While credit is being extended during an upswing people become obsessed with property. Dubai is a great example of this. Dubai is a complete white elephant as an investment goes and may never fulfil the dreams of its creators.
When property madness engulfs a region crazy decisions are made. Skyscrapers, thousands of apartments, the visions are endless. In reality this is what happens during the expansion phase.
A) Developers see potential in regions of low productivity.
B) Excessive building to maximise the return on the land during the upswing.
C) Over investment in capital which has a lengthy payback period.
This all sounds like Dubai to me. Why would anyone want to invest in a region which has spent billions on dollars to create cities in a desert? There is and never was any reason to go there.
I know the oil is running out and they need to diversify their income. History tells us that property investing is a bad idea. (see below on the Florida land boom)
It gives an artificial wealth effect and in real terms it doesn’t create capital for future investment. Dubai would have been better if it had identified a manufacturing or research industry where it could have carved out a global niche for itself. Now it will be left with billions in sunk costs, frozen assets and a government which will be bailed out by its neighbours. Future investments by the government will be minimal as they will not be able to borrow money on the international markets.
People have short memories.
If any readers watch the Simpsons. You should watch the Monorail episode. Springfield had spare money. It had options, improve existing infrastructure etc or invest the money on an idea suggested to them by con man.
Monorail was that vision. Monorail would make every thing better. Dubai sold the vision of a new life in the desert. Everything would be better. In the episode the travelling sales man makes off with all the money, lets call him the banker for this example. The people and the town are left with a nightmare monorail system and are broke. For illustration we can imagine them as the government and citizens of Dubai. At the end of the episode the con man escapes Springfield by plane but his flight has to make an emergency stop at North Haverbrook, a city where he previously sold a monorail dream. The dream turned into a nightmare and the city went bankrupt. The shops closed and the city became a boulevard of broken dreams.
The question is, will Dubai become the next North Haverbrook?
The Simpsons is only a cartoon after all. During the 1920’s in Florida they had a land boom.
Here is an excerpt for the article Money, Credit and Crisis by Mason Gaffney.
The Florida land boom of the 1920s is well-known as an object of
historical curiosity. Only a few contemporary observers recognized its
economic significance. In his 1931 book Only Yesterday, Frederick
Lewis Allen journalistically described at length the real estate frenzy
that overtook Florida from 1922 to 1925 ([1931] 1959: Chap. 11). He
said only a little about the connection with banking, but it was highly
suggestive of the economic meaning of the land boom:
In 1928 there were thirty-one bank failures in Florida; in 1929 there were
fifty-seven; in both of these years the liabilities of the failed banks reached
greater totals than were recorded for any other state in the Union. . . . Bank
clearings for Miami, which had climbed sensationally to over a billion
dollars in 1925, marched sadly downhill again:
1925.............................$1,066,528,000
1926................................632,867,000
1927................................260,039,000
1928................................143,364,000
1929................................142,316,000 (Allen [1931] 1959: 199–200)
1022 The American Journal of Economics and Sociology
The previous rise of bank clearances had been equally rapid.16 The
bank-clearance data reveal the extreme local effects of the land boom
on the banking system, and they hint at the severity of the banking
contraction that occurred during the downswing of the cycle.
Homer B. Vanderblue (1927b) explained the way in which real
estate lending in Florida drove down the capital ratio of the banks and
how that led to their failure in 1926: At the end of December, 1925, many of the Florida banks had deposits 20 and 30 times their combined capital and surplus; as these abnormally large deposits were drawn down, such banks as had become involved in the real estate speculation through heavy loans to “operators” and “developers” found themselves unable to meet the demands made upon them. (1927b:266) It is instructive, however, that only one Florida bank that was a member of the Federal Reserve system failed in 1926 (Vanderblue 1927b: 268). The Federal Reserve Bank insisted that its member banks follow the discipline of the “real bills” doctrine. As one observer noted
in 1927:The Federal Reserve System is properly given a great deal of credit for our present prosperity. The business world is now so well organized that any tendency towards trouble is quickly stopped before becoming general. As
an example, the deflation of the Florida boom in the old days would have
caused a country-wide panic, but now it made only a ripple on the surface.
