LONDON SPECIAL
A few observations from London in the midst of a financial summit fumbling for the formula to fix the financial crisis…
Miracles and jeans…
As global and London’s markets tumbled on the first day of trading for the week with news Spain was bailing-out some of its banks, the US auto-makers would be denied further funds and the upcoming G20 summit was a failure before global leaders even met for their first cocktail party, I set-off for the Canary Wharf offices of Citi – in doing so, a small miracle and a strange occurrence presented themselves in front of my jet-lagged eyes. Having walked down to the local tube station in the crisp spring air (a welcome break from the rising heat of the Middle East at this time of year) a smooth-running train pulled up at the platform of a delay-free tube line and offered a selection of seats to rest on during the journey. Yes, you read correctly (especially those of you familiar with London’s public transport system) – a selection of seats. Now, this may not sound like too much of a miracle to some, but please bare in mind that we are talking about an underground system that sees 3million passengers carried daily and that used to see city-workers have to fight their way just to get ON to the (stinking) carriage and then fight for every inch of their personal space against a myriad of grumpy and super-egoed city execs wielding the ubiquitous FT as they flipped and turned pages with the skill of a master conjuror – really quite impressive from some but still annoying when the pages slap against your face.
As if this miraculous morning experience was not enough to open someone’s eyes to the sweeping change wrought open this city, a strange phenomenon then began to materialise – everyone on the tube and around the former centres of financial-excellence were dressed in jeans and t-shirts. Had I not received the memo there was some special wear-jeans-for-charity-day? In fact, the only suit in sight was the platform inspector’s as he sat idly by remembering the days when he would have enough people to shout at to “mind-the-doors”. He’s probably lamenting the loss of those poor unfortunates that used to dash-for-the-closing-doors-desperate-not-to-miss-that-particular-tube only to find their raincoats/umbrella/handbag/I-Pod Wire had become lodged behind them and an entire carriage’s forlorn and angry eyes set firmly on their reddening face. What is the reason behind the sudden distaste of formal-dress I hear you ask? As described later, the G20 Summit may be blamed.
Bubble-London-icious
London has long been an overpopulated city, and Londoners have long become accustomed to dealing with aggression on a minute-by-minute basis, whether walking, driving or simply asking a fellow resident for the time. The global crisis has certainly changed the atmosphere here though. First, almost 30% of the working population that used to travel to Canary Wharf and the City have disappeared – they haven’t vanished into thin air, they’ve been made redundant by the vicious bursting of a huge financial bubble – originally inflated by the hot-air of fast-talking London-based financial wizards - I recall a lot of them speaking in foreign tongues though, especially around the derivatives desks. The high-flyers have become the lowly-tube-riders. Taxis are easy to find (and friendly to foreign looking folk), restaurant bookings are definitely easier to secure and easier to pay for by virtue of the daily voucher offers, and shops are noticeably quieter in some areas. The tourist shopping areas and attractions are buzzing with activity though thanks to the strength of both the Euro and the US$ versus Sterling. In fact, Harrods and the museums around Knightsbridge seemed even busier than at Christmas time and the January sales.
For some time this capital city and certain swathes of its geography in particular (Mayfair, Chelsea, Knightsbridge) have represented a Monaco-like enclave nestled within and subsidised by the working-folk that make up the remaining 95% of the population. The 5% must be responsible for close to 60% of the expenditure across the city’s still vibrant night-life scene and do not seem ready to give up or change their spending habits just because there is a global recession taking place – mind you, drinks at the most popular and exclusive bars and clubs are a bargain compared to recent nights out in the UAE. Frustratingly, it’s still easier for Madonna to adopt her latest accessory from Malawi than finding a parking spot around the West-End on a Saturday night.
Road-Works-Like-a-Charm
Stimulus packages around the world are being announced in many shapes and form. Obama’s administration wants to protect home-owners to promote greater consumption, China wants to generate land-ownership to generate construction, even Zimbabwe has implemented an economic recovery programme to stem inflation of 1,000%/day. London has opted for the “let’s-dig-up-a-perfectly-good-road for any and every purpose”.
Any visitor to this great capital of the world will instantly be aware of an extremely over-proportionate number of red and white construction barriers and road-works signs – not to mention overweight men sitting lazily around wearing jeans that for some nondescript reason are three sizes too small and have a liking for showing off what is an extremely unattractive “butt-cleavage”. When times are good, these road-works can be infuriating, as traffic and pedestrians alike are inconvenienced and the sounds of the jackhammers drill their way into your consciousness. Now that times are bad, you cannot walk more than 20metres without being confronted by a team from British Gas one day, British Telecom another and EDF (Electricity firm) the following day digging up the SAME hole for the third time in a row. Some amusing scenes present themselves with two cement trucks and a team of seven all watching one fellow worker smoothing over newly-laid concrete – for the benefit of a 1sq metre plot!
It’s not always clear what’s funnier/sadder – the spending of government money on totally unnecessary projects serving no immediately clear purpose or the absolutely palpable act of desperation that Gordon Brown’s government has forced boroughs into implementing. Either way, its reminiscent of 2001 when the tech-bubble burst saw the whole of London dug-up and wired for broadband in an attempt to save a number of tech-firms – it certainly worked then (with many ancillary benefits through increased internet capability/speeds) but this downturn may need a bigger jackhammer.
G20 or Geee where have all the hotel rooms gone?
The G20 conference has gotten off to a terrible start – talk of disagreement between the attending global leaders, and their splendid entourages, over leaked wording of a document ahead of the official opening ceremony has overshadowed media coverage. The other focus is on Obama’s first visit to Europe as President of the United States – unlike other family visits that consider 5 traveling companions as sufficient, Obama is bringing over 200 Secret Service Agents in addition to the “normal” 100 strong traveling circus. Nice and intimate.
Any cursory calculation of the accommodation requirements for such a conference (20 nations, average delegation per nation 50 = 1,000) presents a formidable logistical nightmare for those organizing, but a great windfall in hotel and leisure revenues for the UK government! A friend was looking to book a few hotel rooms around town to be told by almost every decent one that “they were fully G20ed out”. Judging by the luxury hotels that have been booked solid, these G20 leaders certainly don’t mind flying and residing first-class even if their castigated corporate titans aren’t allowed to anymore!
The revenues expected must provide some comfort to what is otherwise fast becoming an beacon for the venting of a great deal of pent-up anger and frustration by the disenfranchised UK public. A huge number of official and unofficial protests and “riots” have been called for, with certain internet flyers making the round calling for the “storming of the bank of England”. There is a more sinister side to the expected trouble tomorrow and Thursday in London unfortunately. Social strife has been rising for the last 18mths, and some areas have seen record increased in crime. Even walking down one street in a more secure area of the city you are confronted with several luxury cars in a row dripping with left-over milkshake splashed across their windscreens and messages artfully written-in such as “Financial Loser” (spelt correctly surprisingly) and “Must be a banker/^anker” - you can guess what the ^ represents as a rhyme. This is not an entirely new aspect to living in a cosmopolitan city where income disparity has always existed, but conversations with those living here provide evidence of a marked increased in these types of events and a pervasive emotional tirade against the once-loved financial industry. It is now the major culprit in this crisis.
The reason no one traveling to work seems to want to wear those lovely Zegna tailored-suits and bespoke shoes they used to all be so proud of? The G20 protesters have threatened violence against the financial communities of both “The City” and Canary Wharf resulting in formal requests for bank staff to dress-down appropriately and pay extra vigilance to possible acts of violence – yeah, like 1m people all-of-a-sudden wearing jeans and t-shirts is going to fool the gangs of evil-wishers – especially not when they spot the FTs cradled under one arm and the Starbucks latte grasped in hand as the “bankers” exit the (empty) tube stations.
I remember a statistic published during the height of London’s boom-time in 2005 – it was stated that for every new job being created in London’s rapidly growing financial sector, an additional 4 jobs were being created directly and indirectly across the city. With an estimated 15,000 (and more to come) financial positions culled –that’s a lot of suddenly out-of-work Londoners looking enviously and angrily on at those still driving to work in their milkshake-stained Porsches, wearing jeans and trying to avoid the road-work riddled obstacles.
Tuesday, 31 March 2009
Thursday, 26 March 2009
Conflicting Currencies - 26th March
Conflicting Currencies?
*Ohhh China China China – aren’t we naughty? Flexing your muscles but then being all coy and pretending you don’t want to exert any influence through your immense strength that continues to grow by the day – it’s like a boxer knocking his opponent out with a single punch and then running over to check he’s OK in a false expression of concern and regret that his opponent “walked into his fist”…you’re not fooling anyone my friends!
