November 13, 2008
Saudi Arabia buys $3.5bn of gold in two weeks
There has been an unprecedented surge in Saudi gold purchases in the past two weeks with over $3.5 billion being spent on the yellow metal, reported Gulf News citing local industry sources.
Gold market expert Sami Al Mohna told the leading regional newspaper that this buying had substantially increased the gold reserves of the country: ‘Many Saudi investors see this as the right time for making investments in gold as the price is the most reasonable one at present’.
He said gold was seen as a traditional safe haven at a time of global financial turmoil. Gulf regional stock markets have fallen very sharply since early October, leading to an exodus of cash which needs to find a safe haven.
Gold is currently trading at prices similar to a year ago, and 30 per cent off its March peak. Saudi investors clearly think this is the right time to buy and are piling into gold.
News about the Saudi gold rush is bound to fuel speculation about the alleged large physical gold transactions that have been taking place at prices will above the spot price set in the futures market. It is very unlikely that such a large hoard of physical gold could have been bought for the depressed current price.
Market analysts such as the legendary gold bug Jim Sinclair have pointed out that if less than two thousand millionaires insisted on delivery of physical gold at the end of their futures contracts, as is their legal right, then the spot gold market would jump to new highs.
Saudi Arabian investors have spotted a bargain, and it may be a much better one than they think.
Order my book online from this link
November 12, 2008
UAE stocks should soon hit the bottom, buy villas!
The Dubai Financial Market closed at a four-year low yesterday after a 17 per cent fall this week alone. It will therefore not be much comfort to investors to realize that a bottom must be close.
The obvious parallel is with what happened in 1999. Of course it was a different world then with an over-the-counter stock market and no trading floors in the UAE. Today there are three, the DFM, Abu Dhabi Securities Exchange and Dubai International Financial Exchange.
However, the pattern is very much the same. Oil prices tumbled below $10 in 1999 and brought stocks tumbling to the floor with stocks like Emaar Properties down more than 80 per cent from their peak values of around AED160 or AED16 when adjusted for share splits since then.
History repeats itself
Today Emaar is AED3.74, still above its 2000-2003 trading range of AED2.4, but a considerably larger company than at that time, and once again below net book value.
But investors should think back in time, and not that far. Less than a decade ago Emaar investors thought the world had ended - and for those who sold or had to sell it was - but the stock went on to deliver a 15-fold rise in price for anybody who held and sold at the peak.
I just think that has to be a message for investors who are about to throw in the towel and give up on Dubai. This is a dynamic emerging market and the upside can be as big as the current downside. All business problems can be overcome, this is a business cycle not a terminal illness.
On the other hand, the restless energy of stock market speculators is also a constant in history. They tend to go from extreme optimism to extreme pessimism. Now we are approaching the climatic phase of pessimism, known as the ‘error of pessimism’ because it gets overdone.
Villas boom
However, it will take a few years for local speculators to make good their losses and regain the confidence to enter the stock market again - no doubt when most of its gains are already made. In the meantime, I would expect some narrow classes of local investment to benefit such as completed villas.
Investors who managed to exit the stock market early on now have money, and others will not be putting their cash into the stock markets for some time. Where then to invest?
Local villas with restricted supply and steady yields offer a safe haven in this crisis, and could always be sold in the future to finance another foray into the stock markets.
Order my book online from this link
November 11, 2008
‘Opportunity Dubai’ on the Amazon bestseller lists
Many thanks to all the readers of this blog who have ordered my book from www.amazon.co.uk.
‘Opportunity Dubai’ is presently ranked No.20 in the charts for Entrepreneurship and No.30 in the Biographies and Memoirs section.
It is going to be very interesting to see how it sells in Dubai when the censor has finished reading the book. Nobody has published anything like this in the UK about modern Dubai in recent times.
HSBC has already placed a bulk order for copies which some of its clients will doubtless be receiving for Christmas, and anybody else wishing to do the same should click on the right-hand navigation link ‘Opportunity Dubai’.
The book is intended to be educational and entertaining for anybody wanting to make a financial success of living and working in the UAE. Hopefully even old Dubai hands will find some useful nuggets of information or at least something to provoke their thoughts afresh.
I began my time in Dubai by wading through many self-help guides and there was nothing specifically useful for the UAE. ‘Opportunity Dubai’ may help to fill that gap - and I hope guide many readers in finding their own opportunities in this fascinating city.
Order my book online from this link
Silver still buys a good dinner in ancient Petra
The other day I was reading some article which claimed that silver could no longer be considered a currency. Yet silver certainly was a currency in ancient and more modern times, and has retained its value.
Last weekend my wife and I decided to visit Petra, the abandoned hidden city in Jordan with magnificent facades carved out of rose-colored sandstone rocks. Marc Faber had been there recently and found the place inspirational.
