Monday 26 October 2009

Losing that Streak

Ending your worst streak since 1987, defeating your most hated/respected of rivals (in resounding style) and easing pressure on your boss all in one fell swoop – no I’m not talking about Liverpool’s magnificent destruction of Man U last night - but the success of the US Treasury’s stimulus packages that last week saw some record earnings being posted across the IT sector (amongst others) and a level of optimism maintaining its hold for a winning run on the markets – Obama’s team must be wishing for a continuation, with important GDP numbers (QoQ 3.2% cons) and other economic releases due before the end of the week in the US and ahead of their Thanksgiving celebrations – swiftly followed by the all important “Black Friday” where a large percentage of annual shopping turnover traditionally kicks off in the run-up to Christmas and strangely (coincidentally) where Grannies often suffer injuries as they are mowed-down by over-eager-and-over-eating female shoppers.

Our friends in Japan have shrugged aside worries over a sustained slow-down, as well as some very disappointing quality-issues with their revered Toyotas, posting very strong numbers and setting the tone for a great start to the week across Asian markets in general, sliding neatly into a decent showing across Europe (+25bps avg.) and all those Turkey-hungry investors expecting a decent open to the US (DJIA +27pts, S&P +3.6pts)

As Microsoft’s Windows 7 has gotten off to a decent start with positive reviews, Google launches a phone to tackle Apple’s, NASA works to launch a rocket that may never see the light-of-commerical-day after seeing the depths-of-space for the first (and last) time, former Bosnian-Serb leader Karadzic decides to confront his accusers in the most effective manner possible – by simply not showing up to the trial - and our favourite master-of-charm (what would we do without his endless entertainment huh?) Silvio-the-Silver-tongued-one gets knocked down by a fellow female member of parliament, informing the smooth-one that “this lady is not as your disposal”, and a horrible incident in Iraq reminds us that human life is often-all-too-easily-taken-for-granted, the world is as busy as ever out there, with both good and bad shaping daily events as man struggles to find a decent equilibrium. Woah, getting kinda deep there I know, but that’s what watching the news too much will do to you.

Dubai trades it up…

Middle East markets have been putting in some good performances, what with Oil trading above $80/brl again. As noted about two weeks ago, the region (especially the UAE) is at its busiest since the start of the year (tourists and business travellers getting some sun etc.). The latest set of property numbers seem to tally with the perception that the worst is now behind Dubai in particular, citing some key increases in the most sought-after areas (by the world’s tallest tower – nah, you don’t say) and a “stabilisation” in those not-quite-so-well-thought-out developments placing incredible pressure on prices at the worst-possible moment during the crisis with excess supply coupled with low quality (that would be Dubai Marina – sorry all of you Marina residents, apart from the odd-building here and there, it’s really not that nice). The impressive (and frustrating at the same time) thing in this region is just how quickly markets can turn on the back of a couple of announcements – long called as laggard markets to the strong rally in emerging economies, and with even the global rally holding steady, it appears international investors only dip their toe back in when the commodity rally reappears and a few well-structured quotations are published. The annoying part kicks-in when the exact reverse occurs. There needs to be more stability to the flow.

Even one of Dubai’s mainstay businesses is getting a pretty positive shot-in-the-arm with freight volumes of cargo passing through Dubai (imported and then re-exported) rising by an estimated 20% in September against the lows of January, according to the only-kind-of-trustworthy National Association of Freight Logistics (NAFL). At first glance this looks excellent – trade is rising, meaning people around the world are spending more, but as the figure relates to re-exported cargo it seems that the majority of consumption is coming from other GCC states rather than ex-pat heavy Dubai residents. Still, any talk of an improvement in Dubai’s fortunes must be welcomed as the city works it way out of the very worst, dusts itself off (a harder task than it sound when all the construction work is considered) and really starts looking like the only viable city of choice for anyone wanting to live and work around the GCC.

Small country, Big plates…

The best piece of news heard over the weekend? Well come on, that’s an easy-one this week – who could have ignored the sheer look of bliss on the faces of hundreds of chefs as they toiled away to produce enormous amounts of a “typically Lebanese” cuisine-dish – hommous - scoring an important victory over other “impostors” laying claim to the dish’s origins. Lebanese chefs set the record for the largest-ever plate, closely followed by the largest plate of Tabbouleh – mmm, but hey, what happened to our Fattoush-loving diaspora record? With numerous and notorious political differences amongst such a tiny population in such a tiny county, it could only take something so poetically “large” as the biggest-ever-plate of a dip, sorry sorry, “best dip ever” to unite all for at least a moment or two. With a country still lacking the formation of a government four months after its elections, this cooking-record-unity is one (yummy) streak certain people will be hoping doesn’t end.

