Round-up…
This week has certainly been mixed – as markets started to lose steam and the rich and glamorous gather in Monaco (see below), greater speculation over what might transpire after the summer holidays has picked up. Obama has announced he wants to return suspected terrorists to US mainland prisons at the same time (coincidentally) US authorities foiled and then captured four individuals involved in an alleged terrorist plot against several New York locations. European and Russian diplomats are meeting to discuss important issues such as security, trade, the financial crisis and…are we forgetting something..oh yes, Russia’s energy supplies. Medvedev here using all his oil-and-gas-based-leverage, to voice concern over what he sees as threatening agreements between the EU and former Soviet countries. In Egypt, a wealthy and previously all-powerful tycoon has been sentenced to death for ordering the murder of his ex-girlfriend – surprising in a part of the world where wealth and politics are inextricably linked – and protect one another. In the greater context of a renewed push across the Middle East by the US administration, Biden is visiting Beirut – this will cause some problems just ahead of the elections in Lebanon – US support for the pro-western government and (so far) very well behaved and professional Lebanese army has been a counterbalance to the (predicted growing) power of Hizbullah in the small country - will cause some waves and possibly open some sensitive issues – let’s hope the show of support from Biden doesn’t back-fire – in this part of the world, the tiniest spark can have disastrous consequences.
On a serious note, Michael Jackson has had to deny rumours of skin cancer for the postponement of the first few dates of his (certainly final) set of concerts in London – has no-one reminded him that the concerts are during London’s “summer” – skin cancer or not, he’s got nothing to worry about if he believes he’s going to be exposed to any sunshine!
The smartest move by “investors” this week – the couple in New Zealand who received a rather attractive transfer in error from their bank ($8m instead of $8,000) decided NOT to do the right thing and took the money and ran – with all that is going on in the world and the backlash against “greedy” banks, who could blame them for simply holding true to the bank’s (deliciously fitting!) moto – “making the most of life”.
Markets…
After the S&P warned that the UK (and now the US) may lose its AAA rating, the UK government today announced it would not be revealing the results of its own stress-inducing-stress-tests. This is causing havoc on the currency markets (more below). There was also talk China may soon be facing its own financial crisis.
Markets are all coming off as the holidays start to kick-in, US holiday on Monday and across the UK – means 90% of the world’s hedge-fund managers are out of action. This might explain some of the unwinding of positions across European and US markets yesterday – Europeans were on public holiday but the markets which were still open all ended up losing around 2.5% with the US shedding 1.7% avg. In Asia, despite Japan announcing they believe the worst of their economic contraction is over, markets are in invariably lower there (-1% avg). Europe today trading slightly higher but on low volume so far (+0.4%) despite BA announcing first loss since 2002. US futures are cautiously higher ahead of the market holiday so far – DJIA +33pts, S&P +3.7pts.
Oil has kept its head well above $60/brl and looks set to close the week above $61/brl – good for Middle East markets no doubt. Gold has also continued to shine, on course to close above $950/oz for the week.
Currency Chaos…China Concern?
Interesting to see Sterling bounce back strongly on intra-day trade yesterday and post its highest level vs US$ since November – 1.58 right now. Certainly seems like an over-bought play right now and you would expect a slight pull-back in the short-term, but when coupled with Euro’s strength (1.39 vs US$) this is the first attempt at a sell-off in the US$ as more investors understand the long-term implications of the Treasury’s incessant spending. After the credit-rating agencies focusing their spotlight on the UK and China yesterday, it is now the US’s turn – as speculation they too may lose their AAA rating. It really is becoming a case of who’s in worse shape – after all, if all the major economies are downgraded a notch, we’ll be left with a level playing field again,
Another interesting angle that some were discussing this morning is China’s growing realisation (read: admittance) of a potential domestic financial crisis of its own. China’s banks have been well cushioned since the onset of the global crisis, but it won’t be long before the huge non-performing loan portfolio losses that some of them must be experiencing (just think of all those factories closing and the 5% contribution to GDP growth disappearing) leads China to carry-out one of two courses of actions: 1) Sell some if its $2trn piggy-bank US Treasuries 2) Issue domestic debt to international investors for the first time. Either way, this would bring extra downwards pressure upon the dollar.
Screaming Engines, Scrambling Systems
Glitz, glamour and more glitz. This time last year, as the first shots across the bows of the credit-crisis were still being considered in correlation with the booming and reverberation of the world’s most advanced racing machines screaming around the hills of normally sleepy (and rich) Monaco, the first signs of a backlash against ostentatious displays of wealth were just beginning to creep in. What a difference a year can make. In an almost self-projecting admission of a sense of guilt, Formula 1 this year is in a total mess as it visits once more the foremost tax-haven in the world.
Teams are at each other’s throats, cheating is rife amidst arguments over technical delicacies such as the “angle-of-refraction-of-the-underside-downforce-deflecting wing”. However, a more serious matter is also threatening the future of the richest sport in the world, and a serious question very much in keeping with the time is being asked – is there too much money involved?
Ferrari and other large teams (the rich) are screaming almost as loud as their engines in response to a potential decision to limit the astronomical technology budgets to ensure a fair and level playing field - the similarities with the collapse of the “survival of the fittest” model so successful in the western world in the last few decades is palatable. Where before the fastest, richest and best sponsored teams were literally blazing ahead of the field, it is now the most innovative and economically efficient teams that appear to be streaks ahead of the rest – witness Jenson Button’s recent success with the upstart Brawn team. Ferrari, Renault and the other big teams in recent years are not faring so well with this new playing field – much like those that had all the natural benefits of wealth at their disposal in the financial markets, when asked to tighten their belts and carry-out their business in a leaner environment, they have lost pace to the more entrepreneurial and hungrier players out there.
The rules and regulations from the powers that be - the F1 association for the sport, the financial regulators and governments for the banks - are hurting those that became used to winning (admittedly with some excellent technological advances in some areas) on the back of their spending power alone.
The rich and beautiful gathering to show off their wares around one of sport’s most unashamedly money-loving events, in one of the world’s most unapologetically wealthy destinations, will provide the usual dose of escapism for some. Others will sit back and watch the truly-rich (the number of yachts owned by hedge-fund managers has reportedly fallen 60%), continue to remain blissfully unaware of their surroundings – the race included.
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