Markets are rocking. We’ve got people focused on the ongoing pandemic concern with the WHO raising the level of imminent threat to one notch below the “pray for your life” indication – but at the same time they are forcefully advising us all through the media that it is not that serious a situation – yet. Chrysler is about to change from a brash American character to a suave Italian carattere. We’re all also reflecting on Obama’s first 100 days in office, as well as Michelle’s – those all important questions concerning her choice of outfit and how many times she has been moved to tears during a speech, which are of course paramount to the national security of the nation which her husband is charged with the leadership of, not to mention the effect her colour co-ordination has on the financial markets. I’m sure if someone charted the last quarter they would figure out a way to extrapolate a correlation between positive moves in the US trading day, and her decision to wear a blue skirt that same morning.
*On markets today, well, I’ve picked a great day to turn my screens back on! A sea of green sits in front of me and all those “+” signs are making me dizzy – there haven’t been so many in a looong time. Always good to stop and pause to take in the good moments, so…………………………… .
*Seems our friends in Japan have been one of the catalysts for this morning’s euphoria (pushing the MSCI World Index to one of its best months since 1989) – industrial production numbers out of Tokyo surprised greatly on the upside (1.6% vs 0.8% cons MoM) which of course followed some decent US consumer numbers overnight (markets there had closed +2%). Japan’s central bank kept base rates at practically zero (no surprise). They also suggested Japan’s economy would return to growth by 2010 – many are hoping they are right.
China didn’t want to be left out of the party, so it announced that it would allow companies to invest in businesses in Taiwan, keeping the ball rolling for investors to send markets soaring in Taiwan (+6.7%) and China able to stem some of the losses seen earlier this week (CSI +1%, still a beautiful YTD return of +42%). The reason China is warming to the idea of cross-border investments? Well, if anyone had been following recent articles increasingly focused on China’s waning appetite for the US$ they’ll understand that China is possibly looking to diversify where its vast surplus + revenues are parked.
*All other Asia markets without exception post very impressive gains indeed (ok I lie, it would have been so much easier if just Pakistan’s had not dropped -1%). Avg gains close to +3%.
*Again, I’m in a good mood so I hesitate to allow cynicism back in right now but we have to anticipate a slight amount of disappointment amongst the investor community if economic indicators in the next few weeks do not continue to impress – and with each incremental improvement, it becomes exponentially harder to please the very flaky (and now bear-market cynical/experienced) traders and money managers out there. Pleasing earnings results can disappear as quickly as they pushed markets higher.
*In addition to Japan’s better than expected news, another big industrial producer Germany has provided better jobless numbers than anticipated – markets in Europe all up strongly (+2%) so far today. Again, pleasing earnings announcement across Europe’s majors helping sentiment and ensuring Europe is now in +ve terrirory for YTD returns. This all coming despite a rise in the unemployment rate across Europe as a whole, but markets understand that the larger economies’ recovery will bring about faster stability for the remaining 23 or so across the Eurozone.
*US futures are indicating a strong opening (DJIA +145pts, S&P +17.2pts) at the same time as Gold falls back below $900/oz, and the US$ loses some ground vs GBP and Yen – signs that some of the uncertain money is moving out of the safest asset it can find and seeking some slightly higher yield? Even with oil continuing to hover around the $52/brl level, worldwide investors are clearly putting some of the huge piles of cash they have all been sitting on to work. Notice the BDIY is down again though – shipping has not been playing along when markets have been recovering – why?
*What is slightly worrying is that the economic situation in many parts of the world, not least the US, is still quite precarious. There are most likely a few nasty surprises still to come: stress-test failures, rising unemployment leading to further credit-card defaults, falling consumption after a brief respite through government spending which cannot last forever (feasibly) and a very slow recovery in the housing market. Some predict the recession has reached its nadir, others are not so rosy in their outlook and remain on guard for a repeat of the 1930s – there were many false moment of “recovery” there.
No jogging, nor interest, in GCC
Having been in Abu Dhabi and Qatar in the last couple of days, the activity and sense of growth prevalent across both territories is in stark contrast to continued reports of slow-down in London and New York – sightings of entire investment bank departments out jogging at the same time over lunch a common theme – who’s manning the desk guys and answering all those client calls? – oh, wait a minute, that’s right, what client calls….
At present, the two most impressive locations in the GCC when all is said (there’s a lot of talk in this region at the best of times) done and considered must be Abu Dhabi and Qatar. The reason – both statelets have put together a very transparent and rational 25yr plan – they have clearly expressed their desires in the fields of healthcare, education and finance, and have already put into motion the necessary steps to achieve many of their aims. At a conference on Tuesday, an energetic and impressive COO for Mubadala laid-out the organisations major achievements and the path they intend to follow.The unique attribute to the dynamic and socially-responsible organisation being their unprecedented transparency – the publishing last week of their full-year results. Since Mubadala is 100% owned by the Abu Dhabi government, it was the first time a sovereign entity had ever gone public with its finances. Don’t hold your breath for many others to follow though.
These statelets are busy working to get their populations and various burgeoning industries working. They understand that oil & gas, whilst not disappearing anytime as soon as some conspiratorially suggest, will not be around forever – diversifying investments is the obvious (first) solution. However, the sign of a deeper level of thinking is that unlike in the past, these freshly-intellectual statelets are using their greatest attribute in the eyes of the west/east – cash – to buy their way into new technologies and affecting a transfer of knowledge. The new ventures that are being opened in their back-yards will build new industries and sectors that will furnish their people with resources for many more years to pass after the final drop of oil has been extracted and sold. An intriguing angle to Qatar and Abu Dhabi’s efforts – which aspiring statelet will out-do the other?
While sitting with a good friend and client in Doha yesterday, I was surprised to find that some financial issues are truly global. Seems that one or two local financial institutions had been “misplacing” dividend payment cheques for a number of prominent customers – these cheques were never sent through to the correct address, nor were they deposited in interest bearing accounts for the customer. In fact, when the banks were requested to do exactly that and pay-in to an account they would all-of-a-sudden have some sort of technical issue with their inter-bank systems – for a couple of months.
Despite Qatar being in a very strong financial position, and with its economy chugging along nicely, it seems banks, in a bid to maintain deposit levels and pay out as little interest as possible, are resorting to the oldest tricks in the book – your cheque is in the post Sheikh.
Thursday, 30 April 2009
Monday, 27 April 2009
Stress-Testing - 27th April
Stress-testing, but not the financials…
The weekend started with talk focused on the US financial industry’s stress-test results. At the time that seemed like the single largest problem the world faced, and it was certainly serious enough to dominate the thoughts of every market investor. If someone had told you that by Sunday evening we’d be talking about pig-flu and a possible global catastrophe, well I’m sure many would have simply sneezed at such a suggestion. Truth is, global markets have for once seized upon a reason other than the near total collapse of the financial industry and are now focusing on what might make them money if indeed an end-of-the-world scenario were to occur – not the most heart-warming reaction by the investor base to such a global concern now is it? Some will never learn.
Flying Pigs…
Filthy Swines! – it’s all over the global news networks – whilst a terrible potential epidemic, it makes for a nice change to NOT have the investment banking community mentioned in the same sentence as the often-derided livestock responsible for the latest outbreak of pandemic panic. For the first time in almost 18mths, the world’s woes are not being directly attributed to the fanciful machinations of an all too greedy and immoral financial community. Many will be relieved to have the spotlight shining in a different direction for (hopefully) even a short while.
Then again, one cannot help but smile when realising just how close we have come to witnessing one of life’s greatest myths that has so many times provided a swift exit clause for those avoiding the undertaking of some responsibility – declaring they might acquiesce ‘when pigs fly”. Well, get ready for a lot of promises to finally be acted upon. With the airborne nature of the “swine flu” spreading from pig to human (how I wonder?) and now human-to-human as it is hurtled through the air in coughs and sneezes - this is as close as you’ll ever get to seeing that pig fly.
Markets all around the world are taking their chance to react for the first time since the news (and flu) began to spread – and reacting extremely negatively they are. Not even news that Japan has sharply revised down its GDP forecast (from 0 to -3%) has occupied investors’ concerns – Tokyo’s markets managed to end-the-day in +ve territory though, after rumours spread of certain bank mergers at the lunch-break. Japan’s pharma-leader, Chugai, also advanced strongly being one of the largest suppliers of Tamiflu’s major component – the Roche branded antiviral treatment.
Run-away planes…
Transport and leisure stocks have been absolutely destroyed in the first few hours of trading, with only some recovery coming through in Europe. There was no respite for Asia though. In a less-than-welcome revisit of the fear that swept through the region back in 2003 with SARS, investors have sent all the major indices down sharply – exacerbated by profit-taking following last week’s strong markets. Trades in Australia and New Zealand in particular were the first to be unwound and certain currency trades that had pointed to a brief return of risk-appetite suddenly disappeared – look at the re-gained strength of the Yen, trading at $/Yen 96.5 now. The US$ is gaining against other global currencies though as its safe-haven status takes on a new meaning in the face of a virus far more potent than human greed and materialism.
