Day: November 17, 2021

It is impossible to predict the macro zeitgeist in real time as a global political event of such seismic importance unfolds before my Bloomberg screen. So I go all cash and fly to Munich not to seek peace in our time but to revisit loony King Ludwig’s Bavarian Gothic fairy tales castles, the cafes of Schwabing/Marienplatz and visit Garmisch with my liebe Hausfrau. There will be a bloodbath in global finance in the next six months. Why? Bank credit default swaps suggest a rise in funding risk. This is Lehman all over again, only worse.

Note Brexit crude oil fell 5% on Brexit. The cost of bank risk will skyrocket in a world where Barclays and RBS shares can fall 20% in a single session. Is this negative for GCC banks, the largest component of regional stock markets? Is the Queen of England English (well, she is genetically German, thanks to Empress Vicky and Prince Al, the bearded dude on the big chair in Hyde Park!).

Defensive sectors? Note UK education publisher Pearson PLC rose 2%. So did Swiss pharma Novartis. Gold? If you are lucky enough to get a profit taking move down to $1310 for new money. It makes total sense to short Tesco with its huge sterling revenues but buy Carrefour, now 7% cheaper even though it has no real sterling revenues. Vive la France, vive MAF Holdings, vive Carrefour!

The real winner of Brexit? Boris Johnson, possibly the next Old Etonian Prime Minister. Donald Trump scored the marketing coup of the millennium by making sure he opened a Scottish golf resort on the day Brexit shook the sceptered isle, this green and pleasant land.

The Chicago Volatility Index has soared 32%, a compelling argument to sell put options on devastated UK banks. Why not Barclays New York ADR, down 30% overnight, a screaming option strategy. Jes Staley was one of the smartest investment bankers of my generation at J.P. Morgan and he will turnaround the 300 year old Quaker bank Bob Diamond’s LIBOR rigging banksters destroyed. Dividend cut? Yes. Gulliver’s travels? Futile since HSBC shares have been such a disaster despite $100 billion in write offs, legal fines, 80 business exits, a $109 billion Mexican money laundering fine, 50,000 payroll cuts, the $5 billion sale of HSBC Brazil to Banco Bradesco. Profit warning? Yes.

I have done my best to hedge global macro risk in 2016 by recommending (table pounding!) the most shunned, least foreign owned emerging market in Asia – Pakistan. This is a local play since the biggest holders of Pakistan sovereign Eurobonds are Khoja financiers of Zurich and the Gulf, not the big EM leemings in the City, New York and Singapore (Aberdeen Wallah!). Friends who trusted me on Pakistan lucked out in the best performing stock market in Asia or Europe in 2016. Bull market zindabad! Christmas came early on McLeod Road in Karachi.

I was horrified that so many Gulf family office and institutions have this touching faith in London property even though it is among the most overvalued bubbles on the earth. I have made no secret of my investment thesis on Makkah Umra hostels, an asset class immune to Brexit risk or even the Saudi credit cycle. To exploit a no brainer asset class it is unfortunately necessary to possess a brain, as some of the biggest and smartest families and institutions in the GCC know all too well.

Fund managers shares should be shorted Hundreds of billions of retail money will flee asset managers in US, Europe and, yes, the GCC. Bear markets are savage and merciless. I know. I barely survived several in my own life. How will UK fund managers sell funds on the Continent? Paybacks in Finanzplatz Frankfurt and the Ville Lumiere are being plotted against the City even as I write. Who to short? Notice Invesco fell 10% on Friday. Get real. Get out. A UK asset management platform is no leprosy due to Brexit. Outflows will escalate. Fees will shrink. Markets abroad will vanish. Balance sheets will tremble. Index funds will fail. Firms will die. Private equity firms? A screaming short, with both black stones and black rocks.

The markets assume the European project will unravel. Why else is London down 3% but Italy and Spain down 12 – 14% as I write. There are existential threats to the Euro with the elections/referendum this autumn against the regimes of Rey Manuel and Matteo Caesar, the coolest Florentine to rule Bella Italian since Lorenzo de Medici. If Italy/Spain exits, Monnet’s dream ends. Global equities then fall 50%, as they did in 2008 and 2001.

Prince Abdulaziz bin Salman is the first member of the House of Saud to hold the position of Oil Minister in the history of the kingdom. His appointment is a signal that Saudi Arabian wants to nudge crude oil prices higher from their current $60 – $62 Brent range to at least $70 – 80 a barrel. This means an extension of the Saudi-Russian output cut pact is certain and the sharp rise in 10 year US Treasury bond yields to 1.72% as well as the PBOC’s de facto $90 billion monetary stimulus with its banking reserve ratio cut means the financial markets have discounted lower odds of global recession risk. With tighter sanctions on Iran and Venezuela, civil war in Libya and Yemen, a secessionist revolt in the Niger Delta and political unrest in Sudan and Algeria, geopolitics (and seasonality) could mean Saudi Arabia may succeed in taking Brent above $65 – $68, still well below the kingdom’s budget break-even price that the IMF calculates at $85.I have never relied on an inverted yield curve as an infalliable indicator of recession risk but it invariably presages a rally in oil and gas shares, especially as the this is the Cinderella sector of the stock market, at a mere 4.8% of the S&P 500 index’s market cap, down from 13% just a decade ago. This is a 40 year low in relative valuation between oil & gas and the S&P 500 index, which spells capitulation to me. True, black gold (and natural gas) has underperformed the index by a colossal 90% since the 2014 oil price crash and is the worst performing sector of the post 2008 decade. As usual, Mr. Market has thrown out some deep value babies with the bathwater. So I drill (forgive the awful pun) for oil in the cheapest, most unloved netherworld of Wall Street. I hunt for potential money making ideas among the Seven Sisters.

The Seven Sisters – or the Sette Surrelle as the Italian wildcatter Enrico Mattei of ENI called them before he died mysteriously in a plane crash as oilmen sometimes do – are the world’s mightiest integrated oil and gas supermajors, companies that have written the secret history of the Middle East, as the ghosts of Nuber Gulbenkian, