Barack of Arabia…
Amazing what a few words pronounced correctly in Arabic can achieve across a population of faith that makes up 1/3 of the world. When declaring “peace be onto you” in a near-perfect (Egyptian tinged) accent millions of attitudes and long-hardened views instantly transcended the stereotypes beholden to supposed US-hating-Muslims.
Will a great speech solve issues between the Middle East and the West that have existed for two generations? Despite the elegant rhetoric and super-star status the current US President has been anointed with - one thinks not. More importantly maybe, what about the issues that exist within the Middle East and the divisions within the vast Muslim population itself? These issues have existed for far longer than simple two generations, stretching back hundreds, if not thousands of years. Yes, Obama is certainly an inspiring character and has already done plenty to change perceptions of America, but he is dealing with a territory that has befuddled all before him.
With elections in Lebanon in a couple of days, Iran holding its own swiftly after that, as well as the recent overtures towards the two-state solution in Israel/Palestine, a moment of importance is certainly upon us in this most volatile and flammable of regions. Anything resembling a slight victory for Obama’s efforts would be a Herculean effort. The main obstacle in most Middle Eastern pundits’ opinion? That would be the Arabs themselves. Divisions amongst the variant populations and governments of the region must be set-aside for proper peace and growth – Saudi’s role here is critical.
Once this has been achieved, the true potential of the region’s economic might and industries will being to flourish. Only then will international markets and investors realise the wealth of opportunity that exists within the local markets that have nothing to do with the oil and gas industries. Recent performances across the MENA region have, naturally, closely correlated with the oil price, and the fickleness of hot money in and out does not help to stabilise reputations amongst the local major corporations.
Related to Obama’s visit of course is the price of Oil. We are now nearing the $70/brl level that has appeared an inevitable target ever since the Saudi’s declared it as their preferable target. With King Abdullah placing a very over-sized gold medallion around the US President’s neck on his recent visit to the Kingdom, it seemed he was being anointed as one of their own – could you imagine that rather more diminutive Bush attempting to handle the sheer weight of the “necklace”?
Non-farm super-star payroll…
On the markets, all about the non-farm payrolls today (-520k cons.). Keep your eyes open for any potential disappointment. The unemployment rate released at the same time an equal measure of confidence building/destroying strength, markets expecting 9.2% here. Would be the highest unemployment figure the US has experienced in over 25yrs. Markets so far pricing in what might be a within-range announcement, with DJIA+35pts, S&P+4.3pts, not to mention some good performance to bring the week to a close throughout Europe, with most majors +0.7-1.0%.
Asia did quite well, with only Taiwan and China’s CSi300 slightly disappointing (-0.28%, -0.45%) within an otherwise sea-of-green again for the newly attractive riskier emerging markets there. Most YTD returns are still between 35% and 60% with Australasia quietly performing consistently in the last few days (helped today with Rio Tinto throwing a deal back in the face of the Chinese in favour of an iron ore venture with BHP Billiton.
On currencies, Gordon Brown’s woes in the UK following continued delving of hands in the expense-honey-jar by his MPs (to be fair, the conservatives have been sticking their hands in quite deep as well) is hurting the recent spurt in cable in GBP’s favour as we have come back from the attempt to push through 1.65 right back to 1.60 – of course, much of this was the normal overshooting when Treasuries first started selling-off and the technicals now point to a few weeks of oscillation between 1.56-1.61.
Mid-East Hotels, as easy as “W”…X, Y and Z…
If you gauge a city by its hotels, then Dubai has certainly stolen the limelight in the Middle East with an easy win over any of its closest rivals for sheer variety and number of luxury establishments. Whilst Abu Dhabi may have the largest and most expensive (Emirates Palace), not to mention most luxuriously traditional, Dubai as opted for a variety of business and leisure destinations that serve as the life-blood of the entertainment industry. Drinks can only be had in these hotel bars, and all the best restaurants are found nestled within their walls.
All the headlines have been generated by these hotels, sometimes even long before they open – such as the world’s first Armani hotel in the Burj Dubai. However, if you believe a city’s character is developed through its hospitality inns, as many Gulf states are by virtue of its visiting bankers and tourists, then Qatar’s capital of Doha must take the prize for the most forward looking hotel of the moment – the “W”. If ever there has been a hotel that contrasts itself so screamingly-clear from the rest of its host city’s surroundings and general aura, this must be it.
A fantastic hotel destination, with a great vibe and exceptionally “happening” feel to it. It is still more of a sign-of-things-to-come rather than a sign-of-what-is-there, especially when considering the following response to a declaration of how well-designed and enjoyable the signature bar is by a resident ex-pat, “yeah, it’s a great bar, but it’s still in Doha”. A little more time needed maybe.
Saturday, 6 June 2009
Saturday, 30 May 2009
Hot Hot Hot
Admit it, it’s hot…
It’s hot…hot hot hot..seriously, searingly, blazingly hot. We’re not talking hot like when you burn your tongue on that pizza slice you left for too long in the oven, we’re talking white-man-turning-into-Mediterranean-tanned-looking-lothario in the seconds it takes to cross the road to your car when leaving a restaurant. Official figures have put the temperature at above 50 degrees Celsius in the UAE sun in the last 24 hours. It surpassed 52 degrees on Wednesday in Riyadh – and we’re still in May – the best part?...the real heat doesn’t arrive until the end-of-June.
What’s the heat got to do with the economic situation in the UAE and the region I hear you ask? Well, it’s not so much the heat itself as much the admittance and official recognition of the chart-topping record by the Dubai authorities. This time last year, there were several occasions where it was easily above 50 degrees but the official mercury recorder never seemed to go above 49 degrees. Funny that, considering the law stipulates that all work on construction sites must come to a halt to protect the health (and sanity) of exhausted labourers working outside in the steaming elements.
Thing is, quite a lot was different this time last year within the UAE. Abu Dhabi had not come in and bailed-out much of Dubai’s credit-starved entities and projects. Construction sites were heaving with workers day-and-night, 24/7 and the pace of development was still deemed an absolute necessity to the future growth prospects of the emirate. Indeed, the belief that when the cranes stopped the economy would falter was still tightly held to, and the cranes were moving even as the rest of the world started to reel under the financial mess created in the US – in some famously portentous words, some Dubai officials declared that “they would remain immune to the global-crisis”. Heat and its measurement were shrouded in controversy, and when the rest-of-the-city could barely move without dripping in sweat, the cranes continued. Along with excuses such as “it’s not above 50 degrees in the shade”, the mercury stubbornly remained at 49 degrees far too often.
So the official recognition in the last 48hrs is significant for one of two reasons – depending on how cynical and conspiratorial you like to be (i.e. how much of Michael Moore’s movies do you believe?). One might view it as another example of Abu Dhabi’s influence across all corridors of power within Dubai, ensuring the way the emirate does business and conducts itself in the eyes-of-the-world is deemed fair and responsible –something Abu Dhabi has consistently touted as one of its major aims, not so much Dubai in the past. This would be in keeping with the recent “Federalisation” of the UAE as a whole – Abu Dhabi reigning back-in some of the more questionable tactics employed by its neighbour at the height of the giddy-days. Stopping work to protect the labourers (and the UAE’s reputation) would be a good reflection of this.
The other angle is the dramatic change in strategy amongst Dubai’s real-estate developers, with a current noticeable trend in delaying projects and payments as much as possible. This is to help Dubai get through the most difficult period of the global crisis and help preserve the precious funds it is receiving for entities such as Nakheel and Emaar. One might surmise that any excuse to stop-work on a construction site is now extremely welcome and desirable – how things change. Workers’ and architects’ wages can be pushed back, citing a “delay in delivery”. Admittedly, a rather cynical outlook as mentioned above, but still one that falls nicely into the immediate needs of Dubai’s stricken developers.
