Thursday 25 June 2009

Chicken Clouds

Relatively quiet…
It’s eerily quiet out there. Volumes are off across markets as we near the end-of-June, everyone seems to be talking more about their summer travel plans than their summer investment plans, and more focus on macro-relevant political issues the flavour of the day. There was even talk of trying to focus on Japan’s experience through its “lost decade” and learning from its (dismal) experience to ensure the US and European nations do not fall into the same trap – a little late for this many will think, and possibly a clutching at straws in a quieter news environment. This is related to the awaiting word from the FED, with latest anticipation for a muted reaction to any possible call for a rate-hike this year. Observers are going to be carefully-reading through Bernanke’s words in search of any clue for future policy – truth is that markets have already priced in a stable interest-rate environment for the rest of the year, so only a major deviation from expectation will have any significant impact.

The low volumes seen have not stopped markets from making some decent gains for today, at least across Asia (HK +2%, CSI300 +1.4%, Taiwan +3%), as they corrected slightly through the sell-off in the last few sessions, but Europe initially opened lower and has only now risen to return an avg. of +30bps across the majors - US futures are indicating a lacklustre opening (the FOMC meeting again). Oil and Gold have also corrected a decent amount, with Oil in particular making a renewed dash for $70/brl but stuttering a little this morning as the news broke out of Japan’s continued export drop (-40% in May) and rising US gasoline inventories. Currencies again seeing US$ weaken as both Euro and GBP making 2% gains, but the Yen holding relatively steady after its run-for-quality appreciation.

Dreamy clouds…
They say every cloud has a silver lining, and as much it is a slither of a silver lining in a government-controlling cloud, a number of financial industry employees are waking up today to news that their salaries are to be increased – even though this means they will no longer be smiling come bonus time. Was sad to see poor old Boeing having several (quite major and worrying) structural issues with its latest state-of-the-art airline, the 787 Dreamliner, with a variety of exceptionally witty and name-playing headlines making the rounds – I won’t bore you with the nightmarish collection, but suffice to say there are plenty of sleepless nights, let alone any time for sweet dreams for those Boeing executives responsible. Things in Italy must be slow, as Berlusconi even had to publicly deny recent allegations (it wasn’t only me) that he pays for sex – well of course you don’t Silvio, you get your flunkies to hand the cash over don’t you?

Playing Chicken?
One to watch…The festering frustrations and disagreements over trade and other key “isolation” issues between the US, Europe and China spilled over into the first major shots-across-the-bow in the form of complaints being lodged with the World Trade Organisation. The US has its “Buy American” clause, stealthily introduced into the TARP programme back in February, and China retorted with its own “Buy Chinese” provisions.
Now it seems the US and Europe are unhappy about preferential prices being provided to domestic Chinese firms on certain commodities, such as coking coal, complaining that the tariffs imposed on the raw materials destined for export are disrupting the global market and hurting manufacturers of steel and other products across the US in particular. The Chinese say they are doing nothing wrong (naturally) and are in fact helping to reduce the harmful environmental effects of burning coal (oh come on!) and protecting their natural resources.
Hmmm, judging by this response it does not look like there is going to be a quick fix to this, for now, little problem, especially when the stakes have just been raised in a mightily American way reminiscent of the game of “Chicken”: - the Chinese actually going so far as to launch a request for the WTO to set up a panel to investigate US restrictions on the import of Chinese poultry – who will be the first to drive-off the road to avoid an almighty collision?

Getting tough, but also tougher now…
The Iranian situation has been getting worse and worse, and Obama has now had to take sides without actually taking sides – his declaration that the violence and intimidation across the Iranian people must be stopped as good as warning the clerical rulers to watch themselves, as they are being carefully watched by the US. This raises the stakes for two reasons: the first through the now more aggressive stance towards any further examples of excessive force leading to what must be an inevitable escalation in international outrage and hence eventual (real actionable) reaction. The second creating a very unpredictable and uncomfortable situation for whatever the concluding relationship will be for the US and Iran, as Obama has now directly challenged the sovereignty/viability of the self-declared winner of the election and indirectly the supreme ruler of Iran, and will be faced with the arduous task of having to possibly deal with most likely one (and maybe two) of them when the dust settles.
Alternatively though, the Iranian people could continue to demand change and bravely refuse to back-down, leading to what surely would be the more desirable US outcome of a total overthrow of the current regime – whatever it may be, the short-term chaos that would ensue would only be determined justifiable in what materialises at the end.

Wednesday 24 June 2009

Dismal Markets

Dismal markets…ebullient doomsayers…
Has anyone ever taken comfort from looking down upon the bewildered masses reeling after the shock of a despair-inducing event and loudly declaring “I told you so!” – judging by the markets’ reaction over the last few days (falls of 3% across the global majors overnight) to what had been an impending gathering of negativity, no one would hear such petty and unhelpful cat-calls from the rafters filled with smiling doomsayers (an image representing an oxymoron in itself) – they are all too busy scrambling for the door.
Not clear why so many out there though, are all now professing to have seen the latest turn of events coming – when first talking with a number of managers back in April/May I detected a worrying human trait of “am-I-missing-out?” beginning to interject itself into the normally rational-thoughts of money-managers. This gathered pace through May and some were still even wondering whether they should start entering the markets in early June. All of a sudden, everyone professes to have “seen it all coming” and were never fooled as the rest. Well, as nice as that would be to believe, someone out there had to have been the fool sitting at the poker-table.

Now, we of course should not tilt too heavily and dramatically to the other side, equally as we berate those that were swept up in the TARP-induced elation. Markets certainly performed wonderfully back in March until the early parts of June, but the euphoria that encapsulated a number of corporate executives as they allowed themselves to give-in to the temporary sense of relief (who wouldn’t have following the dismal months that preceded the sharp enlightening market rally) began to wear-off once all the smart-money had declared itself invested – by beginning to sell-out. At the time Sheikh Mansour in Abu Dhabi decided to sell his wonderfully profitable stake in Barclays, some cited the top-of the-market for financials, and indeed it now resembles the point of the top-of-the-market as a whole - since the beginning of June the S&P is off -6.3%.