Thursday 22 October 2009

DINGOS - Thursday 22nd October

Quick one today….
China steals the headlines again this morning, announcing the expansion of their economy by an impressive 8.9%, but issues surrounding the reliability of such figures and economic releases denting some of the enthusiasm normally associated with as remarkable a figure in this global economic environment. Suspicion surrounding a probable end to China’s “extended fiscal stimulus” measures dampening most markets, with losses (avg.-1%) across almost each and every territory in Asia, Europe suffering with Ericsson’s disappointing results adding to downwards pressure and (as noted yesterday) a raft of money-managers seemingly content to take money off the table and count their lucky stars for a decent 2009 (sending US futures lower, DJIA -25pts, S&P -4.1pts).Oil printing and closing above $80/brl bringing more joy amongst our friends in the Middle East and making it easier to field the 20,000DHS ($5,500) minimum for a table at the closing party of the Grand Prix.
More talk that the US government wants to punish, sorry I meant “curb” senior executives pay ahead of bonus announcements filtering through the moans of investment bankers’ and once-mighty corporate executives’ corner offices (most sit back out on the “floor” now - to banish perceptions of excess) – in what sounds like an arbitrary decision, the plan is to half the pay to the top 125 earners (and reduce by 90% those in the top 25) across those firms still infused with government cash – those guys that came in at 126 last year must be laughing, Mr 124 not quite so happy. Will we shed tears? Hmmm…Let me think for a s…….
Anyway, with the opening of the world’s longest golf course in the Australian outback - coming in at an impressive 835miles long and taking almost 7 days to complete the 18holes – there will be many content to take - or is that “choose “ -early retirement and indulge in a thoroughly time-consuming pastime. Many of them will be in good company amongst the dingos.

Wednesday 21 October 2009

Forgetting Experience - Wednesday 21st October

Beautiful weather aside, the Middle East is experiencing its busiest period since this time last year, as investment bankers, entrepreneurs and unfailingly ambitious fund-raisers swarm across the entire collection of GCC states knocking on the doors of clients and leads they have not seen in many months. The allure of $80/brl speaks for itself across international markets; capital needy industries and return-hungry investors alike hoping the cash-rich (yet freshly reeling from losses) sovereign wealth funds and traditionally wealthy family groups have the appetite for further investments. Apart from OPEC’s Director General El Badri stating that economies will not be able to grow if oil remains above $80/brl – seems OPEC are comfortable enough making significant profits rather than incredibly rig-defying flows of cash – speculators and the more positive out there happy enough to take comfort in decent earnings results/forecasts to anticipate greater commodity demand. Iran’s disappointing stalling of nuclear talks (slightly) contributing to the rise.

Almost as difficult as obtaining a ticket for the Beyonce concert during the Abu Dhabi Grand Prix, Galleon is attempting to hold-on to the few remaining clients invested in their funds – those investors must have been away on holiday and without access to modern media for the past few days – the backlash now extending across a growing number of implicated individuals – excellent material for dinner-table conversations, but unfortunate for those attempting to defend the “best” aspects of capitalism. You can just hear Madoff’s excitement at having a fellow “investment professional” join him in his cell to continue the debate.

Remember to forget…
Some conversations around the region lead one to believe the markets are in for a turbulent ride over the next few weeks. That consensus makes sense when the impressive market performance over the last few weeks (good international flow, no nasty surprises in earnings) are considered with gains of almost 6% across many of the majors since mid-Oct. The rise of oil and gold and the fluctuations witnessed in US$ may be the first indications of some shifts in equity sentiment before the end-of-the-year. Many fund managers and investors are sitting in front of their screens feeling pretty good about themselves right about now (not remembering maybe the incredible amount of help - known as “aid” in any other industry - they have received through super-infusing of liquidity and a suspension of many rules resulting in a removal of key obstacles).
Who would have thought gains of 60% on portfolios would be commonplace after such a disastrous ’08 and a rather dismal start to ’09? Step back and consider what we have come through, and try to recall how it felt when we were truly facing a dark deep hole cut out of an unprecedented crisis, and the action of taking profits and removing money from the table is easily understood. Many books will be closing early this year one thinks. Arguments over whether enough has been done to prevent any further exposing of the questionable fabric of much of capitalism, understandably placed to one-side for now.

What certainly was not so slight was the impressive (est. $1bn) profit our friends in Qatar successfully realised yesterday on their Barclays stake – a fair enough return for having the confidence and manoeuvrability to pitch-up for those that they believed in and supported in their time of need. It is easy to forget the sentiment and state of mind that prevailed during that (seemingly ages ago) period of panic and when faced with such unknown territory, the guts to put your cash-where-others-had-turned-their-mouths-from deserves to be rewarded. The worry is the backlash against those brave enough to take action during the worst of the crisis whom will no doubt be singled out as making “excessive” profits at the expense of others.
Well excuse me, but throughout history and whether we like it, agree with it or just plain have to put up with it and accept it, those lucky enough to have the resources to hand at a time when others are suffering, do normally profit at what is then deemed to be the disbursement of others. Just because you possess the means to make a decision does not always mean the right decision is taken – the pulling of the trigger at the right time and in the right direction is what deserves the (excessive to some, deserved to others) reward.