*One minute they are happy with the US$ and the current administration’s policies, next thing you know they are talking about the IMF setting up a world super-currency (synthetic) to become the world’s preferred reserve currency. One day they’re talking about openness and the greater acceptance of foreign influence in corporate actions and mergers and acquisitions, a week later they prevent and prohibit international firms from approaching domestic partners with full acquisition flirtations. There was even a flurry of disappointment, quickly denied by the authorities, that foreign firms would no longer be able to buy or sell stakes of financial firms majority owned by the state (umm..all of them basically) – China continues to face the difficult position it is finding itself in as it daily grows in influence and pivotal importance to the general health of the global economy. Some believe its intentions are honest and for the greater good, others a little more cautious. Whatever they may be, the CSI300 is still the world’s best performing (closed to most us) market, +35%YTD and rises each time any mention of a new stimulus package is leaked. Watch this space for a rumoured announcement of another circa $600bn package just ahead of the G20 next week – China’s dragon breathing fire to ignite the markets will surely steal any US+ European thunder.
*Markets seem to have quietened down following the misplaced euphoria earlier in the week. Yes, Geithner and Bernanke have done their best to lessen the burden of fear across investors and yes some steel-nerved traders have made excellent returns in the last 2-3wks, but the general environment is still quite fragile and as seen yesterday in the US (S&P +.96%, DJIA +1.17%) and Asia’s performance today (up around 2% on majors) there are moments of positive performance but nothing yet that screams 100% confidence in lack of future negative surprises. Reinforcing this, Europe is pretty much flat across the board, and US futures only slightly up so far (DJIA +46pts, S&P +6pts). Gold has risen off its resting platform of $920/oz and still remains within the range before what may be a quick break to $1,000/oz on any rally negative surprise. Oil similarly stable at $54ish/brl. Unfortunately for the global economy the BDIY falls again for the 11th straight day on disappointing news from some world port operators – its fall is mild in comparison though (-22% in 10days) to the +125% gain in previous 3mths.
*Look out for GDP QoQ figures from US today (-6.6% annualised cons) and Personal Consumption (-4.4% cons).
Czech-mate…
*In a bizarre move, the outgoing EU President (Czech in the hot seat at the moment, but about to resign) condemns the US’s efforts to save the world as committing all on the “road to hell” – he’s been listening to one too many Chris Rea records me thinks – but a more serious rift is exposed in his rant on the widening disagreement created by the “Buy America” clause that we have discussed here a few times already. The timing is critical as a cynic would point to Gordon Brown currently travelling in the US whilst the rest of Europe debate issues at home ahead of the G20 meeting next week (or is it the American-China G2 really?). Politics has created much of the procrastination we have already endured in response to the global crisis, and it doesn’t look like politics will be set aside anytime soon either. For those few who cling on to the belief that the 1930s US Depression was caused by too much spending rather than too little, any further attempts at aggressive stimulation of the economy by quantitative easing is an anathema. Is it really a disagreement about a historical event that took place in a very different day and age compared to where we are now, or a historical fear Europe still clings to when even the mere mention of “infl…” crops-up. Come on people, let’s grow-up shall we?
Saudi Strength…
The news that Saudi is setting-up Hassana Investment Co - it will invest in real estate and commercial projects, and stock markets in the Middle East and overseas – is a very welcome move for the GCC region as a whole. Anyone that knows anything about the GCC will immediately realise the huge potential of Saudi becoming more involved in the extremely attractively valued GCC markets, understanding that is the most industrialised and clearly wealthiest member state. In fact, along with Qatar, it consists of the most attractive investment opportunity itself and will go from strength-to-strength as long as the road-to-reform is followed by the current King (doing a good job so far considering the restricted position the religious cleric place him in).
*Saudi’s large and young population (27m, 80% between ages of 18-30yrs) makes for some very enticing demographics and analysts will continue to watch with great interest how the baby-steps taken in recent months may lead to some deeper and more fundamental changes.
*We initiated on a Saudi Real-Estate development company, Dar Al Arkan – please call in for a discussion and take a look at report here.. https://www.citigroupgeo.com/pdf/SEM03194.pdf
Talk about unlucky…
*The story of an Japanese man who personifies “being in the wrong place at the wrong time” really brought home the sheer bad luck some unfortunately face in life – he has been recognized as an official survivor of not one but TWO nuclear explosions – the awful Horoshima and Nagaskai bombings that ended the fighting in the Pacific in the 2nd World War – if he can live through two incredible moment of man’s evil failings then surely we can all get out of this financial crisis – to live to see the next one!
*Ohhh China China China – aren’t we naughty? Flexing your muscles but then being all coy and pretending you don’t want to exert any influence through your immense strength that continues to grow by the day – it’s like a boxer knocking his opponent out with a single punch and then running over to check he’s OK in a false expression of concern and regret that his opponent “walked into his fist”…you’re not fooling anyone my friends!
*One minute they are happy with the US$ and the current administration’s policies, next thing you know they are talking about the IMF setting up a world super-currency (synthetic) to become the world’s preferred reserve currency. One day they’re talking about openness and the greater acceptance of foreign influence in corporate actions and mergers and acquisitions, a week later they prevent and prohibit international firms from approaching domestic partners with full acquisition flirtations. There was even a flurry of disappointment, quickly denied by the authorities, that foreign firms would no longer be able to buy or sell stakes of financial firms majority owned by the state (umm..all of them basically) – China continues to face the difficult position it is finding itself in as it daily grows in influence and pivotal importance to the general health of the global economy. Some believe its intentions are honest and for the greater good, others a little more cautious. Whatever they may be, the CSI300 is still the world’s best performing (closed to most us) market, +35%YTD and rises each time any mention of a new stimulus package is leaked. Watch this space for a rumoured announcement of another circa $600bn package just ahead of the G20 next week – China’s dragon breathing fire to ignite the markets will surely steal any US+ European thunder.
*Markets seem to have quietened down following the misplaced euphoria earlier in the week. Yes, Geithner and Bernanke have done their best to lessen the burden of fear across investors and yes some steel-nerved traders have made excellent returns in the last 2-3wks, but the general environment is still quite fragile and as seen yesterday in the US (S&P +.96%, DJIA +1.17%) and Asia’s performance today (up around 2% on majors) there are moments of positive performance but nothing yet that screams 100% confidence in lack of future negative surprises. Reinforcing this, Europe is pretty much flat across the board, and US futures only slightly up so far (DJIA +46pts, S&P +6pts). Gold has risen off its resting platform of $920/oz and still remains within the range before what may be a quick break to $1,000/oz on any rally negative surprise. Oil similarly stable at $54ish/brl. Unfortunately for the global economy the BDIY falls again for the 11th straight day on disappointing news from some world port operators – its fall is mild in comparison though (-22% in 10days) to the +125% gain in previous 3mths.
*Look out for GDP QoQ figures from US today (-6.6% annualised cons) and Personal Consumption (-4.4% cons).
Czech-mate…
*In a bizarre move, the outgoing EU President (Czech in the hot seat at the moment, but about to resign) condemns the US’s efforts to save the world as committing all on the “road to hell” – he’s been listening to one too many Chris Rea records me thinks – but a more serious rift is exposed in his rant on the widening disagreement created by the “Buy America” clause that we have discussed here a few times already. The timing is critical as a cynic would point to Gordon Brown currently travelling in the US whilst the rest of Europe debate issues at home ahead of the G20 meeting next week (or is it the American-China G2 really?). Politics has created much of the procrastination we have already endured in response to the global crisis, and it doesn’t look like politics will be set aside anytime soon either. For those few who cling on to the belief that the 1930s US Depression was caused by too much spending rather than too little, any further attempts at aggressive stimulation of the economy by quantitative easing is an anathema. Is it really a disagreement about a historical event that took place in a very different day and age compared to where we are now, or a historical fear Europe still clings to when even the mere mention of “infl…” crops-up. Come on people, let’s grow-up shall we?
Saudi Strength…
The news that Saudi is setting-up Hassana Investment Co - it will invest in real estate and commercial projects, and stock markets in the Middle East and overseas – is a very welcome move for the GCC region as a whole. Anyone that knows anything about the GCC will immediately realise the huge potential of Saudi becoming more involved in the extremely attractively valued GCC markets, understanding that is the most industrialised and clearly wealthiest member state. In fact, along with Qatar, it consists of the most attractive investment opportunity itself and will go from strength-to-strength as long as the road-to-reform is followed by the current King (doing a good job so far considering the restricted position the religious cleric place him in).
*Saudi’s large and young population (27m, 80% between ages of 18-30yrs) makes for some very enticing demographics and analysts will continue to watch with great interest how the baby-steps taken in recent months may lead to some deeper and more fundamental changes.
*We initiated on a Saudi Real-Estate development company, Dar Al Arkan – please call in for a discussion and take a look at report here.. https://www.citigroupgeo.com/pdf/SEM03194.pdf
Talk about unlucky…
*The story of an Japanese man who personifies “being in the wrong place at the wrong time” really brought home the sheer bad luck some unfortunately face in life – he has been recognized as an official survivor of not one but TWO nuclear explosions – the awful Horoshima and Nagaskai bombings that ended the fighting in the Pacific in the 2nd World War – if he can live through two incredible moment of man’s evil failings then surely we can all get out of this financial crisis – to live to see the next one!
Wednesday, 25 March 2009
Good News! - 25th March
Happy?
*Good news! – during his latest press conference Obama has everything under control he says – and he’s got a “strategy” to get the US and the world out of trouble – pheww…we can all relax now. Oh wait, what’s that investors keep saying…”talk is…? No really, here’s hoping super-Obama-man can save us all. On a similar note – and in a very different style – UK’s Gordon Brown is touring the world drumming up support for his latest plan to also help save the world ahead of the G20 in London next week. Sorry Gordon, there-can-only-be-one-hero in this story.
*But wait, what exactly are we trying to achieve by “saving the economy” and ensuring hard-working individuals can go back to their lives where they covet all that their neighbour has and is never happy with the possessions and belongings that they succeed in attaining – were people really that happy in the boom years? Maybe we should all learn from a recent Chinese survey (kindly sent to me by a client in Abu Dhabi - a very happy people there no doubt) that shows people who earn between RMB 500-1500 per month (US$80-220/mth or AED 300-800/mth) have the strongest sense of “happiness”. Of course, defining happiness is difficult, but it might be we are trying to achieve something we shouldn’t really be aspiring for!
*One of my favourite money-managers in the Gulf (an exquisitely philosophical individual capable of opening the eyes of any visiting analyst) called this some time ago – professing that when a people (the Japanese for example) have achieved all there is to in life and an almost near-utopia, there is little to excite them by way of trying to improve further. But are they happy?
*Poor old Japan receives confirmation that exports are nowhere near recovering (take a look at BDIY falling over last 10days again as well) with a near 50% drop in February – further signals that although markets are concerned with US bail-out plans and capitalism vs isolation the economy is still in very dire straits and consumers are simply not consuming – certainly not cars and electronics. There are an estimated 1bn cars sitting in loading docks around the world searching for a new owner – that’s a lot of rust. Continuing Japan’s unfortunate woes, GDP will now likely contract at a similar record level to last qtr (-12.5%). Nikkei is shrugging this aside for now (much already priced in), trading flattish for the day after making a recovery in the pm session.
*Asia’s woes continue, and in an interesting signal following the Coca-Cola (failing to buy Huiyan juice) debacle last week that China is tightening the ease with which foreign companies and investors may operate on the mainland, a new ruling will come into effect which will prohibit the private buying and selling of stakes in Chinese state-owned shares of financials from 1st May – no more block trades. Another sign China is no longer moving along a path of greater openness for foreign acquisitions in the current isolationist environment. CSI300 falling -2% but not limited to the previous news.
*Also on China, after they re-iterated support for the US$, there was then a call upon the IMF to back more fully a “super-sovereign reserve currency” – noteworthy because there is increasing chatter around China’s patience over US$ and everyone knows it won’t be pretty if and when they do start letting go of close to the $1trn in US Treasuries.
Gloomy G20
*Now that Bernanke and Geithner have unveiled their masterplan, attention is firmly focused on the outcome of the upcoming G20 summit next week in London – ECB leaders are keen to take advantage of the recent admission by Mervyn King that the UK “cannot afford” any more stimulus packages – Sterling was not affected heavily yesterday, but this was more a reflection of recent reversal of trades on US$ than anything else, so worth watching what FX traders will think of this.
*Let’s hope that the dismal environment of the East-End of London (Canning Town - those that have been there will know exactly what I’m talking about) will not overburden our respected global leaders and depress them even further to leave us with no hope of a sunny and positive conclusion.
*Also in the UK, a surprising shock return of inflation has been reported, as soaring prices meet consumers on the back of the recently weak GBP – shoppers there are apparently faced with higher prices for fruit and vegetables across the country’s supermarkets – is it really a surprise considering all the good/tasty/quality produce in the UK is imported? I also don’t have to tell you that when one country’s currency is weak, certain parts of its industry will do well as they export more, and those that enjoy importing exotic fruits or need their vegetables out-of-season from Waitrose will suffer.
Delaying=Cancelling?
*Further to the note last week discussing property prices and the general downturn in real-estate across the GCC, Dubai’s Nakheel has announced today the “delay” of retail units in its $3bn mall expansion plans by 12mths. They say this is another attempt to keep its "short-term business model aligned to meet market demand". This follows the announcement of delays to the Worlds of Discovery theme park, Nakheel Harbor & Tower project and Trump Tower on the Palm Jumeirah… and the slowing of work at Palm Jebel Ali and Palm Deira projects.
*Separately, Director General of Department of Finance says urgent action required to shore up Nakheel and Dubai Holding and they will be among first companies to have access to bond proceeds…details should be available within 2 weeks.
*Seems those projects that are being “delayed” are going to have a tough time being taken out of the “for consideration” pile when things turn around – priorities have changed in the last 6mths and the constant stream of unnecessary projects will certainly not return to the GCC anytime soon.
*Good news! – during his latest press conference Obama has everything under control he says – and he’s got a “strategy” to get the US and the world out of trouble – pheww…we can all relax now. Oh wait, what’s that investors keep saying…”talk is…? No really, here’s hoping super-Obama-man can save us all. On a similar note – and in a very different style – UK’s Gordon Brown is touring the world drumming up support for his latest plan to also help save the world ahead of the G20 in London next week. Sorry Gordon, there-can-only-be-one-hero in this story.
*But wait, what exactly are we trying to achieve by “saving the economy” and ensuring hard-working individuals can go back to their lives where they covet all that their neighbour has and is never happy with the possessions and belongings that they succeed in attaining – were people really that happy in the boom years? Maybe we should all learn from a recent Chinese survey (kindly sent to me by a client in Abu Dhabi - a very happy people there no doubt) that shows people who earn between RMB 500-1500 per month (US$80-220/mth or AED 300-800/mth) have the strongest sense of “happiness”. Of course, defining happiness is difficult, but it might be we are trying to achieve something we shouldn’t really be aspiring for!
*One of my favourite money-managers in the Gulf (an exquisitely philosophical individual capable of opening the eyes of any visiting analyst) called this some time ago – professing that when a people (the Japanese for example) have achieved all there is to in life and an almost near-utopia, there is little to excite them by way of trying to improve further. But are they happy?
*Poor old Japan receives confirmation that exports are nowhere near recovering (take a look at BDIY falling over last 10days again as well) with a near 50% drop in February – further signals that although markets are concerned with US bail-out plans and capitalism vs isolation the economy is still in very dire straits and consumers are simply not consuming – certainly not cars and electronics. There are an estimated 1bn cars sitting in loading docks around the world searching for a new owner – that’s a lot of rust. Continuing Japan’s unfortunate woes, GDP will now likely contract at a similar record level to last qtr (-12.5%). Nikkei is shrugging this aside for now (much already priced in), trading flattish for the day after making a recovery in the pm session.
*Asia’s woes continue, and in an interesting signal following the Coca-Cola (failing to buy Huiyan juice) debacle last week that China is tightening the ease with which foreign companies and investors may operate on the mainland, a new ruling will come into effect which will prohibit the private buying and selling of stakes in Chinese state-owned shares of financials from 1st May – no more block trades. Another sign China is no longer moving along a path of greater openness for foreign acquisitions in the current isolationist environment. CSI300 falling -2% but not limited to the previous news.
*Also on China, after they re-iterated support for the US$, there was then a call upon the IMF to back more fully a “super-sovereign reserve currency” – noteworthy because there is increasing chatter around China’s patience over US$ and everyone knows it won’t be pretty if and when they do start letting go of close to the $1trn in US Treasuries.
Gloomy G20
*Now that Bernanke and Geithner have unveiled their masterplan, attention is firmly focused on the outcome of the upcoming G20 summit next week in London – ECB leaders are keen to take advantage of the recent admission by Mervyn King that the UK “cannot afford” any more stimulus packages – Sterling was not affected heavily yesterday, but this was more a reflection of recent reversal of trades on US$ than anything else, so worth watching what FX traders will think of this.
*Let’s hope that the dismal environment of the East-End of London (Canning Town - those that have been there will know exactly what I’m talking about) will not overburden our respected global leaders and depress them even further to leave us with no hope of a sunny and positive conclusion.
*Also in the UK, a surprising shock return of inflation has been reported, as soaring prices meet consumers on the back of the recently weak GBP – shoppers there are apparently faced with higher prices for fruit and vegetables across the country’s supermarkets – is it really a surprise considering all the good/tasty/quality produce in the UK is imported? I also don’t have to tell you that when one country’s currency is weak, certain parts of its industry will do well as they export more, and those that enjoy importing exotic fruits or need their vegetables out-of-season from Waitrose will suffer.
Delaying=Cancelling?
*Further to the note last week discussing property prices and the general downturn in real-estate across the GCC, Dubai’s Nakheel has announced today the “delay” of retail units in its $3bn mall expansion plans by 12mths. They say this is another attempt to keep its "short-term business model aligned to meet market demand". This follows the announcement of delays to the Worlds of Discovery theme park, Nakheel Harbor & Tower project and Trump Tower on the Palm Jumeirah… and the slowing of work at Palm Jebel Ali and Palm Deira projects.
*Separately, Director General of Department of Finance says urgent action required to shore up Nakheel and Dubai Holding and they will be among first companies to have access to bond proceeds…details should be available within 2 weeks.
*Seems those projects that are being “delayed” are going to have a tough time being taken out of the “for consideration” pile when things turn around – priorities have changed in the last 6mths and the constant stream of unnecessary projects will certainly not return to the GCC anytime soon.
Tuesday, 24 March 2009
Horror Movie Ending - 24th March
Horror-movie-ending?
*So what was a good start to the week was hit out of the ballpark to make for a great start to the week and one of the best performing days across US markets in recent history (S&P +7%, DJIA +6.84%). Geithner’s first outlining of the administration’s efforts to end uncertainty over the financial sector’s toxic assets back in early February brought about a period of greater uncertainty and further selling – this time, his private-public initiative has succeeded in pushing markets up for their 4thbiggest gain since the 1930s (S&P Financials rose +18%). The buying on the rumour continued into buying on the fact in a rare showing of faith in the Treasury Secretary. Both he and Bernanke will face another grilling today in front of Congress. Today, Asia did well to continue the rally with most markets climbing higher for the 9th out of 12 trading days. Europe so far more muted following the furious trading, UK down with resource stocks getting hit on profit-taking. US futures slightly off and taking a break – DJIA -66pts, S&P -8.1pts for now. Oil slightly off today (-0.84%) but still above $53/brl and Gold easing slightly to $934 (-1.7%). Currencies see further weakening of US$ vs Eur and GBP.
*Worrying piece of news that hedge funds expecting even larger withdrawals of cash this year, more than $200bn some estimate (vs $155bn last yr) – may further dent any risk-taking appetite.
*AIG’s senior managers (9 out of 10, who’s the 10th guy who didn’t get the memo I wonder?) agree to return their bonuses, just a matter of time before the rest of those targeted mercilessly follow-suit.
*We are getting close to that moment where everyone feels markets are returning to form and that only good news will start to flow, and as much as I would like to back this horse and put myself in the “it’s-all-over-let’s-celebrate-camp” I am hesitant as one is when watching a horror movie and knowing that although the bad guy as been beaten to a pulp, shot a thousand times and lying apparently dead on the ground, that moment will still occur where he will suddenly arise for that one last stab at killing the victim - a cheap shot at the best of times but always successful in getting the nerve-frazzled audience to jump and react even when they know it’s coming!
*I only hope this is not the case when the inevitable end to the short-squeeze occurs and investors then grapple to find the next push forwards. Some ugliness in the markets may yet jump out of the shadows.
Gulf Swings Again…
*The Gulf’s climate is getting very warm now, and markets themselves are hotting-up following a series of injections and announcements over the last few weeks to help assuage any fears and uncertainties to the future of the region’s major financial institutions.
*The latest was Gulf International Bank’s bailing-out yesterday by the member states of the GCC (they jointly-own one of the world’s largest buyers of toxic assets in the last few years before the crunch!). An estimates $4.5bn was the necessary infusion there. More important than the sum involved, the sheer fact that the GCC were able to work together and consolidate the losses.
*Dubai CDS spreads have narrowed dramatically since those dangerous days of standing at the abyss and being dared to jump in by Abu Dhabi, narrowing from 1000bps last month to 650bps today. *Doha’s stock market has returned +24% since hitting its low earlier this month (there is much further to go here). The only disappointment still Kuwait as it deals with its own political mess.
Beer-eally Unfair?
*Everyone’s talking about Dubai’s increasing conservatism, what with the new law that may come into effect banning kissing in public or holding your girlfriend’s hand in inappropriate venues. Others are complaining about “evil” speed cameras that seem to take pleasure in catching you totally unaware as you edge past 120kmh for the 1st time in months at the worst possible moment. Others are more interested in why prices across Dubai (and in selected industries across the Gulf) are still too high though. With no more cause for concern through inflation and an all but destroyed real estate market and tourism industry, it is still baffling as to why authorities here continue to want to extract from residents their pound of flesh and more. Restaurants remain very over-priced for the quality you receive and the service that you have no choice but to put up with - anyone else find themselves repeating themselves several times in the space of a minute to ensure their order has been correctly noted, but with a feeling of disappointing inevitability in the pit-of-your stomach that despite your best efforts to clarify and simplify you will still receive cheese on your “no-cheese please” burger, and you will almost certainly get that salad with the dressing drizzled-all-over rather than on-the-side, and those croutons you didn’t want – aarghhh!..exceptionally frustrating right?
*Many in Dubai are still amazed at the prices (and difference in price within Dubai) for a cooling and refreshing beer. A bottled-beer on the Palm for example will set you back 18-22DHS (depends what brand you fancy) which is relatively well-priced for Dubai, but the same choice of beer will set you back 32-36DHS a 15minute drive-away in Burj Dubai Downtown’s Souk Al Bahar. Both are residential areas, and both bars that serve the beer are not in hotels - which is the main reason why most other establishments are able to get away with the excuse of sometimes charging even 45DHS for a beer (they do serve good nuts it must be said, especially the nuts at the Monarch Hotel’s cigar bar – mmmm).
Why are we made to pretend we are sitting on the equivalent of the Gulf’s Puerto Banus and pay similar prices when we are still bombarded by the sounds of bulldozers and construction vehicles daily and every hour? Relevant prices should be provided for the relevant environment. There have been many improvements in recent months, and plenty of changes have made Dubai a much more pleasant living-environment, but a path of price-correction must still be traveled on.
*Where does Dubai get-off allowing this type of price discrepancy? You would maybe expect it in a city that has a population of 20million people or so and a myriad of income levels not to mention vast choices of areas for people to dwell and relax in. Not the reality that is still Dubai for now which is a tiny population made up mainly average income earning ex-pats all looking for a cheap drink in 2 or 3 main locations.
In London, a beer in a pub in Shoredtich will cost you the same as a beer in pub in Fulham (not much more than 22DHS). In New York, a vodka-martini in the meat district is very close in price to another at Union Square. It will definitely cost you much less than a vodka-martini at Neos in the Address. Neos is also in Burj Dubai Downtown, where you aren’t even ALLOWED to order a normal vodka and have to choose between the likes of an extortionately priced Stoli Elite (70DHS per shot) or a you-know-I’m-not-that-thirsty-anymore Ciroc (granted, you don’t have to go to Neos for a drink every night and it is situated in a premium hotel, but it’s still not right when you consider other top-hotels/bars around the world have a full choice of brands always available).
*Down the road (1 hour’s drive) and in Abu Dhabi you will pick-up the same imported beer for a 30% discount at even one of the swankier hotels out there. Don’t even get me started on what you would pay in Ajman. Isn’t it time Dubai maybe admits that is ripping-off those that decide to live here and install some sort of two-tier system (like Venice for example) which provides different menus and prices depending on whether a customer is a tourist or a local – why should those living in Dubai be forced to eat and drink in hotels and pay the very same prices tourists are forking out – tourists are on holiday and in a very different frame of mind and know they will not be paying ridiculous prices for longer than their 7 days basking in the sunshine – the locals have no escape!
*Why do two identical beers in two near-identical bars in a city of barely 1m people manage to vary to such a degree? It’s enough to give you beer-goggles before you’ve even finished the first bottle. There are more and more places where you can eat and drink without feeling you have been rudely violated and taken advantage of, and this is one of the best knock-on effects of a newly humbled Dubai. Many agree (as do I) that the city will survive and then again thrive once the global economy has gotten over its hissy-fit. In the meantime, it would be nice if it started providing even more of the reasonably priced establishments popping up sporadically - I know a few, call in for the list.