Either way, and whatever the sudden admission of the sun’s power, God help you if you are wearing shorts and place your bare flesh on that leather-car seat that’s been baking in the sun for too long.
T-risk-easury
10-yr Treasury yields are causing some consternation – the rapid increase in yields this week has caught some observers by surprise. How could it have? There have been increasing rumbles of discontent with the continued spending by the US administration for at least a month now, with some warning signs having rippled through when China started talking about “concern” over the future of the US$ as a reserve currency. The US$ is on its way to end the month weaker, dramatically so vs Euro (a little less vs the very-much-in-trouble itself GBP).
Oil and Gold have both continued to rise, with oil now resuming the rise towards $70/brl (above $65/brl right now). As for Gold, it continues to display both its inflation/deflation hedge properties – making its way slowly back towards the psychologically important $1,000/oz barrier. As per yesterday’s message though, could we be witnessing the formation of a number of false-dawn factors that will only end in tears when the economic macro-environment (continued rising unemployment for example) does not play-ball in September?
The main reason for the selling-off of Treasuries appears attributed to increased risk-appetite, especially for returns in those “decoupling v2” economies of Asia and other emerging markets. Just take a look at how even Japan’s Nikkei has appreciated almost 12% since the end of April, shrugging off the news that the economy was contracting faster than ever last week, and now this week buoyed by the highest industrial production increase in 56years (+5.2% from March – albeit from a very low base). Every major index in Asia (ex Japan) is now returning more than +25% YTD. China, Taiwan, India are north of +50%. Middle Eastern markets have had an (oil story backed of course) return-to-form, with Abu Dhabi now returning 11% for ’09 but having come back 26% since its low in early January. Dubai is also up 27% from its low in mid-Jan. Latin American markets are all rocking, with Argentina and Brazil both up 40% YTD. Peru, the world’s best-performing market, is riding extremely high at +84%! These are all signs that investors are parking capital in higher-yielding assets. This requires a move away from the safety of the US$.
Return-starved, cash-rich pension fund managers and other players that feel they have missed out on the last 3-mth rally are all scrambling to get into the laggards and touch upon a bit of the magic return themselves – let’s hope this doesn’t all come crashing to a sudden halt when the realisation is that the fundamental floor beneath a lot of this renewed desire to branch-out and deploy overly-static capital was never there.
It’s hot…hot hot hot..seriously, searingly, blazingly hot. We’re not talking hot like when you burn your tongue on that pizza slice you left for too long in the oven, we’re talking white-man-turning-into-Mediterranean-tanned-looking-lothario in the seconds it takes to cross the road to your car when leaving a restaurant. Official figures have put the temperature at above 50 degrees Celsius in the UAE sun in the last 24 hours. It surpassed 52 degrees on Wednesday in Riyadh – and we’re still in May – the best part?...the real heat doesn’t arrive until the end-of-June.
What’s the heat got to do with the economic situation in the UAE and the region I hear you ask? Well, it’s not so much the heat itself as much the admittance and official recognition of the chart-topping record by the Dubai authorities. This time last year, there were several occasions where it was easily above 50 degrees but the official mercury recorder never seemed to go above 49 degrees. Funny that, considering the law stipulates that all work on construction sites must come to a halt to protect the health (and sanity) of exhausted labourers working outside in the steaming elements.
Thing is, quite a lot was different this time last year within the UAE. Abu Dhabi had not come in and bailed-out much of Dubai’s credit-starved entities and projects. Construction sites were heaving with workers day-and-night, 24/7 and the pace of development was still deemed an absolute necessity to the future growth prospects of the emirate. Indeed, the belief that when the cranes stopped the economy would falter was still tightly held to, and the cranes were moving even as the rest of the world started to reel under the financial mess created in the US – in some famously portentous words, some Dubai officials declared that “they would remain immune to the global-crisis”. Heat and its measurement were shrouded in controversy, and when the rest-of-the-city could barely move without dripping in sweat, the cranes continued. Along with excuses such as “it’s not above 50 degrees in the shade”, the mercury stubbornly remained at 49 degrees far too often.
So the official recognition in the last 48hrs is significant for one of two reasons – depending on how cynical and conspiratorial you like to be (i.e. how much of Michael Moore’s movies do you believe?). One might view it as another example of Abu Dhabi’s influence across all corridors of power within Dubai, ensuring the way the emirate does business and conducts itself in the eyes-of-the-world is deemed fair and responsible –something Abu Dhabi has consistently touted as one of its major aims, not so much Dubai in the past. This would be in keeping with the recent “Federalisation” of the UAE as a whole – Abu Dhabi reigning back-in some of the more questionable tactics employed by its neighbour at the height of the giddy-days. Stopping work to protect the labourers (and the UAE’s reputation) would be a good reflection of this.
The other angle is the dramatic change in strategy amongst Dubai’s real-estate developers, with a current noticeable trend in delaying projects and payments as much as possible. This is to help Dubai get through the most difficult period of the global crisis and help preserve the precious funds it is receiving for entities such as Nakheel and Emaar. One might surmise that any excuse to stop-work on a construction site is now extremely welcome and desirable – how things change. Workers’ and architects’ wages can be pushed back, citing a “delay in delivery”. Admittedly, a rather cynical outlook as mentioned above, but still one that falls nicely into the immediate needs of Dubai’s stricken developers.
Either way, and whatever the sudden admission of the sun’s power, God help you if you are wearing shorts and place your bare flesh on that leather-car seat that’s been baking in the sun for too long.
T-risk-easury
10-yr Treasury yields are causing some consternation – the rapid increase in yields this week has caught some observers by surprise. How could it have? There have been increasing rumbles of discontent with the continued spending by the US administration for at least a month now, with some warning signs having rippled through when China started talking about “concern” over the future of the US$ as a reserve currency. The US$ is on its way to end the month weaker, dramatically so vs Euro (a little less vs the very-much-in-trouble itself GBP).
Oil and Gold have both continued to rise, with oil now resuming the rise towards $70/brl (above $65/brl right now). As for Gold, it continues to display both its inflation/deflation hedge properties – making its way slowly back towards the psychologically important $1,000/oz barrier. As per yesterday’s message though, could we be witnessing the formation of a number of false-dawn factors that will only end in tears when the economic macro-environment (continued rising unemployment for example) does not play-ball in September?
The main reason for the selling-off of Treasuries appears attributed to increased risk-appetite, especially for returns in those “decoupling v2” economies of Asia and other emerging markets. Just take a look at how even Japan’s Nikkei has appreciated almost 12% since the end of April, shrugging off the news that the economy was contracting faster than ever last week, and now this week buoyed by the highest industrial production increase in 56years (+5.2% from March – albeit from a very low base). Every major index in Asia (ex Japan) is now returning more than +25% YTD. China, Taiwan, India are north of +50%. Middle Eastern markets have had an (oil story backed of course) return-to-form, with Abu Dhabi now returning 11% for ’09 but having come back 26% since its low in early January. Dubai is also up 27% from its low in mid-Jan. Latin American markets are all rocking, with Argentina and Brazil both up 40% YTD. Peru, the world’s best-performing market, is riding extremely high at +84%! These are all signs that investors are parking capital in higher-yielding assets. This requires a move away from the safety of the US$.
Return-starved, cash-rich pension fund managers and other players that feel they have missed out on the last 3-mth rally are all scrambling to get into the laggards and touch upon a bit of the magic return themselves – let’s hope this doesn’t all come crashing to a sudden halt when the realisation is that the fundamental floor beneath a lot of this renewed desire to branch-out and deploy overly-static capital was never there.