Insider selling…outside sentiment…
Two pieces of news stick out as the culprits for the troubling markets today/yesterday – the World Bank’s unhelpful declaration that it had made a slight error in its outlook for world growth the last time they took a look at the situation - was it just a coincidence the questionable forecast was provided around the same time as the hyperactive attempts by world leaders at the G20 in London to re-assure investors?. Additionally, there is the revelation that corporate executives had been heavily disposing of their positions in their own stocks, in addition to those of their peers. The news that the very captains of industry attempting to steer through the murky waters of the recession initiated a disposal of their holdings (insider sellers are outstripping purchasers so far this month by more than x22) they had invariably accumulated since March sent a signal to the rest of the “fools” out there that indeed the smarter money had outplayed them.

Markets certainly did not shine through at the start of what may turn out to be a difficult week for equities – all the majors across Europe and the US ended up heavily-off yesterday (S&P -3%, DJIA -2.4%, FTSE -2.6%) and Asia’s markets opened today’s sessions with an equally apathetic demeanour, causing Japan’s Nikkei to drop -2.8% and drag the rest down in correlation (normally rare for Japan and Asia) as any hope of a sustained export-led recovery withered away – Taiwan and Korea reversed recent out-performances, falling -2.3% & -2.8% respectively. Even after a slight turn-around in Europe kicked-in, with the announcement that manufacturing and service industries contracted at their slowest pace in 9mths, markets all across Asia struggled to recover – a see of red greeting the eye there.
As aforementioned, a slight reversal in early trading in Europe, swinging from an avg. -50bps loss across the majors to a +50bps gain. Some signs of stabilisation starting to creep in – nothing too dramatic though.
US futures are also trading slightly higher for now (DJIA +26pts, S&P +4.2pts), as expectations continue to mount ahead of the FOMC meeting.

Oil and Gold continue to fall, with the return to $66/brl negatively impacting upon the Middle East markets in particular (UAE markets -4% avg). The sell-off there has been magnified with the sudden (and continuing) sell-off in Russia in the last few days (-8% in 48hrs), and of course the general reduction in risk-taking. Commodities have been selling-off, and the traditional “summer-driving” season in the US will maintain political pressure on lower oil prices – estimates for trips taken at home during the summer holidays across the US are almost 60% higher than the average for the last 3yrs, as middle-class households return to discovering their own vast backyards rather than jumping on a plane to a foreign-land on credit-card fuelled debt. No US senator wants his constituents crying foul-over higher prices at the pumps when they’re queuing to drive-off for a much-needed break.
Currencies have seen a strengthening of the Yen as investors pile into what they see as a relatively safe play, with US$ making gains against both GBP and Eur in recent days. With US Treasuries fluctuating ahead of another auction of $100bn or so, the short-term outlook for Cable and other major cross-rates is a choppy-one. Investors are going to have to place bets and the most likely head-off for their holidays – most will decide it’s sometimes better not to do anything.

It’s good to admit..but not too much…
The media has played a big role in the volatile market performance all have been subjected to over the last 18mths, and it is still irritating to witness a sudden, and really now quite boring, change in tone of the major reporting mediums after one or two negative sessions –from one week to the next, the very same indicators they were citing as expressions of a positive trend and a move towards higher markets suddenly become violent ripples of looming disaster – come on guys, how about a little more prediction and less reaction. Try to guide the people than simply jump-on-the-mass-bandwagon. A number of recent admissions by the finance-focused channels in particular not helping create much confidence in their so-called neutral and considered approach to reporting the facts.

Amidst all this market turbulence and to add to the fun, Sarkozy fuelled another potentially flammable debate in “sensitive-to-Islamic-issues” France, declaring that women wearing a Burkha are actually “demeaning themselves”. Even if a quasi-revolution were not taking place in Iran as we speak, this type of debate would garner much focus. Imagine what his counterpart’s reaction would be over in Italy when confronted with the same sensitive Islamic issue – in Berlusconi, there is a political leader (not to mention billionaire – always helps in Italy) that admits to enjoying the company of women at his many (infamous) “house-parties” – preferably wearing as little clothing as possible, and suspiciously glancing at their watch every hour, on the hour.

It seems to be the season for admitting to things this week, as Chris Brown pleaded guilty to a count of assault - against his then girlfriend Rihanna - subjecting himself to hours of community service and a prolonged period of probation (the judge did call him an “admirable character”(!) for admitting to his mistake though). If only the corporate executives out there, that have suddenly turned to selling the very same-story they are asking the rest of the investment community to buy, would admit a little sooner that they do not actually believe in the “recovery”, the rest of the markets might not get caught-up in false economic greenshoots and have to pay for bruises and a black-eye of their own.

Tuesday 23 June 2009

Wimbledon's Sunshine

Sunny Wimbledon…shining markets?
This weekend was full of talk of a “summer lull” in the markets, the implications of a new Middle-East caressed by the charisma and aggression of the Obama/Hilary duo (no guesses for which exhibits what), questions abounding over the sustainability of China’s growth following the IMF’s announcement it was still expanding at a “decent” pace (and still annoying US tech firms by “censoring” Google and similar sites), talk of a narrowing spread on Morgan Stanley and Goldman Sachs debt as they look to repay TARP and obviously rake-in some risk-related profit, as well as focus on Wimbledon’s new retractable roof that will ensure tennis players are able to play a full game without the obtrusive London weather interrupting for a drizzle every few (annoyingly key) games – the irony being this is forecasted to be the sunniest and driest Wimbledon in recent memory! Oh well, they can market it as a (very expensive) anti-UV panel I guess.