*So what was a good start to the week was hit out of the ballpark to make for a great start to the week and one of the best performing days across US markets in recent history (S&P +7%, DJIA +6.84%). Geithner’s first outlining of the administration’s efforts to end uncertainty over the financial sector’s toxic assets back in early February brought about a period of greater uncertainty and further selling – this time, his private-public initiative has succeeded in pushing markets up for their 4thbiggest gain since the 1930s (S&P Financials rose +18%). The buying on the rumour continued into buying on the fact in a rare showing of faith in the Treasury Secretary. Both he and Bernanke will face another grilling today in front of Congress. Today, Asia did well to continue the rally with most markets climbing higher for the 9th out of 12 trading days. Europe so far more muted following the furious trading, UK down with resource stocks getting hit on profit-taking. US futures slightly off and taking a break – DJIA -66pts, S&P -8.1pts for now. Oil slightly off today (-0.84%) but still above $53/brl and Gold easing slightly to $934 (-1.7%). Currencies see further weakening of US$ vs Eur and GBP.
*Worrying piece of news that hedge funds expecting even larger withdrawals of cash this year, more than $200bn some estimate (vs $155bn last yr) – may further dent any risk-taking appetite.
*AIG’s senior managers (9 out of 10, who’s the 10th guy who didn’t get the memo I wonder?) agree to return their bonuses, just a matter of time before the rest of those targeted mercilessly follow-suit.
*We are getting close to that moment where everyone feels markets are returning to form and that only good news will start to flow, and as much as I would like to back this horse and put myself in the “it’s-all-over-let’s-celebrate-camp” I am hesitant as one is when watching a horror movie and knowing that although the bad guy as been beaten to a pulp, shot a thousand times and lying apparently dead on the ground, that moment will still occur where he will suddenly arise for that one last stab at killing the victim - a cheap shot at the best of times but always successful in getting the nerve-frazzled audience to jump and react even when they know it’s coming!
*I only hope this is not the case when the inevitable end to the short-squeeze occurs and investors then grapple to find the next push forwards. Some ugliness in the markets may yet jump out of the shadows.
Gulf Swings Again…
*The Gulf’s climate is getting very warm now, and markets themselves are hotting-up following a series of injections and announcements over the last few weeks to help assuage any fears and uncertainties to the future of the region’s major financial institutions.
*The latest was Gulf International Bank’s bailing-out yesterday by the member states of the GCC (they jointly-own one of the world’s largest buyers of toxic assets in the last few years before the crunch!). An estimates $4.5bn was the necessary infusion there. More important than the sum involved, the sheer fact that the GCC were able to work together and consolidate the losses.
*Dubai CDS spreads have narrowed dramatically since those dangerous days of standing at the abyss and being dared to jump in by Abu Dhabi, narrowing from 1000bps last month to 650bps today. *Doha’s stock market has returned +24% since hitting its low earlier this month (there is much further to go here). The only disappointment still Kuwait as it deals with its own political mess.
Beer-eally Unfair?
*Everyone’s talking about Dubai’s increasing conservatism, what with the new law that may come into effect banning kissing in public or holding your girlfriend’s hand in inappropriate venues. Others are complaining about “evil” speed cameras that seem to take pleasure in catching you totally unaware as you edge past 120kmh for the 1st time in months at the worst possible moment. Others are more interested in why prices across Dubai (and in selected industries across the Gulf) are still too high though. With no more cause for concern through inflation and an all but destroyed real estate market and tourism industry, it is still baffling as to why authorities here continue to want to extract from residents their pound of flesh and more. Restaurants remain very over-priced for the quality you receive and the service that you have no choice but to put up with - anyone else find themselves repeating themselves several times in the space of a minute to ensure their order has been correctly noted, but with a feeling of disappointing inevitability in the pit-of-your stomach that despite your best efforts to clarify and simplify you will still receive cheese on your “no-cheese please” burger, and you will almost certainly get that salad with the dressing drizzled-all-over rather than on-the-side, and those croutons you didn’t want – aarghhh!..exceptionally frustrating right?
*Many in Dubai are still amazed at the prices (and difference in price within Dubai) for a cooling and refreshing beer. A bottled-beer on the Palm for example will set you back 18-22DHS (depends what brand you fancy) which is relatively well-priced for Dubai, but the same choice of beer will set you back 32-36DHS a 15minute drive-away in Burj Dubai Downtown’s Souk Al Bahar. Both are residential areas, and both bars that serve the beer are not in hotels - which is the main reason why most other establishments are able to get away with the excuse of sometimes charging even 45DHS for a beer (they do serve good nuts it must be said, especially the nuts at the Monarch Hotel’s cigar bar – mmmm).
Why are we made to pretend we are sitting on the equivalent of the Gulf’s Puerto Banus and pay similar prices when we are still bombarded by the sounds of bulldozers and construction vehicles daily and every hour? Relevant prices should be provided for the relevant environment. There have been many improvements in recent months, and plenty of changes have made Dubai a much more pleasant living-environment, but a path of price-correction must still be traveled on.
*Where does Dubai get-off allowing this type of price discrepancy? You would maybe expect it in a city that has a population of 20million people or so and a myriad of income levels not to mention vast choices of areas for people to dwell and relax in. Not the reality that is still Dubai for now which is a tiny population made up mainly average income earning ex-pats all looking for a cheap drink in 2 or 3 main locations.
In London, a beer in a pub in Shoredtich will cost you the same as a beer in pub in Fulham (not much more than 22DHS). In New York, a vodka-martini in the meat district is very close in price to another at Union Square. It will definitely cost you much less than a vodka-martini at Neos in the Address. Neos is also in Burj Dubai Downtown, where you aren’t even ALLOWED to order a normal vodka and have to choose between the likes of an extortionately priced Stoli Elite (70DHS per shot) or a you-know-I’m-not-that-thirsty-anymore Ciroc (granted, you don’t have to go to Neos for a drink every night and it is situated in a premium hotel, but it’s still not right when you consider other top-hotels/bars around the world have a full choice of brands always available).
*Down the road (1 hour’s drive) and in Abu Dhabi you will pick-up the same imported beer for a 30% discount at even one of the swankier hotels out there. Don’t even get me started on what you would pay in Ajman. Isn’t it time Dubai maybe admits that is ripping-off those that decide to live here and install some sort of two-tier system (like Venice for example) which provides different menus and prices depending on whether a customer is a tourist or a local – why should those living in Dubai be forced to eat and drink in hotels and pay the very same prices tourists are forking out – tourists are on holiday and in a very different frame of mind and know they will not be paying ridiculous prices for longer than their 7 days basking in the sunshine – the locals have no escape!
*Why do two identical beers in two near-identical bars in a city of barely 1m people manage to vary to such a degree? It’s enough to give you beer-goggles before you’ve even finished the first bottle. There are more and more places where you can eat and drink without feeling you have been rudely violated and taken advantage of, and this is one of the best knock-on effects of a newly humbled Dubai. Many agree (as do I) that the city will survive and then again thrive once the global economy has gotten over its hissy-fit. In the meantime, it would be nice if it started providing even more of the reasonably priced establishments popping up sporadically - I know a few, call in for the list.
Friday, 20 March 2009
** Nature’s estate keeps-it-real **
Everyone knows the saying that there is only one thing man is not making more of – land. In recent years however, even this cliché has been pulled apart by many states creating artificial islands through “land-reclamation” – a term that conjures images of gracious developers almost “rescuing” precious land from the evil sea (sounds familiar Dubai and others across the Gulf?). The sight of hundreds of bulldozers and countless construction workers raising new foundations on a site that only six months earlier had been in the middle-of-the sea is certainly a testament to how ingenious and advanced man’s building techniques have become. It is as if the masterminds behind these projects are pointing a finger at the great creator and saying “look – I can do it too!” – isn’t the ego a wonderfully dangerous thing?
However, only yesterday, mother nature herself reminded us that we are but visitors on this land, as new islands were created (much faster than those in Dubai) with the eruption of an underwater volcano off the coast of Tonga in an awesome display-of-power that served to truly put much into perspective. No quantity of slick marketing and gimmicking - no sign of David Beckham buying a plot on the newly formed Tonga islands – could compare to the shock-and-awe of natural creation – not even the Fed’s surprise $1.5trn quantitative easing created such tremors.