Thursday, 28 May 2009
MARKETS & PASSPORT CONTROL - Thursday 28th May
Oil and sustainability. They seem to be the key words for today, tomorrow and next week. Oil has been the talk of investment circles for the last few days, as it spiked back to $60/brl even faster than it takes most hedge-fund managers’ to fill their tanks at the local petrol station. OPEC has today confirmed it will maintain production targets (for the second meeting in a row) as they anticipate demand to continue to push the future delivery price of their prized commodity higher in the near-term. Saudi’s Al-Naimi seemed keen to maintain the price appreciation that Crude has enjoyed since its low back in December ’08. Oh, and one more thing, please don’t talk about OPEC being a “cartel” – they seem quite sensitive about this label and are concerned the public are provided with a negative image of the 12-member “organisation” - Note to OPEC marketing manager – you have a tough job ahead of you if your remit is to get people thinking highly of you.
Sustainability is the other watch-word. Focusing on the market rally and its longer-than-anticipated performance – catching more and more people by surprise but now inducing too great a sensation of the old “I-feel-like-I’m-missing-out” effect
Here are some key moments we’ve experienced in the last three months: 10 year yields have risen 109 basis points since the low posted on 18th March. This low came on the back of the Fed’s quantitative easing announcement (i.e. printing A LOT of money). Crude Oil has rallied 89% since the February low. The low to high move in the S&P so far, between March and May, has been 62 days and 39%. In addition the 200 day moving average stands at 934. We had a very similar situation back in May 2008 where signs of a swift market recovery after the rumblings of late 2007 appeared to be well and truly on their way to full development – and look what happened there, yep, September-Nov 2008, and then Jan-March 2009.
Important to remember that although this rally has been very welcome, most of it is a direct result of the TARP funds being re-distributed through the US financial system. The funds the banks were provided as a life-line have invariably found their way into the capital markets – an effect exactly in line with what the US, and other global administrations, wanted to engineer. While a 39% rally is great, let us not forget that it is still 42% off the 2007 highs – a figure which makes it one of the worst bear markets in history.
Passport Control – a hint at what lies beyond?
Having traveled a little this week, I couldn’t help but wonder how much one might be able to forecast on the back of a few simple observations at a country’s passport control border.
Much of a traveler’s first real interaction with the culture and “local-workings” of a new country they are visiting, is initiated on the very first moment they walk through the (quite varied) airport arrivals hall and eagerly shuffle their way up to the “will-they-or-won’t-they” let me in point of entry. Most points-of-entry occur at a country’s international airport – there are of course sea-ports, railway stations and other border crossings etc, but I’d like to focus on several varying airport passport control desks for now.
A traveler to London’s Heathrow will understand that they are about to enter one of the most monitored-populations in the world, as they are confronted by an extremely cold-and-ferocious-looking gaggle of border crossing agents, sat behind misleadingly open and informal desks. What most do not notice are the barrage of closed-circuit television cameras that are pointing at every angle as passengers shuffle through the snaking lines, while their faces are captured, processed and analysed by sophisticated software capable of detecting abnormal levels of body-heat, pupil-dilation and other tell-tale signs of a nervous demeanour – taken here to mean a potential illegal immigrant/terrorist or other unwelcome character.
The first few advertisements a traveler encounters after coming off the plane (and noticing the dismal weather) are busy pushing the usual temporary mobile phone packages, tourism attractions and ubiquitous banking brands (yep, still in this environment) – but a distinct lack of real-estate offers. London has experienced a severe downturn in this economic environment, but the passport control process prepares you for an open, multi-cultured (most of the agents are clearly not of British origin) developed and relatively tolerant society. The only confusing moment for some simple-English-speaking visitors will be the use of a term to denote gratitude that they would normally associate with clinking beer glasses – cheers.
Miami provides a rather different experience. First, you are surrounded by beautiful people all around the arrivals hall, dressed in shorts and t-shirts and lounging around in a very relaxed manner with no clear signage to help you through – strikingly different to the arrival halls of any Asian airport. The heavily-armed and extremely short-on-conversation “homeland”-security guards will speak with you in a terse-like professional tone, with a Latin American twist to the accent. If you are unlucky enough to have any Middle Eastern stamps in your passport you will notice the officer hit a little red-button on his control panel which brings out several of his friends to escort you to the waiting area. There you are quite thoroughly searched and questioned as to why exactly it is you are visiting Miami (no jokes about drugs is advised at this moment). Once they have established you are there to party in the sunshine, and nothing more, they greet you with open arms. Advertisements push the latest sea-front real-estate offers as well as the latest club and restaurant openings.
In the economic downturn, the US has of course suffered immensely. Miami in particular has seen a real-estate-market-fall that shocks even those living in Dubai and Moscow, but the city is still vibrant, relaxed, full-of-flavour and an example of the very assorted environments to be found in the US.
Hong Kong is clinical. Clinical and efficient. In fact, so efficient is the airport arrival process that you cannot help but wonder whether the remainder of your visit will be as problem-free. Apart from only Tokyo, no other city has such a smooth-running mass rail transport system and collection of well-thought-out, designed and executed business and entertainment areas. The city mixes a hectic (and smelly) environment with a fiercely efficacious infrastructure. The hoard of signs and speaker announcements that greet you on arrival at the airport, not to mention the very swift passport-stamping procedure where you must declare yourself “fit-and-disease-free”, make for a great indication of the society awaiting beyond.
Some of the most fun is had in the Middle East. The passport desk is staffed by purely local (and sometimes clueless) young and bored-looking staff. They are not interested in making eye-contact with you at anytime. They will not attempt to speak your language or listen to your protests as they twist and bend your passport relentlessly. There is no real organised queuing system or a care for the world that you have been standing in line for over an hour, fellow travelers literally stuck to your back as you all shuffle one-agonising-step-at-a-time nearing your destination. Everyone is trying to search for that fast-moving line, always one eye on what might look like the smartest guard capable of processing your visa the swiftest – unfortunately for countries like Saudi and other parts of the developing Middle-East, this distinct lack of consideration for other’s time and schedules often continues right through to all other aspects of daily life and business. One of the most worrying indicators that you might be in for a long wait are the many groups of visitors that have taken to setting-up-camp in the long-lines, opening up a mini-picnic for themselves and their families. Not the best sign of a speedy process.
The best example of what is left to come – a friend traveling to somewhere in mainland Africa one recalled a story where after landing in the middle of what looked like a dirt-track, an old pick-up truck came around to collect the baggage from the propeller-powered plane. As the border guard, a large and frightening figure smoking a large cigarette that held more than just tobacco in its contents, flicked through the passport (upside-down) the truck bundled the bags belonging to the passenger onto the back and then proceeded to drive towards what looked like the arrivals hall – a shed essentially. The passenger watched in vain as the truck first drove towards the “hall”, and then right passed it, continuing to drive off into the (apparently beautifully picturesque) distance beyond. Conclusions as to what the raw-continent of Africa has to offer beyond immigration, I’ll leave to you.
Sustainability is the other watch-word. Focusing on the market rally and its longer-than-anticipated performance – catching more and more people by surprise but now inducing too great a sensation of the old “I-feel-like-I’m-missing-out” effect
Here are some key moments we’ve experienced in the last three months: 10 year yields have risen 109 basis points since the low posted on 18th March. This low came on the back of the Fed’s quantitative easing announcement (i.e. printing A LOT of money). Crude Oil has rallied 89% since the February low. The low to high move in the S&P so far, between March and May, has been 62 days and 39%. In addition the 200 day moving average stands at 934. We had a very similar situation back in May 2008 where signs of a swift market recovery after the rumblings of late 2007 appeared to be well and truly on their way to full development – and look what happened there, yep, September-Nov 2008, and then Jan-March 2009.
Important to remember that although this rally has been very welcome, most of it is a direct result of the TARP funds being re-distributed through the US financial system. The funds the banks were provided as a life-line have invariably found their way into the capital markets – an effect exactly in line with what the US, and other global administrations, wanted to engineer. While a 39% rally is great, let us not forget that it is still 42% off the 2007 highs – a figure which makes it one of the worst bear markets in history.