This week will see investors focus on the Fed’s monthly meeting on Wednesday – normally to announce latest interest rate decisions. Since rates are at effectively zero, the focus will be on guidance that will continue to filter through from the minutes, enabling investors to determine just how solid the commitment to historically low-interest rates the administration is – especially given the latest volatile moves in US Treasury yields in recent weeks. This sudden rise is a worrying indication for the FED, if you have been listening to Bernanke’s latest testimonies and snippets.
US GDP QoQ figures will also be released on Thursday (-5.7% cons) along with Initial Jobless Claims (600k cons). As the slow-down in the market-recovery shifts into a medium-term outlook for sideways performance, the importance of strong economic releases to avoid another downward trend becomes even more important.

Asia’s main markets managed to put in a very decent performance to get the week going, with good returns in Hong Kong (+2.5%) and across Taiwan (+1.8%) and Korea (+1.2%) – all linked to a surprisingly positive outlook for export-related numbers and inventory levels, as well as an up-tick in confidence across Japan’s manufacturers. It appears that talk of the demise of the US consumer has abated alongside a hope that other emerging economies will continue to pick-up some of the slack.
European markets have gotten the week off to a poor start, despite some big news that Xstrata is in talks with Anglo American to create a mega-merger in the mining world. A World Bank report has dampened any attempt to send markets higher with an admission that the global recession will most likely be deeper than its previous indication back in March (oops). This has also meant US futures are trading a little lower at the moment, with DJIA -44pts, S&P -5.7pts.

Oil prices are surprisingly falling despite the ongoing tensions across Iran. Gold has slipped far below the $950/oz level in recent days, with investors spreading their cash across a greater number of assets despite the continued weakness of the US$. Most major currency cross-rates are holding steady at the moment, once again ahead of the FOMC guidance.

Iran – latest
The bloody killings and extreme show-of-force by an Ayotallah clinging to power has a dramatic and sickening sense of inevitability attached to it, doesn’t it? This scenario has been witnessed many times, where a governing body on its last legs makes a desperate and last-ditch attempt at “dissuading” any reformist and rebellious elements from seeking justice in a cause that has really been self-inflicted.
The decision to allow Revolutionary Guard troops to open fire on the peaceful protesters has pushed what will likely be the final nail in the coffin of Iran’s supreme council – international (read: US) condemnation and an increasingly aggressive tone towards the punitive powers.
With the trickle of information making its way out of Iran – which cannot close itself to the outside world despite its best attempts thanks to technology and the intuitive use of media mediums – watching the “resistance” take shape is almost playing out in a foreboding slow-motion series of events. Once can only hope the end will be swift and decisive without the loss of further lives.

Saturday 20 June 2009

Apple's 3G-od-S

Conspira-treasury-orial…
Talk of the end of the US$ as the world’s reserve currency, and recent moves in Treasuries and volatility in currency markets in the absence of any real new policy announcements by Central Banks have dominated many financial pages over the last few weeks, but anyone else wondering what really lies beneath the “too-incredible-NOT-to-be-true” story of an attempt by two (allegedly) Japanese individuals caught smuggling close to $134bn in US-Treasuries across the Italian border into Switzerland?
The story first broke last week, but was quickly buried (only leading to conspiracy theorists out there looking for even more fire through the smoke) and has now resurfaced with a convenient full explanation that it was nothing more than a common ploy by the Mafia to duplicate and dupe Swiss private banks. Excuse me? A common ploy would be an attempt to garner a few million dollars in ill-gained funds, but a sum of $134billion is simply too large not to have some interesting element of truth behind it.
From some suggestions that it is an ongoing raising of much-needed liquidity by the Bank of Japan - who have traditionally held exceptionally large amounts of US Treasuries - and were looking to avoid public realisation and hence pressure on the US$, to assumptions that it is the laundering of Chinese savings, the most entertaining aspect of the entire saga would be the 40% “commission” the Italian government would have netted for discovering the crime if indeed the Treasuries had been declared genuine – a nice pay-out for the border guards would certainly have been in order.

Re-vamped & re-released = same old
We could focus on US triple-witching today, continued market volatility, negative outlooks for European markets, the dips in Asia, bond rates rising when governments really want them falling and a number of other economic indicators that continue to come through and depress any remaining positive sentiment ahead of the summer lull (not to mention Sheikh Mohammed riding in the Queen’s carriage at the opening day of Ascot), but since it’s Friday, and since markets will move any-way-they-like as human emotion overrides any rationale behind a conviction view, it would be the same-old story wearing a new set of clothes.

A far more important, but increasingly repetitive event, is taking place today - the launch of Apple’s “new” I-Pone: an incredible, not-so-little device that has done for the Smartphone what the I-Pod did for the portable-music-player. It goes on sale across stores in the US – still hanging in there as the main launch market for products to a disposable-income possessing consumer. Talk of new features and other wizardry abound, with “increased speeds, more memory and improved media interfaces” – all sounds amazing doesn’t it? Problem is, it’s the third so-called-launch of what is essentially the same product in half the number of years – the costs involved in having to upgrade each time must be astronomical.
How can they continue to pump the same product out, albeit tweaked here and there, to a gullible and adoring fan-base? Well, what Apple is a proud owner of that many other consumer electronics firms could never compete with, is an almost “God-like” figure in the guise of their (now rarely appearing) CEO and Founder – Steve Jobbs. He is a living-legend/myth in the world of technology, and commands a very spiritual-like following from the hordes of adoring fans that would (and indeed do) blindly purchase and then re-purchase any new product that his hands have touched. The latest I-Phone, originally titled the “3G S” will no doubt be snapped-up with total loyalty once again.

Jobbs for God-like employees…
Now let’s compare this with another God-like leader – one that commands the respect and blind devotion of a large swathe of a people within his own realm of expertise, a people that gladly, willingly and unquestionably follow and purchase into every new declaration, decision and development even if most are nothing more than dressed-up “upgrades” a la the “new” I-Phone. Iran’s Ayotallah Khamenei, it can be argued, is one of the religious world’s equivalents to the tech-world’s Jobbs.
The latest attempt at a product release, the re-election of a rather shoddy product in the form of Ahmadinejad, has come unstuck however. Where those that would normally buy-into most of the hubris surrounding changes to the latest “memory and storage” upgrade equivalents for the theocratic state, a new resistance to the mind-numbing repetition has grown from despair and humiliation. Where before every word uttered from the “God-on-earth” representative of the Iranian state would be dutifully acted upon and never questioned, there are now an apparent majority of the same people that will now not only question those very command-requests, but go so far as to defy them – with the respected (and very difficult) understanding that they have no other choice if they are to achieve their aim of a democratic election.
The US refusing to take sides is a good sign that this is an uprising that belongs to the people of Iran, and will be decided by the people of Iran. There will be no outside influence (directly visible) that can later be pointed at and accused of having influenced the demise of the incumbent rulers.

It seems that the allure of Apple’s technology and design improvements coupled with slick marketing and an “I-must-have-one” aura is outdoing the once revered and autocratic Iranian machine that has just possibly released its last ever revamped product – no Iran “S” this time around.

Friday 19 June 2009

Killing flies…swatting bankers….

Killing flies…swatting bankers….
On the same day that the sitting US President committed an act of murder on live-TV (OK, he only swatted a fly, and still looked cool - but he did kill it and gleefully declare, “I got the sucker”) a series of regulatory reforms were announced in a nice way of admitting that “we got it all wrong”. In a damning verdict of the so-called “Community Re-Investment Programme” initiated by Bill Clinton’s administration in 1999 – and which went on to almost force the likes of Fannie Mae and Freddie Mac to extend the American dream to a whole bunch of low-income and non-traditional borrowers, President Obama stood in front of the cameras once more and announced a number of sweeping and meaningful changes to attempt to fix the clearly decrepit, on-life-support, capitalist system.
The move to allow the Federal Reserve enough power to regulate all firms that pose a threat to financial stability (hence bringing into the fold the once untouchable hedge funds and private equity players) has not been universally greeted with joy, but still makes for a decent attempt to return the US financial system to the days before the breaking of the Glass-Steagall Act (which many now see as the carrot provided to the banks in return for the stick to increase lending).
Already, the many powerful managers and movers-and-shakers of the financial world are picking through the proposed regulation overhaul, in what will surely be their attempt to enforce as many loop-holes and get-out-of-jail-free cards as possible. The political will that existed when the world faced the uncertainty of a total system breakdown has now somewhat subsided, along with the brief-return to valuing more highly those that “make-things” more than those that “manipulate-things”, resulting in a slightly less likely euphoria for any sweeping reform that is desperately required.

Markets…
Despite the World Bank raising China’s growth forecast to 7.2% from 6.5%, the Asian markets continued their paced sell-off today – with the majors all falling around 2% (except the blip in China’s CSI, +1%) as the reality of a lack of fundamental flooring maintained its drag-hold on the positive sentiment that had existed-for-all-too-short-a-time.
Europe has not fared much better in recent trading sessions, again coming off around 0.5% as most fund managers continue to re-position their holdings for the summer lull. US Futures are currently trading quite flat (DJIA +11pts, S&P +1.3pts), currencies are holding steady after some gains by the US$ in the last few days, and Oil and Gold both move a little higher this morning.
In the absence of any market-moving data over the next few weeks, nor any forecasted improvement in the more influential indicators being watched, a period of high volatility and low-volume will dominate markets throughout the summer. For those not planning on taking some time-off and lying by the pool with a good book (preferably not about the financial crisis) the opportunity to use the increase in vol over the next few weeks as the markets shift between expected valuations may provide some decent entry points for what might be another shot at the bear-market rally towards the end-of-the-year.
Alternatively of course, you could just lie back by the pool and read the next instalment of Grisham/Carre/Cornwell.

Iran – no longer chess, more like battle-chequers
Without wanting to go into too much analysis today - longer piece tomorrow - and as we are likely about to witness another crunch day with confronting rallies taking part once more, the momentum that has been achieved throughout the response from the weekend’s election “selection” has caught a large percentage of the international community by (seemingly positive) surprise.
The images and reports that have filtered through the various systems of technology that do not answer to outdated modes of censorship and blanketing have articulated an almost horrific crackdown on those within Iran that are bravely daring to speak out for their rights. The game of chess that outplayed the ruling clerics has metamorphosed into an all-out game of battle-chequers – the unknown conclusions possible now only over-shadowed by hope that a limited amount of blood will be spilled in the process.

Dirty Rats…
To relax the tone somewhat, was intrigued by a great little scientific-story about rats understanding the benefits/pitfalls of gambling in the news today. According to researchers, rats are capable of quickly adapting to an “optimal strategy” (a little like those black-jack players that stick to a fixed-betting pattern) when faced with risk/reward decision – i.e. gambling for treats. The researchers were impressed with the rats’ ability to recognise what made a good “bet” and what resulted in the equivalent of a loss. Most interestingly, the rats became “addicted” to the gambling after the first few experiments, so much so in some cases that they were unable to return to their normal decision patterns without being injected with dopamine – which relaxed their serotonin levels and essentially made them more risk-averse.
Rather than announce a whole raft of regulatory reforms and attempt to rid the US financial system of the desire to take-risk by burying managers in bureaucracy, simply close and ban every coffee-chain-shop and other stimulant distributor within a radius of the major financial centres, ensuring reduced levels of serotonin secretion the rats - sorry, I meant traders/bankers - are so adept at.

Tuesday 16 June 2009

Iran's Revolutionary Chess Game

Iran’s Revolution – check-mate…
When playing chess one does not normally see their opponent, who has played every move as carefully as possible - with intricate, considered and forward-thinking strategy for hours and hours - suddenly fling a door-wide open in a moment of fatigue-induced-lack-of-judgement, leading to a spectacularly self-defeating check-mate position. Iran’s ruling (and elderly) clergy appear to have played their way into that very ignominious honour in their alleged rigging of last weekend’s Presidential election – a sudden and momentous movement, albeit fuelled by a long-rumbling and growing emotion of apathy towards the ruling governmental system, spilled over into outright aggression and exasperation directed at a blatantly autocratic and unrepresentative decision.

Whatever the outcome of the next most crucial 48hrs in Iran’s last 30yrs (since the original revolution in 1979 in fact) historians will forever look unkindly at the desperate clinging-to-power of an apparently aged and out-of-tune with reality/technology authority – that desperation is what led to the incredulous decision that has now brought the best out of the Iranian people.

Having heard the views and opinions of many throughout the political spectrum, Iranians spread long and wide are all sure of one thing – the time has come for change – and not just figurehead change, real deep, theological change. The most remarkable element covering developments in the last several days, the impulsive and heart-warming coming together of a variety of differing backgrounds and political beliefs – once non-communicative factions of the same race, are all pulling together as they sense and act-upon an important and unavoidable set of events. The dangers ahead for those brave enough to continue to stand against what they see as a crumbling institution, a worthy risk in the opinion of the majority. The absolute sense of “enough-is-enough” overriding (in an admirable selfless manner) concern for personal safety – at times of great change, great acts of heroism abound.

Where this has maybe been witnessed before (the student revolution of 1999, and even some protests back in 2003 as the US went to war with Iraq) the general consensus acknowledges that things are different this time around – the most significant difference being talk of a split in the ruling Islamic-clergy itself. This would point to a philosophical and seismic divide in the very roots of the Islamic revolution and its supporters. With rumours spreading of a growing discontent at the clearly ill-thought-out decision to reinstate the widely-disliked Ahmadinejad, the next major split would be any dissent within the ranks of the so-far zealously supportive (and brutally efficient) Revolutionary Guard. With the Ayotallah declaring an investigation into the alleged vote fraud, sides will have to be taken.

Being ordered to open-fire upon your own population and those that you may well-know and love, may for once prove too tall-an-order – especially if the peaceful manner in which the rallying protesters are carrying out their “revolt” continues. How long would the international committee really be able to sit on the sidelines (the sidelines here being coalition troops stationed in both neighbouring Iraq and Afghanistan) and be witness to what (God forbid) may turn-out to be a Tiananmen Sq like crack-down? For how long would those asked to fire-upon their own people continue to take orders from a clearly despotic ruling body?

Noticeably, the US have kept a very low-profile during this entire process, not wanting to outwardly taint any of the natural grass-roots movements from the totally fed-up Iranian youth. The more cynical out there may point to the stoking of the revolutionary fire by means other than military and political exertion – the use of technology mediums to simply stimulate and support the desire to effect change that certainly has fostered from within the youth movement. The fact that neighbours who used to ignore one another in the street are now standing side-by-side either on the city-squares of Tehran or outside Iranian embassies around the world, a testament to the power of networking bringing people together under one common goal.

Although his name is associated as a key pragmatist in these dramatic turn of events, Moussavi is more a means-to-an-end for the people of Iran than the dependent-tool-for-change. He appears to have stumbled upon a flammable collection of impatience and absolute exasperation – there is clearly only so much humiliation and ridicule a people can stand-by and watch their country suffer when the reality within is that it is but an extremist minority that represent the far more moderate majority. Following the victorious display of democracy in Lebanon, and the (not totally perfect but at least it’s there) growing democracy in Iraq, why should the people of Iran not have their own moment of glory?

Once again, the desperate act to re-instate Ahmadinejad at any cost may likely prove too large a cost to handle, and forever be remembered as the final self-destructive act of a dictatorship that tired-itself out playing the game of chess.

Saturday 13 June 2009

Iran Expects

Iran’s Revolution – but only revolving back to the 1980s…
Iranian elections – a little insight after a couple of discussions with the (many) Iranians that are residing here within UAE (110,237 to be precise), and those dispersed around the rest of the (mainly import/export) world. At best a touchy and opaque subject, and not wanting to antagonise any particular party, but a re-iteration and collation of information, from a variety of sources to best try and understand the major implications of the results seemed appropriate.
Our research team tried to put together some long-term and general implications for the GCC markets (Dubai in particular through its hub-role and close association with the Iranian diaspora, impacting DP World, Emaar and others) as it focused on what the world appears to be viewing as a “moderate” contender – international news networks and the like are all focused on this so-seeming uprising by the youth of Iran. True, any change from the fire-breathing and seemingly self-destructive current President Ahmadinejad would at first appear a welcome and dramatic change.

However, as most things in life, all is not as first appears. The apparent reformist, in the guise of Mir-Hossein Moussavi that is the centre of much of the hopeful attention, has attracted the young and energetic hearts and minds of Iran’s disenfranchised youth. The fact that Moussavi has even been allowed to run (as all the contenders in the elections are first vetted and chosen by the Islamic governing council that answers to Ayotallah Khamenei) is the first hint that not all is as optimistic as some would like. The Islamic revolution in 1979 brought with it a great degree of control for the Isalmic clerics, and they have not allowed even a slight slip in their power since then. What on the surface have appeared to be moments of moderation as fronted by some of the more open-to-dialogue-with-the-west leaders, have really been little more than smoke-screens to placate and anaesthetise the prone-to-spurts-of-revolution population – normally the student population.

So what about Moussavi himself now? Don’t all the demonstrations and chants for the fall of Ahmadinejad provide a slight hope that there really will be a sweeping change in policy and openness to the west from the singled out nuclear-proliferating nation? It seems that those that actually recall his last reign as President (in the 1980s), do not expect much out of him this time around. He has never looked to stand against the ideals of the Islamic revolution, nor attempt to radically alter any of its associated beliefs and policies – clearly a safe bet for the Ayotallah to kill two birds with one stone – provide the west with its character to talk to, and provide the people of the country with a temporary false sense of hope that may relax a few of the more stringent measures here and there, but otherwise leave the fabric of the restrictive ideology unchanged.

Some cling on to the extra portion of hope that Moussavi may in fact be playing an equally Machiavellian game with the Ayotallah, and will prove to be much more of a reformist once he is in a position of power ((if indeed he succeeds today), possibly rallying the spirit of the people behind him in a far more significant wind of change than the Ayotallah bargained for – but that really would be a politically convoluted move, and may be clutching a little too far.

Whatever happens in today’s round (if none of the four candidates takes more than 50% of the vote, the top two will go on to a second round next Friday) the world is watching – but they should also look beyond the fa├žade and into the machinations of elaborate politics.

Ballsy + expensive moves…
In another week of fun-filled-financial-markets, where the Treasury have had the nasty-shock of realisation that funding their huge levels of borrowing will cost a little more than expected through rising bond yields and a continued selling-off of “safe” assets, China has come through to live up to its imposed label of world economic saviour as it posts rising industrial output levels (+ 8.9% vs 7.7% cons YoY)and their banks continue to lend, Crude Oil remains above $70/brl as anticipations surrounding increased global demand stubbornly increase, and the WHO announced an official pandemic – markets continued to lose some of their earlier rallying steam

Some of the major US banks are seeking to repay TARP money by next Wednesday. The likes of Goldman Sachs and Morgan Stanley (sadly no mention of increasingly govt owned Citi) demonstrating a newfound strength of character to rise up and attempt to remove the shackles of government thrown onto them during the worst of the crisis last year. They are feeling leaner and meaner, and can smell the opportunity to make money in these markets – the desire to avoid increased regulation and be able to business without restraint proving more attractive than worrying whether or not we are really out of troubled waters.

With the recently humbled masters-of-the-universe beginning to stage their comeback (superheroes always love a good sequel) with a series of gutsy manoeuvres, an equally ballsy move by another self-loving master-of-his-profession has embarked on his own awe-inspiring strategy. After all the fun of the markets, how could the world of sport possibly trump the incredible sums of money that the public have become so used to hearing about - $1trn here, another $1.5trn there, with hardly a flutter of the eyelid when only a mere bunch of billions are mentioned. Well, the money-bags of Real Madrid (did anyone tell them there was a slight global financial crisis currently ongoing?) were able to generate record-breaking headlines for Cristiano Ronaldo as he transferred across from Man U for an estimated $130m.

Kudos on this occasion must be accredited to the sellers though, able to solicit such a high price in such a difficult market – almost as savvy a trade as the sale of Sheikh Mansour’s Barcalys stake – could we have seen the top-of-the-market for football stars? Ronaldo’s form should continue to delight his new manager at least, at a slightly-reduced-bang-for-his-buck.

Friday 12 June 2009

Satellites & BFFs

United Satellite States…With all the talk of a resurgent Middle Eastern wind of democracy, Lebanese and Iranian elections (where in Lebanon the pro-western coalition prevailed and the, soon to be decided Iranians’ are certainly ruffling Ahmadinejad’s feathers), as well as a promise to leave Iraq to its own (albeit still extremely unsteady) devices, continue the “war” in Afghanistan and further cement the opportunity for the Palestinians to create their own state alongside that of Israel - one would think that the entire Middle East was an absolute mess of incompetent regimes without Western assistance and a people so out-of-tune with the rest of the world.

Reading a recent report on Obama’s visit to the Middle East last week, the lack of understanding of some of the nuances of the “Arab-street” was striking. Commentators are prone to jumping over one another to attest to the massive amounts of assistance the region so dearly requires when dealing with thorny issues such as liberalism and democracy. Lest they forget that some parts of the Middle East (the Levant in particular) were the cradle for modern day civilisations – and the foundation for the creation of a body of people representing a nation to work and govern together for the greater good. Easy to forget your history when it is not taught correctly in (western) schools I guess.

Clash of civilisation aside, the stereotypical view of the Middle East - by those either too lazy to learn more at their own behest or unfortunately receivers of “information” from only Fox News (with a clear inability to locate the broadcast channel for Al Jazeera International) - is patently and immensely out-of-tune with the reality - by proof of even a brief visit to the Gulf. Within the vastly differing cultures and atmospheres of the GCC constituent nations, there is one strong underlying current of influence that pervades every degree of modern popular culture – and it is unashamedly American. In fact, so influential and intricately immersed is the American way, that a visitor is invariably surprised and positively shocked at just how familiar some (mainly commercial) aspects of daily life are. Even in Saudi, the most puritanical of the region’s Islamic states, the reality behind-closed-doors would be far more familiar to a visiting tourist than their skewed-anticipations (problem is they still aren’t allowed into the country).

Yes, the religion is different, and yes the prevailing sense of community is quite distinctive in its Arabic roots, but this is often true on the surface of things in most part. Apart from the very visible influences of US-fast-food chains (you’ll never see more McDonald’s and KFCs on one stretch of road anywhere else), a required-love-affair with shopping malls, a devotion to large American cars (even if American’s themselves don’t buy them anymore) not to mention the design and layout of the roads themselves (a visitor from LA feels quite at home on the multi-lanes motorways of Dubai), it is the pervasive, powerful influence (some might call it infiltration) of US television shows and movies into the average Middle Eastern home via satellite that is most striking.

A study almost 50 years ago (not too long after Orwell’s publication of 1984) concluded that the most effective manner of altering a people’s thinking was through concerted audio-visual stimulus. The US’s success in bringing down the era of Communism across Eastern Europe has been partly accredited to the overwhelming desire by the masses in those former Soviet-block nations to “live the American dream” – what they really wanted to live was a similar life to what they watched on boot-legged and smuggled videos of American popular culture.
The almost universal penetration of US prime-time shows to the Mid-East household (from the 1960s where there were but a handful of terrestrial channels controlled by the state-government, to the incarnation of the first Middle-Eastern US-style channel, MBC, in 1991, and even the US’s own propaganda effort through Al-Hurra launched in 2004) has been unparalleled in its influence. The problem is that although the young and educated throughout the Middle East are literally being brought up on a diet of western burgers and MTV teen-angst experiences, those living in the west are learning nothing about some of the nuances of the Middle Eastern way. It is all well and good having the average inhabitant in Kuwait or Saudi able to recite on demand the names of characters in the Simpsons, or choose the distinctive (and annoying) ring-tone from 24 for their mobile-phone, but what about the European or US teenager understanding a little more about their peers in Qatar and Oman? What about understanding some of their unique life experiences? A lack of accessible programming focused on these issues must be to blame.

It is slightly frustrating when you read or listen to reports that make this part of the world sound so far away from the ideals of others, when the reality is a people (apart from the obvious pockets of extremism that end-up the focus of disproportionate attention) very closely-tuned to the same Desperate Housewives and CSI diluted messages.

Paris hits Dubai…
In testament to the Arabic love-affair with all things blonde-bubbly-and-on-TV, was interesting to learn that the extremely credible/reputable, self-styled “celebrity-for-being-a-celebrity” Paris Hilton, is planning on spending a good 6-weeks in Dubai (just as the heat is setting-in) cooped up in one of the city’s Presidential-suites. She will be in Dubai for the filming of a show where she puts contestants through their paces for the chance to become her new BFF (that’s “Best-Friend-For-Ever” for those not in parlance with the latest Hollywood-hot-talk).

This is going to play out wonderfully for two reasons: the first of course being the huge marketing bonanza that Dubai will enjoy when it clearly needs it most, by having one of the most closely followed fashionistas (or is that fashion victim) of our MTV-generation gallivanting around Dubai-town in what must be a perfect match of pretentiousness and a desire to do nothing but party in one of the most over-the-top destinations riddled with equally fake and shallow venues.

Moreover, if ever there was a city that matched the Paris Hilton “brand” – Dubai would certainly be it. The clubs and bars – well that’s about it really – that will be frequented by Hilton during her stay will each be delighted at having the opportunity to flaunt and promote their moment of glory with the attendance of the first-lady-of-glory-seeking. I must admit, I really do quite like and admire Paris Hilton in much the same way as I give credit to Dubai – both have made a great success out of nothing with the building of a great marketing machine, carving for themselves a brand so well-managed and promoted that almost every individual has heard or seen something about either one – the next 6-wks are going to be a blast (not to mention a gold-mine for those more satirical journalists out there).

Whether Paris Hilton finds a new true new friend or not through her show, Dubai is already purring at the thought of making itself her, albeit temporary, bosom-buddy.

Tuesday 9 June 2009

Beaches...

Whose beach is it?
As the weekend passed, the world remembered the D-Day landings where Obama seemed to snub the rather bemused French President, preferring to visit the Louvre alone with his family rather than share table with the hyperactive and camera-hugging Sarko. Not sure who should be more embarrassed though, with the battling Gordon Brown unfortunately proving that the UK leadership is indeed head-over-heels with the US leadership by misnaming the world-renowned D-Day landing site of Omaha Beach, instead anointing it “Obama Beach” – I know, they all used to compare Tony Blair to a poodle when dealing with the US and Bush, but Gordon has already taken it upon himself to dedicate sites to the still fresh-in-the-oval-office President. He could have waited until Obama at least hit this first 200 days, no?

Following the speech in Egypt and the call for a new beginning across the Islamic world in its relationship with the US, Lebanon’s elections have gone the way of the pro-Western block. The Hariri clan and his followers come through with a greater majority than before, paving the way for what one would hope is a measured period of peace and (tourism) enhanced prosperity. The majority block that they have gained will lead to a stronger setting of policy and hopefully less cause for political stagnation, but questions still remain over the demand of a veto by Hizbullah, and the next week or so will prove crucial in the setting-up of the unity government, with a careful and watchful eye on the intervening and (in the past troublesome) influential international powers. One would think however, that after all the talk of democratic elections and promises to “commit to the will of the people” so highly voiced by HIzbullah, any attempt to reject the validity of the vote now would smack of hypocrisy and threaten a severe negative backlash.

Markets – steam….ru..’ning…ou..
A lot of the weekend press, including a much-publicised interview by the incumbent Nobel Economist, Paul Krugman, trying to understand whether or not this rally still has legs and if the job-market in the US has indeed begun to bottom-out with the non-farm numbers on Friday. The rise across global markets has of course been more than impressive and surprised many with its longevity, but some signs of a loss-of-steam as we head into the customary lull-of-summer now beginning to manifest.
Most markets are slightly off today, with Asia roughly off between 1.5%-3%, the only major stand-out performers there Vietnam (again, and now returning 60% YTD!) and the strangely totally uncorrelated Japan markets (NKY +1%). Europe has sold-off across the board, -1.5% avg.
The unexpected (downward) market reaction following the better than consensus non-farm payroll numbers in the US last Friday continuing at the start of the new week, with a deceleration in commodity prices as the US$ returns to some form of strength versus GBP (+1%) and Euro (+1.5%). Gold has fallen back below the $950/brl level, in conjunction with the dip in Oil back to $67 after making the charge to $70/brl and falling short as some downward pressure exerted itself with expiring contract.
A slightly worrying dip in the Baltic Dry Index on Friday and today, bringing the 6-wk run to a halt – this did not help with talk of all the “smart” money already starting to come out of those markets that have seen a return to form through a re-discovery of risk appetite.
US futures are trading lower at present and accelerating in their fall ahead of the open (DJIA -80pts, S&P -8.8pts) , with little help from talk of stagflation possibly haunting the US in the latter part of the year with the continued fall in Treasury yields, and lack of domestic recovery.

Recovery…military style
A few of the more negative and doomsday-loving pundits out there have consistently predicted the only proper end to the economic recession will come on the back of another (God forbid) war. The US has been in three wars in the last seven years, and certainly seems intent on continuing the “war on terror” in Afghanistan and other “rogue” areas. The more depressingly darkly pessimistic out there are pointing to the last depression in the 30s, and citing the Second World War as the real point of recovery. They argue that the “New Deal” FDR put into place on his ascension to office was not able to take its full effect and hence cannot be argued to have been the silver bullet. Rather, the extra effort in manufacturing and domestic spending through the building and sustaining of the ultimately victorious war machine was the global economic saviour, they argue. US’s dominance following the end-of-the-war (as much of Europe and Asia re-built itself) cited as an indication of the economy returning to full-strength and putting the depression-era behind it.
An international peace institute that monitors military budgets has pointed out that global military spending rose 4% in 2008 to a record $1,5trn – that’s a 45% increase since 1999. Much of the spending has of course come from the US (58% of global spending) and the several wars that were launched during the Bush years. In a worrying trend, China has accelerated its spending, tripling the amount over the last decade. Russian has also once more focused on expanding (also tripling spend in the last decade) its arsenal after years of neglect
The numbers alone are equal to much of what is being funnelled through to the economic system as part of the global effort to stimulate economies out of recession. Worse than that, if you believe much of the conspiratorial writings out there, there is a distinct possibility that the number of “peace keeping” missions and other such “battles against terror” will continue to be forged as we get deeper and deeper into a longer lasting recession, verging on the edge of a global depression. The recent rally of emerging markets and the Decoupling v.2 story are faint glimmers of hope that a de-linking from the predicted continued demise of the US economy may occur, but if things don’t get better soon, GM’s bankruptcy and other corporate failures won’t be our biggest problem by a long margin.

Saturday 6 June 2009

Barack of Arabia

Barack of Arabia…
Amazing what a few words pronounced correctly in Arabic can achieve across a population of faith that makes up 1/3 of the world. When declaring “peace be onto you” in a near-perfect (Egyptian tinged) accent millions of attitudes and long-hardened views instantly transcended the stereotypes beholden to supposed US-hating-Muslims.
Will a great speech solve issues between the Middle East and the West that have existed for two generations? Despite the elegant rhetoric and super-star status the current US President has been anointed with - one thinks not. More importantly maybe, what about the issues that exist within the Middle East and the divisions within the vast Muslim population itself? These issues have existed for far longer than simple two generations, stretching back hundreds, if not thousands of years. Yes, Obama is certainly an inspiring character and has already done plenty to change perceptions of America, but he is dealing with a territory that has befuddled all before him.
With elections in Lebanon in a couple of days, Iran holding its own swiftly after that, as well as the recent overtures towards the two-state solution in Israel/Palestine, a moment of importance is certainly upon us in this most volatile and flammable of regions. Anything resembling a slight victory for Obama’s efforts would be a Herculean effort. The main obstacle in most Middle Eastern pundits’ opinion? That would be the Arabs themselves. Divisions amongst the variant populations and governments of the region must be set-aside for proper peace and growth – Saudi’s role here is critical.
Once this has been achieved, the true potential of the region’s economic might and industries will being to flourish. Only then will international markets and investors realise the wealth of opportunity that exists within the local markets that have nothing to do with the oil and gas industries. Recent performances across the MENA region have, naturally, closely correlated with the oil price, and the fickleness of hot money in and out does not help to stabilise reputations amongst the local major corporations.

Related to Obama’s visit of course is the price of Oil. We are now nearing the $70/brl level that has appeared an inevitable target ever since the Saudi’s declared it as their preferable target. With King Abdullah placing a very over-sized gold medallion around the US President’s neck on his recent visit to the Kingdom, it seemed he was being anointed as one of their own – could you imagine that rather more diminutive Bush attempting to handle the sheer weight of the “necklace”?

Non-farm super-star payroll…
On the markets, all about the non-farm payrolls today (-520k cons.). Keep your eyes open for any potential disappointment. The unemployment rate released at the same time an equal measure of confidence building/destroying strength, markets expecting 9.2% here. Would be the highest unemployment figure the US has experienced in over 25yrs. Markets so far pricing in what might be a within-range announcement, with DJIA+35pts, S&P+4.3pts, not to mention some good performance to bring the week to a close throughout Europe, with most majors +0.7-1.0%.
Asia did quite well, with only Taiwan and China’s CSi300 slightly disappointing (-0.28%, -0.45%) within an otherwise sea-of-green again for the newly attractive riskier emerging markets there. Most YTD returns are still between 35% and 60% with Australasia quietly performing consistently in the last few days (helped today with Rio Tinto throwing a deal back in the face of the Chinese in favour of an iron ore venture with BHP Billiton.
On currencies, Gordon Brown’s woes in the UK following continued delving of hands in the expense-honey-jar by his MPs (to be fair, the conservatives have been sticking their hands in quite deep as well) is hurting the recent spurt in cable in GBP’s favour as we have come back from the attempt to push through 1.65 right back to 1.60 – of course, much of this was the normal overshooting when Treasuries first started selling-off and the technicals now point to a few weeks of oscillation between 1.56-1.61.

Mid-East Hotels, as easy as “W”…X, Y and Z…
If you gauge a city by its hotels, then Dubai has certainly stolen the limelight in the Middle East with an easy win over any of its closest rivals for sheer variety and number of luxury establishments. Whilst Abu Dhabi may have the largest and most expensive (Emirates Palace), not to mention most luxuriously traditional, Dubai as opted for a variety of business and leisure destinations that serve as the life-blood of the entertainment industry. Drinks can only be had in these hotel bars, and all the best restaurants are found nestled within their walls.
All the headlines have been generated by these hotels, sometimes even long before they open – such as the world’s first Armani hotel in the Burj Dubai. However, if you believe a city’s character is developed through its hospitality inns, as many Gulf states are by virtue of its visiting bankers and tourists, then Qatar’s capital of Doha must take the prize for the most forward looking hotel of the moment – the “W”. If ever there has been a hotel that contrasts itself so screamingly-clear from the rest of its host city’s surroundings and general aura, this must be it.
A fantastic hotel destination, with a great vibe and exceptionally “happening” feel to it. It is still more of a sign-of-things-to-come rather than a sign-of-what-is-there, especially when considering the following response to a declaration of how well-designed and enjoyable the signature bar is by a resident ex-pat, “yeah, it’s a great bar, but it’s still in Doha”. A little more time needed maybe.