Once a capital city of 200,000 souls Petra is accessed through a very narrow pass with sandstone walls up to 100 meters high called The Siq. After a kilometer of narrow pass you reach a monument known as the Treasury, although whether it was ever used as a repository for Nabatean silver money is not certain.
Beyond the Treasury the valley of Petra stretches out over several square kilometers. We took a donkey to the top of another pass to visit the monastery, not a form of transport I would recommend, particularly when your wife’s donkey is in front and has an urgent call of nature. We walked the 1,000 steps to the Place of High Sacrifice the next day.
No silver
All the time in Petra I kept asking local traders if they had any silver. A few hopefully offered me bronze coinage which I refused. But on the climb to the Place of High Sacrifice a bedouin pulled out a shiny piece of original Nabatean silver to sell to me.
That night in the Petra Marriott we sat down to dinner and it occurred to me that 2,000 years ago the same silver coin would have probably bought a good dinner, and was still worth about the same. That is what is precious about precious metals, they keep their shine and their value.
Of course, I am guessing really, who knows what the Petra Marriott would have charged 2,000 years ago for dinner! But the point is that silver still works as a store of value, and if that bedouin had been a time traveller I could have been functioning as an exchange shop.
My wife also bought some silver jewelry. But that was the only silver coin I found in the whole of Petra during my stay. The Nabateans were once the richest tribe in the Middle East but even they seem to have run out of silver coins these days.
Order my book online from this link
China stimulus relatively five times bigger than US bank bailout
The $586 billion stimulus package announced by the Chinese government is mainly destined for infrastructure and real estate spending, and represents a huge nine per cent of GDP. By contrast the $700 billion US bank bailout is less than two per cent of GDP for the world’s biggest economy.
So it is quite clear that what China has done is actually more radical than anything the US authorities have done thus far to ease the global financial crisis. What will the impact of this huge spending package be on the global economy?
First, the package clearly supports higher levels of Chinese domestic economic growth than would have been evident without it. It means that the anticipated slowdown in the Chinese economy will be less than expected. Indeed, the stimulus is as big as GDP growth this year.
Commodity prices
That will be good news for basic resource producers for whom China is their biggest customer. Oil from the Middle East should command a higher price next year because of the stimulus package. Iron ore and coal deliveries from Australia will not slump.
But then that is most likely bad news for commodity price inflation that the US recession has been bringing under control, and inflation could therefore pick up quicker then expected.
However, what is not clear is whether this money will be diverted from foreign investments. Is that $586 billion less to spend on US treasuries at a time when the US is going to be borrowing heavily? That would be bad news for bond sales and the US dollar.
On the other hand, if Brazil, Russia, India and China are to take over from the US, Europe and even Japan as the engines of global economic growth next year this stimulus package is an important step to keeping that engine revved up. China is behaving both responsibly and in its own best interest.
Welcome news
On the whole, this stimulus package is probably the most important positive piece of economic news this year. It should help to prevent a global recession becoming a depression, although there seems nothing left for any country to do to avoid a nasty global recession next year.
It is still going to take the developed economies a long period to sort out their financial systems and purge the excessive asset prices left over from the era of easy money. A lot of people are going to find that they are considerably less rich than they thought.
From an investment perspective I think this package makes Asia ex-Japan a buy as soon as global markets show a sign of bottoming out. It is also highly supportive of commodity prices, and precious metal prices that will surge again as the dollar resumes its long-term devaluation.
Order my book online from this link
Credit crunch halves UAE mortgages, deepens realty slump
Far tighter mortgage finance this autumn is driving property sales down in the UAE. Abu Dhabi Commercial Bank told Emirates Business 24/7 that mortgage volumes have halved while applications are down from 35-45 to 15 per month.
ADCB has also increased its mortgage rates from 7.5 to 9.5 per cent and dropped its loan-to-value ratio from 90 to 70 per cent. The Emirates Inter-bank Rate (Eibor) has appreciated significantly above Libor, making UAE home loans particularly expensive.
It is the same story across the local banking sector. HSBC has cut LTVs from 85 to 60 per cent on apartments, and 70 per cent on villas. Lloyds TSB will only make loans on villas, and not apartments.
Low LTVs
The local mortgage companies Tamweel and Amlak have cut LTVs to 75 and 65 per cent respectively, and are in the process of merging their operations. Both raised their money in mortgage securitizations that are now virtually impossible in the current market.
Local liquidity has become very tight, as the UAE has suffered an exodus of cash from the falling stock markets and over the summer from revaluation speculators who have withdrawn their money. Ironically the Governor of the Central Bank said yesterday that there was now far more enthusiasm for the GCC single currency – and that could well mean a revaluation is back on the agenda.
However, the mortgage market in the UAE is very small by comparison with most housing markets of the world, and could indeed be the smallest. The majority of local housing transactions are made in cash, and so the tightening of housing credit is not the end of the world.