Passport Control – a hint at what lies beyond?
Having traveled a little this week, I couldn’t help but wonder how much one might be able to forecast on the back of a few simple observations at a country’s passport control border.
Much of a traveler’s first real interaction with the culture and “local-workings” of a new country they are visiting, is initiated on the very first moment they walk through the (quite varied) airport arrivals hall and eagerly shuffle their way up to the “will-they-or-won’t-they” let me in point of entry. Most points-of-entry occur at a country’s international airport – there are of course sea-ports, railway stations and other border crossings etc, but I’d like to focus on several varying airport passport control desks for now.
A traveler to London’s Heathrow will understand that they are about to enter one of the most monitored-populations in the world, as they are confronted by an extremely cold-and-ferocious-looking gaggle of border crossing agents, sat behind misleadingly open and informal desks. What most do not notice are the barrage of closed-circuit television cameras that are pointing at every angle as passengers shuffle through the snaking lines, while their faces are captured, processed and analysed by sophisticated software capable of detecting abnormal levels of body-heat, pupil-dilation and other tell-tale signs of a nervous demeanour – taken here to mean a potential illegal immigrant/terrorist or other unwelcome character.
The first few advertisements a traveler encounters after coming off the plane (and noticing the dismal weather) are busy pushing the usual temporary mobile phone packages, tourism attractions and ubiquitous banking brands (yep, still in this environment) – but a distinct lack of real-estate offers. London has experienced a severe downturn in this economic environment, but the passport control process prepares you for an open, multi-cultured (most of the agents are clearly not of British origin) developed and relatively tolerant society. The only confusing moment for some simple-English-speaking visitors will be the use of a term to denote gratitude that they would normally associate with clinking beer glasses – cheers.
Miami provides a rather different experience. First, you are surrounded by beautiful people all around the arrivals hall, dressed in shorts and t-shirts and lounging around in a very relaxed manner with no clear signage to help you through – strikingly different to the arrival halls of any Asian airport. The heavily-armed and extremely short-on-conversation “homeland”-security guards will speak with you in a terse-like professional tone, with a Latin American twist to the accent. If you are unlucky enough to have any Middle Eastern stamps in your passport you will notice the officer hit a little red-button on his control panel which brings out several of his friends to escort you to the waiting area. There you are quite thoroughly searched and questioned as to why exactly it is you are visiting Miami (no jokes about drugs is advised at this moment). Once they have established you are there to party in the sunshine, and nothing more, they greet you with open arms. Advertisements push the latest sea-front real-estate offers as well as the latest club and restaurant openings.
In the economic downturn, the US has of course suffered immensely. Miami in particular has seen a real-estate-market-fall that shocks even those living in Dubai and Moscow, but the city is still vibrant, relaxed, full-of-flavour and an example of the very assorted environments to be found in the US.
Hong Kong is clinical. Clinical and efficient. In fact, so efficient is the airport arrival process that you cannot help but wonder whether the remainder of your visit will be as problem-free. Apart from only Tokyo, no other city has such a smooth-running mass rail transport system and collection of well-thought-out, designed and executed business and entertainment areas. The city mixes a hectic (and smelly) environment with a fiercely efficacious infrastructure. The hoard of signs and speaker announcements that greet you on arrival at the airport, not to mention the very swift passport-stamping procedure where you must declare yourself “fit-and-disease-free”, make for a great indication of the society awaiting beyond.
Some of the most fun is had in the Middle East. The passport desk is staffed by purely local (and sometimes clueless) young and bored-looking staff. They are not interested in making eye-contact with you at anytime. They will not attempt to speak your language or listen to your protests as they twist and bend your passport relentlessly. There is no real organised queuing system or a care for the world that you have been standing in line for over an hour, fellow travelers literally stuck to your back as you all shuffle one-agonising-step-at-a-time nearing your destination. Everyone is trying to search for that fast-moving line, always one eye on what might look like the smartest guard capable of processing your visa the swiftest – unfortunately for countries like Saudi and other parts of the developing Middle-East, this distinct lack of consideration for other’s time and schedules often continues right through to all other aspects of daily life and business. One of the most worrying indicators that you might be in for a long wait are the many groups of visitors that have taken to setting-up-camp in the long-lines, opening up a mini-picnic for themselves and their families. Not the best sign of a speedy process.
The best example of what is left to come – a friend traveling to somewhere in mainland Africa one recalled a story where after landing in the middle of what looked like a dirt-track, an old pick-up truck came around to collect the baggage from the propeller-powered plane. As the border guard, a large and frightening figure smoking a large cigarette that held more than just tobacco in its contents, flicked through the passport (upside-down) the truck bundled the bags belonging to the passenger onto the back and then proceeded to drive towards what looked like the arrivals hall – a shed essentially. The passenger watched in vain as the truck first drove towards the “hall”, and then right passed it, continuing to drive off into the (apparently beautifully picturesque) distance beyond. Conclusions as to what the raw-continent of Africa has to offer beyond immigration, I’ll leave to you.
Tuesday, 26 May 2009
Financial Targets - Tuesday 26th May
We’ve had a slight-sell off across markets today. More talk of “Decoupling v.2” on the media in the last 24 hours. Certainly a theme that is gaining more and more ground - when it’s in the mainstream, much of the early arbitrage opportunity has already passed us by though. A great example of some of the emerging market innovation and ingenuity on display recited below. As for markets, Asia wobbled as more reaction was considered following North Korea’s nuclear test, with most of the majors across the region there posting losses between -0.7% and -2%, one of the only bright sparks amidst the losers being Australia (+2%) riding higher on commodity prices (Rio Tinto cutting prices less than expected on iron-ore), and Vietnam managing to make a slight gain (+0.4%) as it continues its “frontier-market” run. European indices all down (avg -1.4%) as investors take a break and look around to determine whether the landscape does indeed provide any cause for further investment following the rapid increase in P/E ratios. Once again, it is less a question of whether or not investors believe in an economic recovery, but more the timing and pace. As mentioned before, any further attempts by markets to climb higher would be an indication that stronger corporate earnings in the medium-term are expected despite still being in the middle of some very difficult business and trading conditions.
With oil and gold slipping in the last few hours of trade (Oil has dipped back below $60/brl), US futures not faring too well at the moment, with DJIA -32pts and S&P -4.2pts.
Top-of-the-list…
Focus on Dubai’s property market again today. In the past, being top-of-the-list was always a goal to strive for in this part of the world – tallest, most expensive, most luxurious etc. – the old marketing tricks have been widely recited and repeated. This latest list however, puts often unfairly targeted Dubai’s woes splashed across the front of a widely-followed and quoted report on world property prices from Knight Frank - Dubai firmly in the spotlight (poor city hasn’t really been out of it recently) as they estimate property prices fell 32% in the last year (following a 48% appreciation the year earlier), ahead of Latvia and Singapore.
Throwing salt on the open wounds of the UAE’s second-largest city with a description of Dubai being in a "mess" and citing a dependency on developers simply hanging on before getting into “fire-sale territory” a little harsh if you consider some of the latest developments and up-tick in sentiment through various UAE efforts. Some aren’t too sure about this Knight Frank. Seems they have been playing catch-up with what many have known and pointed out for some time.
Of course, the property situation is not rosy. As discussed in past commentaries, the growth expected for the UAE is much dependent on ex-pats from some of the lower income countries of the world. The large number of flats and villas coming onto the market are certainly exchanging hands at marked-down prices, and anyone that does not believe that a number of these properties will be subjected to a serious fall in price are mostly likely asking for too much from the optimistic-camp. Nevertheless, there have been some signs (and other reports have pointed out) that a bottom is near – the pace of decline has fallen and price corrections have enabled those previously unable to seek-out a decent property to come into the market. Unfortunately, the latest Residency Visa changes (where property owners are not automatically provided full residency, rather they must renew their residency visas every 6mths!) has dampened any opportunity for international bargain hunters to come in and snap-up a number of locations in dire need of support. A bewildering decision given the timing (market crashing) and the need to placate international investors (frightened at the best of times). Whilst the new rules may be construed to prevent money-laundering etc, and place an emphasis on wanting to attract only those that truly want to make the UAE their home and bring with them a certain level of income, it still remains an incredibly bad move at an incredibly desperate time for the country.
