Wednesday 30 September 2009

Confidently Consuming (aka "Space Pants")

A quieter week on the political front after a torrent of gestures, handshakes and photo-ops – whether any real productive outcome will manifest on the back of it all will become clear in the following fortnight; when the UN will have to decide on sanctions against Iran (most likely) commit to environmental pledges (don’t hold your breath as greater ice-formations melt into the Arctic Sea) and Obama’s make-or-break healthcare reforms start their formalisation process – the future fitness of his presidency directly linked to the outcome – no wonder he’s shooting more hoops than ever. As for the economy, emerging markets continue their rampage (in a good way) with investors flocking to attractive valuations and their insatiable appetites for yield, making what were once untouchable areas barely a year ago now the belles-of-the-ball. Even with Russia banning beer sales in kiosks and retail outlets (accounting for 25% of sales, guess only Vodka can be sold there now) there remains a giddy and froth-like performance surrounding the once-almost obliterated Moscow bourse (+100% YTD). Something else to bring a smile to the face? Cirque Du Soleil’s creator has paid $35m to be the “first clown in space” – with the notorious lack of water and hygiene difficulties on the international space station his mission to “bring non-stop-laughter to the astronauts for 12 days” may end in a space-plumbing-disaster if he gets enough laughs.

Following some media discussions on recent disappointing indicators of consumer confidence, just how important is common sentiment to an economic recovery? What level of psychology manifests itself in an individual’s desire to spend? If you believe the latest economic data out of the US, confidence is at a low equal to this time back in March when markets underwent a rather not-so-nice downturn – something now considered a horrible moment relegated to the past but fresh enough in memory to cause more than the slight jitter. Investors shrugging off concerns of the “real” economy and stock indices around the world joyously entertained the swathes of cash swimming about, not least amongst the emerging economies as aforementioned - would you have believed Sri Lanka’s index (barely several months since the military situation was resolved) would be within the top 5 performing indexes in the world at the start of the year? Or that Vietnam would really finally have its day and return 85% this year so far. Peru’s 131% world-chart-topping return another great reason/excuse to visit Latin America – no doubt a stop in Rio en route to “stretch the legs”.

In what has been a widely noted and often ill-reported occurrence, a great disaster of confidence took hold in Dubai as its property market slumped and the once shining glint of a polished surface gave way to plenty of deep inner-reflection of a rather less-polished and altogether rusting sort – the same was definitely true for other similar boom “ego-fuelled” and property-hub driven markets such as Hong Kong and Singapore, but why have we seen prices there sky rocket back towards record levels in little more than 18mths, whereas the precipice like falls in Dubai persist? Rather than talk of new records being set for luxury apartments and champagne corks being popped, the only popping here is the sound of nicotine-replacement chewing gum as real estate agents line up at the airline desk on their way out. Despite a great change in atmosphere since those dark days earlier this year, the confidence factor is just not quite there. Hong Kong’s carefully considered control of public announcements and an almost unanimous decision to lower prices across the city brought out the best in the consumer within. Ensuring the public there felt safe enough that others were making (and spending) money; authorities have been able to return to an environment of almost-as-brazen confidence as before. Dubai’s continuing woes and negative press have prevented as similarly a strong resurgence.

Confidence is without doubt another human trait capable of undergoing manipulation and a certain degree of “moulding” at the hands of well-informed and skilful marketing operators. When the crisis experienced its deepest darkest moments it certainly felt as though the global-powers-that-be were in a tail-spin for a few days – the swift recovery was associated with a noticeable shift in tone of international news channels, newspapers and governmental announcements. Undeniably, it has all worked out – so far. The only problem is, as repeated often in pieces here and elsewhere, that the normally-as-reliable-as-a-Wall-Mart-hammer US consumer is not playing ball. The upper-class and more affluent investor may be having fun in the financial markets, moving his excess liquidity around and enjoying a great playing field, but the less fortunate are still hiding from view – explaining vast empty store-car-park lots. Some will surely point out that although the consumer is probably the main point of concern in the nascent recovery in the US and elsewhere, there are instances where headline consumer confidence does not appear out of line with some rebound in GDP growth. Basically, consumption patterns are unpredictable and not always closely associated with the more “human” confidence factor. Apart from the “I’m-rich-and-always-will-be” brigade though, I really think this time around confidence matters more than ever.

A reflection perhaps of some of the problems consumers are dealing with as above? One normally super-confident claim the Japanese have enjoyed was always the unrivalled attention to detail and uncompromising build quality of their world-envied cars – Toyotas in particular, especially their Lexus “luxe” brand. As sure as being ripped off for a drink at a Dubai “classy” bar, Toyotas would get you from A to B in relative style, but stringent safety. In a sad development that shatters even that last bastion of liberated and selflessly-provided--absolute faith in this reliability and safety, Toyota has had to announce the recall of almost 3.8m vehicles (equivalent to the total number of cars sold in the US in the last two years!) due to some really quite worrying oversight concerning the driver-side floor mat that has been reportedly causing the accelerator to stick and sadly been the cause of several fatal crashes.

With the utmost respect and adoration for anything Japanese, not least Lexus, this final assault on a bastion of confidence is just too much too handle with all else happening around – probably better off just leaving it all behind, donning a pair of waterproof trousers and joining the clown in space.

Best Rgds,

Monday 28 September 2009

Fangs at the ready - Monday 28th September

What a difference a weekend can make. One minute we are all amazed at the US’s commitment to eradicate nuclear weapons and undertake a greater international level of cooperation on all fronts, the next we’ve got a new-found nuclear facility in Iran (come on, intelligence services only “just uncovered the “vast” facility?), coupled with some testing of rockets (wait for the vigorous response from a certain nation in the Levant since it’s a “long-range” Iranian missile), India begins to rattle its own nuclear sabre and the arms-race is on again – short-life for the heralded US attempt. Germany’s Merkel is victorious in her coalition being re-elected even with resounding disapproval to the GM/Opel deal, and with a lack of financial data to shape the markets, the G20’s regulation promises serve the final nail-in-the-coffin of hopeful market investors – last week’s ominous moves across global markets (most majors -2% for the week), not to mention sudden surge in US$ demand (Cable at 1.59) a sign that risk is being taken off the table, again. At least Berlusconi has something to smile about; apparently the outfits on Milan’s fashion-week-catwalks are some of the skimpiest flesh-baring in recent memory, inspired by the Italian prime minister’s very own summer expeditions.