Hong Kong, Taiwan, Korea, Indonesia and Singapore are all down heavily – they were the first markets open to react with the selling-off of airlines and other leisure + tourist related companies. Those markets able to follow a bit of a recovery in Europe when it became clear that some of the airline stocks in particular (Air China -13%, Cathay -8%) had maybe been over-sold only had a short-time of trading left. As a result, the losses seen in the first few minutes of trade were never recovered. China saw the CSI fall -2.2% with pressure on the heavily-weighted airline firms as well as one of the world’s largest banks by market-cap, ICBC (-5.2%), as news spread that both Allianz and American Express may sell part of their large stakes in the lender after a lock-up expires. A number of China’s recently IPO-ed financial giants are facing large-stake divestments as western investors seek to realise some very large percentage gains to help pay their way out of other less successful investments and free-up some needed capital. The Chinese authorities have been encouraging ongoing negotiations with a number of the larger foreign-holders of stock, and how the first divestments are carried-out will be the creation of an essential precedent for those looking to take-profit as well. It will also be a reflection of how China is intending to deal with future foreign investors. They may well not be happy with the lack of dedicated foreign long-term holders.
Europe has followed-suit at the open, which is a real-shame considering the thoughtful appreciation that had been painfully achieved across the majors over the last couple of weeks. Anyone watching must be wondering whether there could have been a worse-time for such a global flu-scare. Just when it appeared authorities had successfully rid the markets of fear and panic (look at how the VIX index has recovered from 56 in mid-Jan to below 37 today) the bears out there are provided with the perfect excuse to send stocks tumbling once again. The allure of profit-taking was always going to be a problem in a bear-market rally (take what you can while you can) but those pig surely made it a no-brainer to come out of winning-trades this morning.
Europe’s majors opened negative and are struggling to recover as we near the lunch-break – FTSE -0.6%, CAC -1.1%, DAX -1%.
Not even news that the Qatari’s may step-into the Shakespearean family-feud evolving between Porsche and VW was enough to elicit delight that another chapter in this long-running saga may yet be written. Gulf states enjoying taking stakes in car companies is not a new fad (Kuwait’s purchase of Aston Martin, Abu Dhabi’s investment of $2.7bn in Daimler last month),and the existence of one-upmanship between the GCC’s investment entities is always a play for international investment bankers looking for the next white-knight. Let’s hope the Qatari’s love of cars doesn’t end-up in the compound like all those super-cars when the Emir decided to punish his subjects for the flaunting of their wealth last summer!
US futures naturally trading lower right now, sharply lower – DJIA-139pts, S&P -16.9pts. As more developments become clear in the spread (or not) of swine-flu, investors will either become more calm, or dangerously have another excuse to sell the markets. As aforementioned, US$ is gaining in the currency markets. As with any time of uncertainty, Gold is trading up +0.23% but Oil has slipped back below $50/brl (-4.7%) on aviation concern (less flights, less aviation fuel). The BDIY is sadly down 1.3% since Friday.
The weekend started with talk focused on the US financial industry’s stress-test results. At the time that seemed like the single largest problem the world faced, and it was certainly serious enough to dominate the thoughts of every market investor. If someone had told you that by Sunday evening we’d be talking about pig-flu and a possible global catastrophe, well I’m sure many would have simply sneezed at such a suggestion. Truth is, global markets have for once seized upon a reason other than the near total collapse of the financial industry and are now focusing on what might make them money if indeed an end-of-the-world scenario were to occur – not the most heart-warming reaction by the investor base to such a global concern now is it? Some will never learn.
Flying Pigs…
Filthy Swines! – it’s all over the global news networks – whilst a terrible potential epidemic, it makes for a nice change to NOT have the investment banking community mentioned in the same sentence as the often-derided livestock responsible for the latest outbreak of pandemic panic. For the first time in almost 18mths, the world’s woes are not being directly attributed to the fanciful machinations of an all too greedy and immoral financial community. Many will be relieved to have the spotlight shining in a different direction for (hopefully) even a short while.
Then again, one cannot help but smile when realising just how close we have come to witnessing one of life’s greatest myths that has so many times provided a swift exit clause for those avoiding the undertaking of some responsibility – declaring they might acquiesce ‘when pigs fly”. Well, get ready for a lot of promises to finally be acted upon. With the airborne nature of the “swine flu” spreading from pig to human (how I wonder?) and now human-to-human as it is hurtled through the air in coughs and sneezes - this is as close as you’ll ever get to seeing that pig fly.
Markets all around the world are taking their chance to react for the first time since the news (and flu) began to spread – and reacting extremely negatively they are. Not even news that Japan has sharply revised down its GDP forecast (from 0 to -3%) has occupied investors’ concerns – Tokyo’s markets managed to end-the-day in +ve territory though, after rumours spread of certain bank mergers at the lunch-break. Japan’s pharma-leader, Chugai, also advanced strongly being one of the largest suppliers of Tamiflu’s major component – the Roche branded antiviral treatment.
Run-away planes…
Transport and leisure stocks have been absolutely destroyed in the first few hours of trading, with only some recovery coming through in Europe. There was no respite for Asia though. In a less-than-welcome revisit of the fear that swept through the region back in 2003 with SARS, investors have sent all the major indices down sharply – exacerbated by profit-taking following last week’s strong markets. Trades in Australia and New Zealand in particular were the first to be unwound and certain currency trades that had pointed to a brief return of risk-appetite suddenly disappeared – look at the re-gained strength of the Yen, trading at $/Yen 96.5 now. The US$ is gaining against other global currencies though as its safe-haven status takes on a new meaning in the face of a virus far more potent than human greed and materialism.
Hong Kong, Taiwan, Korea, Indonesia and Singapore are all down heavily – they were the first markets open to react with the selling-off of airlines and other leisure + tourist related companies. Those markets able to follow a bit of a recovery in Europe when it became clear that some of the airline stocks in particular (Air China -13%, Cathay -8%) had maybe been over-sold only had a short-time of trading left. As a result, the losses seen in the first few minutes of trade were never recovered. China saw the CSI fall -2.2% with pressure on the heavily-weighted airline firms as well as one of the world’s largest banks by market-cap, ICBC (-5.2%), as news spread that both Allianz and American Express may sell part of their large stakes in the lender after a lock-up expires. A number of China’s recently IPO-ed financial giants are facing large-stake divestments as western investors seek to realise some very large percentage gains to help pay their way out of other less successful investments and free-up some needed capital. The Chinese authorities have been encouraging ongoing negotiations with a number of the larger foreign-holders of stock, and how the first divestments are carried-out will be the creation of an essential precedent for those looking to take-profit as well. It will also be a reflection of how China is intending to deal with future foreign investors. They may well not be happy with the lack of dedicated foreign long-term holders.
Europe has followed-suit at the open, which is a real-shame considering the thoughtful appreciation that had been painfully achieved across the majors over the last couple of weeks. Anyone watching must be wondering whether there could have been a worse-time for such a global flu-scare. Just when it appeared authorities had successfully rid the markets of fear and panic (look at how the VIX index has recovered from 56 in mid-Jan to below 37 today) the bears out there are provided with the perfect excuse to send stocks tumbling once again. The allure of profit-taking was always going to be a problem in a bear-market rally (take what you can while you can) but those pig surely made it a no-brainer to come out of winning-trades this morning.
Europe’s majors opened negative and are struggling to recover as we near the lunch-break – FTSE -0.6%, CAC -1.1%, DAX -1%.
Not even news that the Qatari’s may step-into the Shakespearean family-feud evolving between Porsche and VW was enough to elicit delight that another chapter in this long-running saga may yet be written. Gulf states enjoying taking stakes in car companies is not a new fad (Kuwait’s purchase of Aston Martin, Abu Dhabi’s investment of $2.7bn in Daimler last month),and the existence of one-upmanship between the GCC’s investment entities is always a play for international investment bankers looking for the next white-knight. Let’s hope the Qatari’s love of cars doesn’t end-up in the compound like all those super-cars when the Emir decided to punish his subjects for the flaunting of their wealth last summer!
US futures naturally trading lower right now, sharply lower – DJIA-139pts, S&P -16.9pts. As more developments become clear in the spread (or not) of swine-flu, investors will either become more calm, or dangerously have another excuse to sell the markets. As aforementioned, US$ is gaining in the currency markets. As with any time of uncertainty, Gold is trading up +0.23% but Oil has slipped back below $50/brl (-4.7%) on aviation concern (less flights, less aviation fuel). The BDIY is sadly down 1.3% since Friday.
Friday, 24 April 2009
Another week, another mixed bag - 24th April
Another week, another mixed bag…
The end of a mixed week for both the political and economic landscape: No major global conferences for what must be the first time in a year, a dismal outlook to global growth by the IMF who have pointed to the resuscitation of the financial system as the only route to recovery, and a street now eagerly awaiting the results of the US stress-test. We’ve seen a total deterioration in security across near-Asia as Pakistan and Sri Lanka descend into chaos, and even Irag suffers a slew of Baghdad bombings once forgotten in a worrying shot-across-the-bows of Obama’s still warming-up administration. Tougher pay rules on financial industries across US and Europe are touted, surely affecting risk appetite and the attractiveness of the industry with directors’ pay limited to 2yrs of fixed salary. US house prices have shown a month-on-month increase for two months in a row for the first time since 2006 – green shoots of a housing recovery? Or simply an easily achieved economic release when you consider how incredibly far prices dropped in previous months? What about the latest plans to increase UK taxes to 50p on the £ – are they crazy? No further comment on that really. Chrysler may (finally) apply for Chapter 11 bankruptcy. Even mighty Microsoft that has made money since 1986 suffers the first quarterly revenue drop since then for Q1 ’09. One piece of positive news amidst the earnings debris, a recent survey indicates that the majority of investors believe the worst is over and that we should be in for a turn-around, interestingly the focus and belief in return expected from growth stocks and not value stocks.
Another election, which wife?
One cannot help but smile on a Friday when realising the major differences in life and politics between continents such as Africa and North America - whereas Obama’s most pressing issue when he won the US election was what puppy to choose to take to the White House, the newly victorious South African President, Jacob Zuma, must face a dilemma which is more human in nature – he has to make a tough choice between his two current favourite wives - being a Zulu leader, he’s entitled to more than one and has had four in the past - and promote one to the first lady of South Africa – you wouldn’t want to be in the room when he break the news to the unlucky lady!
Markets
Notice the Baltic Dry Index (BDIY) has continued its rise, 9th day in a row now, +20% in 6 days. Gold has run right back through the $900/oz level as a number of stop-losses are triggered with the sudden appreciation in the last 5 days (+5%). Oil has decided to set-up camp at the $49/brl level, seemingly content at teasing the oil-producing nations in the face of their desired price. Currencies have again seen the strength of the Euro vs US$ but other major cross-rates have maintained a pretty level-headed stance since the start of the week. There were no major economic announcement from China this week, which left the US Treasury market to rally as hot-inflows reacted to growing concern over the results of the financial stress-testing. Watch the figure for New Home Sales in the US later today (337k cons).
More bad news for our Japanese friends, as HSBC shuts down its stock-research and trading business in Tokyo. Nomura reports a 5thstraight quarterly net loss ($2.2bn), after yesterday’s disappointing negative surprise from Mizuho – again, nothing looking good for the world’s second largest economy right now. SMFG has also just announced its intention to purchase Nikko Citi. Luckily for the markets in Tokyo, Nomura’s news was released after the close, but we still saw declines across the largest listed firms and financials of course, with the Nikkei down -1.6% (it is now in negative YTD return once again, -1.7% YTD)
Rest of Asia has not done too badly this week, slight falls in China but nothing too worrying - for now. Taiwan and Korea have held onto hard-won gains and even today ASEAN nations outperforming their peers with an avg return of +1.7%. Surprisingly, despite the US’s best efforts at scaring away any investors, Pakistan has performed resiliently today, +3% on the Karachi 100.
On the tech-front, Korea’s Samsung did manage to make money this year so far, but at a far reduced pace – the guidance from the firm suggests that the consumer electronics business will continue to prove a tough environment to generate profit from. Some of the first luxuries consumers are making do without are of course those gadgets they used to buy with the disposable income they all believed they really had.
Europe is in the grip of its own Shakespearean (potential tragedy)-play as VW and Porsche, tied-at-the-hilt through long-standing family ownership and feud, the sudden reversal in Porsche’s fortunes has left it susceptible to a take-over – watch the old-adage that “you can’t choose family in life” reflect itself in all its glory on this one as the Porsche family does all it can to avoid Ferdinand Piech (VW’s Chairman and cousin) getting what he’s wanted for many years. Markets are not suffering on the back of this news, as the majors across Europe all currently appreciate around +1.3%.
In the US, where futures are currently trading slightly higher (DJIA +5pts, S&P +0.9pts) a preliminary investigation has revealed that Paulson back in December had to “threaten” BofA management into completing their purchase of Merrill Lynch – fearing the worst if another investment bank was to fail, it appears that the Fed and Treasury were adamant to avoid a reneging of the deal. Of course, many were fully aware that here had been some behind the scenes “encouragement” to get the deal-done, but it makes one sharpen their thoughts on what must be happening behind the scenes right now in the face of the awaited stress-test results.
Can you picture Geithner and Bernanke sitting in a dark-room somewhere surrounded by harangued and anxious senior investment banks managers as they shift around nervously in their seats awaiting to be called to the front of the room and pressured into picking one of their peers sitting behind them to come-up and join their team – I’m sure it’s not quite as random as that, but you get the picture.
The end of a mixed week for both the political and economic landscape: No major global conferences for what must be the first time in a year, a dismal outlook to global growth by the IMF who have pointed to the resuscitation of the financial system as the only route to recovery, and a street now eagerly awaiting the results of the US stress-test. We’ve seen a total deterioration in security across near-Asia as Pakistan and Sri Lanka descend into chaos, and even Irag suffers a slew of Baghdad bombings once forgotten in a worrying shot-across-the-bows of Obama’s still warming-up administration. Tougher pay rules on financial industries across US and Europe are touted, surely affecting risk appetite and the attractiveness of the industry with directors’ pay limited to 2yrs of fixed salary. US house prices have shown a month-on-month increase for two months in a row for the first time since 2006 – green shoots of a housing recovery? Or simply an easily achieved economic release when you consider how incredibly far prices dropped in previous months? What about the latest plans to increase UK taxes to 50p on the £ – are they crazy? No further comment on that really. Chrysler may (finally) apply for Chapter 11 bankruptcy. Even mighty Microsoft that has made money since 1986 suffers the first quarterly revenue drop since then for Q1 ’09. One piece of positive news amidst the earnings debris, a recent survey indicates that the majority of investors believe the worst is over and that we should be in for a turn-around, interestingly the focus and belief in return expected from growth stocks and not value stocks.
Another election, which wife?
One cannot help but smile on a Friday when realising the major differences in life and politics between continents such as Africa and North America - whereas Obama’s most pressing issue when he won the US election was what puppy to choose to take to the White House, the newly victorious South African President, Jacob Zuma, must face a dilemma which is more human in nature – he has to make a tough choice between his two current favourite wives - being a Zulu leader, he’s entitled to more than one and has had four in the past - and promote one to the first lady of South Africa – you wouldn’t want to be in the room when he break the news to the unlucky lady!
Markets
Notice the Baltic Dry Index (BDIY) has continued its rise, 9th day in a row now, +20% in 6 days. Gold has run right back through the $900/oz level as a number of stop-losses are triggered with the sudden appreciation in the last 5 days (+5%). Oil has decided to set-up camp at the $49/brl level, seemingly content at teasing the oil-producing nations in the face of their desired price. Currencies have again seen the strength of the Euro vs US$ but other major cross-rates have maintained a pretty level-headed stance since the start of the week. There were no major economic announcement from China this week, which left the US Treasury market to rally as hot-inflows reacted to growing concern over the results of the financial stress-testing. Watch the figure for New Home Sales in the US later today (337k cons).
More bad news for our Japanese friends, as HSBC shuts down its stock-research and trading business in Tokyo. Nomura reports a 5thstraight quarterly net loss ($2.2bn), after yesterday’s disappointing negative surprise from Mizuho – again, nothing looking good for the world’s second largest economy right now. SMFG has also just announced its intention to purchase Nikko Citi. Luckily for the markets in Tokyo, Nomura’s news was released after the close, but we still saw declines across the largest listed firms and financials of course, with the Nikkei down -1.6% (it is now in negative YTD return once again, -1.7% YTD)
Rest of Asia has not done too badly this week, slight falls in China but nothing too worrying - for now. Taiwan and Korea have held onto hard-won gains and even today ASEAN nations outperforming their peers with an avg return of +1.7%. Surprisingly, despite the US’s best efforts at scaring away any investors, Pakistan has performed resiliently today, +3% on the Karachi 100.
On the tech-front, Korea’s Samsung did manage to make money this year so far, but at a far reduced pace – the guidance from the firm suggests that the consumer electronics business will continue to prove a tough environment to generate profit from. Some of the first luxuries consumers are making do without are of course those gadgets they used to buy with the disposable income they all believed they really had.
Europe is in the grip of its own Shakespearean (potential tragedy)-play as VW and Porsche, tied-at-the-hilt through long-standing family ownership and feud, the sudden reversal in Porsche’s fortunes has left it susceptible to a take-over – watch the old-adage that “you can’t choose family in life” reflect itself in all its glory on this one as the Porsche family does all it can to avoid Ferdinand Piech (VW’s Chairman and cousin) getting what he’s wanted for many years. Markets are not suffering on the back of this news, as the majors across Europe all currently appreciate around +1.3%.
In the US, where futures are currently trading slightly higher (DJIA +5pts, S&P +0.9pts) a preliminary investigation has revealed that Paulson back in December had to “threaten” BofA management into completing their purchase of Merrill Lynch – fearing the worst if another investment bank was to fail, it appears that the Fed and Treasury were adamant to avoid a reneging of the deal. Of course, many were fully aware that here had been some behind the scenes “encouragement” to get the deal-done, but it makes one sharpen their thoughts on what must be happening behind the scenes right now in the face of the awaited stress-test results.
Can you picture Geithner and Bernanke sitting in a dark-room somewhere surrounded by harangued and anxious senior investment banks managers as they shift around nervously in their seats awaiting to be called to the front of the room and pressured into picking one of their peers sitting behind them to come-up and join their team – I’m sure it’s not quite as random as that, but you get the picture.
Thursday, 23 April 2009
IMF Outlook - 23rd April
All about the fall-out from the IMF’s quite dismal outlook for global growth, and the increasing concern over Pakistan’s “abdication’ to the Taleban and the US’s noticeably aggressive rhetoric as Clinton warns of a “mortal” danger to global security, while South Africa has been busy re-electing its favourite party, the ANC, this time around with an energetic new and controversial leader – Jacob Zuma. Morgan Stanley last night helped bring the financials back down to earth as it provided some disappointing results. In the midst of talk of nuclear annihilation you can’t help but wonder just how important those Q1 earnings really are – or aren’t.
Markets…
Markets have been jittery at best this week and today/tomorrow will not prove an exception. In Asia, Japan’s woes continue, not only did the IMF show the largest contraction would come through in their stricken economy (-6.2%) but one of the largest super-banks has just admitted it will be making a larger loss than anyone had anticipated – Mizuho posting $5.4bn loss, with the main culprit being a tumble in the value of its equity investments. With an apparent return to some-sort-of-form from the US lenders (BofA and Citi in particular), Japan’s mighty institutions are looking fragile and more questions concerning their future ability to withstand a deepening recession are arising. Good times are not ahead for the once seemingly immune (back in early 2008) Japan financial industry to the credit-crunch fall-out. A key immediate issue is the need for additional capital raising - something the Japanese banks have not done with great relish.
Despite the bad news in Japan and concerns over China’s slowing growth rate from the IMF, markets across Asia managed to put in some good performance today, with Hong Kong the star +2.3% and Australasia doing quite well – avg +2%. The most declining market today unsurprisingly Pakistan’s (-3.2%) as the political situation takes its toll.
Europe has been trading flat and light most of the morning until Credit Suisse provided a little extra vitamin injection and announced it has returned to profit – most European indices now trading modestly higher but possibly following the (for now) decent indication of a positive open on the US futures (DJIA +68pts, S&P +8.5pts)
US futures appear to have had a boost from Obama’s administration calling for banks to prepare for a report of the “stress-testing” they have undergone – the report is to be released on May 4th and Obama wants answers before the questions that will surely follow are asked. This may be improving confidence amongst some market watchers that the financials will be able to survive the worst-of-
the-worst of this crisis – Obama would not be asking for explanations of how a banks might survive unless he knew they able to already – some market confidence building tricks here most likely.
On a positive note for the US, and a great sign for the most recession proof of all businesses – entertainment - major Hollywood studios have generated enough ticket sales this year (+17% YoY) to be on course for the first ever $10bn revenue year. By bringing forward a large number of their traditional summer big-ticket (pun intended) releases, studios have (incredibly astutely) realised that lumping all your best movies into a one month period may not be the best way to ensure large audiences – nothing like a sobering crisis to get the best out of those highly-paid MBA grads slaving away amongst the stars in Hollywood.
Oil has edged closer to $50/brl again, despite some news yesterday that inventory levels at US’s Department of Energy were not as low as expected, but the weakening US$ vs Euro pushing crude higher. Gold has quietly edged higher all week and we are back within melting distance of $900/oz once more. Currencies have seen the aforementioned strength return to Euro, but cable remains relatively stable at around 1.45. $/Yen has not returned to tackle the 100 level since 13th April.
Water fights…
China has gone and put on display the best of its naval offering, with some exceptionally advanced warships as it goes ahead with a military parade to celebrate the 60th anniversary of the country’s navy. Just another example and sign of China’s growing international power. The US response to all this – “there is no way the Chinese navy is on par with the United States, or even Japan” – oh dear, is that really the right way to react to a country that is intent on always proving people wrong – especially one that will go to any length, and spend any size fortune, to achieve exactly that, and prove people wrong.
I buy a home, and you give me a voucher…
More bad news about Dubai’s real estate market today out from UBS, as it states a further 70% fall may be expected in 2009 (from peak levels in 2008) –this would be in keeping with much of the anecdotal evidence that has been doing the rounds as well as a number of official views recently released. Unlike some before it, the report from UBS though was quite damning of the entire real-estate sector, even noticing fundamental weakness amongst the Abu Dhabi developers where others have not. They downgraded and recommended investors sell every developer they cover. This is not in keeping with our view, where we have significant differences in opinion on the Abu Dhabi names and even a few in Dubai.
In the midst of this, Emaar continues to draw up plans to deal with its toxic assets, attempting to highlight those most damaging to future revenue targets. Emaar has already provided some purchasers that have found themselves invested in properties that are not being completed with “vouchers” – allowing buyers to swap their investment for other Emaar properties. These credit notes are transferable and word is that they are already exchanging hands for cash at 40% discount to face value. Not bad if you consider those not holding any properties at the moment can come in and “buy” a new property for a 40% discount on top of the discounted voucher.
What will be exciting is if these vouchers quickly take on a life of their own and become acceptable forms of currency for settling very expensive bar tabs at very expensive Dubai bars. “Double vodka on the rocks sir? No problem…that’ll be a nice two-bed, 3 bath, sea view please – may I keep the change too?”
Markets…
Markets have been jittery at best this week and today/tomorrow will not prove an exception. In Asia, Japan’s woes continue, not only did the IMF show the largest contraction would come through in their stricken economy (-6.2%) but one of the largest super-banks has just admitted it will be making a larger loss than anyone had anticipated – Mizuho posting $5.4bn loss, with the main culprit being a tumble in the value of its equity investments. With an apparent return to some-sort-of-form from the US lenders (BofA and Citi in particular), Japan’s mighty institutions are looking fragile and more questions concerning their future ability to withstand a deepening recession are arising. Good times are not ahead for the once seemingly immune (back in early 2008) Japan financial industry to the credit-crunch fall-out. A key immediate issue is the need for additional capital raising - something the Japanese banks have not done with great relish.
Despite the bad news in Japan and concerns over China’s slowing growth rate from the IMF, markets across Asia managed to put in some good performance today, with Hong Kong the star +2.3% and Australasia doing quite well – avg +2%. The most declining market today unsurprisingly Pakistan’s (-3.2%) as the political situation takes its toll.
Europe has been trading flat and light most of the morning until Credit Suisse provided a little extra vitamin injection and announced it has returned to profit – most European indices now trading modestly higher but possibly following the (for now) decent indication of a positive open on the US futures (DJIA +68pts, S&P +8.5pts)
US futures appear to have had a boost from Obama’s administration calling for banks to prepare for a report of the “stress-testing” they have undergone – the report is to be released on May 4th and Obama wants answers before the questions that will surely follow are asked. This may be improving confidence amongst some market watchers that the financials will be able to survive the worst-of-
the-worst of this crisis – Obama would not be asking for explanations of how a banks might survive unless he knew they able to already – some market confidence building tricks here most likely.
On a positive note for the US, and a great sign for the most recession proof of all businesses – entertainment - major Hollywood studios have generated enough ticket sales this year (+17% YoY) to be on course for the first ever $10bn revenue year. By bringing forward a large number of their traditional summer big-ticket (pun intended) releases, studios have (incredibly astutely) realised that lumping all your best movies into a one month period may not be the best way to ensure large audiences – nothing like a sobering crisis to get the best out of those highly-paid MBA grads slaving away amongst the stars in Hollywood.
Oil has edged closer to $50/brl again, despite some news yesterday that inventory levels at US’s Department of Energy were not as low as expected, but the weakening US$ vs Euro pushing crude higher. Gold has quietly edged higher all week and we are back within melting distance of $900/oz once more. Currencies have seen the aforementioned strength return to Euro, but cable remains relatively stable at around 1.45. $/Yen has not returned to tackle the 100 level since 13th April.
Water fights…
China has gone and put on display the best of its naval offering, with some exceptionally advanced warships as it goes ahead with a military parade to celebrate the 60th anniversary of the country’s navy. Just another example and sign of China’s growing international power. The US response to all this – “there is no way the Chinese navy is on par with the United States, or even Japan” – oh dear, is that really the right way to react to a country that is intent on always proving people wrong – especially one that will go to any length, and spend any size fortune, to achieve exactly that, and prove people wrong.
I buy a home, and you give me a voucher…
More bad news about Dubai’s real estate market today out from UBS, as it states a further 70% fall may be expected in 2009 (from peak levels in 2008) –this would be in keeping with much of the anecdotal evidence that has been doing the rounds as well as a number of official views recently released. Unlike some before it, the report from UBS though was quite damning of the entire real-estate sector, even noticing fundamental weakness amongst the Abu Dhabi developers where others have not. They downgraded and recommended investors sell every developer they cover. This is not in keeping with our view, where we have significant differences in opinion on the Abu Dhabi names and even a few in Dubai.
In the midst of this, Emaar continues to draw up plans to deal with its toxic assets, attempting to highlight those most damaging to future revenue targets. Emaar has already provided some purchasers that have found themselves invested in properties that are not being completed with “vouchers” – allowing buyers to swap their investment for other Emaar properties. These credit notes are transferable and word is that they are already exchanging hands for cash at 40% discount to face value. Not bad if you consider those not holding any properties at the moment can come in and “buy” a new property for a 40% discount on top of the discounted voucher.
What will be exciting is if these vouchers quickly take on a life of their own and become acceptable forms of currency for settling very expensive bar tabs at very expensive Dubai bars. “Double vodka on the rocks sir? No problem…that’ll be a nice two-bed, 3 bath, sea view please – may I keep the change too?”
Wednesday, 22 April 2009
Tech Recession- 22nd April
Markets a little sticky today, in fact the general financial environment and surrounding news is lacklustre all over. There aren’t even any profoundly interesting tidbits to grasp onto to use as an intro to the usual market talk. Things must be slow. Nothing even to complain about in the UAE – that won’t last long.