Forever young?
It seems man is obsessed with trying to live beyond his years, and if the latest news is anything to go by, we’ll soon have octogenarians routinely taking part in marathons and popping up beside their 20-something compatriots on technogym cross-trainers in gyms across the country – and we’re not talking in the middle of the afternoon as they try to hide tired-elastic flesh behind inappropriate gym-attire, but rather showing off their toned (artificially enhanced) limbs at peak-time. This idea of longevity and prolonging our time on earth has existed since the days of Aristotle, but with technology now catching-up with our own (in)human desires, we seem to be taking a step closer to dreams of immortality.

It does provide a slither of hope for the financial industry though – with so much first-hand experience available through veteran investors continuing to function on tough trading-floors with the best-of-the-new-breed, hot-temperaments and risk-taking may benefit on the back of wise knowledge – or will it only hinder progress? Time and age alone will tell.

Monday 19 October 2009

Forecast = Bright Clouds - Monday 19th October

The weekend inevitably brought a moment of relief for some as markets had begun to look a little shaky, with profit-taking pressure following several good results days - heartening performances from the financials assisting there (even Citi able to post a (tiny) profit) and apart from a spate of suicides and other depressing developments for France Telecom in the corporate world, the spotlight was firmly “stolen” by a huge allegation of fraud at one of the world’s largest and once most respected hedge-funds – Galleon. In what must be a worrying development for hedge-fund managers the world-over, authorities made extensive use of wire-taps to bring serious charges of insider-trading against a raft of individuals with already talk of some rather “colourful” language having been caught on tape (or do they just use “digital” recorders now?) which will surely provide endless hours of fun for those late-night-talk-show-hosts in the US and endless hours of just plain sleepless-nights for the hedge-fund boys. Alongside the revelation that the world’s largest (and most expensive) science experiment - the Hadron Collider - is now colder than deepest outerspace having been frozen to an mind-bogglingly-cold-271C-below-zero, there may be a new place to send all these deviant miscreants of the financial world to alleviate concerns judicial powers are not keeping up with the times and thinking creatively – it sure is clear that the financial masterminds are always creatively thinking of new ways to profit for themselves. How much more original does it get than borrowing ideas straight out of the Gekko-script and only employing traders who “have access to info others don’t” – yeah, you never thought you’d get caught on that ingenious ruse Galleon did you?

We’ve had good markets today so far and the week is getting off to a bright start. Asia was up around 150bps across the major markets there, Europe has traded higher around 120bps and the US futures (with Apple reporting after the close) printing for a positive open at present, DJIA +43pts, S&P500 +6.2pts. The perennially weaker dollar (-1.6% on DXY last week) is sending oil higher (again), back at close to $78.5/brl as it ponders making a move towards the magic $80/brl level – this will surely bring huge smiles across the faces of the Middle Eastern exporters and help alleviate dismay that the much anticipated Grand Prix - being hosted in Abu Dhabi next week - has already had its Champion decided (last night in Brazil in fact, oops), leaving little to witness during the event, aside from gorgeous women, flashily rich older men, movie and music stars and a whole load of partying – uuummm, come to think of it, should be a great event and just like any other Grand Prix!
Gold is holding steady around its new home of $1,055/oz for a while, as some Diwali pressure has now surpassed and speculators consider the probability of a financial upset in the remaining 3mth of the trading year. Oh, and the quote of the day…what better way to increase business on your airline than to state that “people don’t like to fly, especially business people” – wow, an amazing marketing sense there at play by the CEO of British Airways – evidently not even his favourite airline, let alone the world’s - that doesn’t apparently like to fly.

It’s all about clouds clouds and clouds if you read any of the increasingly frequent articles on the impending release of Microsoft’s latest operating system – imaginatively titled, wait for it, Windows 7. The uninspiring name aside, rumours surrounding this latest release have all been quite positive so far, and talk of a new battle forming under the guise of a monumental shift in how we interact with these operating systems is creating equally as great a stir in the rumour mill. Whole sections in normally technophobe publications over the weekend dedicated analysis to the “Big 3” and their attempts at setting their dominance in this new chapter of consumer tech.
Mighty-Microsoft, Apple-tisingly-cool and oh-so-ingenious-Google are all pitching up for what could be as significant a shift in the tech-world as the move away from IBM’s mainframes in the early 80s. Everyone knows that Bill Gates has (practically) single-handedly manipulated and controlled the interactive experience for 90% of the world’s computer users – could this incredible dominance be about to change as we now shit away from dominance of stand-alone hardware and dedicated (known as “shrink-wrapped” in industry speak) software, and evolve into on-demand downloadable services and programmes through a rather simple stand-alone network device?

