Thursday 28 January 2010

Mountains of jobs

Mountain top diplomacy…
A freezing-cold-and-isolated mountain top village may not sound like the ideal place for a gathering of the world’s business and political (too often too similar) leaders, as the Davos summit kicked off this week with an emphasis on the “road-to-recovery” – just the name pinned to the gathering is intended to evoke positive emotions amongst the uninvited (and warmer) public, eager to learn how the exalted ones will continue to spend..we mean “think” of course…their way out of the dangerous depths of economic recession and slowing growth. As the leaders lead, (denied) rumours of China averting a Greek tragedy increase – as strange as it first sounded when hitting the news-wires, China’s huge reserves ($2.4trn) would hardly notice the necessary out-flux of cash to end Greece’s embarrassing troubles and would serve as another expression of the much-touted shift in global influence to the East.

Toyota’s own red-face-inducing troubles have sadly amplified with a recent US recall spreading to vehicles delivered across Europe (1.1m are affected) – sharp falls in the company’s share price (-14% in 7 days) pointing to long-lasting damage to a once untouchably-lofty reputation. Seems Japan’s leading car-maker’s troubles are arriving exactly when most needed by struggling US firms – coincidentally, Ford and Chrysler have just launched suspiciously Japanese-like compact vehicles (for US car firms “compact” once meant less than 15ft-wide behemoths) not that there is any insinuation of corporate wrongdoing of course, that’s saved for the dispute between the French government and Renault, with Renault complaining they are being pressured to move production of eastern-European made vehicles back to France – no no, c’est pas vrai..the socialist-French-government would never interfere in corporate affairs now would they?

Which Job?
Jobs Jobs Jobs – not Steve Jobb’s new iPad, which does definitely look cool but can’t understand where it will fit (immediately at least) into the market between a phone and a laptop, not big enough to be a useful laptop (with no actual keyboard) but too big to fit into your pocket as a phone replacement – Obama’s jobs are in focus today. With US unemployment still hovering around 10%, in a typically eloquent and rallying State of the Union speech, where for a few moments - in front of the television cameras at least - US politicians did actually look united, a focus on continual job creation pandered to the masses - we’re talking the good old-fashioned hardened get-up-in the-morning and produce something useful to society during the day kinda job. Investment banking doesn’t really tick many of those boxes – in its modern super-destructive-super-derivatives-form at least.

Coupled with the (Volcker) proposed bank reforms, recently backed by George Soros but opposed by some (surprise surprise) bank heads, the White House administration is certainly trying its best to live up to the promise to relate to the very people that voted them in to power, rather than be influenced by even more powerful corporate lobbying groups and other “special interest” fund-raisers – a tough job to say the least and once that may unfortunately seal Obama’s fate as a one-term President. Despite declaring “the worst of the storm has passed” in reference to the economic crisis, one cannot help but feel the clouds above his head are only now gaining strength.

Over the jitters….
As all the above shapes its way into financial models and analyst forecasts, altering perceptions of possible future government measures, exit plans, re-entry plans and even planning plans, investors have been faced with a difficult month’s trading. We examined the emotional responses underlining investment decisions, suggesting these dips were offering good opportunities to increase positions in markets where recovery and market performance will combine for decent returns in what will surely be a tough 2010. So far today, Asia has put in a gutsy performance after a clearly difficult week, with China’s gentle push on the stimulus brake amplifying and affecting investor sentiment – today’s rise ends the worst falling streak for the MSCI Asia-Pac Index since 2004, Europe has picked-up on this positive turn and opened strong (+1.2% across the CAC40, FTSE and Dax right now), with US futures singing-along too – DJIA indicating +42pts and S&P 5.4pts. Gold and Oil have both hovered around levels reached earlier in the week ($1,092/oz, $74.3/brl respectively) as the USD oscillated and fell slightly in the last 24 hours (cable at 1.62) – some concerns US fiscal stimuli spending will continue to pressure the greenback

Warming up…
Investors are starting to recover from the sudden jitters that filtered through after the realisation that excessive amounts of lending will not continue forever, the return-to-earth slightly jarring for some but necessary. Now that the impulsive reaction has passed, long-term money-managers and the more strategically focused will once more set their sights on the general global recovery outlook, hoping that decent levels of GDP growth in many parts of the emerging world can continue to push the more developed markets through their restructuring (de-leveraging) periods.

Hopes will remain that those leaders “summiting” in Davos and shivering in the cold high-altitude winds will remain warm enough to make globally beneficial decisions. Nothing warms the hearts, hands and heads of a true-capitalist like the promise of mountains of cash.