(Credit Digest 1927, qtd. in Holland 1972: 57)
It seems doubtful that the boom and crash in Florida real estate
created only a “ripple on the surface,” since many independent banks
in Florida failed, and banks outside of Florida were also involved in
real estate loans. Their loss of liquidity almost certainly contributed to
the weakening of the national banking system. Nevertheless, the
Florida experience did demonstrate that if all banks had stayed within
the bounds of the real bills doctrine, that sort of prudence would have
avoided the instability that followed. Florida was only the most sensational case of the 1920s. Because of journalistic accounts at the time, it seemed to be in a class by itself. But it was not. Allen ([1931] 1959) touched on the effects of the real estate bubble of the 1920s elsewhere. He mentions the many skyscrapers built in Manhattan (among other cities) during this period, which ultimately ended up creating excess capacity.
The final phase of the real-estate boom of the nineteen-twenties centered
in the cities themselves. . . . There is scarcely a city which does not show
a bright new cluster of skyscrapers at its center. The tower building mania
reached its climax in New York . . . coming to its peak of intensity in
1928. . . . [B]etween 1918 and 1930 . . . [office space] was multiplied
approximately by ten. . . . The confidence [was] excessive. Skyscrapers
[were] overproduced. In the spring of 1931 . . . some 17 percent of the
space in the big office buildings of the Grand Central district, and some 40
percent . . . [in] the Plaza district farther uptown, were not bringing in a
return. . . . [F]inanciers were shaking their heads over the precarious condition
of many realty investments in New York. ([1931] 1959: 203–204)
Those financiers were shaking their heads because their investments
were causing serious problems as nonperforming assets on their
balance sheets. Yet, because these effects were localized, the financial
damage caused by the excessive building of the 1920s is seldom
mentioned by economists seeking the causes of the Depression.
Sunday, 29 November 2009
Sunday, 8 November 2009
The streets are paved with GOLD!
It’s been an interesting week on the markets. The jobless recovery is continuing as companies have learnt to manage without having to hire more staff. This could escalate and it’s very negative for the morale of organisations. I know it will take time for many of the government sponsored aid packages to stimulate the global economy but a jobless recovery is very damaging to the confidence of the youth of a country.
If young people, especially young males think that developing a career will be difficult and unattainable the long term affects could be a wasted generation and long term dependency on social welfare for these people.
The major markets finished the week on a high. Even the fact that US unemployment went over 10% failed to trigger a sell off in the markets. As the markets have risen a certain amount of money will have been reinvested as confidence returns and companies start to meet their earnings forecasts. This has led to a build up of money that is slowly been invested. Even hedge funds are able to raise money for investment.
The purchase by India during the week of a large proportion of gold production was a significant factor in the gold price appreciation. Is gold the new bubble! Gold has seen a significant increase in the last few years. It is a store of safety against inflation and against a declining dollar. Was the purchase by India a declaration that they were going to continue to build gold reserves because they see a declining dollar over the next few years and the rise of inflation because of the sell off in the dollar?
The oil price and the S&P 500 now seem to be correlated. As the S&P rises on a stabilising economy so does the oil price. How long will this correlation last? Is the correlation a reflection of the decline in the importance of the dollar as the reserve global currency?
The decision by the management of GM to cancel the sale of its European division Opel questions the corporate ethics of GM. GM received billions of dollars in US government aid and was fast tracked through chapter 11. It disposed of divisions and engaged in a lengthy sale process of Opel. It had negotiated with unions; the German government had come forward and supported an aid package.
The decision not to sell in my opinion is negative. GM would be forced out of business if it had not received the state aid from the US government. It should have committed to selling Opel.
One could argue, that when private equity took over Chrysler it failed to turn the fortunes of the organisation around and that these big heavy industries need to be linked to organisations which will drip feed them government money as the working capital cost of running these organisations is too expensive for private organisations to fund?