The answer according to a great many industry observers is yes. And, er, also no. Yes. in that consumers will be using Windows 7 in new ways and continue to shift a great deal of their files and other essential software to the great ‘cloud” of servers that companies like Microsoft own and operate in great large warehouses. No that competitors like Google and Apple will win a large enough consumer base for developers to prefer their own “cloud” offering. Where Windows once dominated by sheer brute force of salesmanship and the much vaulted “networking effect” making it a self-fulfilling prophecy (where once a critical number of users had been reached the momentum of consistency would ensure the ultimate growth and success of a particular standard) the new battle is going to be based more on effective marketing and trust-building techniques.
One thing is for sure, and this is the reason for discussing this in the first place: the future for chip-makers, tech-hardware firms and any other tech-related industry is about to get a huge shot in the arm not witnessed since the boom of PCs in the mid-80s, and as many have noted in the past, it normally takes a fundamentally altering business model to generate a boom. Hoping the Hadron Collider doesn’t create another type of “boom” altogether as it powers-up to full capacity for the first time under Switzerland and Austria (we would miss those chocolates and watches, not sure what Austria offers though), the next step in Microsoft’s dominance may turn out to open more than just another Window for itself.

Friday 16 October 2009

Tricky Numbers - Thursday 15th October

Rare to feel good about an investment bank these days, even more rare to have so much to celebrate on the news that bankers are once again making money – but that is exactly what took place yesterday following the (much) better than expected release of earnings from JP Morgan, pushing markets higher than even the more optimistic out there had anticipated, bringing a return to the 10,000 level for the Dow Jones for the first time since 10,000 BLC (Before Lehman Crash) back in late-September ‘08. We’re waiting for Goldman Sachs (not too worried about those business men, ahem I mean investment bankers, making money) and Citigroup (no comment) to announce later today. Confidence spreading as money continues to flow into the system. How else would a Hong Kong property development set a record price of $9,200/sqft so soon after the apparent-end-of-the-good-times?
On the geopolitical front, more unfortunate attacks in Pakistan despite continued government calls that the fight will be taken to the Taliban, rather than vice-versa and as is actually happening – reports that the Taliban’s finances are in strong shape (outdoing “dwindling” cash belonging to Al Qaeda, ironically they must have gotten caught-out on those CDOs as well) suggests there must be growing US concern that the fight is shifting away from their sphere of immediate “influence” (whatever that may actually mean considering the mess in the region) in a nuclear-armed nation. Endless headaches in Afghanistan and a still less than satisfactory result in Iraq a good eight years after the start of the muddled Middle East initiative, now inherited by and hindering a rapidly demoralised administration belonging to a once-bright-eyed President. Hitting the basketball court ain’t gonna solve all of these problems. Some respite and a sign people do actually listen to world-leaders? Some of the greediest and most cut-throat of investment banks have signed up to the bonus and payment guidelines recommended by the G20, severely restricting pay as it used to be. As if poetically called upon in a momentous allegory of the crashing-of-the-ice, experts predict the Arctic will no longer have any significant ice-formations during its infamous winters within 10yrs – will bankers still exist in 10yrs though?

Numbers game…
How much significance is in a number? Apparently, it takes 10,000 hours of experience before someone can be deemed an expert in a particular field – it took Bill Gates 10,000 hours of programming before he stumbled upon his world-conquering operating system in 1980, and the Beatles put in an astonishing 10,000 hours of practice on street-corners in Hamburg before returning to Liverpool and leaving the rest to history. We’ve had 10,000 years of the human species (if sitting around grunting and playing with sticks counts for the first few thousand), but certainly there we’re a long way from being regarded as anything near masters in our own social plight for perfection – and no, Giselle Bundchen appearance “perfection” is not what I’m going for here – although she does come pretty close I have to say.

So what’s the big deal when markets hit 10,000? The Dow Jones last night returned to a level only last seen around the time of the Lehman crash. With Gold and Oil still trading at 2yr highs ($1,055/oz and $75.6/brl), currencies moving around more than a Dubai-driver’s lane preference (1 Euro now buying just-about $1.50, having appreciated 3% this week alone) and still overhanging talk of disappointing fundamentals in the near-future, the opportunity for markets to take refuge in the (albeit manipulated) earnings recovery working its way through the latest results is being taken full advantage of. Those fund managers and investors are simply not giving in to the bears right now. Why should they, many will say, what with key industries and blue-chips smashing home-runs with analyst beating forecasts. Beware the art of manipulation others would warn. All is not as it seems, not matter how much you are enjoying it now. But that is talk for another time, a good mood is prevailing at present, and no one likes a party-pooper I’ve been told (you know who you are out there!).