Markets…
After the falls on Monday, the bounce by the financials yesterday half-way through Geithner’s testimony to congress “banks have adequate funding to see through the crisis” saw a return of some 8% across the financial sector, but a lot of this was down to short-covering. The weight of concern over earnings made for a depressed start to the trading day across Asia, with Japan only managing to close positive at the close as some decent tech performance kicked in towards the end (Elpida announces plans to increase memory-chip prices). Unfortunately for Hong Kong and China markets there fell an avg. of -3%, not on any recent news but more a continuation of concern over the GDP growth rate of only 6% China has been forecasting – there was also confirmation that authorities will begin reigning in some of the increase in liquidity provided over the last few months (CSI down 3.2% today but still returning a lovely 41% YTD).
The China story, as well documented here and elsewhere, is incredibly important to the rest of the world, and it has become an increasingly important indicator for any investor concerned as to the future viability of a strong capitalist system. The more the US deals with its own issues at home and fundamentally alters the financial industry landscape, the more China’s own issues multiply in importance, not least due to its own non-performing loan portfolio – viewed by many as a disaster waiting to (officially) happen. There’s also no forgetting the nest-egg sitting safely for the moment in Uncle Sam’s lap.
European markets are trading up, but not as much as you would like following the decent turn around in the US. Currently seeing the majors return avg +0.6% for the day, with some anticipation in the UK ahead of the Budget statement, and a widening of the UK’s deficit to the largest since WWII (90bn GBP), not to mention highest unemployment rate in 12yrs. If you recall the messages from London a few weeks back it was clear that certain parts of the capital were swinging away without a care to the crunched-world, but the rest of the country which is not merely a larger version of Monaco is suffering greatly as the flood of easy-credit and all things nice ‘an easy seem nothing but a distant memory. The damage done to the economy and the release of such dismal statistics leaves little room for the Chancellor (wonderfully titled Chancellor Darling – anyone that’s a fan of Blackadder will be smiling now) to announce further grand stimulus plans. It will be difficult for the incumbent government to wriggle out of things if the economic situation worsens any further, for Gordon Brown was of course directly responsible for the unprecedented rise in borrowing and the seemingly endless expansion of the bubble from 1999-2007.
US futures are trading lower at present (DJIA -53pts, S&P -5.4pts) but it’s still early and we’re expecting another slew of corporate results throughout the trading day. Also awaiting House Price Index release (MoM, cons -0.7%) – won’t be good if much worse than expected.
Crude has come back a little, now only $1 or so short of $50/brl. Gold again holding steady. Currencies equally stable for now
Mature MENA…
MENA markets have expressed a certain maturity in the last few weeks. First, they saw an orderly and concerted investment effort when risk became less of an evil word and global markets picked up with some decent and thoughtful inflows. Equally, when markets shook some of their gains, there was not a typical stampede for the exit as those investments that had been made were either correctly divested or held on to until the picture was clearer. It is nice to see that these markets have learnt from past lessons, and more importantly that there is a definite improvement in transparency and understanding of the companies that make up the markets in the region. The hope that this will continue is widespread, and all are awaiting the continued opening of Saudi’s market – see previous messages for more.
Tech + surfing
There was talk over the weekend that Nintendo has now surpassed sales of both its rival consoles – selling twice as many as the other two (Playstation and Xbox) combined. This is an extremely impressive performance for a company that had seemingly lost the lead in a business it practically invented (first came playing cards, then their Donkey Kong classic). However, in a worrying sign, demand for its Wii and even its incredibly popular DS consoles (there’s a great game called brain-training on it) has recently decreased in pace in Japan. The Japanese market is normally a pre-cursor for both the European and US gaming market, and it appears that the natural attraction of simple games that appeal to a diverse demographic (particularly those that would not normally be found sitting-up in the dark at 3am playing that “one final round” of Grand Theft Auto 4) is only recession-proof for a while. The stay-at-home-and-play environment that many households have transitioned to with the onset of the credit-crunch can only last a while and now that the human desire to enjoy life has returned to many of those that secluded themselves, the more complicated and rewarding gaming devices are beginning to shine through as the truly sustainable part of the business – only serious gamers will continue to buy games every month that can cost up to $90.
This phenomenon above can be extended to many different industries – when something occurs that is as widely disruptive as the credit-crunch that many inn the western world have experienced, the initial reaction is to retreat and move towards innovative and cheaper solutions. However, the desire and appetite to return to more of a “normal” lifestyle ultimately wins through – the question many are now asking themselves is what exactly is a normal lifestyle given so much of what passed as “normal”, i.e. greed and wanting what you can’t have, is now frowned upon. Expect Wii sales and the new DSI handheld to do quite well for a while in the US I think.
Oh, I suppose we can concede there is one piece of entertaining news out there this morning is talk of how almost 2million PCs have been infected by malicious hackers, after users that have visited certain websites unwittingly download a programme that enables a gang of hackers based in Ukraine to control their systems – simple solution to this one: those 2 million need to stop visiting those types of “certain” websites as they surf the web at night – problem (the tech one at least) solved.
Markets…
After the falls on Monday, the bounce by the financials yesterday half-way through Geithner’s testimony to congress “banks have adequate funding to see through the crisis” saw a return of some 8% across the financial sector, but a lot of this was down to short-covering. The weight of concern over earnings made for a depressed start to the trading day across Asia, with Japan only managing to close positive at the close as some decent tech performance kicked in towards the end (Elpida announces plans to increase memory-chip prices). Unfortunately for Hong Kong and China markets there fell an avg. of -3%, not on any recent news but more a continuation of concern over the GDP growth rate of only 6% China has been forecasting – there was also confirmation that authorities will begin reigning in some of the increase in liquidity provided over the last few months (CSI down 3.2% today but still returning a lovely 41% YTD).
The China story, as well documented here and elsewhere, is incredibly important to the rest of the world, and it has become an increasingly important indicator for any investor concerned as to the future viability of a strong capitalist system. The more the US deals with its own issues at home and fundamentally alters the financial industry landscape, the more China’s own issues multiply in importance, not least due to its own non-performing loan portfolio – viewed by many as a disaster waiting to (officially) happen. There’s also no forgetting the nest-egg sitting safely for the moment in Uncle Sam’s lap.
European markets are trading up, but not as much as you would like following the decent turn around in the US. Currently seeing the majors return avg +0.6% for the day, with some anticipation in the UK ahead of the Budget statement, and a widening of the UK’s deficit to the largest since WWII (90bn GBP), not to mention highest unemployment rate in 12yrs. If you recall the messages from London a few weeks back it was clear that certain parts of the capital were swinging away without a care to the crunched-world, but the rest of the country which is not merely a larger version of Monaco is suffering greatly as the flood of easy-credit and all things nice ‘an easy seem nothing but a distant memory. The damage done to the economy and the release of such dismal statistics leaves little room for the Chancellor (wonderfully titled Chancellor Darling – anyone that’s a fan of Blackadder will be smiling now) to announce further grand stimulus plans. It will be difficult for the incumbent government to wriggle out of things if the economic situation worsens any further, for Gordon Brown was of course directly responsible for the unprecedented rise in borrowing and the seemingly endless expansion of the bubble from 1999-2007.
US futures are trading lower at present (DJIA -53pts, S&P -5.4pts) but it’s still early and we’re expecting another slew of corporate results throughout the trading day. Also awaiting House Price Index release (MoM, cons -0.7%) – won’t be good if much worse than expected.
Crude has come back a little, now only $1 or so short of $50/brl. Gold again holding steady. Currencies equally stable for now
Mature MENA…
MENA markets have expressed a certain maturity in the last few weeks. First, they saw an orderly and concerted investment effort when risk became less of an evil word and global markets picked up with some decent and thoughtful inflows. Equally, when markets shook some of their gains, there was not a typical stampede for the exit as those investments that had been made were either correctly divested or held on to until the picture was clearer. It is nice to see that these markets have learnt from past lessons, and more importantly that there is a definite improvement in transparency and understanding of the companies that make up the markets in the region. The hope that this will continue is widespread, and all are awaiting the continued opening of Saudi’s market – see previous messages for more.
Tech + surfing
There was talk over the weekend that Nintendo has now surpassed sales of both its rival consoles – selling twice as many as the other two (Playstation and Xbox) combined. This is an extremely impressive performance for a company that had seemingly lost the lead in a business it practically invented (first came playing cards, then their Donkey Kong classic). However, in a worrying sign, demand for its Wii and even its incredibly popular DS consoles (there’s a great game called brain-training on it) has recently decreased in pace in Japan. The Japanese market is normally a pre-cursor for both the European and US gaming market, and it appears that the natural attraction of simple games that appeal to a diverse demographic (particularly those that would not normally be found sitting-up in the dark at 3am playing that “one final round” of Grand Theft Auto 4) is only recession-proof for a while. The stay-at-home-and-play environment that many households have transitioned to with the onset of the credit-crunch can only last a while and now that the human desire to enjoy life has returned to many of those that secluded themselves, the more complicated and rewarding gaming devices are beginning to shine through as the truly sustainable part of the business – only serious gamers will continue to buy games every month that can cost up to $90.