Monday 25 January 2010

Down…but not out

Ufffff….despite wishing there was a more positive opening tone to what is the last week (already) of the first month of the year – next thing you know we’ll be wishing one another a Happy Easter, having swiftly passed through the fake-but-commercially-viable mine field that is Valentine’s Day – there is not much to be jumping up and down about with joy. In fact, since the terrible Haiti disaster, unfortunate plane-crashes, shrinking bonuses (ok, certainly nowhere near as bad as the first two but still a little disturbing for some), set-backs for Obama losing that Massachusetts seat, the now well-documented desire to overhaul the “too-big-to-fail” system of banks – read: re-introducing Glass-Steagall – not to mention jitters cruising through the investor community as a slew of US earnings miss a few targets or at least fail to out-do expectations, markets and general attitudes to the strength of late 2009’s recovery have stuttered, shuddered and now slanted steadily south.

Losing steam…
Whereas some may be tempted to return to (negative and disheartening – so I hear) talk of bear markets, double-dips, hidden monsters-in-the-unemployment-closet, not to mention prolonged reliance on the investment community drug-of-choice otherwise known as “super-huge-amounts-of-liquidity”, recent falls which may well continue in the short-term do not necessarily signal the beginning-of-the-end. Sure, 2009 was a great year for equities…we all loved the great big green numbers on our screens after a rather aggressive yet welcome bear market bull-run that started in April and never-looked-back, but logic would indeed dictate that fast-paced momentum eventually loses steam.

That “hiss” of deflating market returns you heard at the end-of-last-week was the first release of built-up-anxious-vapour..a pause in the midst of an optimistic movement. With red on the screen for the last few days, and again today as Asia falls at least around 50bps across most markets, with China’s CSI even lower (-1.1%), Hong Kong shedding 62bps and recently well-performing but now back in negative YTD return land Japan falling 74bps on its Nikkei flagship, the very human desire to slow-things down when a watershed presents itself has made itself apparent. Apart from the obvious turn of the year divider, Obama’s (or we should be honest and say Volcker’s) bank-busting-plan provided more than enough reason to relieve pressure on the accelerator for a moment, or two, or three…

Can’t really blame such emotive responses over the weekend (prophesising huge market trouble ahead) when considering the S&P amongst other global markets have just experienced their worst performance in over 5 months. These market woes are being reflected in Obama’s Oval Office – serious creaks in his administration and a continuing resistance to his new wave of thinking. His short-lived “yes we can” period of hope replaced by such silly initiatives symptomatic of the less amiable elements of US politics; allowing unlimited payments to political parties from lobbyist groups for example. Worries about just how far the US really travelled down “the new path” growing with each day he loses more influence.

So what to do in the next few days and weeks faced with such volatile markets? Many would suggest you take caution along with the rest and sit back. They would be wrong. Instead, sit-up and think about what we are going through and it may become clear that now is actually a great time to buy into the dips for the medium-to-long-term. As mentioned above, we had a great run for most of 2009. Don’t forget that before the bulls took over, markets had continued their stomach-churning falls through till March, dropping almost 30% across the majors. Sentiment turned quickly then, and through the eye-of-the-storm of the “twilight zone” – where earnings forecasts are downgraded even as markets start to rise – great gains were made (+40% YoY for many major indices) by those that were first to respond and believe, before any proof was offered – faith in other words.

A modicum of faith is now required if the dips are to be bought into. We are not talking blind-faith though as history - as it so often does - points the way. After the rush comes the pause for rest. Once rested, the fitter are the first to speed-up again. It was seen in the 1930s (where there were several dips and surges), in the recessions of the 70s and 80s, and even after the tech-bust in 2001. Those that feel they missed out last-year should be the first to feel lucky to have the opportunity to get in for their turn in 2010. Those that did well in 2009 will likely exercise more caution but again – that’s only human. Those stocks and markets that brought (moderate) joy to investor spreadsheets over the last few months will make way for the laggards and the overlooked. Much of it is in the charts, and much of it is in the gut.

There are gains to be made across emerging markets (again) some forgotten developed markets (Japan) and some well-chosen firms listed in weak markets (the UK) but operating internationally and effectively in emerging markets (Cadbury, now Kraft, springs to mind).

Markets and the general economic environment will be tough for the rest of the year, notwithstanding that the investor community will face a difficult recovery process once their super-caffeinated-infused-directly-into-the-artery-liquidity-drink runs out of its juice.