Considering the 10,000 hour rule again, we’ve had 385 days since the last time we saw the Dow at the 10,000 level – that’s almost 9,300 hours of practice-to-get-perfect and dealing with the shock of the fall of many aspects of capitalism in one fell swoop – investors are likely to be reaching that magic level of experience (only another 700 hours to get through now) whereby they become comfortably versed in the skill of negotiating the quagmire of political destruction and national debt levels soaring higher than that ugly building in North Korea that never seems to get fully built.
How did that Hong Kong property manager, as reported above, rake in such an incredible price per square foot? Has it been 10,000 hours since the bottom of the Hong Kong property market (maybe), but another aspect of numbers and more notably “playing-with-numbers” was instrumental in facilitating the eye-popping figure. The property is on the “68th floor” of a 40-storey building in the Mid-levels district – a marketing trick made possible by the developer’s decision to omit 47 floor numbers. Traditionally, only floor numbers considered extremely unlucky in Cantonese culture, such as “4” and “14”, are skipped. The US does it too, although it hasn’t seemed to work for Enron, WorldCom or Bear Stearns - all of whom had no 13th Floors in their buildings. The 68th floor carried a very positive “good-luck” symbol for the Hong Kong buyer, and many are hoping that this marketing-numbers-trick will be replicated for some time on the markets as the 10,000 sinks in.

Wednesday 14 October 2009

Drive-to-recovery - Wednesday 14th October

Was on the road for a few days, lots happening out there so let’s have a quick look at a broad spectrum…

You know Dubai is back when the driving descends into absolute chaos and patience on the roads simply gives way to all-out aggression and an absolute lack of regard and politeness towards others. When the proverbial hit the fan in this city, drivers almost subconsciously colluded and increased levels of consideration for fellow drivers in a significant manner – so much so that it was shocking to witness coach and lorry drivers (not to mention a few locals even here and there) doing the unthinkable and indicating before changing lanes!
Well, I can safely declare that those community-like days are over. In an almost instantaneous shift, not only is the city busier and livelier than any other time since the start of the year, but unfortunately manners appear to have disintegrated in a deluge of freshly-arrived and newly egotistical ex-pats (the locals are just as bad as ever) – evidently they have not learnt anything from those that came before them, as they barge their way around and offer no sense of humbleness nor humility as expressed in their lack of civility (and a huge lack of skill) behind the wheel. Am calling it here, Dubai’s revival is on the way, albeit with some nasty side-effects – and those boozey nights at Barasti and free-for-all champagne-brunches haven’t even been mentioned yet.

Chip-Chip Away!
A crucial step on the long road – could it be newly-Nobel-anointed-peacemaker-extraordinaire Obama’s healthcare bill passing the first of many hurdles (with the help of one swing-happy Republican senator) or are we talking about Intel’s earnings as they rocket through expectations to deliver a strongly positive message and set us on course for a consumer recovery. US 3rd quarter earnings are in full swing, with most trepidation still surrounding the consumer-loans-vulnerable financial institutions, but with releases like China’s exports falling the least in almost a year and shipping rates staging something of a surge (too little too late though having missed the Xmas rush), and our favourite “wear-me-or-melt-me” Gold rising to another record high (there’ll be plenty of those as US$ continues its slide), now rising above $1,064/oz, in addition to a surprisingly welcome and resilient attitude across global markets, with again the emerging economies leading the way (Vietnam now almost doubling year-to-date, with Brazil powering ahead to +130% in the same period!) the 2009 finishing line firmly in sight providing a visibly attainable and all-important-profitable year.
So confident is the vibe around investors and policy-makers at present (even the UK’s jobless rate has risen at its lowest level in a year – yep I know, that’s as good as it gets for the UK right now) that bankers are happily discussing decent bonus packages, one year on from worries that the entire industry would be sacrificed at the hands of angry savers and investors, faced with prospects of even near-record pay-outs – the government’s plan has certainly worked as intended. The lag between media announcements about “bumper-pay” and what will surely be a backlash so soon after the troubles, a mere formality.

On the chipset front, long-highlighted as a leading indicator alongside similar barometers such as the BDIY and other more touchy-feely numbers to look towards, the real strength is not the return of the shocked US-consumer, but the powering ahead of south-east Asian economies and their exceptionally well-run technology firms. Taiwan, Singapore and Korea account for a large majority (65%) of all production, with Intel of course by far and away the leading manufacturer for the all important PC-market. The real demand has come from emerging economies though, where ownership levels provide room for growth, and upgrades are a boom to profit-hungry manufacturers eager to peddle the latest software upgrades as an absolute “must-have” which, funnily enough, requires a hardware upgrade. Paying too much attention to the chip-index as a signal of western recovery may well be the wrong thing to do – the right thing is to continue to feel great about the recovery across emerging economies, especially those emerging throughout Asia.

