Monday 15 February 2010

Carnivale Tears

As the world’s romantics (and suckers for commercialised holidays) return to their desks content their feelings have been adequately expressed and requited for another year, a busy week awaits ahead: Afghanistan is embroiled in yet another “surge” by coalition forces as they run amok the mountains of a land that refuses to give in to any intruding force, Iran declares itself a veritable “nuclear force” alongside increased calls for pre-emptive strikes from either US or Israeli forces (same thing no?), Hilary Clinton tours some of the world’s largest oil (Saudi) and gas (Qatar) producers in the Gulf region presumably ensuring undisturbed supplies of their most precious exports in events related to the preceding sentence and economic figures suggest Japan’s economy is not quite ready to relinquish its position as the world’s second largest economy to China just yet (despite Toyota’s woes), at the same time as our ever-market-savvy friends here in Dubai briefly stun investors with rumours of a 7yr haircut-debt-deal – since denied but doing nothing to assuage tired/cynical/fed-up investors devoid of patience.

With the Chinese New Year taking us into the Year of the Tiger, most major markets across Asia are shut for the extended celebrations, leaving Japan to fall moderately (Nikkei -0.78%) and little to steer investors on this Monday morning through the usual barrage of upcoming economic indicators: including (from the US) Fed meeting minutes on Wednesday and much-focused on inflation figures via PPI (+0.8% cons) on Thursday, as well as the much-anticipated details of a European (basically German) deal to “facilitate” Greece’s problems – maybe Greece could rein in some of the huge spending they seem to love on advertising their bountiful tourist attractions across almost every major new network every fifteen minutes – seems a strange juxtaposition sandwiched between commentaries on sovereign meltdowns and irresponsible public spending – a lesson Dubai never learnt when deciding to “open” a (since closed) record-breaking-tower in the midst of its own debt issues. It’s quite tough out there for any sovereign spending huge amounts of money whilst simultaneously running out of cash and in the unlucky position of possessing neither a globally used currency nor a globally feared military – well played Uncle Sam.

What about moves in commodities given heightened anxiety across the Gulf region? History would dictate that a short-term spike in the price of oil (currently trading slightly lower today in fact just below $74/brl) will occur the moment aggressive rhetoric inevitably turns into action leading to pain and disgust across motorists at fuel pumps from Berlin through London to Texas (hybrids still not too high on the agenda for the nature-lovers there - a Prius just doesn’t have enough room for all those essential rifles). Oil has in fact hovered around $75/brl since falling at the end of Jan, almost sitting around waiting for something interesting (dangerous also) to happen, or already fully-pricing in any supply disruptions. In conjunction with a renewed desire to hold US$s (Cable 1.56, Euro/US$ 1.36) and a slight return of risk-aversion, a semblance to markets this time last year currently exists. Optimists out there will welcome this as long as a strong period of rising performance prevails somewhere around March…and if not…well..that’s the fun of markets. European bourses are putting in a good performance at the start of the week, the FTSE, DAX and CAC40 all rising more than 70bps as pressure relieves amongst investors preoccupied by Greek, Spanish and Portuguese jitters. US futures are pointing to a less than inspiring open – DJIA -21pts, S&P -2.2pts.

With the geo-political scene immersed in what is looking like the beginning-of-the-end-game vis-à-vis the Iranian nuclear issue (Hillary’s trip as documented above a slight give-away) the Carnivale celebrating Brazilians have been more distracted by the furore created over the choice of a 7-yr old girl to lead the traditional parade in Rio de Janeiro. Disputes over whether a sexually-tinged role should be represented by such a young-girl dominated media there for days on end and spilled over into debates on even Fox News, where some dim-witted conservative said “nothing like this would ever happen in the US!” Really?? What about the 5yr-old dolled-up “junior beauty queens” you endlessly parade around middle-America huh? Anyway, at the crucial moment of her role it seems she broke down in tears when overcome by the pressure of leading the parade. The reason for her succumbing to the intense scrutiny at that precise moment in time a mystery to her father and many that knew her as they were confident in her ability to handle the situation. Commentators were equally saddened but then focused on the crowds filled with celebrities that had attended the festivities and spotted Madonna sitting in the stands – that poor 7-yr old girl must have thought she had come to save her and adopt her to a better home in the US and cried out of fear!

