Dubai Drama…
Picture this: A burgeoning tourist economy, fully dependent on the attraction of its beaches, shopping malls, sun and fun-loving reputation, ravaged by the credit-crisis. Negative news reports about the deterioration of the city’s beaches, tourism service and quality of even food ingredients at restaurants continually appearing across international papers. A distinct sense of Schadenfreude on the part of those living in cramped, overcast and cold cities around the world, or a bursting of an obvious bubble? Whatever your take on Dubai and the UAE in general, there is no doubting the incredible efforts made by a city that only twenty years ago was dominated by one naturally occurring commodity – sand.
Whilst those sands have now been turned into glistening beaches (sometimes they glisten for the wrong, chemical, reason) and even the unforgiving landscape and environment of the desert craftily transformed into a tourist attraction in its own dune-buggying right, there are some fundamental issues playing against the growing city. The property bubble has been exposed for all to see and the story of boom and bust now well known and recited. The abundant credit that fuelled much of the incredible growth (an estimated 5.5% average GDP growth rate over the last ten years) and the eye-dazzling projects that marketed Dubai’s map placing strategy, dried up as fast as a sunbather drying in the blistering heat by the pool. The only problem for Dubai was that it could not dip back into its credit-pool to cool down, as the water had all but been drained in a reversal of appetite by international providers. What happened? Well, the same when anyone spends too much time scorching in the sun – it got burnt.
Rumours normally do very little to help markets. Dubai’s markets have suffered disproportionately at the behest of other’s viewpoints. What sometimes frustrates, even more than trying to explain you want the dressing on the SIDE of your salad in a Dubai eatery, is the strange desire by some UAE figureheads to want to add to the oblique nature of policy-making decisions. Just witness the sudden removal of the well-liked (by international investors it appears at least) Director General of Dubai’s Department of Finance. Nasser Al Shaikh had just returned from a weekend discussing Dubai’s re-financing strategy with international peers at the World Economic Forum on the Middle East in Jordan, but did not manage to make it back to his office at the Finance Department after touching down in Dubai. No one knows for sure what happened, and whether he simply rubbed-someone-up-the-wrong-way during the discussions, but markets in the region are refreshingly ignoring the lack of facts for now and focusing on the higher commodity prices and general re-allocation of capital to emerging markets. Still, uncertainty like this is an unwelcome reminder that significant issues are still to be resolved.
Statistics, or just static instinct?
With all the well-recited and negative anecdotal evidence since the worst of the crisis hit in January, it would seem incredible to expect anything but a fall in the population numbers dwelling in Dubai (and the UAE for that matter). However, in a surprise release (this is a far kinder reactive description than others would recite) of an official figure by the UAE Ministry of Economy, it appears that for all the talk of individuals packing up and leaving the city, the number of cars found abandoned at the airport terminals, and the clearing of traffic clogging up the streets in an almost synchronised effort, the UAE’s population has grown by an impressive (and conveniently in-line-with-trend-over-the-last-ten-years) 6.3%, with an above trend increase of 7.8% in Dubai alone.
Now, whilst the initial (and preferred) reaction by many pundits, international observers and others that-take-joy-out-of-others’-misery would be to choke on their “all-natural” Pret-A-Manger sandwich sitting in the office corridors of empty Canary-Wharf and devastated downtown New-York, a little reflection in a moment of pause (a rare event when discussing emotive Dubai) may enable one to understand just how such a seemingly preposterous statistic could even be considered plausible by the UAE authorities. With all indicators to the contrary, the fact is was a UAE release, and not just Dubai’s, is also a double-edged sword. Depending on your view, it may be that Abu Dhabi’s ministry officials have been inflicted with a version of the swine-flu and gone hot-in-the-head, or that the figure is in fact genuine, well researched and documented. Going on instinct, it would seem that such a statistic would not be released in such sensitive times without some element of truth.
Regardless of the difficulty in obtaining hard-facts, what we do know still speaks for itself. Property purchases (as deemed by Emaar up until May 2008) have been heavily skewed by UAE, Indian, Iranian and Pakistani residents in Dubai (24%, 15%, 15% and 12% respectively). Many of these end up as landlords and may well have been hit-hard by the sudden crash in prices and the abundant escape of western ex-pats to their (cold) homelands, especially with the largest growing ex-pat population almost disappearing back into the pubs of Manchester in one fell swoop – (didn’t they only came and sit in pubs here anyway?). Even with that exodus, it is still a very small section of Dubai’s predominantly sub-continental population - Asian ex-pats make up 65% of the current population, “others” only 4%.
Growth through good men…
Anyone reading this from the west may have difficulty understanding the extremely strong family-bond that underlies middle and far eastern cultures, but an Indian bachelor living in a barely-affordable one bedroom apartment just a year ago, with his family back home, may well be a happier person now. Why? Well, the once too-expensive-to-even-dream-about two bedroom luxury apartment that had been marketed to the flush-with-ex-pat-package-cash has now become a truly attainable place of abode for our lonely bachelor. The first thing he does (disappointingly for some, he does not throw a huge house party and invite a whole bunch of beautiful people over) – he sends for his family. Good man. If we extrapolate from this that the majority of lonely bachelors in Dubai are in fact good men, then the figures for population growth may actually start to stack-up. The UAE has always insisted it will depend on immigration in numbers from the likes of India and Pakistan and this currently seems the most logical explanation to help us believe the official statistical release.
A quick drive around Dubai during the working week paints a very different picture to the one witnessed by visitors over the weekend. Malls are empty, streets are quiet. However, despite a number of articles and rumours to the contrary, villa developments and other new “affordable luxury” residences are still filling-up. There are undoubtedly far too many buildings to prevent a continued fall in property prices – but some would argue that this is only a natural consequence of the overly-inflated “easy-days”. Furthermore, lower housing prices play into the hands of the lower-income generating Dubai resident. There is no hard and fast solution for some of the woes Dubai is experiencing, and although many will not agree with the tone of the city nor enjoy what is has created to offer to its residents, it would take a brave investor to totally write-it-off without feeling they may be missing out on a rapid return to form once all the pieces of the population puzzle fall into place.
The sands are not about to become the only attraction in the UAE just yet.
Wednesday, 20 May 2009
Monday, 18 May 2009
Wooden Woes - 18th May
Week ahead…
After a relatively quiet weekend with very little news to cause excessive levels of acid in the stomachs of investment managers around the world, it’s a little too early to start projecting where we are headed this week, with a lot of uncertainty surrounding the major markets in early trading. So far, Asia has provided a mixed picture to anyone looking for a bit of clarity: Japan was off ahead of some of the busiest reporting days in the year, as full-year results continues to come in thick and fast – Panasonic and Aozora Bank two of the larger names this morning providing some food-for-negative-thought on future guidance. Everyone is fully aware of Japan’s export woes, but it seems the reminder of just how bad the situation is an excuse to cause a (let’s hope brief) re-lapse into depression. Other markets in Asia doing better, with China, Hong Kong and Taiwan rising confidently, but nothing when compared to the limit-up day on the Sensex in India (+17% today, now +46% YTD!) – India’s market jumped as previous indications to the 3-way spit proved inaccurate and the ruling Congress party-led alliance came in with an emphatic victory – who said exit polls were accurate (ehhm, and apologies for the misinformation last week that the conclusion was a 3-way split). For those still not confident on Asia recovering faster and then performing better than any other area, check out even Vietnam’s stellar performance +24% YTD.
Mid East markets are all trading higher as the return of oil towards $60/brl takes place and some opportune investments are made by those that have recently learnt more about the region and the various industries that exist within. Iraq (whilst not part of the GCC) even announcing a $66bn investment plan (albeit post-paid) that has had some positive repercussion on surrounding markets – remains to be seen whether all the contracts for infrastructure etc are simply awarded to US firms as in the past.
In Europe, markets have opened quite muted with no large news over the weekend to shape investors’ thoughts. The majors are all holding on to some modest gains though. Most interesting piece of news that Porsche and VW have brought the long-running family-saga to a premature end as the VW Chairman flexes his muscles and puts down his counterpart (also his cousin) in a rather public and brutal manner.
Gold had a strong run last week, up four days out of five, but is currently trading very slightly off, -0.04%, Interestingly, there was a lot of talk of renewed inflows into the Gold ETFs, as investors apparently have been positioning for the next qtr and not expecting much excitement. The gold price across consumer markets is still holding steady though (as attested to by a visiting tourist to Dubai’s empty Gold Souks last weekend) - demand for actual gold jewellery continues to languish at low levels without any sign of an imminent return to strength. Of course, our favourite leading indicator, the Baltic Dry Index continues to rise (12 days in a row now, +33%) – without getting too excited it is mostly a sign that inventory levels were so low for so long that shippers and traders are expecting at least some pick-up in the major trade routes as shelves are replenished with the goods consumers still want to (and most likely have to) buy.
On currencies, we’ve had a lot of talk in the last few days concerning Sterling’s perceived uncalled-for weakness – probably worth watching cable to be on the look-out for some short-term technical breaks. The Yen has come off a little this morning after strengthening all of last week vs US$ - Japan’s Finance Minister was warning against “excessive moves” in the currency.
Economic Releases this week: a relatively light schedule
US: Housing Starts (520k cons), Building Permits (530k cons), ABC Consumer Confidence (-42), MBA Mortgage Applications, and later in the week, Initial Jobless Claims (625k cons), Continuing Claims, Leading Indicators (+0.8%)
Europe: Euro-Zone Trade Balance (0.4b vs -0.3bn cons, Construction Output, PMI Manufacturing (38.3 cons)
Many missed this on Friday…for those not addicted to their troublesome and devilish little tech accessories, here you go…
Wooden Woes…
On returning from a recent trip to the US, an astute, and often correct investor pointed out that there are a vast number of very attractive and well appointed houses on sale on the west coast for roughly one third of their value just a year ago – but are there any buyers? Nope. And why not? Well, it’s not because mortgages aren’t available – they are, and in abundance, and it’s not because the wealth isn’t there – those living in San Francisco have some of the highest GDP per capita in the country.
The reason then? Most US homes are built using timber and other woods, meaning that even if some US investors decided to “go-for-it” and buy into a nest-egg home at must-buy prices, they would still have to pay a number of utility bills (heating for example) to prevent the house from suffering through damp and other wear-and-tear.
This results in two indicators: the first being that even the wealthier inhabitants of the wealthier parts of the US are worried about being able to make future payments on their utility bills for fear of losing their jobs within the next 12mths. The second, a great number of homes on the US west coast are likely to deteriorate (damp breeds termites), as they sit uninhabited, and may require demolition – leading to a squeeze on supply probably around the same time demand creeps back in, pushing prices higher and helping the many industries involved in house building!
It seems the termites may turn out to be the US’s saviour – if you can afford the house, and the termite exterminator bills for the next few years, go buy that dream home in San Diego.
After a relatively quiet weekend with very little news to cause excessive levels of acid in the stomachs of investment managers around the world, it’s a little too early to start projecting where we are headed this week, with a lot of uncertainty surrounding the major markets in early trading. So far, Asia has provided a mixed picture to anyone looking for a bit of clarity: Japan was off ahead of some of the busiest reporting days in the year, as full-year results continues to come in thick and fast – Panasonic and Aozora Bank two of the larger names this morning providing some food-for-negative-thought on future guidance. Everyone is fully aware of Japan’s export woes, but it seems the reminder of just how bad the situation is an excuse to cause a (let’s hope brief) re-lapse into depression. Other markets in Asia doing better, with China, Hong Kong and Taiwan rising confidently, but nothing when compared to the limit-up day on the Sensex in India (+17% today, now +46% YTD!) – India’s market jumped as previous indications to the 3-way spit proved inaccurate and the ruling Congress party-led alliance came in with an emphatic victory – who said exit polls were accurate (ehhm, and apologies for the misinformation last week that the conclusion was a 3-way split). For those still not confident on Asia recovering faster and then performing better than any other area, check out even Vietnam’s stellar performance +24% YTD.
Mid East markets are all trading higher as the return of oil towards $60/brl takes place and some opportune investments are made by those that have recently learnt more about the region and the various industries that exist within. Iraq (whilst not part of the GCC) even announcing a $66bn investment plan (albeit post-paid) that has had some positive repercussion on surrounding markets – remains to be seen whether all the contracts for infrastructure etc are simply awarded to US firms as in the past.
In Europe, markets have opened quite muted with no large news over the weekend to shape investors’ thoughts. The majors are all holding on to some modest gains though. Most interesting piece of news that Porsche and VW have brought the long-running family-saga to a premature end as the VW Chairman flexes his muscles and puts down his counterpart (also his cousin) in a rather public and brutal manner.
Gold had a strong run last week, up four days out of five, but is currently trading very slightly off, -0.04%, Interestingly, there was a lot of talk of renewed inflows into the Gold ETFs, as investors apparently have been positioning for the next qtr and not expecting much excitement. The gold price across consumer markets is still holding steady though (as attested to by a visiting tourist to Dubai’s empty Gold Souks last weekend) - demand for actual gold jewellery continues to languish at low levels without any sign of an imminent return to strength. Of course, our favourite leading indicator, the Baltic Dry Index continues to rise (12 days in a row now, +33%) – without getting too excited it is mostly a sign that inventory levels were so low for so long that shippers and traders are expecting at least some pick-up in the major trade routes as shelves are replenished with the goods consumers still want to (and most likely have to) buy.
On currencies, we’ve had a lot of talk in the last few days concerning Sterling’s perceived uncalled-for weakness – probably worth watching cable to be on the look-out for some short-term technical breaks. The Yen has come off a little this morning after strengthening all of last week vs US$ - Japan’s Finance Minister was warning against “excessive moves” in the currency.
Economic Releases this week: a relatively light schedule
US: Housing Starts (520k cons), Building Permits (530k cons), ABC Consumer Confidence (-42), MBA Mortgage Applications, and later in the week, Initial Jobless Claims (625k cons), Continuing Claims, Leading Indicators (+0.8%)
Europe: Euro-Zone Trade Balance (0.4b vs -0.3bn cons, Construction Output, PMI Manufacturing (38.3 cons)
Many missed this on Friday…for those not addicted to their troublesome and devilish little tech accessories, here you go…
Wooden Woes…
On returning from a recent trip to the US, an astute, and often correct investor pointed out that there are a vast number of very attractive and well appointed houses on sale on the west coast for roughly one third of their value just a year ago – but are there any buyers? Nope. And why not? Well, it’s not because mortgages aren’t available – they are, and in abundance, and it’s not because the wealth isn’t there – those living in San Francisco have some of the highest GDP per capita in the country.
The reason then? Most US homes are built using timber and other woods, meaning that even if some US investors decided to “go-for-it” and buy into a nest-egg home at must-buy prices, they would still have to pay a number of utility bills (heating for example) to prevent the house from suffering through damp and other wear-and-tear.
This results in two indicators: the first being that even the wealthier inhabitants of the wealthier parts of the US are worried about being able to make future payments on their utility bills for fear of losing their jobs within the next 12mths. The second, a great number of homes on the US west coast are likely to deteriorate (damp breeds termites), as they sit uninhabited, and may require demolition – leading to a squeeze on supply probably around the same time demand creeps back in, pushing prices higher and helping the many industries involved in house building!
It seems the termites may turn out to be the US’s saviour – if you can afford the house, and the termite exterminator bills for the next few years, go buy that dream home in San Diego.
Friday, 15 May 2009
Raven Markets - 15th May
Raven markets…
*It’s been a tough week for markets. Doomsayers have had to sit quietly in the corner for the last month or so as global investors shed their negative thoughts and delved into stocks to bring P/E ratios back to levels in line with the pre-Lehman collapse last year – but the none-believers, like a bunch of swirling, waiting, hungry ravens (Nouriel Roubini wears a lot of black), are looking for their next opportunity to swoop in and unleash a “we told you so” torrent of abuse on the pool of return-hungry-and-cash-rich-money-managers.
*This week, we’ve had Chrysler shut out its creditors and provide a dangerous precedent. One of the world’s most respected and held-in-awe companies, Toyota, announce the replacement of its management team - and this for a company in a country where life-employment is still the norm, and the recipe for making noodles has not changed one bit in 1,000 years. India held its elections, one-month long, 1 billion people or so voting, and the winner is? – a split decision three ways – that can’t be good. Even our man Obama has disappointed slightly by reversing a decision not to ban photos of alleged abuse by US soldiers – no one is perfect, but he’s still pretty close. The Brits have let us down with the banality of revelations of excess unwarranted member of parliament spending on expenses over the last four years – at least here in the UAE a Sheikh really knows how to shock, by torturing and running over a man that he isn’t too fond of – the Brits really are too reserved I guess!