Wednesday 20 January 2010

Excess CO2

Quicker than usual today as have been experiencing the joys of travelling around the GCC (when exactly did they say that train network will be ready?) and will be doing so again shortly.

Politics? – markets don’t care
As US markets have risen to another 15-month high overnight (Dow 10,725, S&P 1,150) despite further losses reported from Citi (nothing unexpected though), signs of inflation in a still badly-positioned UK economy and another rise towards $80/brl for crude – along with a sharply appreciating USD – bull market players are continuing to push those attempting to exercise more caution aside. Some bad news has hit our favourite halo-wearing US President as a traditionally Democratic seat in Massachusetts was lost to the Republicans which will cause some trouble for the make-or-break healthcare reforms the current White House administration has put so much (well-intentioned and well-needed) effort behind since last summer.

Markets have already reacted across some of those healthcare related names that may take advantage of a turn in reform sentiment but more worrying for Obama the fall-out from a possible reneging on one of his most important campaign promises – not the best time to be meeting with an upset President, as leaders of the financial industry must surely be worrying some aggression will find an outlet their way.

Elsewhere, rumours that China is increasing efforts to reign-back back lending and bring-about a serious slow-down in economic stimulus measures has jittered most investors across Asia, with some significant falls on the CSI300 this morning (-3.22%) spilling over into HK (Hang Seng -1.88%) and surely dampening any positive follow-through from that strong S&P showing last night (+1.25%), indeed Europe looks set to open slightly lower.

20 days into the New Year and still nothing to write about lothario-legend Silvio Berlusconi! Where is our prolific charmer? Must still be recovering from “corrective surgery” following his last moment of crowd interaction.

Plenty of it..but renew anyway…
Watching an extremely oil-rich nation spend so much time and energy (pun intended) on investigating and then rewarding the best alternative power-generating resources would strike many as a long-sighted necessity but a bit of a waste of time (and money) for at least the next 50 years – not for the leaders of Abu Dhabi though. The “Future Energy Summit” currently underway in the UAE’s capital city has attracted a great deal of attention from international energy firms intent on getting a foothold into Abu Dhabi’s much-touted Masdar City initiative – a city that is being built with the intent of being totally carbon-neutral and self-sustaining.

The irony of an oil-producing nation spearheading the world’s first eco-friendly city is of course not lost on anyone but the vision and effort should be applauded - whether or not you are one of the more cynical that does not believe in all the climate-change mumbo-jumbo anyway (remember those damning emails released shortly before the inconclusive Copenhagen summit).

Taking advantage of current access to wealth and a bit-of-a-wave in eco-friendly solutions is a smart move that will not only placate many negatively inclined to a “dirty-energy” exporting nation such as the UAE, but also bring about one of the region’s most needed and essential elements capable of producing a viable and sustainable economy – manufacturing. Whilst we have discussed this at length a few times, the position Saudi, Qatar and Abu Dhabi find themselves in today requires a strong manufacturing sector for both economic and political requirements.

As populations grow and wealth spreads (it spreads slowly, the rich in this part of the world do not really like to throw it around the masses) discontent threatens to increase as more find themselves out of work, dependent on the state and envious of those that do in fact control the nations’ resources (and supercars, and yachts and…). This may take some time of course, say another 50-75 years, but it is certainly smart to prevent a problem from occurring rather than trying to solve one once it has taken shape.

The Mastercard move…
By providing and creating the opportunity for global firms to set-up shop across the Middle East with more intensive purposes than simply distribution, manufacturing in all shapes and forms will create an outlet for a regional population growing in number through natural demographics and immigration, preventing the restlessness that often evolves through inaction – Saudi’s spurt in fundamentalism and a worrying trend towards radicalism in 2001-2006 prompted the Kingdom’s ruler to focus steadily on gearing up the manufacturing sector there. Abu Dhabi is a long way off in terms of Saudi’s population numbers, but with forecasted growth figures pointing to a 200% increase by 2050, spending money now to keep money coming in tomorrow in a peaceful society is clearly viewed as priceless.

The summit itself appeared extremely well-organised and equally well-attended with a lavish award-giving ceremony (no Ricky Gervais hosting unfortunately) recognising the year’s best innovation in renewable energy. Walking around the venue one could not help but wonder what exactly extremely short-dresses and high-heels - that attractively attired “stand helpers” - had to do with environmentally-friendly efforts(?) but the fact large numbers of attendees were walking around (and around, and around), spending a lot of time attentively locked into deep discussion with the aforementioned helpers (clearly knowledgeable about all aspects of their represented business, sure) meant for whatever reason, it was working – possibly a little too much needless conversation-induced-carbon-dioxide being produced though.