This phenomenon above can be extended to many different industries – when something occurs that is as widely disruptive as the credit-crunch that many inn the western world have experienced, the initial reaction is to retreat and move towards innovative and cheaper solutions. However, the desire and appetite to return to more of a “normal” lifestyle ultimately wins through – the question many are now asking themselves is what exactly is a normal lifestyle given so much of what passed as “normal”, i.e. greed and wanting what you can’t have, is now frowned upon. Expect Wii sales and the new DSI handheld to do quite well for a while in the US I think.
Oh, I suppose we can concede there is one piece of entertaining news out there this morning is talk of how almost 2million PCs have been infected by malicious hackers, after users that have visited certain websites unwittingly download a programme that enables a gang of hackers based in Ukraine to control their systems – simple solution to this one: those 2 million need to stop visiting those types of “certain” websites as they surf the web at night – problem (the tech one at least) solved.
Tuesday, 21 April 2009
Lebanon Special - 21st April
Markets…a lot can change in 5 days..and it did.
Markets dive, global leaders are left without any further reaction having done all they can in the last month, Obama’s at home playing with the dog, some representatives of the United Nations walk-out on Iran as it addresses a racism conference as if to underline the fractious developments on the uniform face of optimism so many were trying to achieve, and investors are left dazed and confused despite having read the writing on the wall and been guilty of sweeping themselves away with the short-lived bounce of hope. Even a story this morning suggests that our normally ever-so-reliable sun is cooling and experiencing its quietest period ever – is nothing working normally? A portend of worse to come? It is never a nice thing when the pessimists win, but it would not be out-of-place to suggest that it is nothing more than reality that has trampled all over the bull’s party.
For those investors that had been brave/foolhardy enough to delve right back into the market on the back of what must have seemed like sound advice from a bunch of media commentators, it must feel like a les than memorable period of their adolescent lives all-over again. Once rejected by an object of their affection, they build up the courage over a number of months to try once more, encouraged and cajoled by their friends and those around them that have been able to overcome their fears, only to get sucker punched by the sting of rejection straight in the gut once more when the very event they feared the most returns to haunt them – it takes a long time for someone to recover from such an episode, and it is not to be expected that it is any different for those investors out there that dipped their toe back into the shark-infested waters of stock-market-return-rejection.
It’s never nice to say it, but the warning signs were there and commentators everywhere are now sitting up straight and declaring “we told you so!” The bear market rally is well and truly over, and not only are we seeing those that appreciated so spectacularly over the last few weeks return to earth, those that had remained depressed are now being depressed further – this is where it gets really bad. US markets were down heavy last night (DJIA -3.6%, S&P -4.3%.), Middle East markets have given up the chase, falling significantly across all the major constituents (avg -3.5%). Asia reacted mixed today, with Japan mimicking some of the deep falls (-2.4%) and Hong Kong giving up in sympathy (-2.95%). Europe has far started the day with a bit of a bounce (DAX +1%, CAC +0.9%) but nothing worth writing home about. US futures for today are pointing at another lower opening reversing its indication from the morning and expressing the fragility of investor confidence (DJIA -39pts, S&P -4.2%). With very little in the way of economic indicators or releases, all eyes will be (unfortunately) on corporate earnings – with the fall across financials following what initially looked to be decent figures, it is anyone’s guess how markets will react to the slightest disappointment. Oil is trading a good $4 below the all-important psychological $50/brl level, and Gold is strangely sitting tight at $889/oz without any major movement in the last few days. Currencies have seen a return to form for the US$ as hot money flies back into US Treasuries.
Lebanon – Living the dream, or living in a dream?
A long weekend in Lebanon and countless renditions of “you can ski in the morning and swim in the afternoon” later have provided me with ample material to write commentaries on for easily the next 6 months. But that’s the thing about Lebanon, such a tiny country capable of generating such emotional and generous reactions – let’s look at a few of the facts to understand a little more. This list could have gone on for much longer, but for the sake of brevity I’ll just highlight a few of the more memorable - a personal favourite being the last:
Within a population of little more than 3.5m, the nation (proudly or not) boasts 18 separate and officially registered religious factions, the capital has been destroyed and rebuilt 7 times, occupied by over 16 countries, there are 15 rivers emanating from the country’s own mountains, 42 universities, 40 daily newspapers, 350 nightclubs to choose from and an astounding (and mouth-watering) 262 different ways to cook an aubergine – come on, that alone deserves imaginative/creative credit!
The importance and strategic positioning of Lebanon’s geography has not been lost on its neighbours, dooming the country to endless invasions and occupations – in more recent times of course the country’s south has controversially acted as a hotbed of anti-Israeli aggression, and been the victim of an unhealthy dose of neighbourly aggression itself on more than once occasion. Worse, the country seems hell-bent on destroying itself from the inside, as each of the 18 religious factions vie for their “God-given” representation within the region’s oldest/purest democracy.
Always a sensitive subject this one, and one that could go on forever, so we’ll skip the quagmire otherwise known as Lebanon’s political mine-field and concentrate on the elements that are combining to create what many are calling the only “recession proof” economy in the world.
Fool or Foul Mdammas?
The leading indicator in Lebanon’s economy is the real-estate market. Where the rest of the world (except Abu Dhabi) has witnessed huge declines in property prices (as deep as 60-70% in even parts of the US) old houses as well as new developments in Beirut are experiencing and enjoying 30-40% appreciation bursts. Rents are either maintaining a strong-steady level (relatively cheap to the rest of the world it must be said) or rising slightly - and there is no hint of a fall anywhere along the horizon. Any conversation you happen to come across that is not concerned with the elections in June contains at least three or four expletives when the price of the last sale on a house nearby to one of the speakers is described. Billboards for the latest real-estate companies (technically there are no pure real estate “agents” but more real estate “advertisers”) are mushrooming all over the country – the interesting difference between this all-too-normal scenario and one of that in, say, Florida, is a noticeable lack of corresponding bank promotions offering 90% mortgages and “the best interest-rate deals around”.
The above sounds like a recipe with all the right ingredients for a nice big bubble followed by a disastrous burst right? Wrong. Wrong for a while at least. The reason real-estate is holding steady, and the reason hotels and restaurants, and clubs and bars and any other place you can squeeze into in the most vibrant of vibrant cities is because so many Lebanese from outside have returned to their motherland. An estimated 20,000 Lebanese former ex-pats have recently bought a one-way ticket to Beirut (over the last 12mths) either out of choice (fed-up with their jobs and lower quality of life outside) or unfortunately out of necessity (having lost their positions in companies abroad that have made some harsh cuts) The wealth accumulated by a great number of those that are returning is going straight into a property, or developing the land that they had inherited and waited upon.
There is a noticeable increase in construction around the more desirable areas, and tradesmen and furnishing companies are reporting booming trade. Interior designers are in demand more than ever and a whole new collection of books celebrating “Lebanon’s most beautiful homes” have been launched, pushing the I-want-it-too culture to the limit. The property market is strong, but even in the absence of speculation and buying-to-let, will what appears to be a truly strong and built-upon-sound-foundations-boom be a matter of fooling all of the people only some of the time?
A worrying indicator is that this real-estate sentiment is not translating into a strong stock market – unfortunately not. The BLOM index is down -7% or the year, and recent performance has not been too heartening. With the rest of emerging markets in the lines of fire once more, it will be a rough ride for those (few) listed entities.
There is no rise without a fall unfortunately, and the risk for Lebanon (apart from the obvious political machinations) is what happens when the money that has been repatriated runs out? Those that have returned will be happy to take some time off and spend some money in the near-term, but what happens when they realise that there are no jobs in Lebanon (outside of the service business) and begin wondering why their belts are so loose for reasons other than having stuffed too much tasty humus and fattoush the night before. The good times are certainly rolling right now in the country, and everyone is happily trotting down what seems like a problem-free path, but unfortunately the reality is that like any other economy in these times, the fragility of sentiment is the biggest single risk.
Lounge Lovers…
What about Lebanon as a potential economic force through tourism and hospitality? I must of course point out that I am biased in my views before I continue, but anyone that you meet who has been to Lebanon will certainly echo many of the sentiments that follow. There is nowhere you will visit that will provide a level of service as friendly and efficient, not to mention attentive, for the price you pay. Value-for-money as it is called in the rest of the world, is the norm in Lebanon. In fact, so ingrained into the depths of society is the natural ability to provide service-with-a-smile that it is little wonder you will find the Lebanese in charge of client-facing positions across any industry in the world. The idea of charisma, as so many Lebanese like to point out in the same breath as mentioning the city of Byblos is the oldest recorded-consecutively-lived-in-city-in-the-world, was almost invented in the country. Can you remember the last time you would describe a waiter/waitress in the Gulf as being charismatic?…hmmm…let me think for a while…….
In all aspects of society, the quality of produce and inventiveness of preparation is second-to-none, and not just in cooking terms. The natural beauty of the country and entrepreneurial nature of the people are of course the two major attributes Lebanon thrives upon. Sitting in a restaurant in Lebanon, you will go through a rather different experience to sitting in a restaurant in Dubai. Rather than spending an excruciating 15-20mins playing a game that is a combination of charades and pictionary to describe to your waiter what it is you really want to eat, you will be served like a king for even the simplest of orders. It does not matter if you are sitting in a Lebanese/Italian/Japanese/French restaurant with the most stunning views of the valley below and Mediterranean sea beyond, you will be made to feel as though you are one of the most prized customers the restaurant has ever been lucky enough to have walk through its doors – and you will (relatively) pay hardly anything for this pleasure and benefit. Not just that, and maybe even more importantly, please do yourselves a favour and go to any bar in the country and order a drink – after your first sip, you will have to beg the enormously generous bar tender to stop pouring your alcohol of choice and add a little of the mixer – assuming you are still conscious at the time. Did I already mention you don’t have to repeat yourself three times before your order is understood?