*On the markets, we’ve seen them stutter, stumble, recover and then stutter again – that twilight zone theory holding steady and proving a haven for some short-term week-on-week trading. Asia has essentially ended the week flat, with a couple of days of trading where gains across the board were an avg. of +3%, but equally there were days where losses balanced things out. Europe has been a mixed bag but the majors mostly off small amounts for the week so far. The US has seen the S&P fall three days in a row, but futures so far (S&P +1.5pts, DJIA +23pts) pointing to Friday continuing Thursday’s gains.
As aforementioned, stocks appear correctly priced now, avg. 15x (far higher than the lows of avg. 8x in November). Long-term managers have to question whether having future earnings estimates quite as low as they are, makes for a rational bet to outguess the timing and strength of the market recovery – a bet now on the markets is not a declaration of faith in a company and its management, but an eyes-wide-shut view of the macro world ahead of us. Continuing to invest in stocks when technicals indicate fair-value, is an optimistic outlook on the speed of the economic recovery. With a number of potential blow-up factors still lurking in the shadows (mono-line insurers) it would be a brave soul to push for greater exposure to US and European markets right now. Asia is a different story though, and even the Economist this week has published a report on how the “crouching” Tiger economies will be the greatest examples of strong, sharp recoveries.
Sell in May and go away – but will you ever come back?
*Anecdotally, from conversation held with money managers across the continents, no one seems to really believe that we are out of the worst of the crisis – but few also believe that there are many negative shocks to send markets hurtling lower once again. On the more insightful discussions though, there is a sense that the huge amounts of cash that many had been sitting on were being put to good use for the time being in the knowledge that certain markets, the Asian economies again, are well on their way to re-shaping their financial growth models away from trade and export dependent industries to a more focused domestic consumption environment. Basically, Asian economies really will start to trade with another for the benefit of a local end-of-the-line consumer, China. The days where record levels of inter-Asian-nation trade simply led to 85% of the end-product being re-exported out to the US are over.
*So what will happen over the summer? Where will the still vast amounts of cash be deployed? Were the last couple of months the final hurrah by those seeking to plant their seeds and hope the crops come in before the thaw returns? Summer will provide a lot of time for investors to reflect and consider just how deep and structural this crisis really is. The longer-term minded will begin to read the many books currently being penned and awaiting final touches before summer publishing schedules – all waxing lyrical about the end of capitalism and how the western banking model destroyed the rest-of-the-world. The period of reflection and thought that normally follows a knee-jerk reaction to a crisis (the sell off between November and February) and then the first tentative steps at recovery (March till now) are the most crucial in any period of uncertainty. It may prove to be a case of too much time on people’s hands leads to too much time to contemplate the difficulties still ahead for the western world’s current financial system. Will they return to the markets when they return to their desks?
Here in the Middle East, they have the right idea come summer time. Normally, entire departments shut-down as the heat sets-in and those fortunate enough to be able to fly to the Mediterranean do so – and stay there, for a long time. This year however, Middle Easterners have the double whammy of a longer (in terms of number of hours of sunlight) earlier, and hotter, than previous years, Ramadan. With the start date firmly in the middle of the summer-holiday calendar of mid-August - investment banking movers and shakers will have their work cut-out for them if any financial institution is thinking of possibly blowing-itself up and requiring the deep-pockets of a white-knight - the sovereign wealth funds will be more than happy to leave it to western governments to deal with it as they lay by the pool in Cannes.
*It’s been a tough week for markets. Doomsayers have had to sit quietly in the corner for the last month or so as global investors shed their negative thoughts and delved into stocks to bring P/E ratios back to levels in line with the pre-Lehman collapse last year – but the none-believers, like a bunch of swirling, waiting, hungry ravens (Nouriel Roubini wears a lot of black), are looking for their next opportunity to swoop in and unleash a “we told you so” torrent of abuse on the pool of return-hungry-and-cash-rich-money-managers.
*This week, we’ve had Chrysler shut out its creditors and provide a dangerous precedent. One of the world’s most respected and held-in-awe companies, Toyota, announce the replacement of its management team - and this for a company in a country where life-employment is still the norm, and the recipe for making noodles has not changed one bit in 1,000 years. India held its elections, one-month long, 1 billion people or so voting, and the winner is? – a split decision three ways – that can’t be good. Even our man Obama has disappointed slightly by reversing a decision not to ban photos of alleged abuse by US soldiers – no one is perfect, but he’s still pretty close. The Brits have let us down with the banality of revelations of excess unwarranted member of parliament spending on expenses over the last four years – at least here in the UAE a Sheikh really knows how to shock, by torturing and running over a man that he isn’t too fond of – the Brits really are too reserved I guess!
*On the markets, we’ve seen them stutter, stumble, recover and then stutter again – that twilight zone theory holding steady and proving a haven for some short-term week-on-week trading. Asia has essentially ended the week flat, with a couple of days of trading where gains across the board were an avg. of +3%, but equally there were days where losses balanced things out. Europe has been a mixed bag but the majors mostly off small amounts for the week so far. The US has seen the S&P fall three days in a row, but futures so far (S&P +1.5pts, DJIA +23pts) pointing to Friday continuing Thursday’s gains.
As aforementioned, stocks appear correctly priced now, avg. 15x (far higher than the lows of avg. 8x in November). Long-term managers have to question whether having future earnings estimates quite as low as they are, makes for a rational bet to outguess the timing and strength of the market recovery – a bet now on the markets is not a declaration of faith in a company and its management, but an eyes-wide-shut view of the macro world ahead of us. Continuing to invest in stocks when technicals indicate fair-value, is an optimistic outlook on the speed of the economic recovery. With a number of potential blow-up factors still lurking in the shadows (mono-line insurers) it would be a brave soul to push for greater exposure to US and European markets right now. Asia is a different story though, and even the Economist this week has published a report on how the “crouching” Tiger economies will be the greatest examples of strong, sharp recoveries.
Sell in May and go away – but will you ever come back?
*Anecdotally, from conversation held with money managers across the continents, no one seems to really believe that we are out of the worst of the crisis – but few also believe that there are many negative shocks to send markets hurtling lower once again. On the more insightful discussions though, there is a sense that the huge amounts of cash that many had been sitting on were being put to good use for the time being in the knowledge that certain markets, the Asian economies again, are well on their way to re-shaping their financial growth models away from trade and export dependent industries to a more focused domestic consumption environment. Basically, Asian economies really will start to trade with another for the benefit of a local end-of-the-line consumer, China. The days where record levels of inter-Asian-nation trade simply led to 85% of the end-product being re-exported out to the US are over.
*So what will happen over the summer? Where will the still vast amounts of cash be deployed? Were the last couple of months the final hurrah by those seeking to plant their seeds and hope the crops come in before the thaw returns? Summer will provide a lot of time for investors to reflect and consider just how deep and structural this crisis really is. The longer-term minded will begin to read the many books currently being penned and awaiting final touches before summer publishing schedules – all waxing lyrical about the end of capitalism and how the western banking model destroyed the rest-of-the-world. The period of reflection and thought that normally follows a knee-jerk reaction to a crisis (the sell off between November and February) and then the first tentative steps at recovery (March till now) are the most crucial in any period of uncertainty. It may prove to be a case of too much time on people’s hands leads to too much time to contemplate the difficulties still ahead for the western world’s current financial system. Will they return to the markets when they return to their desks?
Here in the Middle East, they have the right idea come summer time. Normally, entire departments shut-down as the heat sets-in and those fortunate enough to be able to fly to the Mediterranean do so – and stay there, for a long time. This year however, Middle Easterners have the double whammy of a longer (in terms of number of hours of sunlight) earlier, and hotter, than previous years, Ramadan. With the start date firmly in the middle of the summer-holiday calendar of mid-August - investment banking movers and shakers will have their work cut-out for them if any financial institution is thinking of possibly blowing-itself up and requiring the deep-pockets of a white-knight - the sovereign wealth funds will be more than happy to leave it to western governments to deal with it as they lay by the pool in Cannes.
Thursday, 14 May 2009
Consumers - Made In China
Most consumers are familiar with the "Made in China" stigma - goods from toys to kitchenware, and now even cars, often derided as low-quality and often inferior copies of a far superior Japanese product. This is not likely to last though. If you were to ask anyone over the age of 60 if they recall jokes about goods "Made in Japan" during their days, they would be able to recite a raft of ridiculing, quick one-liners - a sign of how countries can re-invent themselves and continue to improve with determination and direction. The Japanese association with quality and success is now well-documented history, and anything produced from that country is looked at with respect and often awe - from their cars to their food. In another ten to fifteen years, China will likely have re-invented itself as well.