So what are investors doing now that their fun with liquidity fuelled markets has seemingly suspended itself for a while? They’re watching TV apparently (definitely in the US and UK) – viewer figures for the first two weeks of the Autumn programme schedule are through the roof, and with almost 45 new television series’ to choose from, it’s not much of a surprise – in fact, entire schedules have been re-jigged to make way for extra episodes of escapist edgy-dramas and mood-enhancing light hearted comedy-shows (still no match for the genre-creating Seinfeld I’m afraid), but what seems to have fully captured viewers’ imaginations (if you believe published audience figures) are shows based on the strangely appealing (to teenage girls especially) beyond-the-fringes-of-conformity-and-romantically-tinged Vampires. One show in particular, True Blood, has just completed a record-breaking season to make way for another blood (and advertising money) sucking extravaganza. Just as superheroes dominated movie-screens for years post 9/11, the desire to forget the mundane in a fantasy world of weekly-high-end-production and scripting an overpowering force in economy-troubled Western households. As fans-of-the-undead are viewing in force, the fangs come out to puncture recently-inflated market returns.

Sentiment appears to have totally shifted if you are to believe a couple of the conversations held recently with major Middle Eastern institutional fund managers, sensing markets are turning – for the worse. Without wanting to sound overly pessimistic, human emotion has begun its painful siege against the fortress of optimism that stood strong for several months. However, with the supply of enthusiasm and morale now ebbing in the face of the mounting force below those attempting to defend the bastions of a fundamentally weak economy, we are worryingly close to witnessing the fall of their defences and what many anxiously predict will be another ransacking of the equity markets beyond – possibly not with the same violence as in recent history (some do learn from experience), but with ulcer-bursting consequences none-the-less. Gold’s fall back below $1,000/oz as well as Oil’s retreat all the way to $65/brl a tandem play with the unwinding of the dollar hedge, but the speed at which it all took place (-7% in three days last week) the more interesting fact to note.

The wonderful rally and surge of optimism experienced throughout the summer months and carried on – to everyone’s surprise – through September has now begun its deceleration, at super-car-neck-braking speed.
Leading indicators are simply not living up to expectation, with a very visibly weak shipping market (the BDIY has once again lost 50% of its value since August, and ships are simply not transporting), lacklustre production numbers and sluggish labour markets with no clear light at the end-of-the-tunnel. We’ve had markets ignore much of this for as long as possible, and a sustained rally after the initial push caught many by surprise and hence the usual “I-want-in” situation took hold. So, given all the subconscious images of Vampires western fund managers supposedly have running through their late-night-TV-watching dreams, are we in for another frenzied blood-letting or just a quick fang-fuelled-fix right through the neck of some poor unsuspecting investors/victims?

Thursday 24 September 2009

Dangerous Minorities - Thursday 24th September

Seems there are very few of you actually in the office out there this week, so following yesterday’s look at world events, and after surviving what turned out to be a 96-minute speech by Gaddafi (he really must have been in a bad mood without his tent to keep him company and decided to wreak his revenge) as well as once more witnessing the charm offensive, otherwise known as Obama, as he back-slapped (Medvedev), high-fived (Sarkozy) and right-cheek-kissed (Argentina’s Kirchner – wouldn’t you?) his way across the room at lunch, we’ll keep it focused on political attempts at fixing the economy rather than the economy itself and a more worrying technological development that raises a high-stakes moral debate outside of greed and corruption.

The more pathetic-looking Gordon Brown, representing an equally pathetic economy-in-decline and carrying with him baggage of over-sized proportions across the Atlantic, found no joy at the once warmly-welcoming White House, unable to secure a formal one-on-one meeting with the President - demoted in favour of China, Russian and Japan. But hey, he did manage a quick “alone” chat, according to Brown’s aides, in the kitchen at the end of the UN luncheon where both leaders apparently saw absolutely eye-to-eye on Afghanistan, economic reforms and whatever else you can fit into a five minute “chat” – you can bet secret service were keeping a close eye on the steak knives.

More serious issues are due to be discussed at the G20 in Pittsburgh later this week concerning the financial system and following the Fed’s indication yesterday that they are looking to solicit the assistance of large fund investment firms to start “exiting” government infused markets. With that on the agenda, and the continuing debate over global regulation and general grievances against capitalism still bubbling under the surface (wait for Michael Moore’s new movie, “Capitalism is Dead” to re-ignite amongst the masses a deluge of negativity against the rich) there will be more than enough to occupy the 33 nation leaders invited (isn’t it called the G20? – what’s an extra 13-invited-delegations-amongst cost-cutting friends huh?).

Judging Minorities…
A report today caught the eye detailing a new technology which may be introduced via CCTV on public transportation (to begin with). What it does is predict assaults and other dangerous behaviour by recognising a pattern of “tell-tale-signs” depicted by body-language and other subconscious human expressions that betray even the steeliest and bland-faced of criminals. The inventors of the system cite the UK’s ubiquitous CCTV cameras and their lack of substantial contribution to anti-crime activity, hoping that within another couple of years and at the conclusion of some rigorous testing, the system might go live.

Now, am I the only one a little alarmed at this type of technology? The testing period is all well and good. Think of all those poor innocent nervous travellers who would otherwise get bundled by an army of cops just for sweating a little more than normal on the tube (Dubai Metro not included – that’s air conditioned thank God), or shaking their head the wrong-way while listening to music on the bus and being mistaken for a knife-wielding loony, or the poor granny that gets mistaken for an ASBO inflicted youth due to her arthritic trembles – you get the picture. Naturally, the firm insists there will be fail-safe measures in place, namely a human point of interaction to the process whereby an operator would be provided with the suspect information after the system had flagged a potentially dangerous individual (making use of the aforementioned profiling but also computing general crime trends in the area, considering the time and exact location, number of people on the bus etc) and it would then be up-to the human operator to make the final decision as to whether a threat was viably posed or not. Hmmm, they call that a fail-safe?

