Monday 31 August 2009

** LA to Vegas – Fake People, Real Losses ** - Monday 31st August

Some observations on the back of a busy trip to the US West Coast...

Mind the muggers…
One of the more worryingly foreboding and frequent LA greetings seemed focused on the morbidly inevitable – it started innocuously enough “hope you have a wonderful time in our awesome city” the myriad of wanna-be-actors, but for now beautiful-and oh-so-dumb-waitresses, would chant on discovering those they were serving (in the loosest of terms) were but mere visitors to “their” city. The part that followed is what worried somewhat, and after the third or fourth time, simply started to irritate “please don’t get mugged while you are here” – huh??! Sorry, what was that last bit? Please don’t get mugged? As if I were here to do exactly that on my holidays and go out seeking the most dangerous looking LA resident in an attempt to experience a little of the “real LA” up close and (really) personal.

Sumptuous awe…
I mean come on, how is that a way to introduce your (up until a few seconds ago) relaxed and refreshed guest to what you earlier termed an “awesome” city? Would the awe part be a little more like that found through the military shock-and-awe we’ve all heard about, rather than awe and amazement that all the city of angels had to offer? It’s like walking into a bakery and the baker handing over a wonderfully aromatic fresh loaf of bread with the warning, as he smiles broadly, “keep an eye out for some of my loose hairs”. NOT what you want to hear when confronted with something so seemingly sumptuous on the surface – which California, if not LA on its own, is.

Needless to say, it caused one to be on-guard more often that not, but with hindsight, may just have been what was needed to prevent any real trouble from taking place and ruining an otherwise magnificently insightful two weeks on the west coast of the country that represents the epicentre of the financial crisis. A quick conclusion to get us started – yes, the US is in big trouble, and yes the US will continue to suffer as measures such as Governors Schwarzenegger’s California garage sale makes use of needles to plug holes the size of football fields in a leaking super-tanker, but - and with the US’s eating habits and prolific (oh-so-good) burger joints there’s always a big but somewhere round the corner - the holes will eventually be filled, and the ship will right itself – though it may no longer be the quite so “super”-tanker it once was before the damage.

Fake…but real fake
First things first – LA is as fake as a place can be. Not fake in the way it looks, feels or vibes, but fake in the way it simply is. The “fakeness” is ingrained in the very fabric of the city - Hollywood to be more precise. The look, feel and vibe are real but are real based on that pre-existing fake fabric – you follow? I’ll try to explain – clearly, a city that has been built on the one industry whose sole purpose is to tell stories and create an alternative reality through fantasy is going to have a tough time creating a real sense of culture and sincerity. Movie agents and talent managers drive around safe in the knowledge that their money-making charges are well encumbered amongst a population that witness their controlled antics everyday through the magic of the cinema/TV screen but never actually know anything about them - the reality is most “stars” are exceedingly dull individuals and really are just like us – whatever that means i.e. they go to the toilet and have cravings for a double-double-Animal-style burger from In-‘n-Out Burger at 4am “just like us”. LA’s Hollywood is a city, one area I know but big enough on its own to count as a city in other parts of the world, where the only thing that can impress more than the size and price-tag of your motor is the size and price-tag of your last movie pay check or production windfall.

Have I got a role for you…
Everyone in LA is there for a reason – and it’s not to take in the scenery nor work at Universal Studios as a tour guide down the road. The desire to self-propel and succeed is admirable in one way, but the way LA seems to bring it out is quite negative. Don’t get me wrong, it really is great fun if you are on the receiving end of that very attention by the gaggle of gorgeous women who think you are the next big screenwriter in town with a star-making-female-lead-role-that-you-are-still-searching-for that-fittingly-inspirational-individual-for, but overall it’s kinda sad to be honest. One might even compare it to the equally sad (yet still enjoyable if not taken seriously, at all) atmosphere that existed in the other “go-to” cities over the last quarter of a century, such as Hong Kong and even the likes of Dubai a year back, where all were on the look-out for the promise of an easy fortune and belief that the next person they met would be the one to introduce them to the Sheikh and get them on their way. Yeah, on their way out of the UAE with their money-seeking-tails-between-their-legs as it turned out. In LA, the Sheikhs are not the ones that wield the power. In fact, they are not royalty by any measure of the word, but you wouldn’t guess it if you witness the absolute devotion that is bestowed upon the self-declared Kings and Queens of LA – and it’s not the “talent” as many would guess, but the producers and studio executives.