Close, and the cigar
Oh, one thing everyone (everyone if you are male that is - sorry ladies but I’m certainly biased in this) should definitely do – when at Beirut Int’l airport on your way back, hang a left after passport control and browse around the cigar section (even if you don’t smoke) – you will sooner or later bump into a member of one of the most spectacularly efficacious sales forces to be found anywhere in the world. With a mixture of that aforementioned natural charm and armed with some additional attributes, you will quickly be engrossed in the most minutiae of information relating to the cigar industry. Not only will you want to learn, you won’t want to stop learning. I defy anyone to walk away, after initiating even the briefest of conversations, without a box of glorious cigars – a recent trip saw an individual walk out of the well-maintained humidor with not only a big smile on his face but brandishing a brand new box of Cuban Maduros, despite the fact barely a month earlier he had purchased a fresh batch of recently released cigars which were still sitting at home waiting to be smoked – that’s a lot of smoking I’m, uhhmmm..I mean he, is going to have to do in the next few weeks before the next trip to Lebanon.
Markets dive, global leaders are left without any further reaction having done all they can in the last month, Obama’s at home playing with the dog, some representatives of the United Nations walk-out on Iran as it addresses a racism conference as if to underline the fractious developments on the uniform face of optimism so many were trying to achieve, and investors are left dazed and confused despite having read the writing on the wall and been guilty of sweeping themselves away with the short-lived bounce of hope. Even a story this morning suggests that our normally ever-so-reliable sun is cooling and experiencing its quietest period ever – is nothing working normally? A portend of worse to come? It is never a nice thing when the pessimists win, but it would not be out-of-place to suggest that it is nothing more than reality that has trampled all over the bull’s party.
For those investors that had been brave/foolhardy enough to delve right back into the market on the back of what must have seemed like sound advice from a bunch of media commentators, it must feel like a les than memorable period of their adolescent lives all-over again. Once rejected by an object of their affection, they build up the courage over a number of months to try once more, encouraged and cajoled by their friends and those around them that have been able to overcome their fears, only to get sucker punched by the sting of rejection straight in the gut once more when the very event they feared the most returns to haunt them – it takes a long time for someone to recover from such an episode, and it is not to be expected that it is any different for those investors out there that dipped their toe back into the shark-infested waters of stock-market-return-rejection.
It’s never nice to say it, but the warning signs were there and commentators everywhere are now sitting up straight and declaring “we told you so!” The bear market rally is well and truly over, and not only are we seeing those that appreciated so spectacularly over the last few weeks return to earth, those that had remained depressed are now being depressed further – this is where it gets really bad. US markets were down heavy last night (DJIA -3.6%, S&P -4.3%.), Middle East markets have given up the chase, falling significantly across all the major constituents (avg -3.5%). Asia reacted mixed today, with Japan mimicking some of the deep falls (-2.4%) and Hong Kong giving up in sympathy (-2.95%). Europe has far started the day with a bit of a bounce (DAX +1%, CAC +0.9%) but nothing worth writing home about. US futures for today are pointing at another lower opening reversing its indication from the morning and expressing the fragility of investor confidence (DJIA -39pts, S&P -4.2%). With very little in the way of economic indicators or releases, all eyes will be (unfortunately) on corporate earnings – with the fall across financials following what initially looked to be decent figures, it is anyone’s guess how markets will react to the slightest disappointment. Oil is trading a good $4 below the all-important psychological $50/brl level, and Gold is strangely sitting tight at $889/oz without any major movement in the last few days. Currencies have seen a return to form for the US$ as hot money flies back into US Treasuries.
Lebanon – Living the dream, or living in a dream?
A long weekend in Lebanon and countless renditions of “you can ski in the morning and swim in the afternoon” later have provided me with ample material to write commentaries on for easily the next 6 months. But that’s the thing about Lebanon, such a tiny country capable of generating such emotional and generous reactions – let’s look at a few of the facts to understand a little more. This list could have gone on for much longer, but for the sake of brevity I’ll just highlight a few of the more memorable - a personal favourite being the last:
Within a population of little more than 3.5m, the nation (proudly or not) boasts 18 separate and officially registered religious factions, the capital has been destroyed and rebuilt 7 times, occupied by over 16 countries, there are 15 rivers emanating from the country’s own mountains, 42 universities, 40 daily newspapers, 350 nightclubs to choose from and an astounding (and mouth-watering) 262 different ways to cook an aubergine – come on, that alone deserves imaginative/creative credit!
The importance and strategic positioning of Lebanon’s geography has not been lost on its neighbours, dooming the country to endless invasions and occupations – in more recent times of course the country’s south has controversially acted as a hotbed of anti-Israeli aggression, and been the victim of an unhealthy dose of neighbourly aggression itself on more than once occasion. Worse, the country seems hell-bent on destroying itself from the inside, as each of the 18 religious factions vie for their “God-given” representation within the region’s oldest/purest democracy.
Always a sensitive subject this one, and one that could go on forever, so we’ll skip the quagmire otherwise known as Lebanon’s political mine-field and concentrate on the elements that are combining to create what many are calling the only “recession proof” economy in the world.
Fool or Foul Mdammas?
The leading indicator in Lebanon’s economy is the real-estate market. Where the rest of the world (except Abu Dhabi) has witnessed huge declines in property prices (as deep as 60-70% in even parts of the US) old houses as well as new developments in Beirut are experiencing and enjoying 30-40% appreciation bursts. Rents are either maintaining a strong-steady level (relatively cheap to the rest of the world it must be said) or rising slightly - and there is no hint of a fall anywhere along the horizon. Any conversation you happen to come across that is not concerned with the elections in June contains at least three or four expletives when the price of the last sale on a house nearby to one of the speakers is described. Billboards for the latest real-estate companies (technically there are no pure real estate “agents” but more real estate “advertisers”) are mushrooming all over the country – the interesting difference between this all-too-normal scenario and one of that in, say, Florida, is a noticeable lack of corresponding bank promotions offering 90% mortgages and “the best interest-rate deals around”.
The above sounds like a recipe with all the right ingredients for a nice big bubble followed by a disastrous burst right? Wrong. Wrong for a while at least. The reason real-estate is holding steady, and the reason hotels and restaurants, and clubs and bars and any other place you can squeeze into in the most vibrant of vibrant cities is because so many Lebanese from outside have returned to their motherland. An estimated 20,000 Lebanese former ex-pats have recently bought a one-way ticket to Beirut (over the last 12mths) either out of choice (fed-up with their jobs and lower quality of life outside) or unfortunately out of necessity (having lost their positions in companies abroad that have made some harsh cuts) The wealth accumulated by a great number of those that are returning is going straight into a property, or developing the land that they had inherited and waited upon.
There is a noticeable increase in construction around the more desirable areas, and tradesmen and furnishing companies are reporting booming trade. Interior designers are in demand more than ever and a whole new collection of books celebrating “Lebanon’s most beautiful homes” have been launched, pushing the I-want-it-too culture to the limit. The property market is strong, but even in the absence of speculation and buying-to-let, will what appears to be a truly strong and built-upon-sound-foundations-boom be a matter of fooling all of the people only some of the time?
A worrying indicator is that this real-estate sentiment is not translating into a strong stock market – unfortunately not. The BLOM index is down -7% or the year, and recent performance has not been too heartening. With the rest of emerging markets in the lines of fire once more, it will be a rough ride for those (few) listed entities.
There is no rise without a fall unfortunately, and the risk for Lebanon (apart from the obvious political machinations) is what happens when the money that has been repatriated runs out? Those that have returned will be happy to take some time off and spend some money in the near-term, but what happens when they realise that there are no jobs in Lebanon (outside of the service business) and begin wondering why their belts are so loose for reasons other than having stuffed too much tasty humus and fattoush the night before. The good times are certainly rolling right now in the country, and everyone is happily trotting down what seems like a problem-free path, but unfortunately the reality is that like any other economy in these times, the fragility of sentiment is the biggest single risk.
Lounge Lovers…
What about Lebanon as a potential economic force through tourism and hospitality? I must of course point out that I am biased in my views before I continue, but anyone that you meet who has been to Lebanon will certainly echo many of the sentiments that follow. There is nowhere you will visit that will provide a level of service as friendly and efficient, not to mention attentive, for the price you pay. Value-for-money as it is called in the rest of the world, is the norm in Lebanon. In fact, so ingrained into the depths of society is the natural ability to provide service-with-a-smile that it is little wonder you will find the Lebanese in charge of client-facing positions across any industry in the world. The idea of charisma, as so many Lebanese like to point out in the same breath as mentioning the city of Byblos is the oldest recorded-consecutively-lived-in-city-in-the-world, was almost invented in the country. Can you remember the last time you would describe a waiter/waitress in the Gulf as being charismatic?…hmmm…let me think for a while…….