For the last thirty years, China has been the world's factory. This factory has produced goods for primarily one consumer, the now-infamous US Consumer. What if someone was to tell you, however, that your target audience would no longer exist in ten years, or at least would no longer be able to afford to buy half as many goods as they used to in two years? China has already questioned this issue and is beginning to alter their model and adapting their ideology from making things for everyone else, to making things for themselves and everyone else.
Hong Kong has long been a rather different place to the rest of China, much like even Shanghai and Beijing are vastly different as two cities within one vast country. HK of course is historically different largely due to the UK’s influence which only ended back in 1997. On a recent visit to HK and Asia’s answer to Las Vegas, Macau, the clearest expression (some would call it experiment) of the potential power and might of the "Made in China Consumer" was on very “in-your-face” display.
Hong Kong has always been a showy city, building bigger and better towers a favourite pastime - sorry Dubai, but HK got there long before you and not only perfected the “suspension of economics” model to last for many more years, but ended up with far more iconic buildings. Designer brands are a dime-a-dozen, and the fashionable parts of town heave with an overpopulated (7.5m est) people sporting the latest clothing and other accessories. It is very much a conspicuous consumption island, and it is on display for all to see at every opportunity. For a territory with fewer roads than one-sixth of New York, there are an impressive number of luxury cars - a common sight being children driven to kindergarten in their daddy’s Rolls Royce, even as the crowds surrounding them are offering their wares on street stalls trying to make ends meet by taking precious HK$s off the thronging tourists. Top-class restaurants, with top-class prices, nestle amidst local eateries where a full meal sets you back what it costs to buy an apple in Dubai, and luxury hotels and apartments spring into the air, leaving in their shadows sprawling, overcrowded “affordable” housing.
Even as a city of contrasts, the desire and very apparent “joie de vivre” of HK’s inhabitants is manifest - none more so than when the sun drops. As day turns into night and the haze of the harbour overlooking Kowloon subsides, HK’s revellers come-out-to-play. Unlike in other ex-pat cities though, HK’s biggest revellers are the Chinese themselves. They are found propping up against all the best bars and occupying all the best tables in the top clubs. In one of the most prestigious clubs frequented by what can only be described as the tastiest of the dim-sum on offer, I found myself one of only a handful of fortunate “gwailo” (foreigners) in a room swarming with at least five hundred. When enquiring whether I had stumbled upon a certain themed evening, I was told “the gwailo can’t really afford to party in here” – wow, it was an eye-opener to a city that for so many years had been run by foreigners but had now become a true power-centre for the immensely rich and powerful Chinese.
A cursory visit to Macau will make a convert out of anyone that does not believe the Chinese are big spenders. Revenues in Macau out-generate those of Vegas, and when you walk into one of the brand-new gleaming Wynn, MGM or Venetian Casinos, you’ll immediately understand why. Although the game of choice is Baccarat rather than (the much more exciting and rewarding, I think) Black Jack, the amounts bet on each hand are impressive. Where many of the “whales” in Vegas are traditionally from abroad (Japanese, Arabs and Russians) all the high-rollers in Macau are from the Chinese mainland. The real surprise comes from watching the winners (or even the losers for that matter!) spending huge sums of money in the many boutiques across the shopping malls craftily connected to the gaming floors. When the Chinese spend, they are as voracious in their appetites to purchase, as they are efficient in the art of mass production.
So there is no doubting that as China begins to shift into a higher gear of domestic consumption, which is for all intensive purposes running at pitiful levels, the world will be shocked by just how much money they have. What some may doubt though, is just how important a city like HK and even Shanghai may be to the rest of the world. Well, in an article today in the FT, it was discussed which city may prove to be the world's next global financial hub. Apart from a lack of mention of Dubai, or any other Middle Eastern city for that matter, was the premonition that Shanghai, and on top of that even Beijing, may take on the mantle that has so far been loftily held by either London or New York.
China’s State Council recently endorsed a plan to turn Shanghai into a global financial centre by 2020. This need not be at the expense of Hong Kong and Singapore. Shanghai may complement HK just as Boston, Miami and San Francisco do New York.
A prominent HK resident, late on a Sunday afternoon as he was heading back home after an afternoon spent at the Macau tables, pointed out the new buildings being constructed on the mainland side of HK, Kowloon – “this is all being built by China” he said, “we don’t need anyone else to come and lend us money, give us advice, or even provide labour to help construct the cities. What we need is people to quickly understand that they need us more than we need them”.
The "Made in China" label is well on its way to becoming known for a totally different product - the Chinese consumer. If you believe what many do after they return from a trip to China’s demonstration cities, the world needs them sooner rather than later.
For the last thirty years, China has been the world's factory. This factory has produced goods for primarily one consumer, the now-infamous US Consumer. What if someone was to tell you, however, that your target audience would no longer exist in ten years, or at least would no longer be able to afford to buy half as many goods as they used to in two years? China has already questioned this issue and is beginning to alter their model and adapting their ideology from making things for everyone else, to making things for themselves and everyone else.
Hong Kong has long been a rather different place to the rest of China, much like even Shanghai and Beijing are vastly different as two cities within one vast country. HK of course is historically different largely due to the UK’s influence which only ended back in 1997. On a recent visit to HK and Asia’s answer to Las Vegas, Macau, the clearest expression (some would call it experiment) of the potential power and might of the "Made in China Consumer" was on very “in-your-face” display.
Hong Kong has always been a showy city, building bigger and better towers a favourite pastime - sorry Dubai, but HK got there long before you and not only perfected the “suspension of economics” model to last for many more years, but ended up with far more iconic buildings. Designer brands are a dime-a-dozen, and the fashionable parts of town heave with an overpopulated (7.5m est) people sporting the latest clothing and other accessories. It is very much a conspicuous consumption island, and it is on display for all to see at every opportunity. For a territory with fewer roads than one-sixth of New York, there are an impressive number of luxury cars - a common sight being children driven to kindergarten in their daddy’s Rolls Royce, even as the crowds surrounding them are offering their wares on street stalls trying to make ends meet by taking precious HK$s off the thronging tourists. Top-class restaurants, with top-class prices, nestle amidst local eateries where a full meal sets you back what it costs to buy an apple in Dubai, and luxury hotels and apartments spring into the air, leaving in their shadows sprawling, overcrowded “affordable” housing.
Even as a city of contrasts, the desire and very apparent “joie de vivre” of HK’s inhabitants is manifest - none more so than when the sun drops. As day turns into night and the haze of the harbour overlooking Kowloon subsides, HK’s revellers come-out-to-play. Unlike in other ex-pat cities though, HK’s biggest revellers are the Chinese themselves. They are found propping up against all the best bars and occupying all the best tables in the top clubs. In one of the most prestigious clubs frequented by what can only be described as the tastiest of the dim-sum on offer, I found myself one of only a handful of fortunate “gwailo” (foreigners) in a room swarming with at least five hundred. When enquiring whether I had stumbled upon a certain themed evening, I was told “the gwailo can’t really afford to party in here” – wow, it was an eye-opener to a city that for so many years had been run by foreigners but had now become a true power-centre for the immensely rich and powerful Chinese.
A cursory visit to Macau will make a convert out of anyone that does not believe the Chinese are big spenders. Revenues in Macau out-generate those of Vegas, and when you walk into one of the brand-new gleaming Wynn, MGM or Venetian Casinos, you’ll immediately understand why. Although the game of choice is Baccarat rather than (the much more exciting and rewarding, I think) Black Jack, the amounts bet on each hand are impressive. Where many of the “whales” in Vegas are traditionally from abroad (Japanese, Arabs and Russians) all the high-rollers in Macau are from the Chinese mainland. The real surprise comes from watching the winners (or even the losers for that matter!) spending huge sums of money in the many boutiques across the shopping malls craftily connected to the gaming floors. When the Chinese spend, they are as voracious in their appetites to purchase, as they are efficient in the art of mass production.
So there is no doubting that as China begins to shift into a higher gear of domestic consumption, which is for all intensive purposes running at pitiful levels, the world will be shocked by just how much money they have. What some may doubt though, is just how important a city like HK and even Shanghai may be to the rest of the world. Well, in an article today in the FT, it was discussed which city may prove to be the world's next global financial hub. Apart from a lack of mention of Dubai, or any other Middle Eastern city for that matter, was the premonition that Shanghai, and on top of that even Beijing, may take on the mantle that has so far been loftily held by either London or New York.