Monday 18 January 2010

Blue and Dry

Weekend aftermath…
Stick or carrot? Management gurus and psychologists the world-over have spent the weekend locked in argument over bonus-payments as they discuss the pros and cons of promising large wads of cash for good performance, mainly in the hope of assuaging the immense levels of discontent throbbing amongst the masses (mostly in the UK and US – the media to blame, naturally) as due dates for bonus-payment near ever closer. Concerns over China’s break-neck growth were beginning to surface, as articles increasingly focus on similarities between their large levels of fiscal and monetary stimulus, rises in asset prices across the spectrum and levels of productivity per capita with those of Japan in the late 80s before their bust and “lost decade”. China is nowhere near Japan’s equivalent level of development and wealth in the late 80s though (look closer to the late 60s instead) so in-depth analysis and comparisons leave the majority of such arguments without merit – many more years of wealth generation lay ahead for the Chinese. Dubai World debt is reportedly being offered by some of its smaller institutional holders in the market, a sign that discussions have met with disapproval from some creditors who likely want to exit and be done with the whole affair – seems Abu Dhabi is holding steady at refusing to implement a total sweep of its neighbours’ troubles, pushing negotiations to the limit – fair enough. Also, what seemed a long-shot in the Arabian Gulf is surprisingly nearer to conclusion after announcements that the GCC have agreed on details for implementing a region-wide train network in a (much needed and efficiency inducing) $15bn project - let’s hope there’s no disagreement about whose country’s leader’s portraits will adorn each carriage and let’s not even begin thinking about the arguments that will be held when they initiate “conversations” (shouting is not really conversing) to decide what on earth they are going to name it!

A year since the inauguration of not only a new President in the US but a new, warmer and more charming chapter in the continuing story of international relations, a reminder of what “once was” popped up on our screens when Obama invited Clinton (not such a bad thing) and his predecessor Bush (far more frightening) to provide a consolidated response to the ongoing Haiti crisis. As Bush re-took the podium he so seldom dared to step-upon during his actual tenure as so-called “leader of the free world” (he neither led nor provided evidence of freedom for others) a horrified hush crept across the gathered reporters re-living those dark days but late-night TV comedians across the country rubbed their hands in glee at the prospect of gathering priceless new material for days to come – alas, despite his message containing the usual informal tendencies it was serious enough to hear him out, just. As the aid continues to flow, exposing the better side of human generosity, the uglier angle of political wrangling and bureaucracy is hampering efforts, with even France (mon dieu) lobbing a couple of badly-timed insults across the pond in a blame-game with the US – important not to lose sight of the individuals left homeless and without food or water who could not care less whose fault it is that essential supplies are bottle-necked at the airport.

Holiday but ok…
Markets have kicked off the week without the usual prospect of a US open later in the afternoon - with holidays there for remembering Martin Luther King – falling a little from the outset across most of Asia after a rather weak performance at the end-of-last-week: Hong Kong off about -1%, Japan -1.2%, some small gains in Korea (+60bps), Singapore (+27bps) and China shrugging off global-media concerns about its future growth prospects with the CSI gaining just under +1%. Japan Airlines is keeping investors guessing as it flirts between American Airlines and Delta offers, the one offering greater autonomy likely to win. With little direction from major US earnings and bereft of major market-moving news, not such a bad performance overall to get us going in the third week of Jan (remember, no more Happy New Year salutations so late in the game unless you want people to know how little you value them). Still early trading in Europe but so far so good, with about +40bps of gains across the majors there. Currencies have moved in the USD’s favour since the middle-of-last-week, appreciating 2% versus GBP (cable at 1.638 right now) and 1% versus Eur (New Yorkers will be smiling as they remember how their city was practically conquered by strong-Euro wielding French over the holidays walking on “Fis-avenoueee”), Gold has managed to stay out of the news for a few weeks but has quietly remained above $1,130/oz (only 7% shy of its recent high) and surprisingly no-one is even mentioning Oil in the news at the moment despite a quite volatile week of trading which saw oscillation between almost $84/brl and a steep drop to $77.8/brl (-7.5%).