Boom over
It is, however, clearly the end of house price increases for the time being, and for people who want to sell out in a hurry then big discounts will be necessary. For off-plan apartments, particularly in the less central locations, it is probably impossible to sell at any price because the buyer will not be willing to take the risk of future price falls.
Whether it proves to be the case that the UAE is a case of last-in, first-out in the global real estate slowdown remains to be seen. A government initiative to keep credit flowing to the housing sector would seem necessary to avoid a true real estate crash in the emirates which would be damaging to the long-term interests of the country as an investment safe haven.
That said the problem is small enough and the solutions easy enough to implement for the government to avoid the kind of property meltdown now happening in developed markets. Indeed, the UAE could be in a position to attract new investment from these troubled countries if it plays its hand correctly.
Then the market shakeout of the next few months would emerge as a bull-market correction and not a crash, and those panicking and selling out for a big discount would look rather foolish.
Order my book online from this link
November 10, 2008
Profits crash 88% at Emirates in first-half to $77m
High oil prices sent Emirates Airline’s net profit into a tailspin in the first half of its financial year with a fall of 88 per cent to $77 million. But at least the largest Middle East carrier stayed in the black.
‘The first half of the year has been very tough for the airline industry, with record fuel prices forcing many carriers to shut shops or consolidate,’ chairman Sheikh Ahmed bin Saeed Al Maktoum said in a statement. ‘Emirates has worked hard to manage the impact of high fuel prices on our unit costs, while continuing to grow our business.’
Fuel costs came in higher than budgeted by $469 million. This will clearly be a blow to full-year profits. In the last full year to March 31, Emirates reported a 62 per cent surge in net profit to $1.37 billion. The airline now has 121 aircraft, including two of the new superjumbo Airbus A380s.
Terminal three
Emirates is currently in a massive expansion phase, with a huge order book of aircraft. Its dedicated new $4.5 billion Terminal Three at Dubai International Airport opened last month, with a total lack of problems as this correspondent can testify from experience last weekend. Even the self-service baggage check-in actually works.
The cost of aviation fuel has plummeted over the past month and so the impact of high fuel costs is temporary. However, the global financial crisis is now hitting premium class travel and starting to impact total passenger numbers.
The timing is not good for an expanding carrier but the Gulf market is somewhat isolated from the global financial crisis, and Emirates has strong brand loyalty to call upon.
Order my book online from this link
Why Jim Rogers chooses silver over gold to beat inflation
Legendary investor Jim Rogers, whose conversion to commodities as an investment class back in 1999 preceded the end of the 20-year bear market by a couple of months, is backing silver over gold as an asset class to beat inflation.
He recently told journalists that if pushed to choose between the two precious metals he would choose silver. Rogers has moved to Singapore and is in the process of selling all his dollar holdings because he believes the resumption of the US dollar’s long term devaluation is imminent. He is even shorting US treasury bonds.
Buying precious metals is clearly linked to Rogers negative stance on the US dollar which has an inverse correlation to gold and silver which have indeed suffered from dollar recovery over the past couple of months. Gold is down around 12 per cent to silver’s one-third sell-off.
Silver No1
Rogers admits that silver has been particularly battered down, and perhaps that is why he likes this precious metal. Silver is leveraged to the gold price, so when gold goes down, silver goes down further. But equally when gold prices rise, silver will rise even higher.
Why then should the fortunes of gold change in the near future? Rogers is surely right that the dollar is the key. President-elect Obama is currently putting his new executive team together, and we will have to wait-and-see its policies but the omens are not good.
We have already seen how economic circumstances have forced a Republican administration into a multi-trillion dollar bank bail-out plan. The follow-through is a fiscal spending package, and state bail-outs for the US car manufacturers. All this is going to require funding at a time when rising unemployment and falling company profits mean tax revenues are falling.
A huge increase in borrowing is therefore inevitable and flooding global capital markets with new dollar paper will be inflationary and devalue the US currency. How to profit from US dollar devaluation? You buy an inversely correlated asset like gold or silver.
Rogers leads the pack
Now if Jim Rogers is right - and he was the first major investor to call the commodities boom - then he is unlikely to be alone for long. Others will hear his call and act on it. Actually, markets are going in that direction whatever he says or does.
And why is silver leveraged against the gold price? It is simple really. Both are precious metals but the available supply of silver is less than one-tenth the size of the gold market, and the dynamics of supply and demand in such a situation are obvious.
Rogers has never been a gold or silver bug himself - and ridiculed long-term holders of precious metals in his classic book ‘Hot Commodities’ - so his conversion to this asset class is all the more significant. Perhaps he has also noted the pressure growing in the silver futures market where a call for physical delivery could shortly break the spot price mechanism and lead to much higher prices.
Even one rich Arabian investor would be able to buy enough silver futures and break the market by demanding physical delivery, as is the right of any contract holder. It is a one-way bet that somebody is bound to make very soon.
Order my book online from this link
Posts
