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.