China’s State Council recently endorsed a plan to turn Shanghai into a global financial centre by 2020. This need not be at the expense of Hong Kong and Singapore. Shanghai may complement HK just as Boston, Miami and San Francisco do New York.
A prominent HK resident, late on a Sunday afternoon as he was heading back home after an afternoon spent at the Macau tables, pointed out the new buildings being constructed on the mainland side of HK, Kowloon – “this is all being built by China” he said, “we don’t need anyone else to come and lend us money, give us advice, or even provide labour to help construct the cities. What we need is people to quickly understand that they need us more than we need them”.
The "Made in China" label is well on its way to becoming known for a totally different product - the Chinese consumer. If you believe what many do after they return from a trip to China’s demonstration cities, the world needs them sooner rather than later.
Thursday, 7 May 2009
Saudi Shifting - 7th May
*Not wanting to beat a dead horse, we’ll keep it shorter than normal today on the international markets so that we can sit and analyse all the fun of the stress-test results when the rumours have subsided and the boring reality of the facts are known. US futures currently reacting well to news that the results will be “re-assuring”: DJIA +51pts, S&P +4.6pts.
*There are no banks in a position of possible insolvency it now appears, but Bank Of America must be stressed to its eyeballs with Merrill Lynch as it certainly seems the brunt of its capital raising requirements are a direct result of their new purchase’s past purchases – an absence of a pre-nup in that marriage truly coming back to haunt BofA…which was the wife I wonder?
*We’ve had a lot of buying in cyclicals in the last few days and although some commentators believe this should end soon, there is a growing disagreement between the need to get back into the defensives and the continuation of the trade switch. Clearly we are still in the midst of an uncertain market, where the optimists seeing the good in even the bad (the second derivative being a prime example) outweigh negative sentiment and talk of more looming doom and gloom. The roster of disappointing corporate results is behind us for now, and investors are starting to feel for the ledge with their feet to determine whether there is another level on these markets to propel themselves to, or will they all slip and fall? No clear answer for now, more time needed.
*Looks like the ECB will be reducing rates to 1% in a short while (Bank of England maintained rates unchanged at 0.5%) – the reaction at the moment in Europe very positive. Majors are all trading up, with a good +2% avg. gain.
*Asia had a good day across the range, with Japan playing catch-up as it hurtled to a 4.5% rise. Hong Kong rising well again on belief US consumers are coming back soon and will facilitate trade in the medium-term – take a look at the Baltic Dry Index in the last three days – we were up 8.2% yesterday, the largest one day appreciation since early February this year – could it be we are really about to see some of the leading indicators take a turn or are we just kidding ourselves into an exceedingly disappointing realisation when the tide turns in a few weeks – no one seems sure at the moment, so it remains a great time to trade in and out.
*In keeping with this, Middle East markets are moving higher as the price of Oil seemingly recovers – we are in touching distance of $60/brl now in what has been a strong and quick break-out from the $50/brl range we seemed stuck in for several weeks. Gold continues to play as an inflation/deflation boom/bust hedge (it’s everything!) and itself has broken out of the 50day moving average and trading above $920, if it closes there would be first time since early last month.
Saudi shifts a little more…
Just following on from yesterday, a couple of points that had some people thinking on the back of the announcement that the GCC Central Bank will be located in Riyadh, Saudi Arabia: it has long been an extremely difficult place and many travellers have often been shocked at the temerity with which officials at the airport deal with the smallest errors on the visa application. Too many times to be simply a coincidence, passengers getting off planes from other parts of the GCC have had to return because their “papers were not in order”. That was a few years back though. In the last 5 years, and with King Abdullah at the helm, the growing ease with which business visas are obtained has been very noticeable. The importance of the religious police has slightly (only very slightly, but enough to make an impression) lessened. The latest move, and what must have been a concerted effort by Saudi to ensure it had its way with the GCC Central Bank, will only make things easier for those wanting to travel to the capital and throughout the nation.
Already “tourist visas” are possible – not as easily as many would want, but still a quicker and relatively easier route than the traditional visa process. With the Central Bank being an highly public and visible entity that will undoubtedly require a great deal of attention from local and international investment bankers, service providers, relationship managers and others involved in the financial world, the ease with which it can be visited will have to addressed even further.
At the moment, even for a business visa it can still take 3-5days to obtain clearance to visit the Kingdom. I do not see many urgent meetings the Central Bank will indubitably bring about, being able to wait 3-5days for clearance – it can be argued that this is just another step in the gradual opening up process of the Kingdom. All a part of the master plan that King Abdullah has been manoeuvring into place since his ascension to the throne in 2005.
Furthermore, for all that the likes of Abu Dhabi, Dubai, Bahrain and Qatar have (very admirably) done to create an open and attractive living environment, the truth of the matter is that Saudi’s reserves and their continued oil producing dominance make a strong and rational case for the Central Bank to be located in the Kingdom. However, the ease with which Western ex-pat families and workers are able to acclimatise their lifestyles to the “Middle-East” as a result of a relaxed approach to living (read: drinking and walking around in Western clothing) in those cities will leave Riyadh and the rest of Saudi in a seismic-shifting position of choice, sooner rather than later. With all the new economic cities that are being built across the Kingdom, it will become more and more self-evident that some changes to the traditionally strict Saudi way of life all are made to lead will have to change. The Central Bank may be just another small step in the very slow yet purposeful trek across the desert of increased freedom that the current Saudi King is intent on completing.
Radio blues…
On just a light note, what’s up with all the radio stations in the UAE possessing some sort of inexplicable obsession with American Idol and Hollywood gossip? When I wake up in the morning, like most others, I assume, I want to listen to a little music followed by some news – all we ever seem to get on Dubai radio stations (apart from Akon and Britney Spears) is talk about the latest comings and goings of Simon Cowell and the hopeful singers in the talent show across the Pond, as well as whether or not Paris Hilton really is pregnant. At times of great stress and in this current financial crisis it is always advisable to take a break from reality and focus on some entertaining issues in life, but totally absorbing oneself in the (meaningless) lives of others cannot be good for the soul. For a while Dubai was creating its own character and learning from a serious dosage of humility as it grappled with an uncertain future and a very visible reduction in lavish lifestyles, but with this trend on the city’s radio stations, it is a worrying sign that the backlash against decency and a raising of the intellect may have begun. Britney must be happy, but with questions like “What is 10% of 400Dhs” on the daily “quiz” show (for adults!), someone pleeeeaaase hit the radio producer one more time.
*There are no banks in a position of possible insolvency it now appears, but Bank Of America must be stressed to its eyeballs with Merrill Lynch as it certainly seems the brunt of its capital raising requirements are a direct result of their new purchase’s past purchases – an absence of a pre-nup in that marriage truly coming back to haunt BofA…which was the wife I wonder?
*We’ve had a lot of buying in cyclicals in the last few days and although some commentators believe this should end soon, there is a growing disagreement between the need to get back into the defensives and the continuation of the trade switch. Clearly we are still in the midst of an uncertain market, where the optimists seeing the good in even the bad (the second derivative being a prime example) outweigh negative sentiment and talk of more looming doom and gloom. The roster of disappointing corporate results is behind us for now, and investors are starting to feel for the ledge with their feet to determine whether there is another level on these markets to propel themselves to, or will they all slip and fall? No clear answer for now, more time needed.
*Looks like the ECB will be reducing rates to 1% in a short while (Bank of England maintained rates unchanged at 0.5%) – the reaction at the moment in Europe very positive. Majors are all trading up, with a good +2% avg. gain.
*Asia had a good day across the range, with Japan playing catch-up as it hurtled to a 4.5% rise. Hong Kong rising well again on belief US consumers are coming back soon and will facilitate trade in the medium-term – take a look at the Baltic Dry Index in the last three days – we were up 8.2% yesterday, the largest one day appreciation since early February this year – could it be we are really about to see some of the leading indicators take a turn or are we just kidding ourselves into an exceedingly disappointing realisation when the tide turns in a few weeks – no one seems sure at the moment, so it remains a great time to trade in and out.