Then again Ford is doing a good job of managing their way back to profitability
If young people, especially young males think that developing a career will be difficult and unattainable the long term affects could be a wasted generation and long term dependency on social welfare for these people.
The major markets finished the week on a high. Even the fact that US unemployment went over 10% failed to trigger a sell off in the markets. As the markets have risen a certain amount of money will have been reinvested as confidence returns and companies start to meet their earnings forecasts. This has led to a build up of money that is slowly been invested. Even hedge funds are able to raise money for investment.
The purchase by India during the week of a large proportion of gold production was a significant factor in the gold price appreciation. Is gold the new bubble! Gold has seen a significant increase in the last few years. It is a store of safety against inflation and against a declining dollar. Was the purchase by India a declaration that they were going to continue to build gold reserves because they see a declining dollar over the next few years and the rise of inflation because of the sell off in the dollar?
The oil price and the S&P 500 now seem to be correlated. As the S&P rises on a stabilising economy so does the oil price. How long will this correlation last? Is the correlation a reflection of the decline in the importance of the dollar as the reserve global currency?
The decision by the management of GM to cancel the sale of its European division Opel questions the corporate ethics of GM. GM received billions of dollars in US government aid and was fast tracked through chapter 11. It disposed of divisions and engaged in a lengthy sale process of Opel. It had negotiated with unions; the German government had come forward and supported an aid package.
The decision not to sell in my opinion is negative. GM would be forced out of business if it had not received the state aid from the US government. It should have committed to selling Opel.
One could argue, that when private equity took over Chrysler it failed to turn the fortunes of the organisation around and that these big heavy industries need to be linked to organisations which will drip feed them government money as the working capital cost of running these organisations is too expensive for private organisations to fund?
Then again Ford is doing a good job of managing their way back to profitability
Sunday, 11 October 2009
An anxious October
It’s been an exciting week in the market. September and October are always exciting in the market and these two months have a special place in the history of the markets.
Investments and money are continuously circulating to find a new home. This week that home was in gold. Prices hit a new high and Jim Rodgers is predicting that gold will hit $2000 within 10 years.
Central bankers are beginning to change their language with regards to monetary tightening and Australia has already started the process.
What does all this mean for the global economy?
Are consumers going to be faced with rising interest rates soon which could depress house prices further?
Will interest rate rises kill off high street spending for big ticket items such as cars, holidays etc? How will interest rate sensitive industries adjust, the global automobile manufacturers who have received billions in bailouts don’t want to see credit become more expensive for consumers.
Is inflation lurking around the corner due to the trillions of dollars pumped into the global economy in the past two years and will the collapsing dollar add fuel to this fire?
Preparing and managing expectations will be key to how we play this game. Central bankers are telling us that historically low interest rates cannot stay low forever. They are also warning us that external factors could be building up and that inflation in the future could kill off any global recovery.
The markets are telling us that the plan so far has been successful. Human emotions are played out in the market on a daily basis. With the markets at 2009 highs, the markets are telling us a lot of success has been achieved by the fiscal stimulus policies put in place by the governments.
Where to now?
Revised earnings for companies were so low that it was easier for them to meet consensus earnings after implementing a year long restructuring and cost cutting exercise. Meeting those earnings going forward will be difficult unless managing expectations are improved. In a slow growth environment is it better to focus on the positives and how they are affecting the organisational structure and how these will factors will improve future earnings.
There is a danger the baby will be thrown out with the bath water if all the market does is focus on profitability numbers if earnings growth doesn’t take off as quickly as expected.
I believe growth will be slow, and I’ve always believed this and this is due to the continuously high unemployment levels and personal indebtedness of the populations.
These factors should not mean growth will be zero but they also don’t mean that growth will be high enough to cause major inflation worries.