Despite nature’s best attempts at helping us out in this financial crisis, global real estate prices in the last year have plummeted (40% avg. year-on-year). Sharp declines have occurred across the once shining-holiday-homes on Florida’s sun-kissed beachfronts, to the still highly desirable I-know-it’s-as-big-as-a-closet-in-any-other-flat-but-it’s-in-Chelsea-darling cramped one bedroom apartments in central London. We have been subjected to arguably the widest property-bubble burst in history. Hong Kong’s market has all but disappeared, with landlords there not only accepting ridiculously low prices for outright purchase of their properties, but also humble in the face of a dwindling rental market – some contracts have been re-signed there at 80% discounts. From Shanghai to Mumbai and (via Dubai) Belgrade to Rio, brand new property developments around the world have come to a stand-still, with no manner of incentives in the form of gleaming gyms and pools (or even new cars thrown in on signing – a GCC marketing favourite) able to entice hard-up buyers. Surely this will all reverse as inflation returns and consumers once more partake in the “I’m not the last fool standing” game of musical-chairs.
For now though, there are some great bargains for those fortunate enough to hold cash ($2m priced houses a year ago now going for $700k), or savvy enough to negotiate and squeeze their landlords. The best analogy for the property market over the last 18mths is expressed by the world’s newest and steepest rollercoaster ride (at Thorpe Park in the UK). Apparently you start off being slooowly rolled up a very long incline that provides you with the briefest of glimpses at the top, only to tip over the agonizingly high plateau and sent hurtling downwards at a 100 degree angle with the equivalent force of 4G through a dark tunnel - then sent upside down, sideways, upside down again and who knows what direction to come to a screeching halt where you are left with your nerves frazzled and stomach contents ungainly rearranged – many recent home-owners have endured a similar thrilling ride, at a much higher cost of admission, without ever having strapped themselves in.
In the Gulf especially, Bahrain, Dubai and even Qatar have seen dramatic falls in real-estate valuations. The once boisterous estate-agent sat next to you in one of Dubai’s many buzzing-restaurants has all but disappeared – one of the positive side-effects I believe. Where before they would way-lyrical in between gulps of champagne about the “latest and greatest” flat that you “simply must snap-up” (before laying of the first steel girder even – completion in 2012 if you were lucky) talk is now of mitigating losses on your past “investments”.
A welcome development for many is the re-negotiation of rental contracts. I have heard of some Bahraini tenants declaring themselves unable to continue with their contractual tenors, resulting in the landlord immediately offering a 30% reduction in annual rent – the savvy Bahraini tenant though smells blood and still declares themselves unable to continue, hence exacting a further 40% reduction to the agreement. In Doha, on the ultra-exclusive and luxurious Pearl Islands, viewing appointments once more elusive than a ticket for Michael Jackson’s concerts at the O2 in the UK, are now offered as easily as free flyers for the latest meal-deals across Dubai’s malls. Abu Dhabi, with a combination of luck and a dashing of laziness, is the only GCC market experiencing rental price increases.
There are many stories like this all around the GCC (and the world of course) but one of my favourites is a case in Dubai where one unlucky couple discovered that sometimes in you life you should be careful what you wish for: Living in a lovely modern building with desirable amenities, the tenants were coming to the end of their contract and wanted to take advantage of the current rental environment without having to unduly trouble themselves with a laborious move. Luckily they found an available identical apartment on offer at 40% lower annual rent one-floor below (I know - I did say they were lucky). They promptly signed the new contract with a big smile on their faces and lay back on their sofa with a smug warm feeling. A couple of nights in though, and they were violently woken by some deep thudding from above. They endured two sleepless nights to then discover that the new (quite unfriendly) tenant that had moved into their previous upstairs apartment (for 25% less rent by the way) was a budding-drummer with some strange sleeping habits!
Oh well, at least they were still saving money if not their sanity – and they could always make a move to those brand new islands that have just come onto the market off the coast of Tonga.
However, only yesterday, mother nature herself reminded us that we are but visitors on this land, as new islands were created (much faster than those in Dubai) with the eruption of an underwater volcano off the coast of Tonga in an awesome display-of-power that served to truly put much into perspective. No quantity of slick marketing and gimmicking - no sign of David Beckham buying a plot on the newly formed Tonga islands – could compare to the shock-and-awe of natural creation – not even the Fed’s surprise $1.5trn quantitative easing created such tremors.
Despite nature’s best attempts at helping us out in this financial crisis, global real estate prices in the last year have plummeted (40% avg. year-on-year). Sharp declines have occurred across the once shining-holiday-homes on Florida’s sun-kissed beachfronts, to the still highly desirable I-know-it’s-as-big-as-a-closet-in-any-other-flat-but-it’s-in-Chelsea-darling cramped one bedroom apartments in central London. We have been subjected to arguably the widest property-bubble burst in history. Hong Kong’s market has all but disappeared, with landlords there not only accepting ridiculously low prices for outright purchase of their properties, but also humble in the face of a dwindling rental market – some contracts have been re-signed there at 80% discounts. From Shanghai to Mumbai and (via Dubai) Belgrade to Rio, brand new property developments around the world have come to a stand-still, with no manner of incentives in the form of gleaming gyms and pools (or even new cars thrown in on signing – a GCC marketing favourite) able to entice hard-up buyers. Surely this will all reverse as inflation returns and consumers once more partake in the “I’m not the last fool standing” game of musical-chairs.
For now though, there are some great bargains for those fortunate enough to hold cash ($2m priced houses a year ago now going for $700k), or savvy enough to negotiate and squeeze their landlords. The best analogy for the property market over the last 18mths is expressed by the world’s newest and steepest rollercoaster ride (at Thorpe Park in the UK). Apparently you start off being slooowly rolled up a very long incline that provides you with the briefest of glimpses at the top, only to tip over the agonizingly high plateau and sent hurtling downwards at a 100 degree angle with the equivalent force of 4G through a dark tunnel - then sent upside down, sideways, upside down again and who knows what direction to come to a screeching halt where you are left with your nerves frazzled and stomach contents ungainly rearranged – many recent home-owners have endured a similar thrilling ride, at a much higher cost of admission, without ever having strapped themselves in.
In the Gulf especially, Bahrain, Dubai and even Qatar have seen dramatic falls in real-estate valuations. The once boisterous estate-agent sat next to you in one of Dubai’s many buzzing-restaurants has all but disappeared – one of the positive side-effects I believe. Where before they would way-lyrical in between gulps of champagne about the “latest and greatest” flat that you “simply must snap-up” (before laying of the first steel girder even – completion in 2012 if you were lucky) talk is now of mitigating losses on your past “investments”.
A welcome development for many is the re-negotiation of rental contracts. I have heard of some Bahraini tenants declaring themselves unable to continue with their contractual tenors, resulting in the landlord immediately offering a 30% reduction in annual rent – the savvy Bahraini tenant though smells blood and still declares themselves unable to continue, hence exacting a further 40% reduction to the agreement. In Doha, on the ultra-exclusive and luxurious Pearl Islands, viewing appointments once more elusive than a ticket for Michael Jackson’s concerts at the O2 in the UK, are now offered as easily as free flyers for the latest meal-deals across Dubai’s malls. Abu Dhabi, with a combination of luck and a dashing of laziness, is the only GCC market experiencing rental price increases.
There are many stories like this all around the GCC (and the world of course) but one of my favourites is a case in Dubai where one unlucky couple discovered that sometimes in you life you should be careful what you wish for: Living in a lovely modern building with desirable amenities, the tenants were coming to the end of their contract and wanted to take advantage of the current rental environment without having to unduly trouble themselves with a laborious move. Luckily they found an available identical apartment on offer at 40% lower annual rent one-floor below (I know - I did say they were lucky). They promptly signed the new contract with a big smile on their faces and lay back on their sofa with a smug warm feeling. A couple of nights in though, and they were violently woken by some deep thudding from above. They endured two sleepless nights to then discover that the new (quite unfriendly) tenant that had moved into their previous upstairs apartment (for 25% less rent by the way) was a budding-drummer with some strange sleeping habits!
Oh well, at least they were still saving money if not their sanity – and they could always make a move to those brand new islands that have just come onto the market off the coast of Tonga.
Thursday, 19 March 2009
Spending Surprise - 19th March
*Markets are all positive on the back of the aggressive moves by the US Fed yesterday (more below). Asia sees good performance in the morning session across all markets, but as the reality of stronger Yen kicks in (USD/Yen: 95.53) Japan sells-off to end lower (-0.33%), Hong Kong did its best to react well but is failing at the end (-0.50%). France braces for widespread strikes today, 24hrs after AIG’s CEO urged his employees to return their “contractual” bonuses (we saw it coming) as he was grilled by US policymakers following Obama’s crowd-pleasing tirade. Social strife has been kept at bay till now, but if the global economy doesn’t improve fast, governments are going to have a lot more to do than simply placating a few fuming tax-payers with words. Even in Japan (where crime is virtually unheard of) foreign governments have been forced to issue their citizens with warnings to avoid bustling Roppongi – apparently “deceptively attractive women”(?) have been drugging drinks and stealing wallets from unsuspecting foreign drinkers – is nowhere safe? As if to make matters worse, Oil has made another strong dash for $50/brl and Gold has attracted some investors again (as more uncertainty grows surround US$’s future) - up almost 5% today at $932/oz. My favourite leading indicator, the BDIY has been falling for several days and has done so again this morning, giving up 18% in the last 5days. Wow, a mixed bag out there to say the least and an apparent return to future inflationary pressures, let’s try to discus why…
SPENDING SURPRISE?