Municipality Munch Crunch…
With the lack of revenue from property developers and the real-estate crash itself, it seems Dubai is seeking to increase its coffers by other means. The belief that the UAE is widely a tax-free environment is very well-known but Municipal taxes are creeping up all over the place. Apart from the obvious indirect taxes (over-priced alcohol etc) there is now also a growing trend of taxes tacked onto existing rental agreements. The most surprising, and irritating, aspect of this seemingly arbitrarily charged “housing fee” that it kicks in whenever the municipal authority feels like it. The cost is calculated (for residential properties) at 5% of the annual rent on a property over 12 months. Imagine the surprise of a Dubai renting resident who has become accustomed to paying a relatively fair price for electricity and water every month who is then confronted with an extra charge, at many times the accustomed charges, in the guise of a “housing fee”. A small gripe – but what is municipal tax doing in a supposedly “tax-free” environment?
There have been many signs that alterations to the way Dubai conducts its business are necessary, and this appears to be one of many trends to lock-in some extra revenue when most required.
Emerging Entrepreneurs
In a very telling sign of innovation and dedication to business that the emerging economies of Latin America (if slightly beyond the boundaries of the law). Police have foiled a plan by incarcerated criminals in Brazil to keep in touch with their counterparts through the use of mobile phones. Now, this doesn’t sound too exciting on its own, but when you factor in the attempt to smuggle into the prison their mobile phones by high-tech model helicopter, controlled by a couple of well-paid students enamoured with the criminal underworld, it becomes a clear testament to the (although misplaced) work ethic and dedication to business. Crime and corruption have been strife throughout these regions, and continue to pose serious threats to attempts by the more law-abiding business communities to increase trust and strength of reputation, but taken with a light-minded attitude, in a world-starved of fresh and bright ideas, one can take heart that at least one type of community is making the most out of technology to further their business interests.
The students were offered a “bonus” for landing the helicopter within the desired spot across the prison’s fence. Western financial firms could learn from this incentive offer of a reward for hitting a firm target!
With oil and gold slipping in the last few hours of trade (Oil has dipped back below $60/brl), US futures not faring too well at the moment, with DJIA -32pts and S&P -4.2pts.
Top-of-the-list…
Focus on Dubai’s property market again today. In the past, being top-of-the-list was always a goal to strive for in this part of the world – tallest, most expensive, most luxurious etc. – the old marketing tricks have been widely recited and repeated. This latest list however, puts often unfairly targeted Dubai’s woes splashed across the front of a widely-followed and quoted report on world property prices from Knight Frank - Dubai firmly in the spotlight (poor city hasn’t really been out of it recently) as they estimate property prices fell 32% in the last year (following a 48% appreciation the year earlier), ahead of Latvia and Singapore.
Throwing salt on the open wounds of the UAE’s second-largest city with a description of Dubai being in a "mess" and citing a dependency on developers simply hanging on before getting into “fire-sale territory” a little harsh if you consider some of the latest developments and up-tick in sentiment through various UAE efforts. Some aren’t too sure about this Knight Frank. Seems they have been playing catch-up with what many have known and pointed out for some time.
Of course, the property situation is not rosy. As discussed in past commentaries, the growth expected for the UAE is much dependent on ex-pats from some of the lower income countries of the world. The large number of flats and villas coming onto the market are certainly exchanging hands at marked-down prices, and anyone that does not believe that a number of these properties will be subjected to a serious fall in price are mostly likely asking for too much from the optimistic-camp. Nevertheless, there have been some signs (and other reports have pointed out) that a bottom is near – the pace of decline has fallen and price corrections have enabled those previously unable to seek-out a decent property to come into the market. Unfortunately, the latest Residency Visa changes (where property owners are not automatically provided full residency, rather they must renew their residency visas every 6mths!) has dampened any opportunity for international bargain hunters to come in and snap-up a number of locations in dire need of support. A bewildering decision given the timing (market crashing) and the need to placate international investors (frightened at the best of times). Whilst the new rules may be construed to prevent money-laundering etc, and place an emphasis on wanting to attract only those that truly want to make the UAE their home and bring with them a certain level of income, it still remains an incredibly bad move at an incredibly desperate time for the country.
Municipality Munch Crunch…
With the lack of revenue from property developers and the real-estate crash itself, it seems Dubai is seeking to increase its coffers by other means. The belief that the UAE is widely a tax-free environment is very well-known but Municipal taxes are creeping up all over the place. Apart from the obvious indirect taxes (over-priced alcohol etc) there is now also a growing trend of taxes tacked onto existing rental agreements. The most surprising, and irritating, aspect of this seemingly arbitrarily charged “housing fee” that it kicks in whenever the municipal authority feels like it. The cost is calculated (for residential properties) at 5% of the annual rent on a property over 12 months. Imagine the surprise of a Dubai renting resident who has become accustomed to paying a relatively fair price for electricity and water every month who is then confronted with an extra charge, at many times the accustomed charges, in the guise of a “housing fee”. A small gripe – but what is municipal tax doing in a supposedly “tax-free” environment?
There have been many signs that alterations to the way Dubai conducts its business are necessary, and this appears to be one of many trends to lock-in some extra revenue when most required.
Emerging Entrepreneurs
In a very telling sign of innovation and dedication to business that the emerging economies of Latin America (if slightly beyond the boundaries of the law). Police have foiled a plan by incarcerated criminals in Brazil to keep in touch with their counterparts through the use of mobile phones. Now, this doesn’t sound too exciting on its own, but when you factor in the attempt to smuggle into the prison their mobile phones by high-tech model helicopter, controlled by a couple of well-paid students enamoured with the criminal underworld, it becomes a clear testament to the (although misplaced) work ethic and dedication to business. Crime and corruption have been strife throughout these regions, and continue to pose serious threats to attempts by the more law-abiding business communities to increase trust and strength of reputation, but taken with a light-minded attitude, in a world-starved of fresh and bright ideas, one can take heart that at least one type of community is making the most out of technology to further their business interests.
The students were offered a “bonus” for landing the helicopter within the desired spot across the prison’s fence. Western financial firms could learn from this incentive offer of a reward for hitting a firm target!
Monday, 25 May 2009
Not So Central Bank - Monday 25th May
Those that thought this Monday may be a relatively news-light day were awoken to the rumbling of an apparent North Korean nuclear test – so far, the reverberations have proven quite muted across the region’s markets and beyond. Apart from the latest political machinations of one of the last pariah states the US has seemed unable to relate to, it has felt very quiet out there, with the absence of any immediate financial catastrophes. Much of the investment management community is off today, with public holidays across the UK and US. The weekend press was focused on talk of “decoupling v.2” – as Asian economies continue to recover with great strength and the China story starts taking on a different, demand-driven chapter. However, there is also a lot of caution surrounding the emerging market strength we have seen with the turn of oil (still trading above $60) pushing Middle Eastern markets in particular higher. Asia and the Middle East, as well as Latin America, are clearly capable of moving away from the financial mess that the US has sneezed upon them, but are still very susceptible to the continued de-leveraging process that has taken hold of the western consumer. Furthermore, any significant changes in China must be tempered with the “dose-of-salt” manipulation of official GDP figures and other releases.
