haces Por Mí, ever-present these days on Telehit, can be found closer to the tasteful French end of this slightly suspect scale than the pervy Japanese position at the other extremity. Lozano himself sits at the leading edge of Mexican ambient electro-pop/rock having headed up both Moenia and Morbo before setting off on his own with this catchy track.

2012, here we come.... (#11)

"Living through a collapse is a curious experience. Perhaps the most curious part is that nobody wants to admit it's a collapse. The results of half a century of debt-fuelled "growth" are becoming impossible to convincingly deny, but even as economies and certainties crumble, our appointed leaders bravely hold the line. No one wants to be the first to say the dam is cracked beyond repair."

That was the opening paragraph from Paul Kingsnorth's Guardian piece last week, in which he sought to draw our attention back to the work of Leopold Kohr, for whom bigness was never a good thing. Most political and economic systems (even Communism) work well on a small scale, he believed, but once they grow become increasingly problematic. Kingsnorth thinks he may have been on to something...

"The crisis currently playing out on the world stage is a crisis of growth. Not, as we are regularly told, a crisis caused by too little growth, but by too much of it. Banks grew so big that their collapse would have brought down the entire global economy. To prevent this, they were bailed out with huge tranches of public money, which in turn is precipitating social crises on the streets of western nations. The European Union has grown so big, and so unaccountable, that it threatens to collapse in on itself. Corporations have grown so big that they are overwhelming democracies and building a global plutocracy to serve their own interests. The human economy as a whole has grown so big that it has been able to change the atmospheric composition of the planet and precipitate a mass extinction event."

2012, here we come.... (#10)

Historically 90% of all American economic expansions have been of less than three years' duration. So perhaps one ought not to be so surprised that things appear to be about to go in the other, wrong direction. Yet I still cling to the view that, left to its own devices, the US economy has (or had) the ability to muddle through this situation.

The trouble is that would require a hypothetical situation in which everyone is constrained to act like jurors in an on-going trial, and thereby prevented from reading or viewing any commentary on its progress. For such is the condition of modern communications that all prophecies — even Mayan ones — tend to be self-fulfilling. (Mea culpa...)

The nature of short selling is that it helps to bring about the desired situation while creating a backlog of negative sentiment. Economic data published this week may not have been as scary as it might have been, but now the prevalent expectation has been recalibrated based on events in August. The hedge fungus and other speculators have been back on the case of the global banking system since the current crisis entered a new phase around the time the House Republicans revealed the true nature of their insanity. As John Lanchester puts it:

"The disturbing thing about the whole process wasn't so much that the Tea Partiers were irrational as that they were irrationalist; they were consciously pursuing a course of action which made no economic sense, as part of a world-view which is essentially theological."

Lanchester compares Rumsfeld's known and unknown unknowns with what investors might describe as risk and uncertainty. The former is the natural state of affairs, the environment in which they function, the latter is 'uncharted territory' and thus much harder to operate within, as well as being fairly terrifying.

As we commence viewing Act III of this particular Greek tragedy, all other stock market signals are being drowned out by emotive headlines. CNBC's Jeff Cox explains..

"In a normal market, the wide disparity between the Dow Jones Industrial Average and technicals would be screaming an ugly message, but these are not normal times. That's because the massive amount of headline risk—market moves driven by the constant churn of big news events—is at an apex"

So none of the usual risk signals really count right now and the Greek 'news event' is not a risk signal at all, for it has been cloaked in the unknown unknown of uncertainty (and the irrationality of that perverse doomsday faction within the GOP).

2012, here we come.... (#9)

While politicians from both sides of the pond have been attempting to reassure markets by reiterating their determination to kick the can ever further down the road, leading economists have, rather unhelpfully, already called the end game.

Nouriel Roubini, that fraternity's reassuringly nicknamed Dr Death, was first off the mark as usual.

"Greece is stuck in a vicious cycle of insolvency, low competitiveness and ever-deepening depression. Exacerbated by a draconian fiscal austerity, its public debt is heading towards 200 per cent of gross domestic product. To escape, Greece must now begin an orderly default, voluntarily exit the eurozone and return to the drachma."

Acknowledging that there are no real rules in place for how this might be achieved, and that both a good deal of international trauma and 'collateral damage' are inevitable, he too cites Argentina's pesification of its dollar debts and those dodgy folk on Iceland as examples of an effective emergency response.

Aside from an immediate restoration of competitiveness, Roubini mentions the more dubious secondary benefit of other Eurozone economies being able to see clearly just how screwed over the Greeks end up and thus having "a chance to decide for themselves whether they want to follow suit, or remain in the euro, with all the costs that come with that choice."