Drying the rate…
With all the talk of China’s continued surge but worries growing over a possibly overheated economy, worth stopping and taking a look at our fair-weathered-friend-of-an-indicator, the Baltic Dry Index (BDI). In the last 60days the cost of transporting a container of goods has actually dropped by almost 30% and is still a full 75% lower than what it cost to move items around in May 2008. How can one of the world’s largest exporters be overheating if something as simple as the BDI is at an exceptionally low-level historically? Inventory levels have improved somewhat around the world, and it was certainly a decent Christmas for many retailers by recent anecdotal evidence (which will be confirmed in Q4 numbers as the month wears on), but were shoppers really buying the latest items or taking full-advantage of troubled retailers who were having to dump all they could find onto the display shelves in a bid to generate revenue from otherwise dead stock? From what was seen across the sales of London and New York (even Dubai, where it’s on sale even if not officially “on sale” – just ask for a discount and it will be gladly provided) there is good volume buying but of items that had been gathering dust for at least the last couple of years. Until the ability to amass disposal income powerful enough to purchase fully priced “new” items spreads throughout the ranks of consumers both high and low, a full-blown recovery is not likely in full swing.

The blues…
Amidst continuing geo-political troubles, that beacon of all things great and fake (yet strangely entertaining) Hollywood’s protagonists lashed on the make-up and sponsored outfits (and the girls got dressed too) gathering to oh-so-melodramatically initiate the start of their “awards” season – should people doing what they love and getting paid millions for it really be handed a golden-statue on top-of-it-all? Apart from smiling that no one else was amused by most of host Ricky Gervais’s jokes (that pond between UK humour and US sensibilities is still quite deep), that a totally fabricated and absolutely fantastical CGI-reality-fusion film (Avatar) walked away with two of the most significant awards speaks volumes on where the human psyche is currently gravitating – unable (or unwilling) to deal with the tough realities of earth-bound life, audiences prefer to watch a (blue) alien race toiling for their own survival in a distant planet, albeit still at the hands of evil men.

If bonuses are dealt as harsh a blow as the blood-thirsty public are vying for, a certain earth-bound-clan of self-styled-masters who prefer to entitle their power to the rest of the universe will ensure those aliens won’t be the only blue group of people out there.

Thursday 14 January 2010

Back of the Net

First, a moment to focus on the terrible natural event in one of the world’s poorest countries that has brought a human outpouring of support and empathy for Haiti over the last 48 hours. At its time of need, the richer countries that both immediately neighbour and historically relate to it have made heart-warming efforts to support the aid effort. The disaster striking home when receiving emails from colleagues that were either residing there or visiting – all are hoping the suffering is limited and feel for the unimaginably enormous losses incurred. Bad things seem to happen to the least deserving.

Salty markets…
A little blip and we’re off again. Alcoa missing its earnings alongside China’s surprise reserve requirement ratio rate hike on its banks caused global markets to take a small step back (China actually fell 2.5% yesterday, dragging most of the surrounding Asian markets down with it, Europe stuttered as it shed about 50bps across its majors) but as with most things that require a slight retreat before re-advancing, they have since initiated a move forwards, with nice green screens all across Asia and Europe this morning (Japan +1.6%, CSI +1.8%, Europe roughly 50bps back-up across the majors and US futures indicating a decent opening, S&P +0.7pts, Dow +7) Intel’s strong numbers, emerging market currencies and signs of economic strength in Australia have all tallied to push markets higher today. The troubles Japan Airlines has been facing (heart-breaking to witness once awe-inspiring Japanese firms descending into chaos and dreaded near-bankruptcy) spooked a few investors around the airline industry but quickly resolved when the isolated nature of JAL’s problems became clear. The world really has changed when the Japanese are being helped by international money.

We haven’t mentioned the price of Oil in a few weeks, missing a high of $84/brl in that time and still trading higher than $80/brl today. The shift in currencies has obviously altered investor sentiment towards both Oil and Gold (trading at $1,137/oz today, +33bps), with recent weakening across the USD in particular (Cable dipped to 1.59 last week, back at just-shy of 1.63 now) adjusting 2010 hedging policies and the spike in Oil possibly catching some off-guard as it steadily rose through the latter half of December and then shot-up in the first few days of the New Year - when surely many were still either too fat from excessive Christmas Turkey meals to direct enough blood-low to the brain, or recovering from days of partying in between the eating and New Year’s Eve.