All reminds me of a movie called “Minority Report” (starring Tom Cruise before he got reaaaallllly annoying and Scientology-weird) set in a future where a combination of technology and precognitive humans presage (with apparent 100% accuracy, initially) murders and other crimes – resulting in a utopia-like society where homicide is no longer heard of – it all goes horribly wrong of course (how else could they keep the movie going for longer than 40mins and give Tom all those excuses for cheesy grins and money-making action scenes?) when it becomes clear that the system is flawed and mistakes have been made. An almost interesting moral debate creeps in upholding the staunchly adhered to belief (in the Western world at least) that an individual is innocent-till-proven-guilty.
With the advent of this new technology, and the guess is that if they are talking about it now and predicting it will be in use within 3-5yrs then the reality is that it is already in use by certain organisations and has been over the last 12mths, debates over too much power entrusted into technology and certain individuals acting as omnipotent police-judge-and-executioner, will define the next great global moral dilemma.

What the system might actually be useful for though and welcomed with open-arms - some would guess a modicum of relief too - would be a predictive technique installed at the United Nations and other global leader gatherings, where body language, anger levels and personal-ego-self-importance factors would all be calculated to foretell and avoid debilitating and schedule shredding 96-min-long-Gaddafi-like-speeches. No moral arguments there.

Wednesday 23 September 2009

** Save the Cheerleader, Save the World ** - Wednesday 23rd September

Morning, a long break saw no commentary for a few days due to the Eid Holidays. So what’s been happening out there?

Pitching the tent…
A busy week on the world stage and a host of central bank decisions to keep both politicians and market watchers occupied. The UN’s annual gathering of leaders kicks off today, with a number of key speeches to be made by Obama, Gaddafi, Medvedev and Ahmadinejad (in that order) – boy-oh-boy, sounds like a roster-call of the good, the bad, the ugly and the bad-that-became-good-for-a-while-but-became-bad-again – you can mix and match descriptions to speakers as you please. Wow, imagine the headache that must have gone into selecting the speech line-up and other logistical issues – it’s bad enough that sensitivities are running very high between the US and Libya, but imagine the disappointment Gaddafi must have felt at failing to find a decent plot in New York to pitch his traditional Bedouin tent – if it contained the traditional harem too, you can bet Clinton would have found a place for it.

Another attempt being made at catalysing the Middle East peace process, UN Leaders Conference, G20 in Pittsburgh, National Energy Summit, Germany’s elections and the revelation that China is selling oil to Iran - is that really a surprise? Since when has business gotten in the way of good-old-cold-war-era-like adversary? US sanctions are looking likely on Iran, but the Chinese are keen to continue their aggressive expansion across the Middle East and secure long-term access to the most political-head-spinning of natural resources, Crude. What exactly is China doing selling petrol to oil-producing-Iran then you might ask? Well, the thing is that although Iran has plenty of industrial-grade crude, the higher quality variety that is used in petrol engines (typically known as gasoline) is in short-supply, hence the trade-off is industrial type crude for use in machinery that China desperately needs to maintain break-neck levels of growth, and the ability to keep Iran’s motors humming.

Fed rate decision due today (rate change very unlikely, more an indication on policy changes being looked at), and the Bank of England announcement signalling a continuous desire to expand money-supply and increase liquidity. Markets this week have traded sideways in general so far (futures in US slightly off today on S&P and DJIA, Asia mixed with Japan closed but HK weakening a little -0.50%), commodities are holding on to recent gains (Oil remaining above $71/brl despite lots of hot-air during the energy summit) and the USD is edging stronger once again as almost all last week’s losses erased. Most fund managers are sounding a little more cautious after being caught out by a very strong September, and there is a sense that a growing majority out there really don’t think we’ll have anything major happening for the rest of the year (could those be famous last words?) with most concern now going forwards to the next calendar year. Those efforts made by governments and central banks (aren’t they the same thing now?) over the last 12 months will most likely last until possibly the burden of non-conforming macro fundamentals (read: unemployment) simply becomes too large to ignore.

In an episode of a popular sci-fi series in recent years, a young Japanese man teleports into New York’s Times Square and shouts the words “save the cheerleader, save the world.” At first, you don’t really have a clue what the rather humorous character is going on about, but in due course it becomes clear that in a convoluted and gripping plot the cheerleader really is the key to preventing a catastrophic event taking place and ultimately relegating humanity to a rather unsavoury fate. In these troubled times, and with so much seemingly at stake, Obama and other western leaders meeting across both New York and (slightly less inspiring) Pittsburgh, must be wishing there was as simple a solution to the seemingly insurmountable obstacles facing them as saving the life of just one attractive cheerleader – no such luck for our real-life superheroes I’m afraid, they’re going to have to find some other way to save the day.

Hence a week filled with endless meetings at important sounding events (as detailed above) not to mention well-selected sound-bites and portions of wisdom to chew on, but will anyone come up with something as amusing and controversy-deflating as “I used to be black before the elections, you know” that Obama (again) smoothly came up with to puncture a rift over objections to his Healthcare reforms being associated with racial issues.

Pizza Please…
How about the copious amounts of alcohol that will no doubt be consumed and the usual stories that follow a night of revelry more associated with frat parties than gatherings of oh-so-important-dignitaries and their aides – I wonder if Boris Yeltsin is sometimes invited back just for a laugh if the revelation through Clinton’s memoirs are to be believed. Apparently he was found stumbling around Washington DC in the early hours of one particularly cold morning in 1995 – after a state banquet at the White House nonetheless - dressed in nothing but his underwear. Having eluded his secret service detail (nothing can stop a drunk man needing more drink it seems!) he was found trying to hail a cab – when confronted by his security staff he told them he was just trying to go down the road to get a slice of pizza – fair enough.
The chance of creating a serious international incident for a drunken hunger pang notwithstanding, many will emotively support you Boris, through personal memory and experience no doubt. This year, any global leader worth his salt is going to have to come up with a much better excuse than an insatiable intoxicated-appetite for pizza, what with being in New York where pizza parlours are a (darn good) dime-a-dozen.
Maybe a slightly more convincing line, unless you are Ahmadinejad that is, would be to use the excuse that you were trying to solve the world’s most pertinent and worrying issues, by scouting out the nearest cheerleader practice.