Asia fared well today despite a distinct lack of liquidity and international flow. Japan has shrugged off shock at its -4% GDP QoQ contraction announced last week as investors take heart from improved manufacturing numbers (first increase since September 2008) and put faith in the-worst-is-over theory. Hong Kong and China both only slightly up (+.4%, +0.3%) as North Korea concern is replaced with gains from commodity plays. An impressive performance from Vietnam has not gone unnoticed by some of the more adventurous investors out there (on good news surrounding inflation coming under control and a link with Japan on treasuries) – the market there now returning close to +34% YTD.
With no US markets today there is little direction for Europe to latch-onto, with those majors that are trading posting losses avg -1%.
Oil and Gold maintain their commodity resurgence, with Oil still above $60/brl and Gold doing well above $952/oz – the commodity story is behind much of the rally in the last few day across those emerging markets skewed to the supply side. Also some article this past weekend suggesting we are in the midst of another timely oil-price-spike, leaning on some quotations by Al-Naimi that after every significant fall in price investment and research and development fall to levels that leave suppliers unprepared for the inevitable return of demand.
One observation over the weekend – the criticism of the UAE’s u-turn over the GCC central bank and monetary policy debacle as scrutinised in the foreign press seemed to understand clearly the point that the UAE felt slightly undone by the show of force by Saudi – but it has been long known that the likes of Qatar and Dubai are hoping to become the region’s major financial centre. What some don’t understand is why the UAE is making such a fuss when clearly the region’s financial hub is not always where a region’s central bank is – the ECB is not Europe’s major financial hub now is it? London has continued to provide the most attractive location for international fund managers and the like, so why would it be assumed immediately that Riyadh would take the mantle? – smacks of an excuse to simply delay even further a monetary association that has never looked particularly likely anyway.
Asia fared well today despite a distinct lack of liquidity and international flow. Japan has shrugged off shock at its -4% GDP QoQ contraction announced last week as investors take heart from improved manufacturing numbers (first increase since September 2008) and put faith in the-worst-is-over theory. Hong Kong and China both only slightly up (+.4%, +0.3%) as North Korea concern is replaced with gains from commodity plays. An impressive performance from Vietnam has not gone unnoticed by some of the more adventurous investors out there (on good news surrounding inflation coming under control and a link with Japan on treasuries) – the market there now returning close to +34% YTD.
With no US markets today there is little direction for Europe to latch-onto, with those majors that are trading posting losses avg -1%.
Oil and Gold maintain their commodity resurgence, with Oil still above $60/brl and Gold doing well above $952/oz – the commodity story is behind much of the rally in the last few day across those emerging markets skewed to the supply side. Also some article this past weekend suggesting we are in the midst of another timely oil-price-spike, leaning on some quotations by Al-Naimi that after every significant fall in price investment and research and development fall to levels that leave suppliers unprepared for the inevitable return of demand.
One observation over the weekend – the criticism of the UAE’s u-turn over the GCC central bank and monetary policy debacle as scrutinised in the foreign press seemed to understand clearly the point that the UAE felt slightly undone by the show of force by Saudi – but it has been long known that the likes of Qatar and Dubai are hoping to become the region’s major financial centre. What some don’t understand is why the UAE is making such a fuss when clearly the region’s financial hub is not always where a region’s central bank is – the ECB is not Europe’s major financial hub now is it? London has continued to provide the most attractive location for international fund managers and the like, so why would it be assumed immediately that Riyadh would take the mantle? – smacks of an excuse to simply delay even further a monetary association that has never looked particularly likely anyway.
Friday, 22 May 2009
F1 Finance - Friday 22nd May
Round-up…
This week has certainly been mixed – as markets started to lose steam and the rich and glamorous gather in Monaco (see below), greater speculation over what might transpire after the summer holidays has picked up. Obama has announced he wants to return suspected terrorists to US mainland prisons at the same time (coincidentally) US authorities foiled and then captured four individuals involved in an alleged terrorist plot against several New York locations. European and Russian diplomats are meeting to discuss important issues such as security, trade, the financial crisis and…are we forgetting something..oh yes, Russia’s energy supplies. Medvedev here using all his oil-and-gas-based-leverage, to voice concern over what he sees as threatening agreements between the EU and former Soviet countries. In Egypt, a wealthy and previously all-powerful tycoon has been sentenced to death for ordering the murder of his ex-girlfriend – surprising in a part of the world where wealth and politics are inextricably linked – and protect one another. In the greater context of a renewed push across the Middle East by the US administration, Biden is visiting Beirut – this will cause some problems just ahead of the elections in Lebanon – US support for the pro-western government and (so far) very well behaved and professional Lebanese army has been a counterbalance to the (predicted growing) power of Hizbullah in the small country - will cause some waves and possibly open some sensitive issues – let’s hope the show of support from Biden doesn’t back-fire – in this part of the world, the tiniest spark can have disastrous consequences.
On a serious note, Michael Jackson has had to deny rumours of skin cancer for the postponement of the first few dates of his (certainly final) set of concerts in London – has no-one reminded him that the concerts are during London’s “summer” – skin cancer or not, he’s got nothing to worry about if he believes he’s going to be exposed to any sunshine!
The smartest move by “investors” this week – the couple in New Zealand who received a rather attractive transfer in error from their bank ($8m instead of $8,000) decided NOT to do the right thing and took the money and ran – with all that is going on in the world and the backlash against “greedy” banks, who could blame them for simply holding true to the bank’s (deliciously fitting!) moto – “making the most of life”.
Markets…
After the S&P warned that the UK (and now the US) may lose its AAA rating, the UK government today announced it would not be revealing the results of its own stress-inducing-stress-tests. This is causing havoc on the currency markets (more below). There was also talk China may soon be facing its own financial crisis.
Markets are all coming off as the holidays start to kick-in, US holiday on Monday and across the UK – means 90% of the world’s hedge-fund managers are out of action. This might explain some of the unwinding of positions across European and US markets yesterday – Europeans were on public holiday but the markets which were still open all ended up losing around 2.5% with the US shedding 1.7% avg. In Asia, despite Japan announcing they believe the worst of their economic contraction is over, markets are in invariably lower there (-1% avg). Europe today trading slightly higher but on low volume so far (+0.4%) despite BA announcing first loss since 2002. US futures are cautiously higher ahead of the market holiday so far – DJIA +33pts, S&P +3.7pts.
Oil has kept its head well above $60/brl and looks set to close the week above $61/brl – good for Middle East markets no doubt. Gold has also continued to shine, on course to close above $950/oz for the week.
Currency Chaos…China Concern?
Interesting to see Sterling bounce back strongly on intra-day trade yesterday and post its highest level vs US$ since November – 1.58 right now. Certainly seems like an over-bought play right now and you would expect a slight pull-back in the short-term, but when coupled with Euro’s strength (1.39 vs US$) this is the first attempt at a sell-off in the US$ as more investors understand the long-term implications of the Treasury’s incessant spending. After the credit-rating agencies focusing their spotlight on the UK and China yesterday, it is now the US’s turn – as speculation they too may lose their AAA rating. It really is becoming a case of who’s in worse shape – after all, if all the major economies are downgraded a notch, we’ll be left with a level playing field again,
Another interesting angle that some were discussing this morning is China’s growing realisation (read: admittance) of a potential domestic financial crisis of its own. China’s banks have been well cushioned since the onset of the global crisis, but it won’t be long before the huge non-performing loan portfolio losses that some of them must be experiencing (just think of all those factories closing and the 5% contribution to GDP growth disappearing) leads China to carry-out one of two courses of actions: 1) Sell some if its $2trn piggy-bank US Treasuries 2) Issue domestic debt to international investors for the first time. Either way, this would bring extra downwards pressure upon the dollar.