So, more tech-goods are being produced, and more high-tech products are being purchased. If only someone would please create a chip capable of being inserted into the (clearly-enough-space-within) brain of UAE drivers and switch on their peripheral vision that appears to have malfunctioned and possibly suppress the belief that the only way to enter a junction is with the thought “I care less about my already heavily dented car being further damaged than you do”

Thursday 8 October 2009

Rings & Receipts - Thursday 8th October

Rings & Receipts

Nothing but Gold, Oil and the end of the US$. Oh, and some talk about Gold, Oil and the end of the US$ thrown in there over the last couple of days as well - just for fun. As the US currency takes quite a battering (now -3% in 3 days) at the hands of almost every other major currency (UK’s GBP the only more pathetic-looking piece of paper out there) political discussion and rhetoric has kicked-off in the land of the Greenback, with Obama’s incredible list of “serious”-problems not getting any shorter. The imminent UK elections will likely do little to stem the increasing talk of a fall for the GBP into the Euro – even with the Conservatives at the helm. Markets have been mixing gains with losses throughout the last few trading days, Australia’s surprise rate-rise the cause of some fluctuation across Asia, even as China remains shut for its week of celebration. Earnings season in the US fully anticipating the latest from the financials, as a raft of analyst upgrades sets clear division lines between the anticipated winners and losers – without naming the obvious “losers”, those with continuing consumer-debt concerns looming, the most likely to disappoint now and going forwards.

In the always fun-filled political world (you can’t write this stuff – as Hollywood is finding out to its demise, see below) our favourite lothario has failed to charm his way through Italy’s legal system, strangely running out of enough cash to bribe enough judges to prevent a verdict declaring him un-immune from prosecution for crimes allegedly committed during his reign as prime minister. Let’s see how many fawning young ladies show up to support him during a possible trial, and which lucky girl will visit him with a pot-of-pasta if he ever gets sent behind bars. Displaying an altogether different style of leadership, Obama has offered a glimpse into his art taste (not sure Bush had anything except dead animals’ trophy-heads on his walls) in what may be an effort to deflect some recent policy criticisms concerning healthcare reforms, the faltering economy and other little matters, and re-focus on more central issues such as his family’s favourite foods and movies – all is well again in the White House.

Saudi’s King Abdallah is due to visit the once-shunned Syrian President, in an interesting move following recent overtures by the US administration to re-entertain into the Levant fold. Could it have something to do with the thawing of relations all across the GCC and Mid East after a series of very public and very embarrassing childish-spats earlier this year? Middle East diplomacy has never been a very straightforward affair, but discussions with Iran and western powers regarding the nuclear element making it easier for Saudi to talk to its de-coupled westerly neighbour.

A bit further out from the immediate geography of things (anyone kept a track of the clown in space? Reckon he’s still wearing that red-nose?) the discovery of a new “ring” encircling Saturn creating some excitement amongst those most “cool” of groups - astronomers. That’s great and everything, but is anyone else slightly confused how after Saturn’s original “discovery” in 1661 it has taken almost another 350yrs for those cool astronomers (always convincing us they are masters of their heavenly domain) to notice this new ring? Were they too busy partying around their telescopes or something?

A few months ago we examined the state of the entertainment industry – where the widely considered “recession-proof” business was going from strength-to-strength as its movie-making business churned out hit after hit. Some disappointing news then, following a disastrous summer “blockbuster” period, in a reflection of the troubled times we are living through and a dearth of originality, resulting in an entire collection of executives at the top studios being “shuffled around” in a surprisingly vicious period of culling. Falls in DVD sales, down 13.5% YoY, not helping matters.
In fact one commentator reckons more changes have been made in the last 18mths across the normally sleepy corridors of movie-powerdom than the last 18yrs! Wow, that is quite cut-throat. Compare that to the world of investment banking, where even those great giants of the financial world making losses of hundreds of billions of (rapidly becoming worthless) dollars manage to sit-around and hold on to their jobs – I guess when it’s something as essential as the time-honoured and oh-so-preciously-important-entertainment-industry, things get more serious – we wouldn’t want Julia Roberts having to do her own nails now would we, or George Clooney having to sell that lovely Laco di Como villa now huh? It’s seemingly more tolerable for Mr and Mrs Average to suffer the loss of their home than even consider a $100m special-effect laden extravaganza to “open” with less than a $50m box-office receipt.