*Finally! – the FED and Bernanke in particular are able to carry-out a plan that had been prepared long before the start of this crisis – pumping almost $300bn into purchasing US government debt. This led to a plunge in long-dated bond yields (largest fall in a decades) and a quick selling off of US$. The now super-aggressive FED also announced a doubling of its purchase of securities issued by Fannie Mae and Freddie Mac to $1.45bn, and clearly signalled interest rates would remain at near-zero-levels for an “extended period” of time.
*The only reason this announcement and these measures had not been implemented earlier is because of the political wrangling amidst the US corridors of power, preventing a quicker deployment of the tools and changes required. Bernanke himself had several times laid out the very details of every step the FED has taken (and will be taking): the first in a paper he wrote for Greenspan back in 2002, and reiterated in a speech a few months ago, not to mention insisting the “correct monetary path” for the US was the equivalent of quantitative easing the UK had announced two weeks back.
*That is why I am surprised that everyone else seems surprised with the latest moves by the FED? It had been mentioned here in these commentaries many times that the only solution would be the pumping of money by the US government into the system and in particular the purchase of long-term debt given that rates are effectively already at zero, and that this would at some point bring great pressure on US$ (we saw some significant swings in the major cross-rates yesterday, especially for Japan which does not like a stronger Yen as it hurts its exporters).
*As far as Bernanke is concerned, there is no doubt in his mind that these are the right steps. The next few steps, if you read his paper, will be the continued stimulation of the economy through borrowed money – meaning a consistent decline in the US$ as investors will surely begin to understand that inflationary pressures will not be far away - but that is what Bernanke wants right now. He wants to re-create an inflationary environment where prices are no longer spiralling downwards and everyone sits at home waiting for the next best (lower) price rather than spending now – he is creating a shift in the way people consume to start looking more like the old US consumer we all once- knew-and-loved. He wants inflationary spending. He wants a return to lending. He wants the economy to do what it does best – borrow cheap and lend high to allow others to spend.
*The long-awaited thawing of the credit-markets is of course a secondary desire and wanted impact of the announcement yesterday – banks need to be cajoled into lending with extremely low-yield curves at the long-end – comfortable in the knowledge that they will be making attractive spreads on the rates at which they borrow and lend.
*How to trade what we’ve just seen and heard from the US? Get into Gold (if you weren’t already), start buying up some of those cheap “for auction” properties on US’s east coast, and take out the mortgage your UK bank has been offering you for that extremely attractively priced property in central London – when inflation returns you’ll be laughing – even if you will be a government employee and not receiving a bonus at the end of the year anymore.
SPENDING SURPRISE?
*Finally! – the FED and Bernanke in particular are able to carry-out a plan that had been prepared long before the start of this crisis – pumping almost $300bn into purchasing US government debt. This led to a plunge in long-dated bond yields (largest fall in a decades) and a quick selling off of US$. The now super-aggressive FED also announced a doubling of its purchase of securities issued by Fannie Mae and Freddie Mac to $1.45bn, and clearly signalled interest rates would remain at near-zero-levels for an “extended period” of time.
*The only reason this announcement and these measures had not been implemented earlier is because of the political wrangling amidst the US corridors of power, preventing a quicker deployment of the tools and changes required. Bernanke himself had several times laid out the very details of every step the FED has taken (and will be taking): the first in a paper he wrote for Greenspan back in 2002, and reiterated in a speech a few months ago, not to mention insisting the “correct monetary path” for the US was the equivalent of quantitative easing the UK had announced two weeks back.
*That is why I am surprised that everyone else seems surprised with the latest moves by the FED? It had been mentioned here in these commentaries many times that the only solution would be the pumping of money by the US government into the system and in particular the purchase of long-term debt given that rates are effectively already at zero, and that this would at some point bring great pressure on US$ (we saw some significant swings in the major cross-rates yesterday, especially for Japan which does not like a stronger Yen as it hurts its exporters).
*As far as Bernanke is concerned, there is no doubt in his mind that these are the right steps. The next few steps, if you read his paper, will be the continued stimulation of the economy through borrowed money – meaning a consistent decline in the US$ as investors will surely begin to understand that inflationary pressures will not be far away - but that is what Bernanke wants right now. He wants to re-create an inflationary environment where prices are no longer spiralling downwards and everyone sits at home waiting for the next best (lower) price rather than spending now – he is creating a shift in the way people consume to start looking more like the old US consumer we all once- knew-and-loved. He wants inflationary spending. He wants a return to lending. He wants the economy to do what it does best – borrow cheap and lend high to allow others to spend.
*The long-awaited thawing of the credit-markets is of course a secondary desire and wanted impact of the announcement yesterday – banks need to be cajoled into lending with extremely low-yield curves at the long-end – comfortable in the knowledge that they will be making attractive spreads on the rates at which they borrow and lend.
*How to trade what we’ve just seen and heard from the US? Get into Gold (if you weren’t already), start buying up some of those cheap “for auction” properties on US’s east coast, and take out the mortgage your UK bank has been offering you for that extremely attractively priced property in central London – when inflation returns you’ll be laughing – even if you will be a government employee and not receiving a bonus at the end of the year anymore.
Wednesday, 18 March 2009
Bahrain Blues - 18th March
Markets…
*US markets have of course continued their positive run this week (DJIA +13% since early last week), with some stocks posting excellent gains in a matter of days – but when you discuss the latest developments with investors out there it does seem that we are seeing a quite severe short-squeeze and that not everything is as rosy as first appears. There is no doubt though that there have been some excellent buying opportunities for those out there brave enough to come in a pick up an extremely cheap-looking stock to ride out the squeeze and book a nice little profit (how about picking up Citi stock last Monday at $1.05 and selling out last night for a nice 140% gain? nice..)
*Asia’s markets have all contributed nicely to the upswing sweeping across all the majors from Japan across to India’s Sensex. Japan’s decision to buy more government bonds there helping to spur lending and a sign that there is a global concerted effort to reinvigorate the credit markets that have remained frozen since last September – even the Europeans are beginning to talk about more aggressive policies to avoid further GDP contraction. A definite sense of “everything will be ok” is being dispersed amongst the masses – but will it fool enough people for long enough to create a resilient sense of safety again?
*Oil made a mighty attempt at hitting and going above $50/brl but fell just short and has not been able to sustain the momentum created in the last 48hrs. Gold has been hovering steadily around $910-20/oz for last couple of weeks as emotional bets seem off for now.
*Currencies see US$ strengthen once more vs Euro and GBP, but the Yen suffers as it hits its lowest vs Euro this year as investors seek higher yielding investments following Bank of Japan’s announcement they will be buying (and hence pushing lower) their domestic debt.
Who took my bonus?
*Political games are getting tougher for those corporates that have been bailed out by the US govt – we had seen rumblings of discontent a few weeks back as Obama started talking out against the “culture of greed” – it then moved on to corporate retreat events and big hotel bookings being banned, no more private plane privileges and now even a move against one of the most sacred aspects of US business –lawfully binding contracts for the payments of bonuses.
*Of course, if it wasn’t for the media, I doubt very much that the US administration would be making quite as much of a show of reclaiming the cash that had been promised. It is a sensitive subject and certainly one that will be used by the US taxpayer to highlight some of the inefficiencies of the bail-out programmes, but is it really that much of a surprise that the top-echelons of corporate America are paying themselves so much money relative to the masses that make up the remaining population? Hasn’t that been the way the US has been running for the last 30yrs?
*Are we now saying that those that go through the necessary system of education, followed by higher education and a stint as an intern in several organisations across Wall Street and years of being the “young jock in the office” now doesn’t earn you the right to be remunerated (subjectively proportionately, objectively clearly out of kilter) when you are finally in a position to manipulate the system. This is a cynical viewpoint for sure, but it only points out the obvious. Political correctness and self-denial will combine to prevent anyone of influence in the US ever admitting this.