Either way, a rise in US consumption levels coupled with the long-lasting and excruciatingly cold winter-snap holding much of northern Europe hostage, not to mention bringing the ill-prepared UK to a standstill, has maintained a heavy demand on natural resources beyond seasonal norms (Qatar must be loving all the extra need for Gas – how nice that they recently opened the Gas terminal in southern England providing near to 40% of the country’s demand). What’s up with the UK collapsing every which way when challenged with slightly adverse weather anyway? They complain of water shortages when it’s too hot in summer and run-out of gritting salt when it’s too cold – run out of water and salt? A country that is an island runs out of water and salt? Someone please explain…

China raises rates..and the stakes
China kicked off the New Year (the Western one at least – theirs is in a month or so) in much the same form – stealing the limelight by surprising markets (but rather than stimulating share prices upwards with huge amounts of spending, they caused investors to pull-back a little) with the hike in the official reserve requirement ratio, essentially forcing banks to reign back lending in a precursor to what many believe will be an actual hike in the base-rate to ensure an over-heated economy does not develop into a scalding bubble.

Whilst China affected markets and global sentiment with a necessary and quite prudent economic manoeuvre, it also presented a few problems for one of the world’s largest tech-firms when Google insinuated that its systems in China had been hacked into by the government and then threatened to pull-out of the country (where it is the number two player to the local domestic provider - Baidu) unless censorship of the net was scaled-back. Whilst Google’s position may be admirable in the face of freedom of expression and other liberal blah blah tendencies (not that it isn’t worthy of being taken seriously but, you know, the usual stuff) one can’t help but feel Google may have played this slightly wrong. After all, it is a foreign company operating in what is a centrally-controlled state that takes its own position more seriously than anything else, including business and international reputation.

China probably also won’t shed a tear if Google does pull-out, leaving Baidu to reign supreme across the net – providing an undoubtedly more pliable party to deal with/push around. First to flee China was Yahoo, then E-Bay and now maybe Google - certainly not an advertisement for ease-of-access and openness in the world’s largest web-market. The not-without-severe-turbulence fast-flying rise of China continues at the outset of the new decade, a path many foresaw would be littered with obstacles such as these. The latest internet-based machinations may resemble an own goal if much-needed foreign companies, importing essential expertise and know-how, conclude the prospect a 1bn consumers is not worth the Politbureau induced headache (notice the French choice of spelling there, softer than -buro).

Why Mr President!?
Elsewhere, one institution that certainly had a decent 2009 was the Fed. They reported a $47bn profit from their bail-out investments and if that was not enough Obama has announced a possible fee on some of the larger banks to help recoup even more money for the common taxpayer – all in the aid of reducing the rather large budget deficit ($1trn est for 2010) politicians are beginning to round-up on as the administration’s greatest burden. President Obama - whom I still like, definitely more than super-bonus-tax Gordon Brown – wants to raise $120bn to plug a couple of holes in the Treasury. It would take much more to rectify the difficult debt position the US finds itself in, but every little helps I guess. Could we please ensure around $119.99bn of those fees don’t come from Citi?

Great timing Mr President! Just as the US banks are preparing to reward their oh-so-hard-working and deserving employees with extremely large and (only fair no?) wads of cash for services rendered (or jobs destroyed – you pick) the government spoils all the fun-to-be-had in February by reminding the voting public just how evil we – uhhh..I mean the investment banking community of course - all are. Coupled with the UK’s adamant wish to “make the financial community pay for the recession” or otherwise known as the desire to “kick-all-the-bankers-out-of-London” policy, the investment banking community is not going to find it easy to get paid without feeling a (tiny) bit guilty.

Heading off to China to start a web-censorship firm isn’t sounding too unattractive about now.

Best Rgds,

Monday 11 January 2010

Happy 2010 - if you pay for it

What’s the etiquette when it comes to wishing someone a Happy New Year? Certainly the second week of January is still early enough in the game to greet those you are speaking with for the first time with best wishes for the remaining 348 days or so. The third week of Jan is acceptable but may be stretching it just a little - as evidently someone you have not spoken with until then is not that close a friend or associate (apologies in advance to those I will be calling next week) - and the cut-off point must be February. After all, who wants to be reminded that we have already passed an entire month of a new year where we thought things would be dramatically fresh and different but everything has so far plodded along in much the same vein and that gym membership subscribed-to in a moment of admirable resolution has been banished quicker than a protein-shake-can-be-mixed. So, Happy New Year to you all out there! Please enjoy those gleaming gym-machines and colourful-brand-new-dry-fit-shorts for the next couple of weeks.

New Year, Same Markets…
Where do we start when facing down the barrel of an optimistic 52 (well, 51 now) weeks of trading? With a more than decent performance already under our belts after five days to feel good about (+2.7% on the S&P500, +2% FTSE, +2.5% in Hong Kong) and China already surprising the investor community with strongly impressive trading figures (exports increasing 55% compared to this time last year), bullish talk continuing throughout the fund management community as cheap money relentlessly floods into asset classes in the search for yield, sentiment is strong out there, fervent enough to assume a strong first few months. Getting past the first quarter may seem simple enough, and even making it to the half-way point with our heads-held-up-high is less than uncertain. What happens when all the money has been spent and the powers-that-be must begin thinking of possible exit strategies towards the latter part of the year is the problem.