Elevator-sized egos…
Many industries have over-sized egos walking around their respective corridors of power, but the beauty (and ugliness at the same oxymoronic time) of the entertainment industry is that you are expected to flaunt your ego. Guess what? Whoever flaunts it the most is in turn celebrated and commands the attention of all those wanna-be-actors (don’t call struggling waitresses wanna-be-actresses whatever you do, please, they are all actors – but “wanna-be” seems fine – go figure). The parties and sheer attractiveness of the entourage surrounding these Herculean-ego-wielding characters is testament to this enough. The sheer mention of the rumour that a particular studio executive is attending a particular restaurant/party/bar/club on a given evening can up the beauty quota by an incredible degree.

The real fun in LA is giving in to the silliness. In one of the best expressions of the truth behind the adage “if you can’t beat ‘em join ‘em” there is endless fun to be had if you start placing enough emphasis on the unimportant – the “stars”. On more than one occasion celebrities would even question those that were not instantly clamouring over them. In one instance, a “celebrity” from the world of basketball clearly not impressed when his fellow elevator passenger in one of LA’s hot-spot hotels did not instantly recognise him, actually questioned whether the person “knew who he was” or not – a classic reply immediately made its rather intoxicated way back to the ego-bruised star “why, don’t you know who I am?” It didn’t really work, but the look of bemusement for several long seconds was worth it before the lift thankfully came to the right floor and an exit was made before an explanation had to be proffered – always leave them wanting more. The point being though, in a city like LA, no matter who you are or important others might think you are, there’s always potentially a bigger fish swimming right next to you, and you may well not be the big-wig in a room, let alone when in an elevator with only one other fellow passenger.

The rest of California is an absolutely gorgeous place. A 45 minute drive through some of the prettiest suburbs one can find made up of Beverly Hills and Bel Air down to the beach and you hit a majestic piece of highway that can eat up a lot of time and petrol as you explore its magnificent views. Wanting to express the distinctive links and differences between LA and Vegas in particular in this piece though, I’ll return at another time to provide some observations on the likes of picturesque Santa Barbara, cool Malibu, and the oh-so-interesting O.C. – for once, it really is as on the TV!

Where the devil laid his hat…
Vegas is even more interesting. Famous for obliging to every conceivable sin in a super-sized response of utter disregard for anything pure and simple, this “city” (for millions it is nothing more than a mile-long stretch of road), has had more movies than any other focused on its allure of winning large amounts of money (don’t know anyone that has), getting married in a matter of minutes (again, don’t know anyone that actually has – a couple that got close only) and being whoever you want to be – aka lying about who you really are – now that’s something much more familiar.

Vegas is a business through and through. A city that many others would love to be for its immense generation of cash, even though Macau, off the southern-coast of China and only a 60 minute boat ride from Hong Kong, long ago surpassed Vegas as the world’s largest generator of gambling fuelled revenue. Despite the razzmatazz of shows and nightclubs and the endlessly fabulous restaurants and other facades of family entertainment, it’s all about the gambling – and the name of the gambling game is Black Jack. Where in Macau one would have to actively seek a Black Jack table amidst the omnipresent Baccarat players, Vegas caters to the supposedly “best-odds-in-the-house” game of 21 in abundance and relegates the Baccarat boys to the corner.

Everyone that goes to Vegas has watched movies from Rain Man to the recent “21” believing that they too can beat the dealer and walk away with a fortune. Reality is, unless you really want to take all the fun out of the gambling and risk your shins and kneecaps, counting cards is not a great idea. Stick to the extremely “skilful” (read: utterly based on luck) game of Roulette in that matter – what’s your birthday again?

In fact, so popular is Black Jack in Vegas that I would go so far as to suggest you can get a good feel for what’s happening around the rest of the United States by sitting at a table for almost 6 hours straight from 3am to just-about-time-for-the-famous-Wynn-casino-breakfast on a bleary eyed Saturday morning in the middle of the summer holidays. The cross-section of individuals is an incredibly rich coming together of every conceivable facet of US society. Those doing well enough to spend a weekend gambling away for fun, and those doing badly enough to have to try to spend a weekend gambling in the absence of work. Each is sat at the same table sharing the same luck-of-the-cards.

From the people you meet, to the crowds you see walking through the casino floor, the shrieks and thrills from those lucky enough to win on the Roulette tables surrounding you - a little annoying when one has just lost a 20 scoring hand against the dealer’s 21, attained with 4 cards - and the never-ending stream of conversation that prevails when one feels an overwhelming sense of (often short-lived) camaraderie when sat with four others attempting to “beat the house”, it’s amazing what some will un-load from their burdened shoulders after a few gin and tonics. Those drinks naturally served by the ubiquitous and half-undressed waitress who herself rather wishes she were at a hot “industry” club in LA as-a-wanna-be-actOR – wow, the level of wanting and pretence works on so many levels across the gambling-tinted allure of money and bright lights in Vegas, and the alternative allure of, well, entertainment-industry tinted money and bright lights in Hollywood - I told you it was kinda sad.