*There is also the knock-on effect of withholding these payments to what must surely be some of the more prominent spenders out there – where before the wives of AIG executives would have gone out and treated themselves to an entire new kitchen and wardrobe (the actually wardrobe as well as its contents I’m sure) facilitating the bottom line of many an entrepreneur, struggling business and/or international brand – it all helps the economy and is the very basic “multiplier effect” of economics.
*By the US government taking this money back, what exactly will it be spent on?? Despite some gallant efforts by Obama to increase transparency of the bail-out/stimulus packages, there remain many questions around the details and distribution mechanisms of the US’s attempts at saving the economy. More questions will now be raised and a dangerous precedent has been set. Predictions of more unrest and jumping on the “let’s-bash-the-rich” bandwagon will persist.
Bahrain Blues?
*Bahrain has been a great model since the late 1970s for many aspiring “service hubs”. A lull created by the debilitating civil war in the financial powerhouse that Lebanon was - for many a once natural choice for an international firm seeking a hub close to the woken giant of Saudi Arabia in the late 60s through to mid 70s – saw an emigration of skill and knowledge to the entrepreneurial and aspiring tiny island off the eastern seaboard of the Kingdom. It was the first country in the Gulf to recognise the benefit of providing services when natural resources were not as bountiful as their neighbours – concentrating on creating one of the world’s best (at that time, and still not too shabby) financial regulators and infrastructures as well as providing a more “relaxed” view on the consumption of alcohol and ability for western ex-pats to live a life they would recognise as familiar to that experienced back home.
*However, all has not been well for Bahrain in the last few years – Dubai has especially stolen its thunder ever since turning its sights on being not just the regional hub for trade but almost every other service to boot! It is a case of chicken-and-egg I guess as to whether the financial companies that have since flocked to Dubai did so because of the way of life offered or the way of life in Dubai was created through the financial firms moving here – regardless, Dubai succeeded in attracting the lion’s share – with a combination of marketing and tax-free incentives as well as some benefit in emulating what others had already spent time in creating (it learnt the hard Chinese lesson though that copying something does not always produce the same quality result).
*Bahrain has been looking to re-claim the crown as leading hub for the Gulf, and has been focusing on the, currently fashionable, Islamic banking world. Even this model may not prove enough to protect the state’s position of influence in the banking world – Islamic finance has not been immune to the global malaise and many questions over its model have arisen.
*It does still serve as the main choice for those exclusively serving Saudi, but apart from that niche it does not look to me as having a chance of either catching-up with, nor over-taking the momentum Dubai has created for itself. Religious and political tensions (I’ll go into more detail if you’d like to call in) are creating an environment of uncertainty and unease in what has otherwise been an extremely pleasant and relaxed environment – will it now only go down in history as a footnote that served to pave the way for others to replicate and improve upon its foresight and development initiatives? Or will Saudi’s gradual opening-up save it from disappearing into Dubai’s shadow? The GCC certainly only has space for one major service-providing hub, and if the UAE plays the next 24mths out correctly, no one will be able to compete effectively against its offering – now matter how pleasant a people the Bahrainis might be.
*US markets have of course continued their positive run this week (DJIA +13% since early last week), with some stocks posting excellent gains in a matter of days – but when you discuss the latest developments with investors out there it does seem that we are seeing a quite severe short-squeeze and that not everything is as rosy as first appears. There is no doubt though that there have been some excellent buying opportunities for those out there brave enough to come in a pick up an extremely cheap-looking stock to ride out the squeeze and book a nice little profit (how about picking up Citi stock last Monday at $1.05 and selling out last night for a nice 140% gain? nice..)
*Asia’s markets have all contributed nicely to the upswing sweeping across all the majors from Japan across to India’s Sensex. Japan’s decision to buy more government bonds there helping to spur lending and a sign that there is a global concerted effort to reinvigorate the credit markets that have remained frozen since last September – even the Europeans are beginning to talk about more aggressive policies to avoid further GDP contraction. A definite sense of “everything will be ok” is being dispersed amongst the masses – but will it fool enough people for long enough to create a resilient sense of safety again?
*Oil made a mighty attempt at hitting and going above $50/brl but fell just short and has not been able to sustain the momentum created in the last 48hrs. Gold has been hovering steadily around $910-20/oz for last couple of weeks as emotional bets seem off for now.
*Currencies see US$ strengthen once more vs Euro and GBP, but the Yen suffers as it hits its lowest vs Euro this year as investors seek higher yielding investments following Bank of Japan’s announcement they will be buying (and hence pushing lower) their domestic debt.
Who took my bonus?
*Political games are getting tougher for those corporates that have been bailed out by the US govt – we had seen rumblings of discontent a few weeks back as Obama started talking out against the “culture of greed” – it then moved on to corporate retreat events and big hotel bookings being banned, no more private plane privileges and now even a move against one of the most sacred aspects of US business –lawfully binding contracts for the payments of bonuses.
*Of course, if it wasn’t for the media, I doubt very much that the US administration would be making quite as much of a show of reclaiming the cash that had been promised. It is a sensitive subject and certainly one that will be used by the US taxpayer to highlight some of the inefficiencies of the bail-out programmes, but is it really that much of a surprise that the top-echelons of corporate America are paying themselves so much money relative to the masses that make up the remaining population? Hasn’t that been the way the US has been running for the last 30yrs?
*Are we now saying that those that go through the necessary system of education, followed by higher education and a stint as an intern in several organisations across Wall Street and years of being the “young jock in the office” now doesn’t earn you the right to be remunerated (subjectively proportionately, objectively clearly out of kilter) when you are finally in a position to manipulate the system. This is a cynical viewpoint for sure, but it only points out the obvious. Political correctness and self-denial will combine to prevent anyone of influence in the US ever admitting this.
*There is also the knock-on effect of withholding these payments to what must surely be some of the more prominent spenders out there – where before the wives of AIG executives would have gone out and treated themselves to an entire new kitchen and wardrobe (the actually wardrobe as well as its contents I’m sure) facilitating the bottom line of many an entrepreneur, struggling business and/or international brand – it all helps the economy and is the very basic “multiplier effect” of economics.
*By the US government taking this money back, what exactly will it be spent on?? Despite some gallant efforts by Obama to increase transparency of the bail-out/stimulus packages, there remain many questions around the details and distribution mechanisms of the US’s attempts at saving the economy. More questions will now be raised and a dangerous precedent has been set. Predictions of more unrest and jumping on the “let’s-bash-the-rich” bandwagon will persist.
Bahrain Blues?
*Bahrain has been a great model since the late 1970s for many aspiring “service hubs”. A lull created by the debilitating civil war in the financial powerhouse that Lebanon was - for many a once natural choice for an international firm seeking a hub close to the woken giant of Saudi Arabia in the late 60s through to mid 70s – saw an emigration of skill and knowledge to the entrepreneurial and aspiring tiny island off the eastern seaboard of the Kingdom. It was the first country in the Gulf to recognise the benefit of providing services when natural resources were not as bountiful as their neighbours – concentrating on creating one of the world’s best (at that time, and still not too shabby) financial regulators and infrastructures as well as providing a more “relaxed” view on the consumption of alcohol and ability for western ex-pats to live a life they would recognise as familiar to that experienced back home.
*However, all has not been well for Bahrain in the last few years – Dubai has especially stolen its thunder ever since turning its sights on being not just the regional hub for trade but almost every other service to boot! It is a case of chicken-and-egg I guess as to whether the financial companies that have since flocked to Dubai did so because of the way of life offered or the way of life in Dubai was created through the financial firms moving here – regardless, Dubai succeeded in attracting the lion’s share – with a combination of marketing and tax-free incentives as well as some benefit in emulating what others had already spent time in creating (it learnt the hard Chinese lesson though that copying something does not always produce the same quality result).
*Bahrain has been looking to re-claim the crown as leading hub for the Gulf, and has been focusing on the, currently fashionable, Islamic banking world. Even this model may not prove enough to protect the state’s position of influence in the banking world – Islamic finance has not been immune to the global malaise and many questions over its model have arisen.
*It does still serve as the main choice for those exclusively serving Saudi, but apart from that niche it does not look to me as having a chance of either catching-up with, nor over-taking the momentum Dubai has created for itself. Religious and political tensions (I’ll go into more detail if you’d like to call in) are creating an environment of uncertainty and unease in what has otherwise been an extremely pleasant and relaxed environment – will it now only go down in history as a footnote that served to pave the way for others to replicate and improve upon its foresight and development initiatives? Or will Saudi’s gradual opening-up save it from disappearing into Dubai’s shadow? The GCC certainly only has space for one major service-providing hub, and if the UAE plays the next 24mths out correctly, no one will be able to compete effectively against its offering – now matter how pleasant a people the Bahrainis might be.
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