Early discussions and comment across the media and client-base would point to an affirmation of high-expectations for more-of-the-same in the first half of two-O-one-O, or is it twenty-ten, or two-thousand-and-ten(?), whatever you might like to call it. A few worries do persist though – financial journalists last weekend re-invigorated discussions of over-doing the bounce, and the potential for the rapid deflation of bubbles (especially in emerging markets) created and still being created through the unprecedented levels of government spending – but no one seems too concerned or willing to focus on those inevitable dangers right now. Happiness is a strong enough human emotion to ensure the enjoyment of a profitable-ride for some time to come. Tears can be dealt with at a later date. Geo-political forces may have their own say in the next six months, primarily concerns over Iran’s nuclear programme and the international community’s increasingly hawkish stance towards the constant procrastination with efforts to diffuse the apparent pursuit of a weapon that may de-stabilise the already fragile Middle-Eastern political status-quo.

NYC – the tipping is the point
Having travelled in the last few weeks around two of the world’s major cities (London and New York - now back in one with the tallest if maybe not quite the most important building renamed (Burj Khalifa) in honour of its ultimate benefactor), there were a few more interesting incidences of what 2010 may have in store. Strikingly, arriving on the East coast of what is still the world’s most powerful nation (churning out $14trn in GDP, still x3 China’s annual output) a level of fear seemed to be gripping the (exceptionally cold with a frankly insulting wind-chill factor slapping you across the face!) island of Manhattan. A single individual had failed in detonating a home-made explosive device on a US national airline, succeeding in only burning himself but at the same time bringing to its knees an entire global travel system.

Incredible as it seems, this one individual had ensured delays of up to five hours at international airports for flights coming into the US, and even once through US immigration there was little talk of anything else on the major news networks. For such a powerful nation, with one of the most feared armies in human history, one could not help but feel a little bemused at the level of fear one fumbled incident (as serious as it may have been, it was amateurish at best) could create amongst an entire population. Or was that really the case? Once you switched off the blushed-to-scary-perfection-presenters on oh-so-neutral-and-high-brow channels such as Fox News (must be one of the worst culprits in the spreading of undue fear and ignorance) and exited onto the streets of what many term the “capital-of the-universe”, the crowded streets of NYC betrayed the sense of siege some would have wanted you to believe was prevailing across the country.

As if collectively called to visit world-famous icons such as the ever-shining representation of liberty with “that” Statue and the Empire State (take the Express Pass, trust me), tourists oblivious to seemingly both terrorist attempts and greedy-bankers destroying jobs and wealth - you could easily exchange descriptions there if you like - thronged the spacious avenues from Mid-Town to the Financial District (which was eerily quiet). What were the New Yorkers thinking themselves though? Well, first you had to find one. It seemed the entire island had been handed over to the tourists apart from a couple of the more local areas.

It was in those areas, where the affluent spread their wings as widely as Central Park dominates the view-from-atop, that levels of confidence in the ability to recreate success from temporary failure shone-through. Historians point to one of the US’s greatest strengths being its lax-treatment of those having suffered bankruptcy – both corporate and personal – and attribute much of the underlying emotive credence that success is achievable to the absence of total failure, or at least the absence of the existence a heavily negative stigma attached to failure (failure is in fact oft-viewed as a necessary experience on the path to success). More than one encounter with NYC residents confirmed that reaching close to rock-bottom and surviving really only does make you stronger. There was no surprise then when even meeting waiters that had only several months earlier been running Silicon-valley based internet firms or real-estate companies in Seattle and now working on their latest business plans to ”revolutionise the food delivery business” in metropolitan areas.

Second chances are worth $14trn/yr it seems.

Any city where the cab-drivers regale (often unprompted) their passengers with tales of their past entrepreneurial activity and future ambitions, simultaneously informing of their rather profitable investments made on the markets in 2009 and then still demanding a tip at the end of the journey before the passenger’s hand has even made for his wallet, is a winner in my books. The sheer undiluted sense of optimism and unrelenting belief that things will get better is contagious and positively infects every facet of daily-life. You are not allowed to look depressed in a city like New York. You are not allowed to sound sad, and you most certainly cannot get away with talk of defeat or doom-and-gloom. When the human spirit is so fragile and has been assailed from every angle with talk of the end of our consumer civilisation as we know it, it is strangely heartening to witness capitalism still thriving in the heart of its creator’s domain.