Back to the tables. Stories ranging from the guy that had taken voluntary redundancy from his OK paying engineering job in Denver and had been living in Vegas for a month since “he didn’t know what to do next yet” and the 5-member family that were travelling from middle-America somewhere (he told me but I forgot and wasn’t really listening at that point) towards some undecided destination on the Pacific Ocean in their car in which they were also living (I started listening more here, and maybe sniffing a little more too as I edged away) turned into a heart-breaking tale of a good-job-gone-bad on the back of some unscrupulous lending by a certain mortgage house that then even had to foreclose on the loans that had been provided to employees. What was he going to do at this undefined point on the Pacific coast, and more importantly, why was he gambling on the $50 minimum black jack table? The response? An eye-opener – "open a BBQ joint right on the beach with the money I’m going to make here in Vegas." I don’t know what happened to Jon (as he was known to the table) but it didn’t look like he had enough gambling chips left for a side portion of beans, let alone a BBQ restaurant the last time I saw him.

Telling stories…
In just over two weeks travelling around the vast expanse of land that represents California (not to mention the exceedingly boring drive from LA to Vegas in Nevada, ummmm...twice) an entire story of disappearing consumers and disappearing house prices confronted on every corner. From the shop-assistant at a factory outlet store declaring “thank God for the Asians, they’re the only ones that come in here these days” to the receptionist at the “hip and in” hotel in West Hollywood straddled with the welcome problem of an over-booked hotel and restaurant thanking “the immaturity of rich and powerful foreign men who want nothing more than to be with hot models and actresses” (shouldn’t she also be thanking the endless supply of hot models who want nothing more than to be seen with these immature men?), the nucleus of spending appears intact thanks to visitors and the always-will-be-rich.

Worries prevail all-over. The pit-boss in Vegas suggesting Vegas was “recession-proof” only because it catered to the “Japanese whales” that flew in most weekends, or the LA realtor who, standing in front of one his show-homes, started asking about house prices in Abu Dhabi and whether people there were “at least still buying around asking price”. Or the couple from New York biting into their burrito sometime in the middle-of-the-night/morning on Sunset Strip lamenting the fact that they had spent the last of their holiday money on this trip and had not yet seen a single “celebrity” - they should have stayed at my hotel where Mike Tyson was to be found every morning smoking on the balcony – far too scary looking to dare try to take a picture of. These worries, despite Bernanke et al’s belief the worst if over, don’t make for a very long-lived and tenable position – and the US administration knows this. All their efforts up until now have been to instil confidence in the very heart-beat of the US over the last 50yrs, the insatiable consumption habits of the lower and middle-classes. But even here there were problems visible – the Wal Marts and Costcos that were advertising deeper and deeper discounts but on the weekends their vast parking lots were still only a quarter full at best – maybe they were all in Vegas that weekend.

Outlying Dreams
In a recent book, “Outliers” (by Malcolm Gladwell), an argument for environment versus sheer intelligence is put forward by the author as an explanation of great success. More so, the author explains that much of success at later stages in life depends on your ability to question those around you and not be afraid of authority at an early age. In fact, a pervasive explanation for Japan’s woes continuing so long past their original financial crisis is the very nature of their unwillingness to confront problems supposedly being handled by the authorities. The continual banter and inquisitive (if unfortunately often ignorant) questioning by so many that I came across in the US may have exposed some cracks in the surface of the recovery, but one thing’s for certain – if there’s something that doesn’t look right, feel right or taste right to them – they will make damn sure the people that matter know.

The undying desire to enjoy life and simply be free to do as one pleases in the US is still strongly prevalent, and there is that undeniably strong sense of optimism everywhere you look, including the guys and gals that believe they are all the next big-thing in acting, and the truckers in Vegas who just know they’re going to spin that wheel and win. That is the US’s greatest advantage, part of the original “American Dream” and a tried and tested ability to reinvent and repair for the better. Even if it has not kicked in fully yet, it has certainly gotten them this far.

As the helpful lady at the coffee shop said, when settling my bill only to discover that I had left my wallet back at the hotel, “hey honey, it could have been worse, you could have been mugged”. Unflappable dreams.

Hani Kobrossi

Do please provide your comments and own holiday experiences to discuss further.