Best Rgds,

Friday 12 February 2010

Convenient Support

Apologies for the lack of consistent market commentary in the last couple of weeks but travel itineraries have proved slightly hectic with many visiting delegations travelling-the-well-trodden-path through the Middle East - the weather around the Gulf is lovely this time of year, making for an attractive destination for a number of visiting professionals on supposedly “official business”.

As Europe plans to save Greece (and itself), Bernanke prepares markets for an end to the spending-spree at the same time as China’s figures express another surge in bank lending, Iran demonstrates against (or celebrates, depending on which news channel you are watching) to mark the Islamic (31st anniversary) revolution. The world watches in anticipation of another attempt by the disenfranchised Iranian youth to rock the ruling authority’s (increasingly isolated) boat as recent sabre-rattling has peaked (even animals have been catapulted into space!) amid worrying signs of persistent internal friction. The authorities have apparently learnt from perceived mistakes though, as tighter internet controls and preventive measures are imposed to curtail past widespread use of technology to convey opposition to the incumbent powers. Who has ended up getting the sharp-end of the stick again after a recent bad experience in China? – yep, that apparently-oh-so-evil expression of Western hegemony – Google! Might help avoid further problems for the internet-leader if Google moved its headquarters to somewhere a little less controversial – like North Korea maybe.

Bad news for another company persists and damages Japan’s once-glowing reputation as blood-thirsty Western (read: Fox news) media pounce again and again on every piece of PR damaging Toyota woes, delivering mighty blows to once-stuff-of-legendary-quality Toyota processes - tarnishing the world’s largest car-company. Toyota seemingly forgot to check the blind-spot when changing lanes, causing a collision of immensely significant negative repercussion. Tales of deaths caused by faulty/shoddy manufacturing striking deep into the proud mindset of corporate Japan. Disaster mitigation will dictate a difficult time ahead for the company in the short-term, as recalls and safety-aware buyers pick other manufacturers. Amazing how things can change. Even implying that a Toyota was not of immaculate construction just a year ago was akin to denouncing a Big Mac as “tasteless”. Then again, McDonald’s suffered its own moment of near-path-to-destruction a few years back amidst a health-driven dramatic fall in sales, so it seems the mightiest do indeed fall the hardest. Hopes are that Japan’s well-documented and less than swift to address-internal-issues culture does not get in the way of Toyota re-accelerating away from a potentially destructive stall.

Where’s the return?
As discussed in January, these markets are providing a slight case of indigestion for those expecting much simpler-softer times after the incredible events of 2009. Without exception, every major developed market is posting a disappointingly negative YTD return (avg -5%), with the normally smile-inducing emerging markets adding to the losing team performance (Chile the only star in all Latin America etching out +4.7%). Where have things gone wrong? They haven’t really. This was expected after the fatigue inducing non-stop rally of 2009. The dips are the best times to get back in. Risk appetite has waned, expressed by the rise of the US$ (Cable 1.56, Eur/USD 1.37) as Gold ($1,078/oz and Oil ($75/brl) have both stabilised as investors remain unsure how the rest of the year’s “recovery” will pan-out. Emotional responses to uncertainty across global market recovery and a general lack of consensus prevailing at present. Sticky and frankly difficult markets are most likely to continue until the next major positive catalyst that will again express itself in the form of a rebound in employment. Until then, these markets remain the domain of day traders and ulcer-immune investors.

On a sadder note, read that the affable (if you like partying) US congressman Charlie Wilson passed away yesterday. His life was chronicled in a recent Hollywood movie, describing his prime role in financing the covert war in Afghanistan in the 1980s to repel Soviet forces through funding of the well(US)-armed Mujahideen (modern day Taliban). So much could be written about how the US often repeats its mistakes in backing a certain group of people when in their interests to do so, only to then ignore their basic demands and requirements when no longer ‘strategically” important to them. With the latest set of events in Iran and undoubtedly an underlying level of support against the incumbent powers from US and Western influences, mistakes being learnt from lessons past is high on the agenda again.