Capital expenditure projects will be more difficult to bring to complete as risk factors will continue to be high. An appropriate discount rate should include estimating cost of capital in excess of accepted averages and applying difficult success factors should determine the ability of these projects to contribute significant cashflows in a low growth environment.
Companies that once heralded prominent positions in society, which ranked as top organisations for employment with strong leadership such as Enron, Worldcom, and Lehman brothers have collapsed. Millions of people have lost homes and pensions so it cannot be expected that we will all return to our previous spending habits. The moral compass has shifted. Everyone is re learning how to assess risk in their lives and this cannot be done over night.
The goal is to create long term wealth!
Investments and money are continuously circulating to find a new home. This week that home was in gold. Prices hit a new high and Jim Rodgers is predicting that gold will hit $2000 within 10 years.
Central bankers are beginning to change their language with regards to monetary tightening and Australia has already started the process.
What does all this mean for the global economy?
Are consumers going to be faced with rising interest rates soon which could depress house prices further?
Will interest rate rises kill off high street spending for big ticket items such as cars, holidays etc? How will interest rate sensitive industries adjust, the global automobile manufacturers who have received billions in bailouts don’t want to see credit become more expensive for consumers.
Is inflation lurking around the corner due to the trillions of dollars pumped into the global economy in the past two years and will the collapsing dollar add fuel to this fire?
Preparing and managing expectations will be key to how we play this game. Central bankers are telling us that historically low interest rates cannot stay low forever. They are also warning us that external factors could be building up and that inflation in the future could kill off any global recovery.
The markets are telling us that the plan so far has been successful. Human emotions are played out in the market on a daily basis. With the markets at 2009 highs, the markets are telling us a lot of success has been achieved by the fiscal stimulus policies put in place by the governments.
Where to now?
Revised earnings for companies were so low that it was easier for them to meet consensus earnings after implementing a year long restructuring and cost cutting exercise. Meeting those earnings going forward will be difficult unless managing expectations are improved. In a slow growth environment is it better to focus on the positives and how they are affecting the organisational structure and how these will factors will improve future earnings.
There is a danger the baby will be thrown out with the bath water if all the market does is focus on profitability numbers if earnings growth doesn’t take off as quickly as expected.
I believe growth will be slow, and I’ve always believed this and this is due to the continuously high unemployment levels and personal indebtedness of the populations.
These factors should not mean growth will be zero but they also don’t mean that growth will be high enough to cause major inflation worries.
Capital expenditure projects will be more difficult to bring to complete as risk factors will continue to be high. An appropriate discount rate should include estimating cost of capital in excess of accepted averages and applying difficult success factors should determine the ability of these projects to contribute significant cashflows in a low growth environment.
Companies that once heralded prominent positions in society, which ranked as top organisations for employment with strong leadership such as Enron, Worldcom, and Lehman brothers have collapsed. Millions of people have lost homes and pensions so it cannot be expected that we will all return to our previous spending habits. The moral compass has shifted. Everyone is re learning how to assess risk in their lives and this cannot be done over night.
The goal is to create long term wealth!
Sunday, 6 September 2009
A new growth phase
It has been a while since my last blog post and the global economy has begun to stabilise. The pace of unemployment claims has begun to slow down in the
The power house European economies of
The global central banks deserve credit for not letting the credit crisis develop into a depression. Their combined efforts of pumping money into the economies have had a stabilising effect.
Like a heroin addict we have begun to rely on our governments to prop up our economies. The question is over time can private industry and private consumers begin to consume and help industries wean themselves off the government cash injections?
I believe they can and that we are now at the start of the next growth cycle. I do not see major upside in the next few months to the levels we have reached in the stock markets.
I refer to my blog on the 25th of April. In this is stated that the final stage of the current recession would be around now and that we would be entering a new growth phase.
I think there is evidence to support this now. Only last week I heard someone say the letters “IPO”, up until now the raising new money during initial public offerings would have been impossible. M&A activity is showing signs of life with Ebay selling Skype in a multi billion dollar disposal.