Could it be that those scheming tinsel-town executives are working in tandem with Wall Street? Maybe they’re hoping more movie-goers will be forced to sit in darkened theatres rather than lay back on their couches, watching proper-acting-and-imaginative-storylines on HBO in the comfort of their now re-possessed homes?

Tuesday 6 October 2009

Dollar Barrels, Shukran wa good night - Tuesday 6th October

Neither bills nor cents….
The beginning of the end? The breaking of a news story (still heavily rumour driven at this point) describing secret meetings held between Russia, China, Japan, Brazil and Gulf States (the oil producing ones in case you were wondering) discussing a tentative plan to move away from accepting the long-standing world currency for commodity payments and (very) arguably, the ultimate demise of the US Dollar. By allowing a move away from pricing oil and gas in the most militarily powerful nation’s currency, a significant mind-shift in the future of political relationships may have just shown off its first glimpse-of-skin ahead of a full undressing down the road.

The US has enjoyed two of the most sought after weapons in the battle of global dominance since the end of the second-world-war – nuclear might, and more potently, control of the global financial system. Both, historians would suggest, were imported by expertise hand-picked from defeated enemies, but both have been ruthlessly despatched as and when required to further US dominance. Witness the two occasions (as noted in Fisk’s article below) when Saddam (so infamous now I don’t have to add the surname) threatened to stop accepting payments in Dollars for his sought-after oil in 1991 and then again in 2003 (where he wanted to move to Euros only) – military might was deployed to “dissuade” such a move under other certain pretences and despite pre-arranged agreements – such as promising Kuwait to him for help during the Iran-Iraq war (now that’s controversial right there) – the outcome of the might of the US (not to mention the finances of Saudi) ensured the dominance of the US$ continued unabated. Now however, an enemy far mightier than even Iraq’s “Chemical Ali”, in the form of mortgage-backed-securities and capitalist-greed, has banged against the might of US financial super-powerdom and threatened to flick-over the first domino in a potentially de-toppling sequence.

Slipping away…
Recent spikes (i.e. in the last 12mths) in the price of Gold, the strength of the Euro and the importance of China’s Treasury reserves ($2.2trn est.) may in part be explained away by the gradual reserve building by those nations involved in the secret (clearly not anymore) discussions – even at the same time as retail and other institutional investors were heavily piling into US Treasuries during those uncertain times post-Lehman, accumulation in anticipation of an eventual re-basing may have been taking place – certainly explaining recent hikes in Yen (10% vs USD since July ’09) and Euro (+18% vs USD since November ’08) strength, not to mention Gold which we have closely watched here and commented upon its scarcity and conspiratorial safety. If we were to return to a barter system – may disappoint a few wives to suddenly discover their “pure gold” necklace received from their loved one was merely gold-platted and hence only worth one handbag rather than the two desired – the ability for nations such as Brazil (rich in agriculture), China (rich in accumulated Gold reserves presumably) and India (a host of natural commodities) would trade quite merrily with Gulf states. What would the US offer? - once their Gold supply had run-out, currently the largest known-horde of any government in the world - Big Macs and a dream? Hmmm..I wonder which is more valuable…

So how new is this? Talk of pricing energy commodities in a different currency has existed for many years, with even Russia’s Putin just a couple of years ago touting his desire for Russian oil and gas to be priced in Roubles and an exchange established in Moscow rather than New York or Chicago. Even Japan, not totally officially, has paid for Saudi oil in Yen for quite some years – explaining the extremely large JGB (Japan Government Bond) reserves the Saudi Central Bank holds. JGBs and Roubles aside, if Saudi were truly to have the guts to fly-in-the-face of long-standing US ties and protection (more self-preservation of the House of Al Saud than anything else) it would signify the most potent shift in geo-political-ties in the last 60yrs – and we all know what happens when big changes to any scenario occur right? Those most engrossed and comfortably benefiting from the status-quo are loathe to any disruption – especially when vast amounts of money are concerned –resulting in often aggressive knee-jerk reactions.

The article announcing this latest and most serious sounding concerted effort by the widely considered nascent global powers (link below) was penned by Robert Fisk - a renowned Middle Eastern affairs writer, slightly tainted in that he has been accused of being too close to the Arabs, and especially vocal on the Lebanese front – this has of course brought allegations of bias from certain other camps. Nevertheless, he writes for a UK newspaper that brings enough credibility to its decision to even publish the story. The most questionable part in my opinion, the Hong-Kong based sources apparently providing information from a Gulf perspective – the abundance of decision-makers sitting outside of the main Gulf capitals is not a normal occurrence – but the interesting link to China’s evolving dominance in these negotiations another possible sign-of-the-times as to where considerable and landscape-altering decisions will be made during the next few decades – if we don’t witness a full-blown war for resources across Africa and the Mid-East first – a scenario no sane national-leader would plausibly desire.