Best Rgds,

Tuesday 2 February 2010

** Soft-Shell Crab Index 2.0 - Clawing Back ** Tuesday 2nd February

An entire month and no special focus on the UAE…well, let’s make up for lost time:

Still clawing
Ahhh Dubai Dubai – or “Doobie” as some fondly call it – what an action-packed-boom-to-bust-epic-infused-roller-coaster-ride you have provided us in the last twelve months. The thrills and spills, bluffs and calls, highs and (very) lows entwined with such generous helpings of underlying personal and business scores (read: vendettas) being settled, worthy of a high-budget-mini-series lavished with luxury-fittings.

The important opening and even more significant renaming of Burj Khalifa at the turn of the year proved a watershed for the much-derided and clearly walking-injured-once-shining state. Plenty of misguided, overly-aggressive and almost venomously vengeful criticism encircled the stricken-city’s gleaming towers during those dark-publicity days. Copious amounts were written, reported and spun (much of it inaccurate) and the sooner much of it is forgotten - as only fickle mass-crowd-memories can swiftly manage – the better and fairer.

What of the lingering issues though? No, I’m not talking about the mountain-of-debt that must still be addressed and the will-they-won’t-they rename the DIFC (Dubai International Financial Centre) alongside a fried-chicken-retail-outlet – that’s KFC for those of you that couldn’t figure it out – yep, Khalifa Financial Centre..catchy no?...we’re not talking about the reduction in traffic and sense of slowdown apparent across once-buzzing construction sites and hyper-driven-marketing offices, that’s all old news and this piece is not interested in senselessly badmouthing Dubai, it’s intended to facilitate its rehabilitation. Sometimes the path to redemption starts with some hurtful truths.

Like the much-touted Internet 2.0 revolution taking place, Dubai is re-inventing itself as any good city that experiences and survives a boom-and-bust scenario must. Dubai 2.0 is only at the very early stage of incarnation and the general look-and-feel of what the city will be/offer/do is still to be decided and clarified. What is certain is that the magnitude of events witnessed since the last time we investigated a snapshot of relative cost-of-living across the city would be expected to result in a rather forceful re-shaping of Dubai’s ethos. Well…has it?

Some of you will recall an analysis of the relative cost-of-living looked at almost exactly a year ago through the Soft-Shell-Crab-Index a (cruder and simpler of course) equivalent to the Economist’s "Big Mac Index" - where PPP (Purchasing Power Parity) is calculated in US$-terms to determine whether a particular currency is under/overvalued based on the price of a Big Mac at every McDonald's in every capital city in the world where one is sold. The soft-shell-crab-index is inspired by the ever-growing presence (welcome to the Nobu-Zuma fray Okku and Nozomi – you’ve had it easy till now!) of Asian “con-faux-fusion” eateries, all struggling to attract the rather limited crowd of affluent(ish) diners capable and willing to fork-out the necessary spend for a decent night out.

Let’s get straight to the claw of the issue – last year, through the index and at the height of the global economic crisis that felled great cities from Hong Kong across to New York and ushered in a new-era of lower prices, Dubai was found to confusingly buck-the-trend and out-price similar establishments by a full 25%. Yep, that’s Dubai 25% more expensive than its illustrious peers. That was with only two restaurants at the time serving the dish in an up-market environment. There are now at least five all serving rather similar fare, and although with an increase in supply you would assume a case for lower prices through economies-of-scale (lower import costs etc.) guess what the reality is? Yep, almost too obvious to keep you waiting….Dubai is still in fact almost 25% more expensive than the average cost of Tokyo, Singapore (a new entrant), Hong Kong, Mykonos (welcome also), London, Miami (fun defined), New York, Las Vegas (no people, it’s not like Dubai) and Los Angeles in current US$ terms*.

