Tuesday 24th February

Morning All,

As always, please do call in or send through an e-mail if you would like to discuss any of the issues mentioned below...

*Oh dear – possible part-nationalisation (or at least significant increases in government stakes) of both Citi and Bank of America creating a short-covering up-tick in both stocks yesterday but not helping the US markets put in a decent performance as they sold throughout the trading day to end around -3.5%. Asia has not performed much better, with China even falling for the 1st time in 4days as negative investor sentiment simply proves too much for those more optimistic out there – and some possible short-term profit taking coming through after performing so strongly over the last few weeks. Hong Kong flows and volume slightly lower than the average seen last week but still we see the market fall almost 3% there, and Nomura’s share sale (equity sale to rebuild capital – paying off ex-Lehman’s employees bonuses by any chance?) pushing the heavily punished Nikkei in Japan down again (-1.5%). Middle East markets still reacting with heavy volume across UAE markets, Dubai coming off a little (-4%) following yesterday’s big rise (+7.9%), giving way for Abu Dhabi to shine (+1.8%) as investors understand the implications of essentially a floor created to any further falls in Dubai and the increased “Federalisation” of Dubai’s once very autonomous institutions (Saudi also unfortunately shedding -5.2%). Again, the removal of extreme uncertainty over Federal assistance the most significant aspect of the $10bn bond purchase, and at least we now have a mechanism in place for any further injections.

*Where do we go from here? Asian markets are trading at their lowest levels for 5yrs, US markets traded down to close at their lowest level since April 1997 (6th straight –ve session in a row, longest losing streak since last October) and Obama is having trouble bringing any sense of confidence (or coherence – thanks Mr Geithner) back into the investment community. Talk of nationalisation aside, the debt-deflation fear is gaining ground, and even the BDIY (Baltic Dry Index) that we like watching rise so much has fallen for the 1st time in 5 days – its rebound from the lows are still impressive though and heartening for shippers and commodity traders alike (last December I could have transported an entire container-load of my very valuable, and clearly rare, Gold for $0 + taxes, in July 2007 this would have cost $2,100 +taxes and I would have been lucky to even find an available container/ship). Eastern Europe (more below) now the latest “hot-thing” and not in a good way, Middle East recessionary fears abundantly expressed daily and no respite from even the once booming BRICs. Stick to Qatar in my opinion.

*Eastern Europe gaining a lot of media attention (not something you want in this economic environment) as newspaper articles and TV journalists alike point to a possible meltdown of its banking system and the negative repercussions for those Western banks so highly exposed (and leveraged) to what was once one of the most promising development areas. The $1.7trn figure quoted in some articles as what Eastern Europe has borrowed abroad is certainly a cause for concern, but some (including our analysts) believe it is misleading. This number comes from the Bank of International Settlements (BIS) data of total foreign claims to Emerging Europe, which is flawed in several ways (not least that Turkey is included which is not even part of the CEE).

*Nevertheless, already some moves by the Eastern bloc to defend their currencies against speculation and rumours they will be approaching the IMF for assistance. This also ties in to reports over the weekend that applications to the EU and the single currency had increased from the former communist states – but might it be a case that they are simply too worried with signs they may have to return to a more public system of intervention than the private industry and entrepreneurial activity that had been so touted over the last 15yrs? Judging by moves made across the rest of Europe and the US (not to mention the UK’s almost full nationalisation of its banking sector) I am not surprised given the recent Russian “muscle-flexing” across its former territories that the once-communist nations may be unnerved by any notion of a return to the welcoming arms of the soviet empire! Worth keeping an eye on the development of this one and how it may impact an already excessively nervous and rumour-reacting investor.

Report today describing Qatar’s continued rise and attractiveness for those unfortunately finding they no longer have jobs in Dubai (previously the Middle East’s advertising hub for international firms) another signal that Doha’s economy is working its way quite-nicely-thank-you-very-much despite global gloom. It is of course taking advantage of the severe downturn in the marketing industry across Dubai, but too much emphasis on numbers could be misleading as there was a great deal of over-employment across the media industry in Dubai during the creation of its “brand” – and you cannot expect every individual losing their job to be offered one in a city where they are very intent on projecting their acceptance of only the cream-of-the-crop. Doha is now widely recognised as a bright-spot amidst the despairing economic environment, but the Doha stock market (DSM -29.7% YTD) has not reflected this as of yet, and poses an enticing prospect for local and international investors alike. The fact it has not rebounded rapidly from its profit-taking sell-off a sign that risk-taking really is hardly existent – but once the hunger returns it will be one market to watch before the appetite is satiated.

*An interesting indicator on the state of the once fashionable low-cost airline industry here in the GCC – desire to fly like a cooped-chicken seems to be over for now, as a report shows noteworthy reduction in price discrepancy between (once much cheaper) budget-airlines and the fully-fledged carriers. The airlines (such as Emirates) have of course been pursuing aggressive price-cutting policies and for many this is now no longer large enough to justify the reduction in service found on the budget carriers. However, this is likely unsustainable for the carriers as they look to expand their fleets and maintain growth targets – could this be why (as reported yesterday) Emirates is trying to capture as much extra revenue as possible through other means such as charging extortionate prices for excess baggage?hmmm…

Gold has come back only slightly from close to $1,000/oz as it takes a breath and stretches its golden limbs before making a dash for the (now seemingly inevitable) $1,500/oz mark. The emotional and psychological aspect to the commodity gains in allure, despite consumer demand for necklaces, bracelets and rings declining. Europe currently negative again with majors off about -2%. US Futures though pointing to a slightly higher open (DJIA +33pts, S&P +3.8pts). We’ll continue to watch….