In all aspects of society, the quality of produce and inventiveness of preparation is second-to-none, and not just in cooking terms. The natural beauty of the country and entrepreneurial nature of the people are of course the two major attributes Lebanon thrives upon. Sitting in a restaurant in Lebanon, you will go through a rather different experience to sitting in a restaurant in Dubai. Rather than spending an excruciating 15-20mins playing a game that is a combination of charades and pictionary to describe to your waiter what it is you really want to eat, you will be served like a king for even the simplest of orders. It does not matter if you are sitting in a Lebanese/Italian/Japanese/French restaurant with the most stunning views of the valley below and Mediterranean sea beyond, you will be made to feel as though you are one of the most prized customers the restaurant has ever been lucky enough to have walk through its doors – and you will (relatively) pay hardly anything for this pleasure and benefit. Not just that, and maybe even more importantly, please do yourselves a favour and go to any bar in the country and order a drink – after your first sip, you will have to beg the enormously generous bar tender to stop pouring your alcohol of choice and add a little of the mixer – assuming you are still conscious at the time. Did I already mention you don’t have to repeat yourself three times before your order is understood?
Close, and the cigar
Oh, one thing everyone (everyone if you are male that is - sorry ladies but I’m certainly biased in this) should definitely do – when at Beirut Int’l airport on your way back, hang a left after passport control and browse around the cigar section (even if you don’t smoke) – you will sooner or later bump into a member of one of the most spectacularly efficacious sales forces to be found anywhere in the world. With a mixture of that aforementioned natural charm and armed with some additional attributes, you will quickly be engrossed in the most minutiae of information relating to the cigar industry. Not only will you want to learn, you won’t want to stop learning. I defy anyone to walk away, after initiating even the briefest of conversations, without a box of glorious cigars – a recent trip saw an individual walk out of the well-maintained humidor with not only a big smile on his face but brandishing a brand new box of Cuban Maduros, despite the fact barely a month earlier he had purchased a fresh batch of recently released cigars which were still sitting at home waiting to be smoked – that’s a lot of smoking I’m, uhhmmm..I mean he, is going to have to do in the next few weeks before the next trip to Lebanon.
Thursday, 16 April 2009
Credit Tears - 16th April
I’ll be travelling again and will be out of the office until Tuesday 21st April – no commentaries in my absence, but plenty I’m sure to write about on my return.
As tears continue to stream down our faces for those that have lost huge (unrealised) wealth created on the back of easy credit during the boom years, we now hear about the self-styled “Warren Buffet” of the Middle East – Walid Bin Talal, having to possibly sell his holdings in Raffles Fairmont Hotels – I’m surprised he hasn’t been able to amass more of a fortune on the back of all his memoirs and “How I Made It” business books – I guess I wasn’t the only one that never bought a single copy!
Markets have again been all over the place. It was warned that the bear market rally was truly nothing but that, a sharp opportunistic rally in the midst of one of the worst bear markets in history. Obama did his best in the last couple of days to placate the US consumer that the capitalist system they have worshipped for the last 50yrs is intact and not hindering any of their efforts and decisions to protect the economy. In fact, the US was mixed yesterday, with the financials coming under a little pressure following UBS’s less than impressive (putting it mildly) results and plans to let go of another 11% of its workforce.
The broader market had a decent day, especially amongst some of the more industrial sectors and this resulted in a strong open in Tokyo where the heavily exporting leaders kept markets trading high until after the lunch break and a disappointing figure from China – it posted its slowest growth rate in almost a decade - +6.1% this would have been an incredible figure anywhere else in the world, but you must remember that the natural rate of growth for China is equivalent to 8% (US would be 1%) – this puts the number into perspective and explains the fall in Hong Kong as well. Other markets fared better despite the political goings on in India and Thailand. Good gains were seen in Taiwan (+2%) and Vietnam (+1.4%). It may be too early to start singing its praises again, but definitely keep an eye on Vietnam for the next few weeks as it may enjoy a moment or two of long-expected glory.
Europe has been busy talking about the split in the ECB on future rate decisions, the currency has of course slightly fallen vs US$, and some markets more in need of a continued fall in rates (around the Eastern region) are suffering. The major markets across the mainland are performing better, with FTSE and CAC both rising +.08% so far.
US futures currently trading a little lower for the open (DJIA -10pts and S&P -1.6pts) – the news that US home foreclosures have jumped to a record in Q1 hitting sentiment – surely most must have seen this coming (and priced it in) considering that so called “moratoriums” on payments were coming to an end and job losses continue to mount through the deepening recession. That is what happens when too many begin focusing on fancy indicators such as the “second derivative” i.e. the rate of the fall in the economic slowdown – you lose track of the logical explanations and signs.
Despite the disappointing growth rate this morning, China has propelled itself back into the top spot amongst the world’s best performing markets (apart from tiny Peru though – up 49% YTD) – the CSI300 is +39% YTD now. Promises of huge infrastructure spend and a controlled response to the crisis by the central government clearly assisting sentiment and possibly clouding over some of the deeper structural issues for now – but hey, it looks great on the world scene and is surely playing its part in securing the authorities grip on other issues and avoiding dissent in a number of controversial areas. One immediate concern is that if it wasn’t for the huge spending unleashed in the last several months, the slowdown would have taken a far heavier toll – how much longer will China be able to spend in this manner without wanting to tap into some of its overseas “rain-day” savings? Or will it really move to the international finance markets and issue domestic bonds available for open purchase? Big questions, and big ripples depending on the outcome.
Oil has fallen back below the $50/brl level for now after a report yesterday suggested demand was falling faster than expected, but this may prove short-lived as another report today suggested the slowdown in demand will be very short-lived – please make up your minds whoever puts out these reports!
Gold is STILL holding still around the new trading range of $880-890 – it may well still shoot through to $1,500/oz by the end of the year if this bear market rally shows itself to be nothing more than a well-dressed impersonator of a real return to conviction buying – and will certainly shoot right up if a nasty surprise or two present themselves – remember that horror movie ending scenario? – it could grab you anytime!
As tears continue to stream down our faces for those that have lost huge (unrealised) wealth created on the back of easy credit during the boom years, we now hear about the self-styled “Warren Buffet” of the Middle East – Walid Bin Talal, having to possibly sell his holdings in Raffles Fairmont Hotels – I’m surprised he hasn’t been able to amass more of a fortune on the back of all his memoirs and “How I Made It” business books – I guess I wasn’t the only one that never bought a single copy!
Markets have again been all over the place. It was warned that the bear market rally was truly nothing but that, a sharp opportunistic rally in the midst of one of the worst bear markets in history. Obama did his best in the last couple of days to placate the US consumer that the capitalist system they have worshipped for the last 50yrs is intact and not hindering any of their efforts and decisions to protect the economy. In fact, the US was mixed yesterday, with the financials coming under a little pressure following UBS’s less than impressive (putting it mildly) results and plans to let go of another 11% of its workforce.
The broader market had a decent day, especially amongst some of the more industrial sectors and this resulted in a strong open in Tokyo where the heavily exporting leaders kept markets trading high until after the lunch break and a disappointing figure from China – it posted its slowest growth rate in almost a decade - +6.1% this would have been an incredible figure anywhere else in the world, but you must remember that the natural rate of growth for China is equivalent to 8% (US would be 1%) – this puts the number into perspective and explains the fall in Hong Kong as well. Other markets fared better despite the political goings on in India and Thailand. Good gains were seen in Taiwan (+2%) and Vietnam (+1.4%). It may be too early to start singing its praises again, but definitely keep an eye on Vietnam for the next few weeks as it may enjoy a moment or two of long-expected glory.
Europe has been busy talking about the split in the ECB on future rate decisions, the currency has of course slightly fallen vs US$, and some markets more in need of a continued fall in rates (around the Eastern region) are suffering. The major markets across the mainland are performing better, with FTSE and CAC both rising +.08% so far.
US futures currently trading a little lower for the open (DJIA -10pts and S&P -1.6pts) – the news that US home foreclosures have jumped to a record in Q1 hitting sentiment – surely most must have seen this coming (and priced it in) considering that so called “moratoriums” on payments were coming to an end and job losses continue to mount through the deepening recession. That is what happens when too many begin focusing on fancy indicators such as the “second derivative” i.e. the rate of the fall in the economic slowdown – you lose track of the logical explanations and signs.
Despite the disappointing growth rate this morning, China has propelled itself back into the top spot amongst the world’s best performing markets (apart from tiny Peru though – up 49% YTD) – the CSI300 is +39% YTD now. Promises of huge infrastructure spend and a controlled response to the crisis by the central government clearly assisting sentiment and possibly clouding over some of the deeper structural issues for now – but hey, it looks great on the world scene and is surely playing its part in securing the authorities grip on other issues and avoiding dissent in a number of controversial areas. One immediate concern is that if it wasn’t for the huge spending unleashed in the last several months, the slowdown would have taken a far heavier toll – how much longer will China be able to spend in this manner without wanting to tap into some of its overseas “rain-day” savings? Or will it really move to the international finance markets and issue domestic bonds available for open purchase? Big questions, and big ripples depending on the outcome.
Oil has fallen back below the $50/brl level for now after a report yesterday suggested demand was falling faster than expected, but this may prove short-lived as another report today suggested the slowdown in demand will be very short-lived – please make up your minds whoever puts out these reports!
Gold is STILL holding still around the new trading range of $880-890 – it may well still shoot through to $1,500/oz by the end of the year if this bear market rally shows itself to be nothing more than a well-dressed impersonator of a real return to conviction buying – and will certainly shoot right up if a nasty surprise or two present themselves – remember that horror movie ending scenario? – it could grab you anytime!
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