Thursday 6 August 2009

Gambling Butterflies

Swim for the camera…
Who was the most impressive world leader yesterday? Was it Obama celebrating his birthday, as well as another couple of days of strong market performance on the back of his weekend economic-council-master-stroke, or how about another Mr President (former President Bill Clinton that is) flying in to North Korea to meet with Kim Jon-Il and securing the release of two US journalist “hostages”, in what was publicised as a humanitarian mission but looked suspiciously likes an official engagement. Maybe it was Ahmadinejad, defying all detractors surrounding him and being sworn in for his second Presidential term in what must be the most blatant travesty of “democracy” taking a second-seat to “religious entitlement”. No, no, no – none could compare to the rippling set of arm-muscles and incredibly macho poses as perfected by the alpha-male Primeminister Putin – arguably still “leader” of Russia (Medvedev who?) – now Putin’s a leader his people can be proud of, as he butterflied his way powerfully across the water towards the camera lens, and posed with his bare torso riding high atop a Serbian stallion, the likes of Gordon Brown and Angela Merkel must have started trembling at the thought of being caught paddling around in their swimwear during their summer-breaks.

Who’s counting?…
There is a noticeable lack of photo-ops though from leaders in the Far East, representative of a slight wedge between the meeting of East and West. The markets are even more a different story right now however. Much of what we have been seeing in the recovery throughout European and US equity markets is but a play on the strength of the Asian economies, with China once again taking the lead and representing the single most important hope for continued growth – spurring advances in markets as diversified as commodities, currencies and even corporate credit spreads – everyone seems to be placing their bets on the ability of the world’s most populous nation to continue to hum along nicely and generate ripple effects throughout the global economy.

So what happens when it looks as though the GDP growth figures that China (and indirectly the rest of the globe) pin their hopes on, don’t add-up? It seems that the latest set of first-half numbers that were provided by provincial-level authorities are far higher than the central government’s national figure (RMB15.4bn according to the provinces, RMB13.9 according to the National Bureau of Statistics) – this unfortunately serves to multiply (no pun intended) concerns over the accuracy and trustworthiness of China’s statistics. Much has been made of this in the press in the last two days, but as with the overreaction to that one day fall in the Shanghai market last week (since totally erased and now riding higher at 107% YTD) the underlying message is still strong and too much emphasis cannot be placed on what is a common miscalculation that belies a still strong and promising growth rate.

Commodities as a currency…
Gold rises above $960/oz for the first time in a month, as technicals and the continued rally in commodities point to another run for $1,000/oz. Oil makes it noticeably above $71/brl as it sets up a new field to pitch its tent in within the new trading range, at the same time of course as the US$ continues to weaken - Cable now back at 1.69 after having shot through 1.70 for the first time since last November – watch what happens there as August is a very strong currency-market indicator of equity-market performance in the next quarter – the return of the risk-trade the major change in appetite for the falsely generated safe-haven of the US$ of course, and with asset classes all-around suddenly appealing to the yield hungry investor, there is a lot of cash that has been sitting idly that is now flowing through the markets – exactly as the central banks and “central looking’ governments want. Good job so far.

On Friday, the US super-star-non-farm-payroll numbers will be released (-328k cons). Markets yesterday already seemed to shrug off any bad news so let’s see how investors react. Is everything really quite as rosy as we want to believe, or have we simply resigned ourselves to the fact that the dark days are well and truly too much to bare? It now seems that no matter what happens in 2009, the incredible amounts of liquidity will continue to generate positive market sentiment unless an absolute disaster is witnessed in the news. Lehman lessons learnt last year will most likely ensure we make it through to Christmas in good spirits.

If government fails, gamble…
To end, a delightful little story caught the eye today about a province in Sicily made up of more than 2,000 inhabitants that had pinned their hopes not on divine intervention, nor on the intervention of their own state government (no hand outs here I’m afraid) but on another example of one of the greatest attempts to re-distribute wealth by taking from the masses and giving to the few (sometimes only one even) – the national lottery (capable of being either viewed as an expression of communism, or capitalism at-its-best). The head of the community had provided a percentage of their salaries to purchase as many lottery tickets as possible in Italy’s largest ever jackpot (close to $170m) in the hope they would share the winnings amongst themselves as well as use some of the proceeds for municipal projects.

Some nations have Prime ministers that lead through aquatic athletic example (but the people still suffer), others fudge results for the greater benefit of their own growth and assist the global economic recovery amongst “friends”, and others are so inept and corrupt that a local government believes it has a better chance of winning the lottery than receiving government assistance anytime soon – the odds of winning that lottery? – 625 million-to-one! Place your bets.