Hani Kobrossi

Thursday 17 September 2009

** Ghost Ships ** - Thursday 17th September

Can you believe it? Despite a great deal of trepidation surrounding the start of September for the markets, we’ve had nothing but green screens as each day passes, with more optimism and investors fully shunning any piece of bad news coming through. The thing is, even the bad news coming through isn’t sounding that bad anymore. A certain degree of numbness has creeped in, but at the best of times the markets are always able to surprise and confound those that would otherwise normally assume themselves capable of foretelling changes and judging the correct entry/exit point.

The market really is a living breathing expression of a whole host of human anxieties and frailties. At the moment, it seems to be best expressing a great degree of hope and a desire to simply get on with things (read: make money) rather than continue with men-of-influence – and (lesser paid) women of course - huddled around in smokey rooms trying to philosophically figure out what the major differences between capitalism and large government intervention entail (sorry Roubini and posse).

From Asia across to the US and with all between, markets have all posted very attractive (and welcome) returns. Asia was always going to be a strong recovery player, and the emerging markets were singled out some time ago to return with swifter strength, take a look at the BRICs – at one point declared defunct as a group – striding from one point of impressive development to the next following the panicked selling off last year. Hong Kong is +10% since the start of the month with China’s extremely strong and stimulus-influenced surge continuing (CSI +16.5%) after a stutter in July and August. China’s equity indices are never the greatest indication of a “free-market” but the manipulation obviously exerted by the authorities there have succeeded in helping sentiment to ripple through in the best possible way all along the spice-route, through Europe and across the “Pond” to where the fun and games all began (S&P and Dow are up +7.5% and 5.2% respectively month-to-date).

All sounds great doesn’t it? – hold on there friends. This wouldn’t be the usual commentary if there wasn’t but a slight lining of discontent hiding somewhere within the seemingly breezily-care free and happy-go-lucky surface now would it? Take a look at the picture below. It may not look too scary to those not familiar with the ins-and-outs of the shipping world, but trust me – this is the equivalent of a Hollywood horror-movie climax shot, this is spine-tingling stuff.

The number of idle transportation vessels bobbing up and down un-merrily in the waters off the coast of Singapore, are at unprecedented numbers (it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination) – not the type of information you would be expecting to receive when you consider that September is traditionally the month where buyers keep shipping lanes and the ships themselves running at full capacity as Christmas orders are placed.
If the ships aren’t being used, no one is ordering goods from Asian factories, hence no one in the western world is feeling confident enough to go out and spend any actual real (i.e. none stimulus granted, or as Bernanke described it “helicopter money”) on goods, and why? – well, because they are still not secure enough in the “real” economy. The average US-cash-for-clunkers-lover, or European home-bargain-buyer on the street does not really care what the titans on Wall Street think about the next release of Non-Farm Payroll or CPI – and the image below serves to speak more than a thousand words in explaining why.

A word of advice for all those out there travelling out of the Mid East during the Eid holidays – a court case in the UK cleared a young-lady accused of being drunk on a plane and causing “disorder” which involved apparent nudity (the kind of disorder I can’t understand why never seems to happen when I fly?) by getting her clever-know-it-all-lawyer to persuade the jury that she was indeed simply “exhausted’ from “sleep-deprivation” – just in case you were hoping to grab a few glasses of wine on your way over for your break – try not to sleep too much before the flight.

Wednesday 16 September 2009

** Metro Envy ** - Wednesday 16th September

On the first full week of operation for Dubai’s Metro a, week late I know, commentary…

Not so plain trains…
A long, sophisticated looking tube glistens against the heat of the searing sun as it begins to accelerate away from a space-age-like construction in the middle of the very (very) natural and uninspiring desert. The stark contrast of the gliding object across the barren landscape jars into focus as a mammoth collection of half-finished buildings looms high in the background and seemingly continues as far as the eye can see. The culmination of an amazingly fast-paced four years of construction – well what else would you expect from a Japanese controlled project? – brings the first ever train system to the Middle East’s Gulf States. Whatever else you think of its desperate media marketing and credit/greed fuelled bubble growth in the past, one cannot take anything away from the kudos the completion of this project deservedly lavishes upon Dubai.

Despite not having personally ridden the Metro quite yet – just waiting for the temperature to die down a little, so the risk of actual death through heat exhaustion from walking home once reaching the “nearby” station has subsided somewhat – initial reports have been extremely positive, and the general appreciation of this fundamental shift in the city’s dynamic well and widely appreciated.
Well done Dubai (not often you hear that). No one can disagree that the inaugural journey (a surprisingly tasteful affair last week, one even Kanye West could not spoil) of those gleaming tubes was a momentous occasion – a truly seismic shift in the psychology of the city, with those that had been limited to forms of only road transportation and endless queues for smelly-taxis (back when Dubai was actually busy, and before deodorant) now provided the alternative of an efficient, automated (yep, computers control the entire system – impressive huh?), and relatively reasonably priced (more on that in a bit) mode of transportation that might eventually do for Dubai what the (now ageing in comparison) underground systems did for Hong Kong and Singapore.

Sorry for the delay…
The history behind the lack of a functioning train system across the Middle East, linking the Mediterranean across to the Indian Ocean, is an interesting historical lesson, and one with such deep political connotations and great expanses for conspiracy theorists that treading carefully around the subject is necessary to avoid sounding like a bitter member of the anti-colonial brigade. At the fall of the Ottoman Empire in the dying stages of the 1st World War, the Arabian states were in danger of totally breaking away from the increasing influence of the British and French – the discovery of oil had yet to fully lodge itself into every political scenario, but the victorious Western Allies did sense a need to maintain a hold on the potentially great powers of a united Middle Eastern people. The introduction of railways and an efficient industrialisation-linked mode of transport in Great Britain was the focus of a great number of economic (and hence military) developments and strengths from the early 1800s. The allies did not want this potential strength to develop unchecked amongst the Arabs. On exchange for handing dominance of certain swathes of the Middle East’s geography to selected and favoured tribes, a promise was exacted that a train system would never be built linking the Levant across to the borders of then Persia. It took almost 100yrs to break away from that long-standing contract, and along with Saudi now (finally) in the middle of constructing their trans-national railway system, the Arab states are finally catching up with an invention that revolutionised half the globe in the 1800s.