It is difficult to see global GDP growth reaching the same levels as those pre credit crunches but mergers and acquisition is a way for organisations to improve operational efficiency and product development.
Q4 will be a big build up to 2009 which will see a big increase in mergers and acquisitions as the first stages of the new growth global growth phase starts.
Saturday, 11 July 2009
Earnings Growth
With the triple whammy of unemployment, deleveraging of personal finance and the collapse of home prices, it is only common sense that people have stopped spending and conserve cash for the future; nobody knows who will be next to loose their job!
So why does the financial community seem to think that things are improving when the reality is that the global economy is heading for stagnation and worse.
Lets look at some of the facts, governments are building up unsustainable amounts of debt in the hope that stimulating their economies using quantitative easing, TARP funds and shoring up the financial system will save the global economy and return us to growth.
We have no proof that these programmes will revive the global economy. But here are some real facts for the economy. We could be entering a new era where high unemployment becomes normal for western economies. After years of over spending consumers are learning a harsh lesson in personal finances and the hangover will take years to get over.
During this time, consumers will put off making large spending decisions on such items as cars, white good, house hold goods and moving house.
The longer these people put off making these purchases, the longer consumer confidence will remain weak.
On a corporate level, organisations will be in a continuous state of restructuring with the aim of reducing costs. They will not be investing in new products for future growth. Mergers will happen to reduce operating costs and increase economies of scale but not drive top line growth. The easiest way for organisations to do this is to reduce their largest operating cost which is direct wages. Organisations will employ just enough people to remain profitable, but as the cycle continues remaining profitable will become dependent on cost cutting and restructuring.
So can somebody tell me where the earnings growth is going to come which will reverse this trend if the global consumers have their wallets firmly shut?
So why does the financial community seem to think that things are improving when the reality is that the global economy is heading for stagnation and worse.
Lets look at some of the facts, governments are building up unsustainable amounts of debt in the hope that stimulating their economies using quantitative easing, TARP funds and shoring up the financial system will save the global economy and return us to growth.
We have no proof that these programmes will revive the global economy. But here are some real facts for the economy. We could be entering a new era where high unemployment becomes normal for western economies. After years of over spending consumers are learning a harsh lesson in personal finances and the hangover will take years to get over.
During this time, consumers will put off making large spending decisions on such items as cars, white good, house hold goods and moving house.
The longer these people put off making these purchases, the longer consumer confidence will remain weak.
On a corporate level, organisations will be in a continuous state of restructuring with the aim of reducing costs. They will not be investing in new products for future growth. Mergers will happen to reduce operating costs and increase economies of scale but not drive top line growth. The easiest way for organisations to do this is to reduce their largest operating cost which is direct wages. Organisations will employ just enough people to remain profitable, but as the cycle continues remaining profitable will become dependent on cost cutting and restructuring.
So can somebody tell me where the earnings growth is going to come which will reverse this trend if the global consumers have their wallets firmly shut?
Friday, 19 June 2009
Looking for key signals
The markets and governments around the world are now beginning to say that the worst of the recession is behind us. Even large banking institutions in the US are looking to repay TARP funding so that can return to private ownership. In Europe senior policy members are saying that a sustainable recovery could be starting without requiring any further stimulus.
The confusing thing is that if there were a real recovery then we would be seeing real recovery in manufacturing capacity utilisation.
Up till now corporate organisations have been running down inventory as customers have delayed purchasing decisions because of worries about job security etc.
Recently we have seen plenty of surveys about consumer confidence returning and that house prices might be bottoming out.
These surveys are supposed to give us a window into the future sentiment of the economy.
Are these surveys correct? Who knows?
What we do know is that a recent manufacturing capacity survey said that capacity utilisation is near and all time low.
Jobs are continuing to be lost and people are continuing to delay their purchasing decisions. Until people begin to increase their purchases and organisation begin to increase capacity and begin hiring again short term confidence surveys etc will do very little to accurately predict the direction of the economy.
During the week Fed Ex, a barometer of general activity in the wider economy was negative and said we were a long way from exiting the recession.