I’ll tell you what’s amazing in New York (and other parts of the US in fact). The expectation of being paid for your services is built-in to the very fabric of people’s daily activities. You cannot so much as guarantee a bell-captain in a hotel (not bell-boy, oh not, not in NYC, there they are all bell-“captains”), nor ensure you sit at a reserved restaurant table anywhere in the vicinity of the time you reserved it for, without having to pay for it. A Benjamin here and a Franklin there makes the world of difference. In fact, it doesn’t just make a difference, it makes things happen. Need to jump a queue to grab a much-sought after table (a three hour wait) in a movie-made-famous cafĂ©? No worries – just slap the palm with a note worthy of recognition and hey-greenback-presto you are in there.

Now, some societies would frown upon the need to have to pay above-and-beyond what most would assume is a naturally provided service, and in most cases they would be right. There is also a rather fine line between working for money and only working when there is extra money involved. In other cities the incessant need to go that “little extra” could become a sour experience, but somewhere as vibrant and (dare I say it – in love with the power that money brings in an enduring affair of greed) it passes as daily activity – a routine that separates the “haves” from the “have nots”. Its widespread acceptance results it in being accepted.

To have or not to have…
The key difference in a NYC type society and somewhere like Asia though? The belief amongst the “have nots” that they are only temporarily not the “haves” – that through a number of years of honest-hard-work (or within a matter of months for others through not-so-honest hard work) the status that wealth brings with it, and the (literally) opening of restaurant doors it proffers is an attainable goal. This is of course the very basis of the ‘American Dream”. Whilst it is always spoken about, often written about and nowadays sung, rapped and hip-hopped about (go Alicia Keys “Concrete jungle where dreams are made of,
There’s nothing you can’t do, New York, New York”) there is nothing as invigorating as experiencing it hard-and-fast, first-hand.

On the way out of a trendy restaurant in a once industrial part of Downtown, a have-not individual requested donations from the “have” diners exiting, blessing each and every one as they handed over modest dollar bills. One generous diner must have handed him something a little more substantial at one point, as he got up off the ground when realising the note’s value and chased the cab the diner had entered to ensure he thanked him excitedly, jumping up and down whilst declaring “the dream is alive!”

A city where certain nightclubs and lounges only provide guests with the chance to enter if they have personally been provided with the proprietor’s private mobile number to which a text message must be sent, requesting the key-code sequence for that particular evening which must then be tapped-into the innocuous looking front door with a red-light above, only then granting entry to the (admittedly impressive) bar/lounge where drinks cost as much as a small home in Korea, and the clientele ache to be noticed whilst doing their best to hide. Only a city where those without the code feel they might one day be sitting in that lounge looking out can get away with such a notion.

No matter who you spoke with, whether they were relative new-comers or long-standing dwellers of their proud-city, a self-belief that they were in the right place prevailed. Sure, there is talk and awareness of the rise of China and other great emerging countries, but no one seems too immediately bothered when they notice that many from those countries still decide to move to theirs to pursue their dreams. That must be one of the main attractions of somewhere with the dynamism of NYC – that it is attractive to others, and every one always wants to feel they are where others want to be.

What’s ahead…
The indicators for 2010 are clear. The desire for governments to continue to stimulate economies is strong and the majority feel it is still necessary to avoid a relapse into the fearful quarry of a deeper recession and avoid the dreaded depression factor. Central banks may be accused of failing to focus on asset-price inflation once again in their goal of controlling consumer-price inflation. The more optimistic out there argue that markets are experiencing a “sweet-spot” as developed nations continue to recover and pull themselves out of recession, but remain fragile enough to ensure governments remain reluctant to nip the return-to-form in the bud by raising rates. This is indubitably providing more incentive for markets to rise and investors to diversify into riskier assets. It appears there is a green light to enjoy the inflating of a few bubbles here and there for some time to come before difficult questions must be asked and decisions made about when enough-is-enough. As always, timing will be everything.

Run down the 2010 path…
How about those New Year resolutions we all made in the last few weeks? That gym scenario again looms tall. Difference between cities around the world and attitude of its inhabitants to their resolve to adhere to the belief certain changes will impact positively on their lives? Gyms in London, Hong Kong and Tokyo all market special offers in January to attract new members. What do New York gyms do? Actually increase prices in January to catch the extra demand and lock their members in for 12 months minimum.

As per the tag-line of the gyms’ most visible brands - keep running in 2010.

Best Rgds,