How can that be I hear you scream?! After everything that has happened in this vibrant and resilient city, where real-estate bubbles have burst with a bubble-gum like twang splattering the faces of many a happy-go-lucky punter (back to Blighty boyz), prices remain significantly higher across the soft-shell-crab-loving board than some of the most historically over-priced and wealth-attracting-centres of business and entertainment. Again, indirect taxes set-aside, especially for the (so)overpriced drinks capable of inducing a headache long before the hang-over has even had a chance to kick-in ($45 for a double-premium-vodka-on the-rocks, wo-awww-ww), the discrepancy is quite simply ridiculous and frankly indecent. That many do not own-up-to-the-fact is not an acceptance of the over-priced regime they face, rather a strange collusion-of-silence brought on by the unwillingness of many here to be the first to admit as much. Last year, it was questioned how much longer this would continue. Now the question must be why is it being allowed to continue?

A nasty case of the crabs aside, the often painful-on-the-wallet price discrepancy continues throughout the very fabric of so-called “cost-of-living” barometers. Without looking at mundane baskets such as milk and eggs etc, average lifestyles in Dubai consist of shopping and luxury items after all (that’s the image the city strives for is it not? Not of people going shopping for a carton-of-semi-skimmed and a farmer’s dozen, but of finely attired night-owls looking to taste the gold-lined edge of the high-life) - but even here the “tax-free” myth of the city does not pull-through into competitive prices. With the Dubai Shopping Festival in full-swing at the moment, shops across the vast (and impressive) Dubai Mall advertise 50% discounts and “bargain prices’. A cursory check of items found throughout other chain-outlets and department stores in London and New York provided a rather worrying trend – even at “sales” prices, eight out of ten “luxury” items came in a staggering 30% more expensive.

Come on, that’s just ridiculous you franchise owners out there. How can you ask Dubai residents (ex-pats at least, not the lucky locals born on a field of literally-liquid-gold-dreams – just jealous I hear you say?... damn right.aren’t you?!) to put up with prices intended to capture a captive-tourist market and shopping-demographic that never even see (nor have to care about) the mightier-than-black-charge-card bill at the end of the month. Even a well-practiced rip-off city, through many years of perfecting itself as a slick-tourist-trap destination - like Venice - understands the price differential game; restaurants there have separate menus for tourists and residents, with residents having to present an ID card for the honour of being handed the vastly better-value-for-money (70% lower) price lists. Now that’s smart and progressive. Take note Dubai.

So where do we go from here? Well it’s the same old message which I’m afraid simply is not translating fast enough into action. Although hotel prices have reportedly been slashed and bargain package holidays are touted throughout the internet to visiting sun-seeking hordes, the average Dubai dweller is still having to pay a ridiculous premium on the perceived right to enjoy oneself by eating and drinking well. Of course, Dubai is part of an Islamic state and alcohol is technically illegal etc., but a 100% premium on a Vodka-Martini (always ordered “very dirty”) when compared to one of the most expensive bars in notoriously-expensive Vegas (again, no real comparison) is really stretching the home-advantage a little too far.

Dubai has plenty going for itself, its success as the number one viable-choice for those wanting to live and work across the region absolutely secured and unlikely to be rivalled given the critical-mass it has achieved. What about being fair to those making that choice though? The only policy that will ensure economic success on top of destination-of-choice-awards will be an honest pricing policy where paying for quality eating/dining/shopping does not have to feel as if one is unwittingly partaking in a heavily burdensome debt-repayment plan.

Soft-Shell-Crabs can be battered, deep-fried, sautéed or sometimes grilled. For all the positive aspects of residing here, pricing policy can sometimes make living in Dubai feel like all four methods of preparation in one.

* All pricing information attained from enquiries carried-out between 1st and 2nd February by contacting (or checking online) each represented establishment where soft-shell-crab is known to be served in the listed cities. Variances in size and quality may of course exist but calculations are based on the limitations of the information provided. The above is personal market commentary

Best Rgds,