Organisations such as Fed Ex are good indicators into the activities of corporate activity in the real economy and can tell us twice as much about the economy than the plethora of short term surveys that are consistently released.
The confusing thing is that if there were a real recovery then we would be seeing real recovery in manufacturing capacity utilisation.
Up till now corporate organisations have been running down inventory as customers have delayed purchasing decisions because of worries about job security etc.
Recently we have seen plenty of surveys about consumer confidence returning and that house prices might be bottoming out.
These surveys are supposed to give us a window into the future sentiment of the economy.
Are these surveys correct? Who knows?
What we do know is that a recent manufacturing capacity survey said that capacity utilisation is near and all time low.
Jobs are continuing to be lost and people are continuing to delay their purchasing decisions. Until people begin to increase their purchases and organisation begin to increase capacity and begin hiring again short term confidence surveys etc will do very little to accurately predict the direction of the economy.
During the week Fed Ex, a barometer of general activity in the wider economy was negative and said we were a long way from exiting the recession.
Organisations such as Fed Ex are good indicators into the activities of corporate activity in the real economy and can tell us twice as much about the economy than the plethora of short term surveys that are consistently released.
Wednesday, 3 June 2009
Where now?
Where does the rally go next?
Interesting to note that Fiats global expansion plans are not proceeding according to plan. It failed twice in its bid to expand its US and European presence in a tie up with Chrysler and Opel in Europe.
Where now for Fiats expansion plans?
Answers on a post card to the Fiat management:
The US market rally has seen the main indices reach new highs for 2009 and show a gain on the S&P of 9% over its 200 day moving average.
Why are the markets acting so positively? Is it because of the very tentative signs of a stabilisation of the housing market in the US and UK?
Is it because the financial system is stabilising and anticipated write downs may be close to an end?
Is it because China and the emerging market economies are still growing?
Is inflation on the way back? Will the global stimulus packages introduced by the US government cause the dollar to weaken and commodities prices to continue increasing over the next few years?
It was interesting to listen to Professor Niall Fergusson yesterday; his book the “Ascent of Money” documents historical financial events.
In the past capitalism would have let weak institutions go bankrupt and only the strongest would have survived. Weak institutions such as Citigroup and Bank of America have been saved, are we just temporary band aid for weak institutions?
Time will tell.
Commodities have now replaced technology as the best performing investment category of the year.
Cyclical stocks are seen as early indicators to an improving economy but with unemployment still rising and uncertainty about the government stimulus packages and future inflation are we too optimistic about the future.
Interesting to note that Fiats global expansion plans are not proceeding according to plan. It failed twice in its bid to expand its US and European presence in a tie up with Chrysler and Opel in Europe.
Where now for Fiats expansion plans?
Answers on a post card to the Fiat management:
The US market rally has seen the main indices reach new highs for 2009 and show a gain on the S&P of 9% over its 200 day moving average.
Why are the markets acting so positively? Is it because of the very tentative signs of a stabilisation of the housing market in the US and UK?
Is it because the financial system is stabilising and anticipated write downs may be close to an end?
Is it because China and the emerging market economies are still growing?
Is inflation on the way back? Will the global stimulus packages introduced by the US government cause the dollar to weaken and commodities prices to continue increasing over the next few years?
It was interesting to listen to Professor Niall Fergusson yesterday; his book the “Ascent of Money” documents historical financial events.
In the past capitalism would have let weak institutions go bankrupt and only the strongest would have survived. Weak institutions such as Citigroup and Bank of America have been saved, are we just temporary band aid for weak institutions?
Time will tell.
Commodities have now replaced technology as the best performing investment category of the year.
Cyclical stocks are seen as early indicators to an improving economy but with unemployment still rising and uncertainty about the government stimulus packages and future inflation are we too optimistic about the future.
Saturday, 9 May 2009
Technical sell off?
Is a technical sell off soon?
The recent rally has been very positive providing a share price boost for stocks and an improvement in the value of funds.