Others, while also favouring an orderly default, find the prospect of a Greek euro-exit too scary, while Citi's Willem Buiter believes it won't do any good anyway in terms of restoring competitiveness. In this he has been backed up by Ian Bremner, Visiting Fellow at LSE, who adds that

"The problem with this line of argument, however, is that Greece actually is less exposed to international trade than any other eurozone country. Only €16bn of its €230bn gross domestic product is export-based. True, the tourism industry does comprise a significant 15 per cent of GDP, but a devaluation would have limited upside against Greece’s less expensive Mediterranean competitors such as Turkey. Worse, Greece has a mountain of debt denominated in euros. A switch to a new drachma would not change this. In fact, the drachma’s devaluation would only make the debt that remains that much harder to pay off."

Furthermore..

"No legal framework exists for an exit from the euro. Greece would have to negotiate with its eurozone partners, and most likely with the 27-member European Union. It would be a prolonged and messy process, creating a political and economic drag for everyone involved."

As of yesterday it is advantage can kickers for the time being. Merkel has got through her local vote on the EFSF with her majority intact, but it won't be until the second half of next month that all the other members of the EU have caught up...around the same time that the Greek state starts to run out of money for pensions and salaries.

Anyway, the spectre of a catastrophic collapse before the next crucial German vote on EFSF2.5 in early 2012 does seems to be receding; the policy makers appear to be making the present state of traumatic uncertainty that much more durable with their not quite satisfactory fixes.

2012, here we come.... (#8)

"Financial markets are driving the world towards another Great Depression with incalculable political consequences. The authorities, particularly in Europe, have lost control of the situation. They need to regain control and they need to do so now."

So says George Soros in this morning's FT. He proposes a 3-step solution:

First, the governments of the eurozone must agree in principle on a new treaty creating a common treasury for the eurozone. In the meantime, the major banks must be put under European Central Bank direction in return for a temporary guarantee and permanent recapitalisation. The ECB would direct the banks to maintain their credit lines and outstanding loans, while closely monitoring risks taken for their own accounts. Third, the ECB would enable countries such as Italy and Spain to temporarily refinance their debt at a very low cost. These steps would calm the markets and give Europe time to develop a growth strategy, without which the debt problem cannot be solved.

Of course there may be bold and creative solutions to this crisis out there, but what are the chances that politicians everywhere are going to find themselves hamstrung by their parties, their electorates and by the limitations and fundamentally mal-coordinated nature of national and international institutions? Who or what is ever going to regain control?

I'd like to think that 'behind closed doors' the people with the power to act already have a handle on this, but then I am, in spite of the tenor of this series of posts, some sort of optimist.

2012, here we come.... (#7)

It has been reported today that William Hague, Her Majesty's Foreign Secretary, characterised the Euro as a burning building with no exits back in 1998. Others have since deployed the slightly less gruesome comparison with the Hotel California; if there are any exits, suffice to say they have not been clearly marked...

2012, here we come.... (#6)

Dead cats are once more a'bouncing as chatter spreads about a multi-trillion dollar windfall to the European Finances Seriously Fucked (EFSF) fund at some as yet unspecified date in the future.

But lo, who is that yonder complaining that the EU was specifically created in order to undermine the good ol' US of A and that not a penny of hard-earned American money should be 'sent overseas' with the intent of saving the likes of those cheese-eating surrender monkeys once again.

Yes, it's Rep. Cathy McMorris Rodgers (R-WA), Vice Chair of the House Republican Conference, who released a statement yesterday saying that she would oppose any effort increase funding for the International Monetary Fund to be used to bail out European banks.

No matter that the US carries a $17bn vulnerability to Greek sovereign debt, $2bn more than the UK, and a total of $187bn of PIIGS exposure.

2012, here we come.... (#5)

When Argentina pulled off the biggest sovereign debt default in history back in 2001, it owed $82bn. Greece owes $500bn. Yikes, eh? Whether we're talking about a neat 50% 'haircut' or a full-on grunt-style buzzcut, it's not going to be especially fetching.

Not without irony, Argentina is now oft-cited as an example of vaguely positive damage limitation. This is partly because some of the pain was shifted from external creditors onto local savers and because, thanks largely to a strong dose of Peronist protectionism, local living standards have rebounded somewhat in the subsequent decade. (Not that international lenders are going to extend them further financing for a very long time.)

Argentina's default should properly be seen as a recent episode within the rather more tragic largometraje tracking the most spectacular decline in comparative affluence in world economic history. Just before WWI Argies enjoyed a higher standard of living than both the French and the Germans. They then spent the better part of half a century slipping from the First World to the Third, the only nation to have ever really accomplished this feat. (So far.)