*In keeping with this, Middle East markets are moving higher as the price of Oil seemingly recovers – we are in touching distance of $60/brl now in what has been a strong and quick break-out from the $50/brl range we seemed stuck in for several weeks. Gold continues to play as an inflation/deflation boom/bust hedge (it’s everything!) and itself has broken out of the 50day moving average and trading above $920, if it closes there would be first time since early last month.
Saudi shifts a little more…
Just following on from yesterday, a couple of points that had some people thinking on the back of the announcement that the GCC Central Bank will be located in Riyadh, Saudi Arabia: it has long been an extremely difficult place and many travellers have often been shocked at the temerity with which officials at the airport deal with the smallest errors on the visa application. Too many times to be simply a coincidence, passengers getting off planes from other parts of the GCC have had to return because their “papers were not in order”. That was a few years back though. In the last 5 years, and with King Abdullah at the helm, the growing ease with which business visas are obtained has been very noticeable. The importance of the religious police has slightly (only very slightly, but enough to make an impression) lessened. The latest move, and what must have been a concerted effort by Saudi to ensure it had its way with the GCC Central Bank, will only make things easier for those wanting to travel to the capital and throughout the nation.
Already “tourist visas” are possible – not as easily as many would want, but still a quicker and relatively easier route than the traditional visa process. With the Central Bank being an highly public and visible entity that will undoubtedly require a great deal of attention from local and international investment bankers, service providers, relationship managers and others involved in the financial world, the ease with which it can be visited will have to addressed even further.
At the moment, even for a business visa it can still take 3-5days to obtain clearance to visit the Kingdom. I do not see many urgent meetings the Central Bank will indubitably bring about, being able to wait 3-5days for clearance – it can be argued that this is just another step in the gradual opening up process of the Kingdom. All a part of the master plan that King Abdullah has been manoeuvring into place since his ascension to the throne in 2005.
Furthermore, for all that the likes of Abu Dhabi, Dubai, Bahrain and Qatar have (very admirably) done to create an open and attractive living environment, the truth of the matter is that Saudi’s reserves and their continued oil producing dominance make a strong and rational case for the Central Bank to be located in the Kingdom. However, the ease with which Western ex-pat families and workers are able to acclimatise their lifestyles to the “Middle-East” as a result of a relaxed approach to living (read: drinking and walking around in Western clothing) in those cities will leave Riyadh and the rest of Saudi in a seismic-shifting position of choice, sooner rather than later. With all the new economic cities that are being built across the Kingdom, it will become more and more self-evident that some changes to the traditionally strict Saudi way of life all are made to lead will have to change. The Central Bank may be just another small step in the very slow yet purposeful trek across the desert of increased freedom that the current Saudi King is intent on completing.
Radio blues…
On just a light note, what’s up with all the radio stations in the UAE possessing some sort of inexplicable obsession with American Idol and Hollywood gossip? When I wake up in the morning, like most others, I assume, I want to listen to a little music followed by some news – all we ever seem to get on Dubai radio stations (apart from Akon and Britney Spears) is talk about the latest comings and goings of Simon Cowell and the hopeful singers in the talent show across the Pond, as well as whether or not Paris Hilton really is pregnant. At times of great stress and in this current financial crisis it is always advisable to take a break from reality and focus on some entertaining issues in life, but totally absorbing oneself in the (meaningless) lives of others cannot be good for the soul. For a while Dubai was creating its own character and learning from a serious dosage of humility as it grappled with an uncertain future and a very visible reduction in lavish lifestyles, but with this trend on the city’s radio stations, it is a worrying sign that the backlash against decency and a raising of the intellect may have begun. Britney must be happy, but with questions like “What is 10% of 400Dhs” on the daily “quiz” show (for adults!), someone pleeeeaaase hit the radio producer one more time.
Monday, 4 May 2009
Monthly Mirth - 4th May
Monthly mirth…
The pandemic had subsided temporarily over the weekend as fewer cases were reported, but the spread across the US confirmed this morning has encouraged authorities to ensure all remain aware of the potential dangers. The great US stress-test debacle has once more been pushed back to Thursday amidst rumours Citi and BofA will need to raise capital in the near future ($10bn in total is reported figure). As if Wall Street hasn’t experienced enough turbulent times in recent months, reports today seek to confirm New York was once hit by a massive tsunami (in 300BC) flowing over from the eastern Atlantic, and may be open to a repeat performance – another soaking for bankers. Fiat succeeds in both its endeavours for Chrysler and GM Europe. Funny that, as one charming Italian manages to woo not one but two new partners, his countryman’s president, Berlusconi, managed to make a total mess of his marriage – his wife has declared she “must” divorce him to get away from his constant “flirtations” with other women – really…Berlusconi not a faithful character? – shocking revelation.
*Great start to the month for markets as Asia returns from a long weekend holiday to push markets high and far – seems the holiday break had all the right ingredients for many people and the positive outlook on the economy they had been fumbling with over the last few weeks now taking hold – but for how long? Japan is still closed until Thursday, but all other markets were buoyed by the consensus reached by the Asian economies to create and finance a $120bn currency reserve fund (almost ¾ from Japan), better than expected manufacturing numbers out of China, Chinalco’s continued pursuit of Rio Tinto, as well as the China/Taiwan agreement. A number of upgrades across the region by international brokers also helped matters, such as China Mobile (+10% today). Some short-covering has certainly been noted, but volume has kept up well, and in the absence of a number of players via the UK bank holiday, it is a good sign of interest returning to the region.
*In fact, Hong Kong opened higher and just kept going, matching pace with Taiwan and Korea (+5.5%, +5.6%, +2.1% respectively). All the ASEAN nations participated in today’s strong market sentiment, with even Vietnam +4.7%, in a real sign of a return of some investor risk appetite. A cursory look at any financial screen will show a significantly different picture to the start of ’09, with many +ve YTD returns now prevailing. Several markets are touching 7mth highs – where markets go from here is a crucial case of whether we have real long-term confidence or have simply enjoyed short/medium term opportunistic trading.
*So far, Europe has reacted slightly more demurely after their long-weekend break (UK closed today), with some decent gains on decent volume, but nowhere as bullish or widespread as further East. News that Euro area GDP will shrink by about 4% this year (double earlier predictions) bringing some down-to-earth but not enough to eradicate all positive outlooks. It seems the ECB will hold a meeting later this week to revisit some additional measures to facilitate the member economies – talk of a floor having at least been created seemingly helping markets remain positive for now .The risk of further capitulation selling now looking more distant than just 6 weeks ago. Realistically though, whilst we are in the midst of what our global strategy team terms “the twilight zone” markets will continue to oscillate between periods of significant gain, followed by further disposals for several months at least as more of a clearer picture continues to emerge. Government efforts have helped with this first oscillation upwards, combined with some welcome respite from any major negative financial “blow-ups”. We are certainly at the very beginning of this period though, and it will take time till consensus and level-heads prevail.
*Just back on the Fiat story – it is slightly ironic that the most capitalist indication of Darwinian “survival of the fittest” is embodied in the charismatic Marchionne who is admiringly looking to seek a great advantage on the back of the current industry woe’s – creating a European supergroup that will surely enjoy some great returns once markets and consumers return – if they do.
*Some releases to look out for: Euro-Zone PPI (-2.9% YoY cons, -0.6% MoM cons), Retail Sales (0.1% March cons), ECB Rate Announcement on Thursday. In the US: Construction spending later today (-1.7% March cons), Non-farm productivity on Thursday as well as Initial jobless claims and the all important change in Non-Farm Payrolls on Friday (Apr -606k cons).
*If Buffet is to be believed, he is cautiously optimistic for US corporate strength in 2010 but does not see much reason to take views over 2009. He is of course a heavily invested long-term player and the coupon payments he is enjoying on some of his larger stakes (Goldman Sachs comes to mind) are serving him well as he sits back and awaits the inevitable capital accumulation. A few risk indicators are turning positive as we have higher Oil, Gold and CDS spreads continue to narrow.
*US futures looking good a couple of hours ahead of the open: DJIA +49pts, S&P +5.5pts. What might helps markets this week are a number of risk indicators turning positive as mentioned above. AUD play and similar trades are all gaining, and the Baltic Dry Index is up again and is experiencing its own “twilight zone” period as shipping companies are probably trying to digest all the latest global macro-data to determine what demand may exist through global trade requirements.
*Currencies have seen cable remain firmly at 1.49 over the last several days as traders contemplate the next phase.