The banks stress testing and an increase in the number of companies reporting positive results has combined to give the markets a very good week.
The financials and selected retailers in both the UK and USA have seen a dramatic up turn in their performance.
Banks in particular have been the category winners in the recent weeks and a lot of them have seen 200%+ increase in their share prices.
Barclays is up over 250% since the year lows and since the March 6th Borders Inc a NYSE listed speciality retailer has traded up from .$39 cents to close at $2.45 on 8th of May.
With the Dow ending up 4% for the week it is now close to a technical sell off. The RSI of the major indices is indicating that the top of this rally is close and that we should see the technical correction.
A market that is up 4% in a week needs to have some air let of it.
The recent rally has been very positive providing a share price boost for stocks and an improvement in the value of funds.
The banks stress testing and an increase in the number of companies reporting positive results has combined to give the markets a very good week.
The financials and selected retailers in both the UK and USA have seen a dramatic up turn in their performance.
Banks in particular have been the category winners in the recent weeks and a lot of them have seen 200%+ increase in their share prices.
Barclays is up over 250% since the year lows and since the March 6th Borders Inc a NYSE listed speciality retailer has traded up from .$39 cents to close at $2.45 on 8th of May.
With the Dow ending up 4% for the week it is now close to a technical sell off. The RSI of the major indices is indicating that the top of this rally is close and that we should see the technical correction.
A market that is up 4% in a week needs to have some air let of it.
Saturday, 25 April 2009
Financial markets
Is the glass half empty or half full?
With the US markets having rallied since March, up between 22-33% it would seem that this bear market rally maybe coming close to an end. On the earnings front corporate earnings are still mixed negative sentiment seems to be diminishing and many companies are now meeting their consensus forecasts. It would seem that commentators are saying that with the financial stimulus that Governments are injecting into their financial systems and a slow down in the price depreciation of house prices, maybe reaching a turning point or a bottoming in the markets?
Bust with the real economy still loosing jobs and economic indicators still registering negative GDP and output growth is the market too optimistic?
The big question is where does the market go from this point, will it look through the negative sentiment and continue or will the real economy bring it back down to earth with a big correction?
It is my opinion that a correction will happen, and that this will be the final correction. The final correction in this current market cycle, the first correction happened in September through October of 08, and the second with a December rally. The second correction ran through February and March. The final correction will be shorter one and I only see a 10% correction in this one. I anticipate this will happen before September and then the market will finally begins to continue its next growth phase.
With the US markets having rallied since March, up between 22-33% it would seem that this bear market rally maybe coming close to an end. On the earnings front corporate earnings are still mixed negative sentiment seems to be diminishing and many companies are now meeting their consensus forecasts. It would seem that commentators are saying that with the financial stimulus that Governments are injecting into their financial systems and a slow down in the price depreciation of house prices, maybe reaching a turning point or a bottoming in the markets?
Bust with the real economy still loosing jobs and economic indicators still registering negative GDP and output growth is the market too optimistic?
The big question is where does the market go from this point, will it look through the negative sentiment and continue or will the real economy bring it back down to earth with a big correction?
It is my opinion that a correction will happen, and that this will be the final correction. The final correction in this current market cycle, the first correction happened in September through October of 08, and the second with a December rally. The second correction ran through February and March. The final correction will be shorter one and I only see a 10% correction in this one. I anticipate this will happen before September and then the market will finally begins to continue its next growth phase.
Thursday, 23 April 2009
I Auto investments
With the possibility of Fiat doing a strategic tie up with Chrysler in the US automarket, does anyone think this will be a successful long term partnership.
Strategic tie up between the European auto manufacturers and the US auto industry have not been successful.
1) Why are they doing this deal, will it allow Chrysler to gain access to capital, financial IP or do Fiat have some new Eco technology?
2) Fiat are a small car producer, with a terrible history in mid size and luxury cars, do they expect to share Chrysler platforms and to help them fill their product gap, or rebadge US cars for Europe. This is not a good strategy as happened with Rover and and Honda in the past.