There is going to be plenty of reaction to the claim that the end-of-the-dollar-peg is nigh. However, important to remember that if it does indeed take place it would be a long process and most likely complete somewhere around 2018 – there is way too much money at stake ($2.1trillion in Gulf US$-denominated assets alone), and questions over the single-currency across the GCC, with the debacle over the location of the GCC’s Central Bank in the first place (noted here in several pieces back in May) providing a clue as to the difficulties that would encompass any attempt to fully slip-away from the US$-peg.

Origins of the word “Dollar” range from a German unit of currency, the “Thaler” - used in the 16th Century – and the equivalent English name provided for Colonial currencies, particularly in North America at the time of those colonies’ revolt. The question now is just how tightly the US is going to fight to maintain the monetary hegemony they have enjoyed in correlation with that of their military, and whether another revolution has just announced its intentions, bidding the heavily-indebted US$ adieu, dosvidanniye, sayonara and maybe most notably shukran wa good night.

Original Robert Fisk article in The Independent -

Best Rgds,

Monday 5 October 2009

October Truths - Monday 5th October

IMF and World Bank meetings this week, investors digesting disappointing employment numbers sending markets lower across Asia (-80bps avg.), Europe (just about flat) and US futures struggling for direction across the exceptionally large looking pond from a future policy response point of view if rumours are to be believed. With China’s 60-yrs of Communist rule celebrations heading through till the end-of-the-week, a lack of super-liquidity-fuelled sentiment adds to the unfortunate and tragic harsh-forces-of-nature unleashed across much of South East Asia over the weekend. UK’s Gordon Brown has been left stricken as the country’s real king-maker (Rupert Murdoch – controlling 40% of print-media and 65% of cable TV) decides he’ll vote blue this time around. Greece sees their socialists fare better, winning a snap poll in convincing fashion, the Middle East remains strangely quiet as meetings surrounding Iran’s nuclear “plans” seem to bare some decent-tasting fruits of progress – a promise to continue to discuss further and openly with “all parties” (basically the US) a better sounding conclusion than responses in the past – must be the cooler weather in the region allowing common sense to prevail over angry rhetoric.

It’s October now and the markets can feel it. Whether its despair at the thought of those long-winter nights awaiting western fund managers, or some concern as we enter earnings season in the US, several days of losses have left a sour taste after the surprisingly sweet-September experience.

Oh dear – our old friend, and constant bear, Nouriel Roubini has been at it again – all over the papers and TV media this weekend (dressed in black naturally) – preaching bleakly amidst signs and portents the end of the “fun as we know it” in markets since March has come to pass. Is it cause or effect though? Does his presence simply bring about the fall of markets, or does he become all-present when markets are falling? Certainly, the last few days of trading since the last week of September have provided signs of discontent across global markets and those seeking to squeeze out the last remaining drops of return from an otherwise overly-stretched, twisted and tightly-wrung hope of recovery. True, the markets have not been too bothered with the economic situation of late, what with all the “fun” to be had with that cheap money provided – if someone hands you a big bundle of chips at a casino and the roulette table is right there in front of you, you are going to play a few hands aren’t you? (always 24/27 and 13/14 split guys, always), but at some point the adrenalin rushes out of your system leaving you slightly dazed and strangely more risk-averse. Many have counted what chips they’ve won and headed for the cashier.

With all the talk and direction from central bankers and policy-makers, filled with sound-bites and “trust-us, we’re financial industry guys” tones, the release of an interesting script neatly ties in. Presented to movie moguls some years back, but only recently developed through the strength of ambition of a plucky English comic-genius (Ricky Gervais), it described a world where lying is absent from everyday life i.e. where everyone simply speaks the truth and the concept of anything fictional simply does not exist; meaning everyone takes the spoken word as gospel without questioning its authenticity.

Apart from setting-up a great number of philosophical and neo-religious questions, a lighter side would be to imagine a financial industry existing within this world? Now, apart from those extremely cynical and bitter individuals out there (like savers) who would surely retort that an industry based on “bending the truth” would simply not exist in such a world, you can just imagine the pitch from your designated retail bank representative: “We’d like to provide you with a ridiculously low-interest bearing instrument that carries a huge amount of risk which we don’t actually understand at all how to price, but we are going to make so much money in commission out of you that I’m strongly recommending it for your terribly performing portfolio”. The client’s response, remembering lies do not exist, “I do not trust you, like you, or even consider you a fully-fledged member of the human species, but since I have no choice whatsoever in the matter, given the state of the economy and the meagre influence I can exert on decisions being made surrounding financial stimulus packages and the use of my tax payments over the last 20 years - where do I sign?

Any suggestions as to the latest set of company earnings announcements, within this “no-lies” world, are most welcome!