Mass pricing…
A quick look at Dubai Metro’s ticket prices and positioning of the newest form of public transport confirms it is unmistakably meant for the “workers”. Outside of those fortunate enough (used lightly) to drive around the now-less-congested yet still not totally constructed roads, there are entire armies of workers that are the life and blood of the ever-growing (albeit at a substantially declining pace) number of hotels and residences. It is this part of the population that will feel most liberated by the sheer availability of a hop-on-hop-off transportation system, capable of whisking them from home to work in relative high-comfort. Without the dependence on taxis and overcrowded buses to take them from location to location, the very psyche of the city will begin to alter as a proper sense of liberty sets in.

From what has been learnt so far, the average cost of a single journey is around $1.10c. This compares very favourably with other major city systems – extremely favourably to London which is almost 6x the cost, and in line with Singapore (only a few cents more expensive), but still not as great value as Hong Kong which is comparably 40% cheaper. Not wanting to take anything away from Dubai’s moment, with only 10 stations currently open and considering the still rather limited reach of the system, the costs at first appear quite attractive when isolated against other modes of transportation in the city - taxis are not good value for the “workers” despite appearing cheap for the luckier ones, buses are more affordable but subject to lengthy delays with numerous stops - but more sophisticated and advanced cities like Hong Kong bring back to earth those understanding Dubai still has some way to go.

It really was a case of the haves and have-nots on the roads of Dubai for many years, and although the metro will not eradicate the huge divide between the two camps sitting at opposing extremes, it will go a long way to empowering the less fortunate and provide a sense of ownership and belonging. It will socially flatten the stigma amongst those either unable or simply unwilling to drive. The effects should not be underestimated, as all the great cities of the world have very egalitarian transportation systems that liberate those without the same degree of wealth, or those simply not enamoured with cars (who could not love cars?) – fine, they might still stare longingly from windows as they swish across the city landscape and contemplate what it must be like to glide around in the Bentley cruising on the roads beneath, but the fact they are going to arrive at their destination far quicker and with less stress (not to mention having not spent $400,000) might bring a semblance of comfort. Ok Ok, the (unassailable) existence of a “Gold Class” on the Dubai Metro slightly spoils this lovely “equalising” effect, but hey – where do you expect the bankers to sit but on leather reclining seats when they finally decide to try it out?

Failing returns on investment?
An interesting angle on the opening of the Metro, with an apparent desire to push more and more Dubai-ains (or is that Dubai-ites?) out of their cars and onto the brand-spanking-new trains, a link may be proffered to recent anecdotal evidence surrounding the once-far-too-easy-to-be-taken-seriously driving test suddenly representing a challenge on par with surviving the Spanish Inquisition. Coincidental tales of driving students being failed for no real apparent reason are cause for concern – and no, we’re not talking about those “little incidents” that most profess were really not that “big-a-deal-as-only-the-chassis-was-damaged”, and they never “saw the car in my rear view mirror” as they completed a 3-point turn, in 12-points – 45minutes later. These stories have continued to emerge at a greater frequency on and around the time of the metro’s first choot-choot across the city. Now, it’s all well and good that the authorities would like to pretend they are extremely concerned with the environment and well-being of their population, but the more cynical out there would look closer to the worry of ever recovering the lion’s share of the $7bn investment sunk into the region’s most advanced public transportation system. Might a concerted effort to push more of Dubai’s residents onto the metro be at play?

The Metro system has started working and will primarily take the half-million or so working ex-pats, without access to cars, along to work with it. If only the passengers would stop pulling the red emergency cords causing unnecessary delays as they “mistake’ them for door opening buttons. You can take the prankster out of the bus, but it seems they’ll just jump on the metro.

Sources: Dubai Metro, Hong Kong MTR , Singapore , London Tube

Monday 14 September 2009

** Cold-Chickens Wars? ** - Monday 14th September

Playing chicken?
What’s going on out there? Did anyone predict that 2009 would mark the return of a historical scenario long-thought dissolved and conquered? No – we’re not talking about a near-return to 1930s depression-like markets, but more the reversion to a worryingly multi-lateral cold-war scenario that has all-of-a-sudden popped its head into the limelight (at a rather inopportune moment) with such stealth that many an observer would be shocked at how they didn’t see it coming – there’s always the beauty of hind-sight to cling to isn’t there? Not sure what’s scarier at the moment; the rising hostility between the US, China and Russia amidst the worst financial crisis we’ve encountered in over 70 years, or the equally shocking revelation of another horrible scenario - Elton John wanting to adopt a poor helpless young boy. Both cause one to shudder with fear.

As if it wasn’t bad enough that Obama’s still relatively young (yet quickly-becoming-necessarily-veteran) administration was in the midst of grappling with the small task of overhauling the entire healthcare system, managing the collapse of the financial infrastructure (not being helped by Stiglitz declaring underlying problems in the financial industry are actually now larger than before), and a whole load of superstitious and doom-portending individuals pouncing on the “it’s-been-a-year-since-we-faced-meltdown” situation, the double pronged attack consisting of a fresh trade dispute with China, and Russia’s rather irritating decision to sell a whole bunch of weapons to Chavez’s Venezuela ($2bn worth) must surely be eating into the President’s recreational basketball time. He’s clearly busy enough, what with having to prepare another big speech on the financial overhaul, trying to get to the final of the US Open (good luck), dealing with preparations for the next G20 Summit in Pittsburgh next week, not to mention wondering why he must now spend precious time worrying over situations he likely remembers as distant Cuban-Crisis-like-memories –when is he supposed to wind-down shooting-a-few-hoops huh? Dangerous move Russia and China. Very dangerous. Rumour has it Obama reaaaalllly values his basketball-time.

Tyres…tread carefully
So what’s the fuss over a few worn tyres and cold-chicken platters? Well, if you remember a few months back, the first rumblings of discontent were heard as an exchange of tariffs were positioned in a flurry after some misgivings over pork exports. It was all then looking so calm and amicable between the globe’s two most powerful nations over the summer-lull, with recent high-profile visits between trade and economic teams staving off any serious build-up of super-powered tension. However, with the sudden imposition of a US tyre-tariff on Chinese imports, the announcement of a probe into the alleged dumping of American auto and chicken products has now escalated the trade dispute into what might become the second round of a high-stakes-game-of-chicken. Of course, China’s Ministry of Commerce is citing “complaints’ from their industry representatives, and this would have nothing to do with the continuing tit-for-tat struggle for rising global influence – no, nothing like that at all.

So, what started as a slight rift is now unzipping itself even further to a potential full-blown trade dispute. In these recessionary times, any further ripples across the global import/export markets are certain to amplify the painfully sensitive and precarious position. More worrying still is the rhetoric that is beginning to emerge from both sides – China has accused the US of “rampant isolationist policies” with equally emotional retorts from the US – what with all the problems they’re facing one would forgive a slight tremble in the voice.

Remember remember…
The financial media must be bored. After the BBC put together an excellent, well-measured and very insightful “aftershock” programme marking the 12-mths since Lehman’s collapse (shouldn’t it really be called, Paulson’s-personal-vendetta-against-Dick-Fuld?) other financial channels are spending endless amounts of time re-hashing, minute-by-minute, experiences during those dark days. Could they not have waited a little longer? Learning from mistakes is only worthwhile when the problem has been fully solved – we’re still deep in the midst of the main trouble. A suggestion - with financial markets seemingly oblivious to any of the encircling issues (all majors markets are trading higher for the month, again), commodity prices holding steady after a strong run (Gold dipping slightly below $1,000/oz, Oil levelling just below %70/brl), and currencies also taking a slight break from some moves away from US$ (Cable at 1.66) as that old “risk-trade” is (possibly briefly) fashionable again, world leaders would do well to sit back and watch a few episodes of a delightfully insightful and satirical comedy show called 30 Rock. A couple of scenes in particular in the middle of the second season (you’ll see what I mean) would go a long way to solving the trade dispute mentioned above. Not sure about what it would do to alleviate concern over Russia’s arms-sale to Chavez though.

Following last week’s appalling disclosure that women in the workplace are sometimes underpaid by up to 80% in contrast to their male peers, it is heartening to see that at least in the world of sport, tennis to be exact, not only are women paid equal to their male peers at the US Open (maybe the threat of legal action in litigation-happy-US simply too great a threat), but they really are able to attain that holy-grail of the female workplace - mixing parenthood with a successful career as just exemplified by the emphatic win by new-mum Kim Clijsters.

Let’s hope all this renewed below-the-line aggression between China, Russia and the US does not spill over into the world of sport, or worse still, the example that Clijster’s can take time-off to have a child and still beat the field at the best of their game give rise to Elton John’s amateur tennis aspirations - just imagine the outfit he would show up in at Wimbledon- if he successfully adopts that poor kid.

Wednesday 9 September 2009

** Greed is Golden ** - Wednesday 9th September it back?
One of the greatest modern icons of greed, capitalism-at-its-worst and corruption (aren’t they all the same thing?), the indefatigable, and stylishly-oh-so-cool Gordon Gekko himself, is alive and kicking. In fact, not only is he alive, but he is about to be released from prison (in movie world of course) and unleashed once again onto the very streets that made famous his character in the spot-on movie of the same name - they really don’t make them like they used to. “Wall Street” was probably responsible for an entire collection of trading floors made up of wanna-be movers-and-shakers inspired (no one said inspiration had to be through a positive conduit) by the sheer dastardly tactics employed by Gekko in the relentless pursuit of his (and the prevailing period’s) ultimate aim – money. “Wall Street 2” really could not have come at a better time…the 80s represented the epitome of the “I want” culture and Gekko was the quintessential player taking-it-all, whereas whatever new icon is created through the sequel, will surely represent the best/worst of the property price inflated era, and the characters of the super hedge fund manager, more interested in the size of their own yachts bobbing up and down in the harbour, than the dwindling size of their clients’ entrusted assets.
The fact such a character is ready to re-appear is a damning indictment of the unscrupulous behaviour exhibited by many a financial employee over the last 6-7years, leading to the excessive lending and risk-taking that has brought us to where we are today, a year after the height of the credit-crisis. Did greed come back, or just never go away?

Yawning mergers…
On the real financial streets, plenty of activity in the corporate world, as Kraft makes it clear they will not sit back and wait for Cadbury’s reluctance to a deal simply melt away, hinting they will move their offer to a hostile bid if necessary – this is like music to the ears of investment bankers and consultants, always preferring a less friendly approach that incurs (surprisingly) higher fees and hence, strangely enough, appeals more so than a friendly handshake and coming together of like-minded people. Also in the last 24 hours, we had T-Mobile and Orange agreeing to combine their mobile operations in the UK. If it goes through, they become the single largest operators in the UK. Will this hopefully mean that their service will no longer languish at the bottom of the pile? More importantly, there’s an awfully (cockney) accent that greets you to Orange’s voicemail service – surely (and hopefully) this will be the first victim to fall to the restructuring plan.
Whilst Obama is languishing across the US heartland attempting to totally revamp the healthcare system, on his East coast the tennis tournament is taking up most of the spotlight, as citizens across the country get back fully into the swing of their daily routines and start looking for the lighter side of news to escape the monotony of their daily lives – how else do stories about McLaren’s new “green” supercar and Chimpanzees imitating yawns from cartoons (don’t ask) win more views on news websites than Obama’s latest speech dealing with, literally, matters of life-and-death?
Dubai launches its Metro system today and it is, of course, the world’s longest and most luxurious. 70km of unmanned track with leather reclining seats (in 1st class at least) await those who are brave enough to step-out of their cars and figure out how to walk from the station to their homes, without fainting in a puddle of their own sweat in 40 degrees of summer heat - Hmmm, not an instant winner in my books, and with OPEC meeting today to keep production levels unchanged, a reminder to enjoy subsidised petrol in the Gulf region for as long as possible.