3) Fiat are looking to rebuild distribution channels in the US, they were not successful in the 80's when they sold cars in the USA.
4) Eventhough it is a non cash deal for Fiat, do Fiat really want to enter the US automobile market where in the next few years it may end up subsidising a poor performing brand because the two larger US brands, GM and Ford have larger market shares and can compete across a broader range of models?
Strategic tie up between the European auto manufacturers and the US auto industry have not been successful.
1) Why are they doing this deal, will it allow Chrysler to gain access to capital, financial IP or do Fiat have some new Eco technology?
2) Fiat are a small car producer, with a terrible history in mid size and luxury cars, do they expect to share Chrysler platforms and to help them fill their product gap, or rebadge US cars for Europe. This is not a good strategy as happened with Rover and and Honda in the past.
3) Fiat are looking to rebuild distribution channels in the US, they were not successful in the 80's when they sold cars in the USA.
4) Eventhough it is a non cash deal for Fiat, do Fiat really want to enter the US automobile market where in the next few years it may end up subsidising a poor performing brand because the two larger US brands, GM and Ford have larger market shares and can compete across a broader range of models?
Wednesday, 22 April 2009
Financial Markets
Once again Wall Street is picking up on positive comments from Tim Geithner. I think the rally is looking for some new news to continue the positive sentiment.
Will that be provided by a significant slow down in the deteroriation in house prices?
The next few days will give us our answer.
Will that be provided by a significant slow down in the deteroriation in house prices?
The next few days will give us our answer.
Financial markets
Yesterday the US markets rallied strongly after Tim Geithner gave the markets a glimer of hope. He said the US banks had enough capital or access to enough capital to see them through the downturn Today the IMF has come out and said the global bank write offs may be larger than expected.
Is MR Geithner too optimistic and are the IMF forecasts too negative?
Interesting to see that LVMH the French Luxury goods may consider spinning off its Moet Hennessy brands to Diageo.
Are luxury goods stocks a better investment because of the quality of brands and ability to maintain pricing?
Recently PPR's brand Gucci had an increase in sales for that brand.
Is MR Geithner too optimistic and are the IMF forecasts too negative?
Interesting to see that LVMH the French Luxury goods may consider spinning off its Moet Hennessy brands to Diageo.
Are luxury goods stocks a better investment because of the quality of brands and ability to maintain pricing?
Recently PPR's brand Gucci had an increase in sales for that brand.
Tuesday, 21 April 2009
Investment ideas
Is Tesco still a good investment?
With Tesco posting record profits should investors continue to invest in these shares?
With rivals having such as Morrissons having done better recently the question is, going forward will Tesco be able to increase their international expansion to grow revenues and profits just to compensate for their UK rivals taking market share from their core UK operations.
With growth at a 15 year low, is this a signal to rotate out of this stock into one of their rivals ?
Given the fact that the Aim investmarket in the UK is a self regulating market by the London Stock exchange, will investors be willing to accept this type of risk supervision going forward when other markets are looking to bring in tighter regulations.
For the survival of the Aim market in the long run, should they consider moving to FSA regulation?
As an investor i think this may happen as the companies on Aim are very risky and in the new world of investments, the appetite for such risk is disappearing.
With Tesco posting record profits should investors continue to invest in these shares?
With rivals having such as Morrissons having done better recently the question is, going forward will Tesco be able to increase their international expansion to grow revenues and profits just to compensate for their UK rivals taking market share from their core UK operations.
With growth at a 15 year low, is this a signal to rotate out of this stock into one of their rivals ?
Given the fact that the Aim investmarket in the UK is a self regulating market by the London Stock exchange, will investors be willing to accept this type of risk supervision going forward when other markets are looking to bring in tighter regulations.
For the survival of the Aim market in the long run, should they consider moving to FSA regulation?
As an investor i think this may happen as the companies on Aim are very risky and in the new world of investments, the appetite for such risk is disappearing.
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