The pandemic had subsided temporarily over the weekend as fewer cases were reported, but the spread across the US confirmed this morning has encouraged authorities to ensure all remain aware of the potential dangers. The great US stress-test debacle has once more been pushed back to Thursday amidst rumours Citi and BofA will need to raise capital in the near future ($10bn in total is reported figure). As if Wall Street hasn’t experienced enough turbulent times in recent months, reports today seek to confirm New York was once hit by a massive tsunami (in 300BC) flowing over from the eastern Atlantic, and may be open to a repeat performance – another soaking for bankers. Fiat succeeds in both its endeavours for Chrysler and GM Europe. Funny that, as one charming Italian manages to woo not one but two new partners, his countryman’s president, Berlusconi, managed to make a total mess of his marriage – his wife has declared she “must” divorce him to get away from his constant “flirtations” with other women – really…Berlusconi not a faithful character? – shocking revelation.
*Great start to the month for markets as Asia returns from a long weekend holiday to push markets high and far – seems the holiday break had all the right ingredients for many people and the positive outlook on the economy they had been fumbling with over the last few weeks now taking hold – but for how long? Japan is still closed until Thursday, but all other markets were buoyed by the consensus reached by the Asian economies to create and finance a $120bn currency reserve fund (almost ¾ from Japan), better than expected manufacturing numbers out of China, Chinalco’s continued pursuit of Rio Tinto, as well as the China/Taiwan agreement. A number of upgrades across the region by international brokers also helped matters, such as China Mobile (+10% today). Some short-covering has certainly been noted, but volume has kept up well, and in the absence of a number of players via the UK bank holiday, it is a good sign of interest returning to the region.
*In fact, Hong Kong opened higher and just kept going, matching pace with Taiwan and Korea (+5.5%, +5.6%, +2.1% respectively). All the ASEAN nations participated in today’s strong market sentiment, with even Vietnam +4.7%, in a real sign of a return of some investor risk appetite. A cursory look at any financial screen will show a significantly different picture to the start of ’09, with many +ve YTD returns now prevailing. Several markets are touching 7mth highs – where markets go from here is a crucial case of whether we have real long-term confidence or have simply enjoyed short/medium term opportunistic trading.
*So far, Europe has reacted slightly more demurely after their long-weekend break (UK closed today), with some decent gains on decent volume, but nowhere as bullish or widespread as further East. News that Euro area GDP will shrink by about 4% this year (double earlier predictions) bringing some down-to-earth but not enough to eradicate all positive outlooks. It seems the ECB will hold a meeting later this week to revisit some additional measures to facilitate the member economies – talk of a floor having at least been created seemingly helping markets remain positive for now .The risk of further capitulation selling now looking more distant than just 6 weeks ago. Realistically though, whilst we are in the midst of what our global strategy team terms “the twilight zone” markets will continue to oscillate between periods of significant gain, followed by further disposals for several months at least as more of a clearer picture continues to emerge. Government efforts have helped with this first oscillation upwards, combined with some welcome respite from any major negative financial “blow-ups”. We are certainly at the very beginning of this period though, and it will take time till consensus and level-heads prevail.
*Just back on the Fiat story – it is slightly ironic that the most capitalist indication of Darwinian “survival of the fittest” is embodied in the charismatic Marchionne who is admiringly looking to seek a great advantage on the back of the current industry woe’s – creating a European supergroup that will surely enjoy some great returns once markets and consumers return – if they do.
*Some releases to look out for: Euro-Zone PPI (-2.9% YoY cons, -0.6% MoM cons), Retail Sales (0.1% March cons), ECB Rate Announcement on Thursday. In the US: Construction spending later today (-1.7% March cons), Non-farm productivity on Thursday as well as Initial jobless claims and the all important change in Non-Farm Payrolls on Friday (Apr -606k cons).
*If Buffet is to be believed, he is cautiously optimistic for US corporate strength in 2010 but does not see much reason to take views over 2009. He is of course a heavily invested long-term player and the coupon payments he is enjoying on some of his larger stakes (Goldman Sachs comes to mind) are serving him well as he sits back and awaits the inevitable capital accumulation. A few risk indicators are turning positive as we have higher Oil, Gold and CDS spreads continue to narrow.
*US futures looking good a couple of hours ahead of the open: DJIA +49pts, S&P +5.5pts. What might helps markets this week are a number of risk indicators turning positive as mentioned above. AUD play and similar trades are all gaining, and the Baltic Dry Index is up again and is experiencing its own “twilight zone” period as shipping companies are probably trying to digest all the latest global macro-data to determine what demand may exist through global trade requirements.
*Currencies have seen cable remain firmly at 1.49 over the last several days as traders contemplate the next phase.
Friday, 1 May 2009
Trailer-Park Deserts - 1st May
Trailer-park deserts…never!
*With so much of the world either in or about to enter a brief yet much needed Labour-day holiday period (really nothing more than a long-weekend across Europe and US, slightly longer for those living in Asia) it’s interesting to reflect on the choices offered for the purpose of the all-important job of winding-down – with very little money seemingly available in personal coffers these days and a prevailing sense of saving every penny “just-in-case”, it doesn’t seem right anymore to book one’s family into an expensive and luxurious resort for some pampering. Not only that, but with pig-flu flying around the urge to jump on a plane and explore abroad has suddenly dissipated. Why travel to a place where you will encounter infuriating communication problems by virtue of not understanding the language, and where disappointment will invariably arise from the level of service received for the price paid. Travel now also poses a possible threat to your future well-being thanks to the swines!
So what choice does one have? Well, there’s a reason the entertainment industry that provides endless hours of fun on DVD and other forms of media are flourishing – many are choosing to sit at home. What if you’ve been sitting at home for the last few months though? Many have resorted to doing something they normally would have considered beneath themselves – discovering their own backyard and travelling around the very country they reside in. In the US, cross-country holidays are the norm, but in recent months record-sales of caravans and other multi-purpose vehicles have been recorded across Europe and Asia. That is all well and good, but it doesn’t really work for the Middle East I’m afraid. Any self-respecting local family (or many ex-pat families for that matter) would rather be declared bankrupt than caught driving their family around in a big-camper. On top, the joy of driving from terrain to terrain as one might expect in Europe as you move from the flowing fields of rural France to the mountainous magnificence of Switzerland, or the ease with which borders can be crossed with multi-nation agreements, doesn’t translate so well in the GCC. Moving from one vast sand dune landscape to another, wait, yes another sand dune landscape, is really not that thrilling – trust me. Ever (I doubt it very much) wanted to drive from Dubai to Doha? Well – you can’t. Saudi has taken care of that. You have to pass Saudi controlled land once leaving the UAE before you can then enter Qatar. Difficult enough when you are alone in a car, I can’t expect much more luck when the border-crossing guards spot you driving up in your family-camper singing road-trip songs.
Could this be the reason GCC states are experiencing a strong recent period of credit-crunch resilience? Even with all of Dubai’s property woes and endless discussions in the international press about just how deep the crisis has destroyed the joie-de-vivre and lavish lifestyles many strived for, a distinct desire to continue enjoying life-to-its-fullest has once more taken hold. As with many crisis-hit cities, the initial two/three month aftermath was quite dire. Anyone visiting the GCC will definitely have noticed just how hard the proverbial had hit the fan in Dubai and spread across the entire region back in December. It seemed depression was all around. Of course, the press and silly media reports focusing on nothing but the negatives did not help matters, but the truth was plain for all to see as many packed-up and left either out of choice or unfortunate necessity. Without wanting to re-hash those darkest of times, it was certainly a heavy-period.
Group therapy…
In what will prove to be a great study of human-socio-psychology in later years, Dubai in particular has expressed a most bizarre reaction to the darkest days of the crisis. Despite prices not having adjusted yet (yes, you Zuma) in many parts of the economy outside of property, there was a sudden and almost herd-like acceptance of the situation many had found themselves in, and then an almost telepathic agreement to get out and frequent restaurants, clubs and bars. Call it denial, call it simply not giving-in or even the best expression of human optimism, but the buzz of life returned to Dubai in one fell swoop (funnily enough it was around the same time UAE’s Central Bank, aka Abu Dhabi, came in to support a $10bn Dubai bond issue). Now, this has happened to many other cities as well in past weeks, as seen in recent reporting from London for example, and will continue as the overriding emotion to enjoy oneself takes hold, but it is the magnified manner in which Dubai expressed such a sudden seismic shift in attitudes that is notable.