Screaming Engines, Scrambling Systems
Glitz, glamour and more glitz. This time last year, as the first shots across the bows of the credit-crisis were still being considered in correlation with the booming and reverberation of the world’s most advanced racing machines screaming around the hills of normally sleepy (and rich) Monaco, the first signs of a backlash against ostentatious displays of wealth were just beginning to creep in. What a difference a year can make. In an almost self-projecting admission of a sense of guilt, Formula 1 this year is in a total mess as it visits once more the foremost tax-haven in the world.
Teams are at each other’s throats, cheating is rife amidst arguments over technical delicacies such as the “angle-of-refraction-of-the-underside-downforce-deflecting wing”. However, a more serious matter is also threatening the future of the richest sport in the world, and a serious question very much in keeping with the time is being asked – is there too much money involved?
Ferrari and other large teams (the rich) are screaming almost as loud as their engines in response to a potential decision to limit the astronomical technology budgets to ensure a fair and level playing field - the similarities with the collapse of the “survival of the fittest” model so successful in the western world in the last few decades is palatable. Where before the fastest, richest and best sponsored teams were literally blazing ahead of the field, it is now the most innovative and economically efficient teams that appear to be streaks ahead of the rest – witness Jenson Button’s recent success with the upstart Brawn team. Ferrari, Renault and the other big teams in recent years are not faring so well with this new playing field – much like those that had all the natural benefits of wealth at their disposal in the financial markets, when asked to tighten their belts and carry-out their business in a leaner environment, they have lost pace to the more entrepreneurial and hungrier players out there.
The rules and regulations from the powers that be - the F1 association for the sport, the financial regulators and governments for the banks - are hurting those that became used to winning (admittedly with some excellent technological advances in some areas) on the back of their spending power alone.
The rich and beautiful gathering to show off their wares around one of sport’s most unashamedly money-loving events, in one of the world’s most unapologetically wealthy destinations, will provide the usual dose of escapism for some. Others will sit back and watch the truly-rich (the number of yachts owned by hedge-fund managers has reportedly fallen 60%), continue to remain blissfully unaware of their surroundings – the race included.
This week has certainly been mixed – as markets started to lose steam and the rich and glamorous gather in Monaco (see below), greater speculation over what might transpire after the summer holidays has picked up. Obama has announced he wants to return suspected terrorists to US mainland prisons at the same time (coincidentally) US authorities foiled and then captured four individuals involved in an alleged terrorist plot against several New York locations. European and Russian diplomats are meeting to discuss important issues such as security, trade, the financial crisis and…are we forgetting something..oh yes, Russia’s energy supplies. Medvedev here using all his oil-and-gas-based-leverage, to voice concern over what he sees as threatening agreements between the EU and former Soviet countries. In Egypt, a wealthy and previously all-powerful tycoon has been sentenced to death for ordering the murder of his ex-girlfriend – surprising in a part of the world where wealth and politics are inextricably linked – and protect one another. In the greater context of a renewed push across the Middle East by the US administration, Biden is visiting Beirut – this will cause some problems just ahead of the elections in Lebanon – US support for the pro-western government and (so far) very well behaved and professional Lebanese army has been a counterbalance to the (predicted growing) power of Hizbullah in the small country - will cause some waves and possibly open some sensitive issues – let’s hope the show of support from Biden doesn’t back-fire – in this part of the world, the tiniest spark can have disastrous consequences.
On a serious note, Michael Jackson has had to deny rumours of skin cancer for the postponement of the first few dates of his (certainly final) set of concerts in London – has no-one reminded him that the concerts are during London’s “summer” – skin cancer or not, he’s got nothing to worry about if he believes he’s going to be exposed to any sunshine!
The smartest move by “investors” this week – the couple in New Zealand who received a rather attractive transfer in error from their bank ($8m instead of $8,000) decided NOT to do the right thing and took the money and ran – with all that is going on in the world and the backlash against “greedy” banks, who could blame them for simply holding true to the bank’s (deliciously fitting!) moto – “making the most of life”.
Markets…
After the S&P warned that the UK (and now the US) may lose its AAA rating, the UK government today announced it would not be revealing the results of its own stress-inducing-stress-tests. This is causing havoc on the currency markets (more below). There was also talk China may soon be facing its own financial crisis.
Markets are all coming off as the holidays start to kick-in, US holiday on Monday and across the UK – means 90% of the world’s hedge-fund managers are out of action. This might explain some of the unwinding of positions across European and US markets yesterday – Europeans were on public holiday but the markets which were still open all ended up losing around 2.5% with the US shedding 1.7% avg. In Asia, despite Japan announcing they believe the worst of their economic contraction is over, markets are in invariably lower there (-1% avg). Europe today trading slightly higher but on low volume so far (+0.4%) despite BA announcing first loss since 2002. US futures are cautiously higher ahead of the market holiday so far – DJIA +33pts, S&P +3.7pts.
Oil has kept its head well above $60/brl and looks set to close the week above $61/brl – good for Middle East markets no doubt. Gold has also continued to shine, on course to close above $950/oz for the week.
Currency Chaos…China Concern?
Interesting to see Sterling bounce back strongly on intra-day trade yesterday and post its highest level vs US$ since November – 1.58 right now. Certainly seems like an over-bought play right now and you would expect a slight pull-back in the short-term, but when coupled with Euro’s strength (1.39 vs US$) this is the first attempt at a sell-off in the US$ as more investors understand the long-term implications of the Treasury’s incessant spending. After the credit-rating agencies focusing their spotlight on the UK and China yesterday, it is now the US’s turn – as speculation they too may lose their AAA rating. It really is becoming a case of who’s in worse shape – after all, if all the major economies are downgraded a notch, we’ll be left with a level playing field again,
Another interesting angle that some were discussing this morning is China’s growing realisation (read: admittance) of a potential domestic financial crisis of its own. China’s banks have been well cushioned since the onset of the global crisis, but it won’t be long before the huge non-performing loan portfolio losses that some of them must be experiencing (just think of all those factories closing and the 5% contribution to GDP growth disappearing) leads China to carry-out one of two courses of actions: 1) Sell some if its $2trn piggy-bank US Treasuries 2) Issue domestic debt to international investors for the first time. Either way, this would bring extra downwards pressure upon the dollar.
Screaming Engines, Scrambling Systems
Glitz, glamour and more glitz. This time last year, as the first shots across the bows of the credit-crisis were still being considered in correlation with the booming and reverberation of the world’s most advanced racing machines screaming around the hills of normally sleepy (and rich) Monaco, the first signs of a backlash against ostentatious displays of wealth were just beginning to creep in. What a difference a year can make. In an almost self-projecting admission of a sense of guilt, Formula 1 this year is in a total mess as it visits once more the foremost tax-haven in the world.
Teams are at each other’s throats, cheating is rife amidst arguments over technical delicacies such as the “angle-of-refraction-of-the-underside-downforce-deflecting wing”. However, a more serious matter is also threatening the future of the richest sport in the world, and a serious question very much in keeping with the time is being asked – is there too much money involved?
Ferrari and other large teams (the rich) are screaming almost as loud as their engines in response to a potential decision to limit the astronomical technology budgets to ensure a fair and level playing field - the similarities with the collapse of the “survival of the fittest” model so successful in the western world in the last few decades is palatable. Where before the fastest, richest and best sponsored teams were literally blazing ahead of the field, it is now the most innovative and economically efficient teams that appear to be streaks ahead of the rest – witness Jenson Button’s recent success with the upstart Brawn team. Ferrari, Renault and the other big teams in recent years are not faring so well with this new playing field – much like those that had all the natural benefits of wealth at their disposal in the financial markets, when asked to tighten their belts and carry-out their business in a leaner environment, they have lost pace to the more entrepreneurial and hungrier players out there.
The rules and regulations from the powers that be - the F1 association for the sport, the financial regulators and governments for the banks - are hurting those that became used to winning (admittedly with some excellent technological advances in some areas) on the back of their spending power alone.