Smart titans…
In recent weeks the volume of corporate activity has been picking up and there are a number of had-been-put-on-hold IPOs in particular coming through from Asia. Two ways to look at this, the first the more optimistic in that chief executives are confident enough to re-enter the capital markets and tap investors for cash and other equity raising techniques, believing that the stability of the underlying market is no longer in question. The second, and more cynical (some believe realistic), the get-it-while-you-can phenomenon whereby those ever-so-clever titans of industry are playing their hand at the most opportune moment just when markets seem dazed and confused on the back of a sharp bear-market-rally, and are doing their best to lock-in as high a possible valuation while they can – before the double dip rears its ugly head and investors once more retreat from the riskier looking equity classes. Whichever you believe it is, the activity is a welcome noise away from the deafening silence earlier this year. Interesting to note that a few of the upcoming IPOs are actually being priced at higher valuations than the price they had tentatively come to market with before being pulled this time last year.

Gold Gloats…
Gold and Oil have both had some strong surges in the last 48 hours, rising above $1,000/oz and $70/brl respectively. In fact, the entire FX, Commodity and Currency space has seen a shift back towards a weakening dollar and hence the hedge plays come in (Cable is at 1.65 again). There have been a couple of interesting television interviews in recent days where some prominent US business-leaders and figures (including Forbes and Buffet) all expressed concern at the continuing government spending and questioned the medium-term sustainability of the markets given the strong wave of appreciation witnessed on the back of weak fundamentals since March – problem is, now that we’re in September and looking towards 3rd quarter earnings results, those fundamentals ain’t looking any better.

What is it about Gold? In a piece written much earlier this year, it was noted that all the Gold in the world melted down would only fill the base of the Statue of Liberty, or to visualise it another way, 77 large lorries driving down the motorway. With greater focus on what many are now terming the “last remaining currency” in the face of incredible government borrowing and spending, who is going to be benefit from Gold breaching $1,000/oz again? According to records, the largest holder is currently the United States, but there is more Gold than has ever been mined in history sitting under South Africa - apparently. Not only do they get the world’s greatest sporting event next year in the guise of the FIFA World Cup (with usual over-inflated expectations and deep disappointment awaiting England fans, no doubt), but South Africans can also sleep easy at night in the knowledge their precious ground has appreciated (and looks set to continue doing so) with the value of unrealised mining profits – no danger of a missing Golden Trophy at that end of that tournament.

Designed profits…
Finally, looks like the markets have temporarily placed their jitters to one side, with some modest gains and losses returning us to more “normal” market activity (i.e. gains and losses of 40-60bps, not 300bps swings) through Asia, Europe and the Middle East. Without being sure what is worrying most investors, the incredible amounts of liquidity flushed through the system have allowed investment banks all around to make exceptional returns since the start of the year, but now the risk models are pricing in some more worrying scenarios.
Talking about taking risk, I was reading a long article on two supposed boom-era winners, the interior re-furbishing duo Candy and Candy, who apparently were smart enough to never use their own money when making investments, but always sold-out for a full cash position during the peak of the housing market and are now sitting on a very nice large pile of (other people’s) cash. Smart by never putting up any of the risk themselves or greedily corrupt by artificially inflating prices for their own profit at investors’ expense? One of their favourite materials used in the finishing touches of their “breathtaking” designs? Yep, you guessed it, the value-increasing and oh-so-rare Gold. Would they also be making a cameo appearance in “Wall Street 2” by any chance?

Monday 7 September 2009

** $17bn Chocolate Chunks ** - Monday 7th September

** $17bn Chocolate Chunks ** - Monday 7th September

Unrequited Chocolate-loving….
A $17bn bar of chocolate anyone? Mmmm, that sounds like a darn satisfying amount of cocoa if you ask me, but it didn’t seem to impress Cadbury’s who just a few hours ago dismissed the amorous approaches of the (slightly saltier) buds of Kraft foods, in what will surely be the first of many approaches in a protracted and elaborate mating dance. Cadbury’s shares naturally riding high on the news, +14%, and short of a few fruit and nuts, Kraft’s delectably appetising offer at 30% premium to last Friday’s closing price will undoubtedly excite even the most sour of shareholder’s taste buds. Statements already released from both parties indicating a definite desire to continue the dialogue as Kraft seeks to woo its target with a substantially greater offering than just sweet nothings.

Elsewhere, Libya does its best to keep itself firmly mounted in the pariah state depths of opinion, with Blair now suddenly appearing in the midst of the political melee - wait, was it really that much of a surprise the big-cheque loving (he’s even more excited by Oil) ex-prime minister was lurking around this somewhere? Japan of course turned a major page in its political history on electing the Democratic Party of Japan after almost half-a-century of domination by the Liberal Democratic Party – many are hoping the similar sounding names of the political parties will not simply mean more of the same, as the country is in dire need of a strong jolt to get it back on track. A new report suggests there is a link between improved memory and computer gaming – giving rise to a thousand cheers from teens all across as they run back to their darkened rooms and continue another round of “Halo 3” thinking their ticket to the Ivy League is through Level 28 and not the dusty old text-book beside the console – sorry kids (and some sad movie-stars), but apparently fashionable Twitter “numbs” the brain.

Classy Anniversary.,.
So what’s really been going on in the last few weeks? Having spent a decent amount of time outside the Middle East, gathering precious information about the state-of-play across the US, and then gauging that back in London for a few more days, the vibe across the Western world did definitely appear positive and quite relaxed about the economic prospects in the foreseeable future. London especially seemed as care free as any time one might remember, almost harking back to the days before the dreaded Lehman collapse (Happy Anniversary by the way Dick Fuld!), with restaurants once more filled-to-the-brim and even Canary Wharf showing more than the bare minimum pulse of life it had been existing on for so many months – the two-for-one lunch specials had noticeably reduced in propensity and more people were eating sandwiches from the likes of Pret-A-Manger than sitting on benches huddled over a home-made packed lunch – guess there’s only so much cheese and pickle a middle-manager can take.
Anecdotal evidence gathered from various vacationing sources suggested a similar tale across the rest of Europe, with apparently even greater displays of wealth and some seriously ostentatious behaviour in that ever-so-classy-and-in-no-way-pretentious-hangout of the secure and confident – St Tropez. Were people partying because they really could and had much to celebrate, or simply thankful that they had survived this far and decided to enjoy themselves before it all turns sour again?