These days they enjoy a GDP per capita of $15,854 which, in spite of the recent 'resurgence' barely exceeds that of Mexico ($15, 113). The banker bods at UBS recently opined that a Greek default (followed potentially by a Euro-exit) would quickly shave off at least 50% off their GDP. In per capita terms this currently stands at $28,434, so the suggestion is that the most likely scenario would see Greece falling back in line with the likes of near neighbours Bulgaria ($13,563) or even Romania ($11,860), which would leave the EU's southern border looking remarkably like that of the USA.

Rise and shine

I recall now why we tend to avoid going out with the dogs first thing. One has to run the gauntlet of the 7am rush, which can be like playing some weird, live chapin version of Grand Theft Auto.

Outside the front door await the resident early-idling citizenry...consisting to a truly disheartening extent of hipocritas, egoistas, resentidos and free-floating chiribisqueros plus other assorted lifestyle bottom-feeders, and enriched at this hour by clusters of puddle-hopping estudiantes, blithely-urinating albañiles, pinches salariados, and cascades of bicicletistas imprudentes.

Then there's the paranoid poof with his can of Mace, who runs off screaming insults in the American vernacular every time he sees Jin and, if we're really unlucky, the knuckle-dragging brinconcito, who shuffles past gesturing at the ludicrously large gun that he carries under his sweatshirt.

Potentially even more hazardous are the extralegally-hooting madres de la alta suciedad, many still in their night clothes as they undertake their time-trial school runs, handling their vehicles as if any pedestrian in their path is to be swatted aside like a late-shift zancudo.

Better to stay indoors with our platanitos fritos and freshly-brewed coffee. After 11am, the only human obstacles are the shambling undead known locally as bolitos.

2012, here we come.... (#4)

It was amusing to hear Angela Merkel calling this weekend for a 'barrier' to be erected around Greece. Anyone with any sense has to realise that the firewall will have to ultimately extend around the borders of France and Germany itself, at the very least.

But of course managing German expectations is going to be the key to the progress of this particular systemic failure. The Americans in particular have surely already figured out that it will be easier to get the Krouts to cough up if they think they are protecting themselves (via some sort of stop loss provision) than if they think they are bailing out the good-for-nothing Greeks, and transatlantic political discourse over the past week or so has adjusted itself appropriately.

Merkel and co still don't seem to be in any great hurry to sort out the EFSF (European Finances Seriously Fucked?) emergency fund, a permanent 'backstop' which is not due to take proper shape before the mid part of next year.

2012, here we come.... (#3)

Seemingly also trapped between a rock and a hard place is President Obama.

Specifically he has been boxed in by the people who created the conditions for global economic catastrophe (the free market fundamentalists of the GOP) and the people who are most likely going to get the blame for it (the Europeans, particularly them feckless southern ones).

The President's approval ratings are already low enough to suggest that re-election in 2012 will be an uphill struggle, so you can understand why he's been war-dialling Sarko and Merkel lately in the hope that some sort of firewall can be erected across the Atlantic, strong enough to hold up through the autumn of next year.

As far as the wider institutions of the EU are concerned, the path of least resistance is always going to be a bigger mess rather than a stronger union, especially under the present set of constraints, time in particular. But Obama has to be hoping that the French and the Germans at least can come up with a coordinated approach to bolstering their banks and ring-fencing other vulnerable, yet not entirely bankrupt economies such as Italy and Spain, in the increasingly likely event of the Greeks coming unstuck some time before the US Presidential election.

G20 finance ministers meeting in Washington DC this weekend have been pepped up by US Treasury Secretary Timothy Geithner's calls for a 'decisive signal', but perhaps their minds will have been even more concentrated by the reported remarks of Greek finance minister Evangelos Venizelos, who apparently thinks his country has three options at the moment, and that the best of these is treating its creditors to a 50% 'haircut'.

Meanwhile, surely the best case scenario for the US administration right now is a contained explosion in Athens, which somehow fails to develop into a cataclysmic chain reaction.

2012, here we come.... (#2)

Greece's present predicament is not entirely unlike that of Aron Ralston in 127 Hours. They went for a hazardous trek in the Euro canyon and have ended up trapped between a rock and a hard place.

Ralston survived thanks to the timely realization that only by cutting off his own arm could he hope to break free. The Greeks have reached this point now too, but unfortunately there's an old treaty kicking around which expressly forbids this kind of opportunistic self-amputation.

In fact Greece cannot do anything to alleviate its situation right now without the unanimous support of its sixteen Eurozone cuates, some of whom seem to have switched off their mobile phones (Slovakia, Slovenia...).