Tuesday 4 August 2009

** Singing in Synch **

New month, old news?
Is it really already August? Woah, the year has been flying by (not sure many would say it’s due to how much fun they’re all having), with hundreds of billions, in fact trillions of dollars continuing to facilitate the return of confidence in global markets. On the first day of trading for the new month (beware, August is an historic underperformer), markets pick up where they left off – continuing to rise on the back of broker upgrades across financials and cyclical industries. Asia has risen convincingly (avg. 0.5% gain), a good start in Europe (also +0.5%avg.) and a lot of optimism surrounding the US’s performance for today. All on the back of what was a surprisingly positive month of July (Dow passing 9,000 again since Oct ’08, FTSE equalling it longest winning streak) – a distinct break between macro fundamentals and corporate earnings anticipation shining through. Does lowering earnings forecasts to practically zero and then heralding any subsequent out-performance really count as a sign of recovery though, or more-so a masterful manipulation of the human psyche through media with a strong consistent message of hope?

All looks quite nice for now. Purchasing Manager’s Indices (PMIs) are released globally today, normally an indication of global manufacturing output trends, China’s having been released (and rising above 50) setting the barometer for others to match. How much of this though is really a rising confidence level resulting in higher inventory levels and not just an absolute requirement to replenish levels following a total lack of investment in the preceding 18mths remains to be seen. Commodities are especially rallying, with Gold back above $950/oz, and Oil breaking past that all-important $70/brl again (it’s been quite hectic out there) – this following the breaking of the 2-mth trading range in Cable, currently sitting at $1.68/GBP, as currencies continue to provide an awesome casino-floor for short-term traders.

Image problem – “Sachs” doesn’t it?
As Ahmadinejad struggles to cope with a-less-than-endearing public image issue, and arrests and attempts to imprison all those opposing him, a Wall-Street-money-maker-supreme, Goldman Sachs, is reportedly suffering from an “image problem” of their own – they are too closely associated with the Gordon Gekko types strutting down Wall Street apparently – now hold on, how exactly is that a problem? Every banker actually wants to be likened to a movie star don’t they? Gordon Gekko is often touted as an idol, rather an example of not-what-to-be (does anyone grow up wanting to be Charlie Sheen’s’t think so). Seriously though, Goldman’s are being advised to tone-down their money-chasing aura – it never seemed to trouble them in the past, and I doubt they’ll care very much for it now. Still, a great opportunity for recession-hit advertising and PR firms to seek new business – am sure the boys at Goldman’s can afford to pay handsomely for the best service.

All together now…
A few key indicators are indeed reflecting the confidence being projected by the TV-genic US economic team (aforementioned PMI numbers, decent street-beating earnings and a weakening US$ reflecting a greater appetite for the “risk-trade”), and apart from Greenspan (what exactly is he still doing appearing on TV, shouldn’t he be hiding in his retirement retreat fishing for trout or something) the current administration are all singing from Obama’s hymn-sheet – declaring the worst-of the recession is behind us and making very strong confident allusions to a recovering economy. Technically of course, we are still in a contraction, but they are clinging on to that silver-lining and (deservedly it has to be said) patting themselves on the back for preventing any further total market free-falls and an economy that was looking dangerously close to a depression-like era. There seems to be such great momentum at the moment, that even our friend Nouriel Roubini was caught declaring that signs (in commodity markets at least) are pointing to “a light at the end of the tunnel”. All sounds lovely doesn’t it?

So, is everything going to be OK from here on? There is no doubt the unprecedented government interventions were a necessary political move, with Obama’s tenacity to puncture the American-Darwinist-model of capitalism preventing a total collapse of the system. Some still believe the medium-term implications will cause far greater systemic issues – an article in the Economist focused on the impending “Commercial Estate Crisis” and foresees the precedent of bail-outs as further softening the budget constraint financial institutions once felt, not to mention the growing allure of moral hazard.

Singing in synch…but from a hymn sheet
Whether you question the differences between macro top-down analysts (bewildered by the sense of optimism sweeping through the markets) and technical company analysts (impressed by the possibility of close to 20% earnings growth) there seems to be something afoot with the co-ordinated weekend appearances by Geithner and Summers. Obama himself admitted there were a few months left of the recession to live through, but otherwise touted the efficacy of the economic council’s actions so far.

Could it be the administration is paving the political path for some further policy decisions? Do they know that this momentum must be maintained to run-through some bad news they are aware of that will surface towards the end of August (in an ugly repeat of ‘07 and ‘08) and knock confidence with such force a 180* run from markets might occur? The more sceptical must be wondering why the economic team choose the weekend before what historically ends-up one of the worst months for markets, to preach a reassuring, concerted message – great cheerleading guys. Let’s just hope that all this singing from the same hymn-sheet bestows more faith upon the markets than simply the hope of a continued miracle.