And what about the Middle East at the moment? Well, it’s still kinda hot, sticky and - quite frankly - boring. Ramadan is of course in full swing (those fasting, take heart that the half-way point has now been surpassed, it’s all about the countdown to Eid ) which translates into excuses for not working kicking-up-a-gear across swathes of the GCC – a good time to discuss markets and future performance predictions with languid investment managers across the region. Consensus seems to be picking up on recent worries that a “double-dip” has a 25% chance of occurring but with such large amounts of cash being sat on across their portfolios it doesn’t seem that any major shifts in investment policy are required. Rather inactive even at the best of times, regional fund managers appear content to sit on whatever modest (and certainly welcome) gains they have been lucky enough to achieve over the last several months. Again, most cannot honestly anticipate a trouble-free remainder to the year, and it is this nagging worry at the back of their minds that is preventing a greater allocation to equity markets.

A woman scorned…
Anyone reading the weekend press would have had a look at a number of different opinions following the mixed and jittery performance last week across global markets. The more interesting reports were not about financial markets but the continuing human aspects to the recession that just don’t seem to want to go away.
A related and shocking (if you’re not a man) story focused on how women apparently earn a far lesser amount than men in the financial services industry – this really comes as no surprise given the long-standing male-dominance of the club-like band of investment banks, but the sheer scale of discrepancy – 80% according to some calculations - paints a pretty sexist picture. What with all the negative press the financial industry has been attracting as of late, this is exactly the type of trouble most would want to avoid.
Maybe most male bosses in the investment banking world just figured their women employees were just as happy with a few bars of fattening chocolate as a fat pay-check.

Wednesday 2 September 2009

**Afghan Related Losses? ** - Wednesday 2nd September

So the world did not disappear in a black hole of August selling madness, political leaders did not totally embarrass themselves by donning the skimpiest swimwear possible and gallivanting around beautiful and extremely pricey resort destinations to the chagrin of their devoted and embattled subjects – that’s a good thing. The bad thing though, is that not much has really changed in the last 60 days of summer – so much seems to have taken place but the reality that must now be setting in to those that retake their positions at their same old desks, with that same old mouse mat beside their keyboard and a quickly fading tan in tandem with the joy and memories of time well spent in the last 4 weeks, is the daunting prospect of getting through another 4 months of market and economic news without a major hiccup.

So where are we in the markets? Same exact place we seem to have been back before the summer rush of blood to the head, what with excitement that corporate earnings were apparently recovering (when in reality they were simply a little higher than the exceptionally low expectations companies had put out) and a total disastrous meltdown had been averted – but what now? The S&P has shed 3% in the first two days of September trading, and global markets have all responded in kind with some continued losses in China exacerbating recent falls there – the CSI300 shedding 25% in the last 40 days, but still returning 56% YTD. Europe has not escaped the sudden return of negativity as investors take certain trades off the table and cash-in on the reasonably well returning positions they had precariously left on during their breaks. Now that the kids are back at school, and with the final few months of the year always such a tough stretch for markets, only the absolutely brave and fearless will be willing to risk a decent looking portfolio YTD return.

Bad September…Bad Quarter?
It was suggested some time back that by the time September came around and investment “professionals” were all back at their desks, the reality of continuing macroeconomic worries and less than great news would overcome the most optimistic and daring of investors – the first two days of September are not necessarily the beginning of the end (again) but also not much of a surprise after such a robust July and August where markets across Europe and the US shrugged away any negative indicators and appreciated an avg. 11% in that time, alongside Treasury and Gilt spreads narrowing and yields increasing to return the global economic picture to a far more “normal” setting.
Although a growing army of commentators now believe any relapse into Sep-Oct ’08 territory is a distant possibility with the aggressive stance governments have taken to re-establish a credible floor, there remains the fear that with any stress testing, a little crack in a building’s structure can suddenly give way to an almighty crash if the foundations are truly unsound.

Oil has returned back below $70/brl as it continues a very volatile period of trading over the last two-weeks. In tandem, currencies have seen most action in cable, with swings of 3% every couple of days. Gold has remained impressively steady around the $950/pz, and now would be the time for any attempt to breach the $1,200/oz level by mid-October as some had been suggesting earlier in the year.
The Baltic Dry Index has not been able to put in a decent streak in the last 3 months, which could be a little worrying as September is normally the month where all major toy companies start to finalise their orders ahead of Christmas (as I’m sure you are aware, Toy Firms makes 85% of their annual sales in the month leading up to December 25th) and shipping rates are often locked in at the time of ordering – does this mean that retailers are expecting a less than spectacular Christmas period and are content with the rather feeble inventory levels that they must be sitting on? Or have we just not had confirmation of what the next big festive toy will be? Either way, high unemployment levels and simple anecdotal evidence from those on the ground suggests not everything is in a strong state of recovery as authorities and the media would like us to believe.

Where’s the fire?
News over the summer period is notoriously slow. Hence a lack of material to pounce upon for a greater flow of commentaries. The most controversial development in the last couple of weeks was of course the release of the convicted Lockerbie bomber back to Libya (with a rather unsavoury hero’s welcome). One can’t help but wonder whether the (continuing) outrage would have been slightly dampened if it had taken place during a slightly busier news period – but having been in the US at the time of the release and experienced first hand the aggressive and over-inflammatory tone of reporting that the likes of Fox News and others employed, it is no real surprise that the US reaction has been so severe. Personally, reports that wild-fires across California are still raging out of control a little more worrying as attempts to recollect where exactly that match was thrown out of the car dominate the mind.

Stick that in your pipe…
A possible explanation for the seemingly illogical rise in markets over the last couple of months and sudden awakening leading to three days of negative returns? Reports that Opium production in Afghanistan has seen a “sharp drop” (10% in the last year) after a period of very low Opium pricing. It may be that whatever investment professionals were sticking in their pipes and smoking over the last few months, is starting to run out.