One weekend, parts of the city were apparent ghost-towns. Literally a week later, you were unable to reserve a table or step into an establishment without having to plead with the host to allow you to squeeze in – it was as if a mass text-message had been sent out by UAE authorities ordering all residents to get-out and have fun. In such a small city with such limited areas to choose from, it was a real eye-opener to just how easily influenced individuals can be when played into groups. The traditional “I don’t’ want to be left out” insecurity of many that reside in cities like Dubai certainly had a part to play, but it is more simply that attitudes had adjusted and there is certainly a new appreciation for value-for-money. Whilst many bars and clubs are indeed full to the brim, any cursory conversations with management will reveal a marked decrease in volume of trade – people are ordering less, and hence paying less. So whilst on the surface of things it looks as though cities like Dubai and others have returned to form, the only thing that has really returned is the undeniable need for people to take pleasure in life.
Markets – hit upwards but not out of the ball-park
This human toughness has certainly had its repercussion on the markets. It’s actually been a big week for markets – as we saw yesterday, all the majors were strong across the globe. The problem is that the US opened higher by 1.5% only to shed all of the gains over the course of the trading day and even ended off -0.22% at the close. The reason? Many actually…from a realisation that the recent markets moves were extremely welcome but still nothing more than a much needed re-allocation of vast piles of cash that money-managers had been sitting on for too long.
At some point, the people trusting you to invest their hard-earned savings will start questioning why they continue to pay 2% annual management charges for apparently little more than maintaining the fund’s plush offices.
*Much of Asia is closed for the traditional May holiday today– Tokyo is going into its holiday period next week but traded today along with Australasia and Indonesia (all slightly up). There was also confirmation that in Japan that SMFG will buy all of Citigroup’s Japanese brokerage businesses for $5.5bn – should help Citi shore up its capital base ahead of the stress-test results the Treasury will be releasing early next week.
*On the stress-tests, seems the Treasury has realised what a mess of the entire process they have made that rather than releasing nothing more than a summary of the results they will provide a full detailed analysis for all to see.
*All of Europe is shut except the UK (poor things – but they get Monday off) where the FTSE has traded quite flat ahead of the US open – where futures are currently indicating a decent opening: DJIA +27pts and S&P 3.6pts.
*Gold and oil have both slightly slipped today, but crude is still above the all-important $50/brl. We’ve seen a close return to USD/Yen of 100 which is a good sign for future moves in Japan’s industry-exporting dominated markets and possibly a future indicator for trade.
*With so much of the world either in or about to enter a brief yet much needed Labour-day holiday period (really nothing more than a long-weekend across Europe and US, slightly longer for those living in Asia) it’s interesting to reflect on the choices offered for the purpose of the all-important job of winding-down – with very little money seemingly available in personal coffers these days and a prevailing sense of saving every penny “just-in-case”, it doesn’t seem right anymore to book one’s family into an expensive and luxurious resort for some pampering. Not only that, but with pig-flu flying around the urge to jump on a plane and explore abroad has suddenly dissipated. Why travel to a place where you will encounter infuriating communication problems by virtue of not understanding the language, and where disappointment will invariably arise from the level of service received for the price paid. Travel now also poses a possible threat to your future well-being thanks to the swines!
So what choice does one have? Well, there’s a reason the entertainment industry that provides endless hours of fun on DVD and other forms of media are flourishing – many are choosing to sit at home. What if you’ve been sitting at home for the last few months though? Many have resorted to doing something they normally would have considered beneath themselves – discovering their own backyard and travelling around the very country they reside in. In the US, cross-country holidays are the norm, but in recent months record-sales of caravans and other multi-purpose vehicles have been recorded across Europe and Asia. That is all well and good, but it doesn’t really work for the Middle East I’m afraid. Any self-respecting local family (or many ex-pat families for that matter) would rather be declared bankrupt than caught driving their family around in a big-camper. On top, the joy of driving from terrain to terrain as one might expect in Europe as you move from the flowing fields of rural France to the mountainous magnificence of Switzerland, or the ease with which borders can be crossed with multi-nation agreements, doesn’t translate so well in the GCC. Moving from one vast sand dune landscape to another, wait, yes another sand dune landscape, is really not that thrilling – trust me. Ever (I doubt it very much) wanted to drive from Dubai to Doha? Well – you can’t. Saudi has taken care of that. You have to pass Saudi controlled land once leaving the UAE before you can then enter Qatar. Difficult enough when you are alone in a car, I can’t expect much more luck when the border-crossing guards spot you driving up in your family-camper singing road-trip songs.
Could this be the reason GCC states are experiencing a strong recent period of credit-crunch resilience? Even with all of Dubai’s property woes and endless discussions in the international press about just how deep the crisis has destroyed the joie-de-vivre and lavish lifestyles many strived for, a distinct desire to continue enjoying life-to-its-fullest has once more taken hold. As with many crisis-hit cities, the initial two/three month aftermath was quite dire. Anyone visiting the GCC will definitely have noticed just how hard the proverbial had hit the fan in Dubai and spread across the entire region back in December. It seemed depression was all around. Of course, the press and silly media reports focusing on nothing but the negatives did not help matters, but the truth was plain for all to see as many packed-up and left either out of choice or unfortunate necessity. Without wanting to re-hash those darkest of times, it was certainly a heavy-period.
Group therapy…
In what will prove to be a great study of human-socio-psychology in later years, Dubai in particular has expressed a most bizarre reaction to the darkest days of the crisis. Despite prices not having adjusted yet (yes, you Zuma) in many parts of the economy outside of property, there was a sudden and almost herd-like acceptance of the situation many had found themselves in, and then an almost telepathic agreement to get out and frequent restaurants, clubs and bars. Call it denial, call it simply not giving-in or even the best expression of human optimism, but the buzz of life returned to Dubai in one fell swoop (funnily enough it was around the same time UAE’s Central Bank, aka Abu Dhabi, came in to support a $10bn Dubai bond issue). Now, this has happened to many other cities as well in past weeks, as seen in recent reporting from London for example, and will continue as the overriding emotion to enjoy oneself takes hold, but it is the magnified manner in which Dubai expressed such a sudden seismic shift in attitudes that is notable.
One weekend, parts of the city were apparent ghost-towns. Literally a week later, you were unable to reserve a table or step into an establishment without having to plead with the host to allow you to squeeze in – it was as if a mass text-message had been sent out by UAE authorities ordering all residents to get-out and have fun. In such a small city with such limited areas to choose from, it was a real eye-opener to just how easily influenced individuals can be when played into groups. The traditional “I don’t’ want to be left out” insecurity of many that reside in cities like Dubai certainly had a part to play, but it is more simply that attitudes had adjusted and there is certainly a new appreciation for value-for-money. Whilst many bars and clubs are indeed full to the brim, any cursory conversations with management will reveal a marked decrease in volume of trade – people are ordering less, and hence paying less. So whilst on the surface of things it looks as though cities like Dubai and others have returned to form, the only thing that has really returned is the undeniable need for people to take pleasure in life.
Markets – hit upwards but not out of the ball-park
This human toughness has certainly had its repercussion on the markets. It’s actually been a big week for markets – as we saw yesterday, all the majors were strong across the globe. The problem is that the US opened higher by 1.5% only to shed all of the gains over the course of the trading day and even ended off -0.22% at the close. The reason? Many actually…from a realisation that the recent markets moves were extremely welcome but still nothing more than a much needed re-allocation of vast piles of cash that money-managers had been sitting on for too long.
At some point, the people trusting you to invest their hard-earned savings will start questioning why they continue to pay 2% annual management charges for apparently little more than maintaining the fund’s plush offices.
*Much of Asia is closed for the traditional May holiday today– Tokyo is going into its holiday period next week but traded today along with Australasia and Indonesia (all slightly up). There was also confirmation that in Japan that SMFG will buy all of Citigroup’s Japanese brokerage businesses for $5.5bn – should help Citi shore up its capital base ahead of the stress-test results the Treasury will be releasing early next week.
*On the stress-tests, seems the Treasury has realised what a mess of the entire process they have made that rather than releasing nothing more than a summary of the results they will provide a full detailed analysis for all to see.
*All of Europe is shut except the UK (poor things – but they get Monday off) where the FTSE has traded quite flat ahead of the US open – where futures are currently indicating a decent opening: DJIA +27pts and S&P 3.6pts.
*Gold and oil have both slightly slipped today, but crude is still above the all-important $50/brl. We’ve seen a close return to USD/Yen of 100 which is a good sign for future moves in Japan’s industry-exporting dominated markets and possibly a future indicator for trade.
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