The rich and beautiful gathering to show off their wares around one of sport’s most unashamedly money-loving events, in one of the world’s most unapologetically wealthy destinations, will provide the usual dose of escapism for some. Others will sit back and watch the truly-rich (the number of yachts owned by hedge-fund managers has reportedly fallen 60%), continue to remain blissfully unaware of their surroundings – the race included.
Thursday, 21 May 2009
Payback - Thursday 21st May
Payback…
Markets have decided to take a breather in the last 48hrs, just as more and more articles were being written about the longevity of the rally – must be true what they say about the new online world we live in these days, if it’s in the papers, well it’s already too late. This coincides with an admission by Fed officials (released through the minutes of their last meeting) that they do not believe the stabilisation measures they have put into place in the last few months will persist, and that some major US banks are still at risk of creating “major shock” to the economy. The major US banks (Morgan Stanley, Goldman Sachs, JP and now also Bank of America) are still trying to get out of some of the more stringent measures imposed upon them by the TARP programme. Bank of America seems to think it will be in a position to pay back $45bn the year-end. Why are they all in such a hurry? I wonder. It seems strange that the US govt isn’t slightly concerned by the ultimate desire of the major financials to be able to continue to pay themselves huge amounts in bonuses by the beginning of 2010. Would it not be more prudent to first ensure we are well and truly out of this crisis and that balance sheets and the general financial system has been resuscitated satisfactorily (which it clearly is not yet) before the TARP money is thrown back in the government’s face?
On the markets, the general return of caution and a slight slowdown in the build-up of what was dangerously becoming a “did-I–miss-the-rally-I-need-to-get-in-before-it’s-too-late” herding mentality, has resulted in muted performance across the major markets, with Asia coming off a little on the back of a lacklustre close in the US overnight (S&P -0.51%, DJIA -0.62%). Some of the strongest market rallies we’ve had in the last two months came from the Asian economies, so it is no surprise that a slight touching of the brakes has now taken place, especially in HK and China (-1.6%, -.2% respectively). Europe has fared worse, with the majors down an average of 2%. The news that the UK may lose its S&P AAA rating as its finances worsen has brought a sharp fall in the FTSE, but the real reason for the decline across the rest of Europe has been those gloomy minutes of the Fed meeting again. US futures are pointing to an equally downbeat trading session (DJIA -55pts, S&P -6.7pts).
Dollar Dive, or Sterling Slash?
The US$ sell-off is having its first shot. All the major currency rates are seeing a marked depreciation as investors possibly finally begin to understand the huge burden of the financial guarantees and packages that the US has now committed itself to and will continue to do so for many more years to come. Cable has seen a significant appreciation in the last few days especially (+8.5% in the last 30days, 3% in the last 5days) even with talk of a worsening situation in the UK – an example of the “lesser of two evils” in this case simply which leveraged economy is worse off? The US or the UK? Cable actually crashed almost 1.8% a few hours ago when the news of the possible S&P downgrade came through, but with increased talk on the extra pumping of US$s at the same time, we are now in a position where the markets and traders will have to decide which way to send the world’s (flailing) currencies. The Yen, after holding steady at around 95 as Japan’s economy continues to contract (-4% for the last quarter), has now fallen to an eight-week low but the Euro has strengthened.
Split right down the Central Bank?
Some disappointing developments on what had appeared to be a done deal for Saudi Arabia as the location of the GCC Central Bank as well as the general surrounding monetary policy and closer cooperation between the constituent nations. The UAE Central Bank came out yesterday and announced that it would be maintaining the peg to the US$ and essentially withdrawn from the GCC monetary plan. This is in addition to Kuwait having de-pegged some time ago and Oman refusing to play-ball with the single-currency plans. Whist this will not come as much of a surprise to observers painfully aware of the ongoing politics across the region, it will not do much to instil confidence amongst international investors hoping that region has matured beyond petty politics. Even more confusing, the UAE Federal National Council is to question the UAE (their own!) central bank and ministry of finance on why the UAE made these decisions? Are the phone lines here not working or have the authorities run out of credit on their pay-as-you-go-lines? How can they not be talking to one another before handing Saudi such a public slap in the face? Incredible, but more importantly, incredibly bad for the region’s reputation.
Markets have decided to take a breather in the last 48hrs, just as more and more articles were being written about the longevity of the rally – must be true what they say about the new online world we live in these days, if it’s in the papers, well it’s already too late. This coincides with an admission by Fed officials (released through the minutes of their last meeting) that they do not believe the stabilisation measures they have put into place in the last few months will persist, and that some major US banks are still at risk of creating “major shock” to the economy. The major US banks (Morgan Stanley, Goldman Sachs, JP and now also Bank of America) are still trying to get out of some of the more stringent measures imposed upon them by the TARP programme. Bank of America seems to think it will be in a position to pay back $45bn the year-end. Why are they all in such a hurry? I wonder. It seems strange that the US govt isn’t slightly concerned by the ultimate desire of the major financials to be able to continue to pay themselves huge amounts in bonuses by the beginning of 2010. Would it not be more prudent to first ensure we are well and truly out of this crisis and that balance sheets and the general financial system has been resuscitated satisfactorily (which it clearly is not yet) before the TARP money is thrown back in the government’s face?
On the markets, the general return of caution and a slight slowdown in the build-up of what was dangerously becoming a “did-I–miss-the-rally-I-need-to-get-in-before-it’s-too-late” herding mentality, has resulted in muted performance across the major markets, with Asia coming off a little on the back of a lacklustre close in the US overnight (S&P -0.51%, DJIA -0.62%). Some of the strongest market rallies we’ve had in the last two months came from the Asian economies, so it is no surprise that a slight touching of the brakes has now taken place, especially in HK and China (-1.6%, -.2% respectively). Europe has fared worse, with the majors down an average of 2%. The news that the UK may lose its S&P AAA rating as its finances worsen has brought a sharp fall in the FTSE, but the real reason for the decline across the rest of Europe has been those gloomy minutes of the Fed meeting again. US futures are pointing to an equally downbeat trading session (DJIA -55pts, S&P -6.7pts).
Dollar Dive, or Sterling Slash?
The US$ sell-off is having its first shot. All the major currency rates are seeing a marked depreciation as investors possibly finally begin to understand the huge burden of the financial guarantees and packages that the US has now committed itself to and will continue to do so for many more years to come. Cable has seen a significant appreciation in the last few days especially (+8.5% in the last 30days, 3% in the last 5days) even with talk of a worsening situation in the UK – an example of the “lesser of two evils” in this case simply which leveraged economy is worse off? The US or the UK? Cable actually crashed almost 1.8% a few hours ago when the news of the possible S&P downgrade came through, but with increased talk on the extra pumping of US$s at the same time, we are now in a position where the markets and traders will have to decide which way to send the world’s (flailing) currencies. The Yen, after holding steady at around 95 as Japan’s economy continues to contract (-4% for the last quarter), has now fallen to an eight-week low but the Euro has strengthened.
Split right down the Central Bank?
Some disappointing developments on what had appeared to be a done deal for Saudi Arabia as the location of the GCC Central Bank as well as the general surrounding monetary policy and closer cooperation between the constituent nations. The UAE Central Bank came out yesterday and announced that it would be maintaining the peg to the US$ and essentially withdrawn from the GCC monetary plan. This is in addition to Kuwait having de-pegged some time ago and Oman refusing to play-ball with the single-currency plans. Whist this will not come as much of a surprise to observers painfully aware of the ongoing politics across the region, it will not do much to instil confidence amongst international investors hoping that region has matured beyond petty politics. Even more confusing, the UAE Federal National Council is to question the UAE (their own!) central bank and ministry of finance on why the UAE made these decisions? Are the phone lines here not working or have the authorities run out of credit on their pay-as-you-go-lines? How can they not be talking to one another before handing Saudi such a public slap in the face? Incredible, but more importantly, incredibly bad for the region’s reputation.
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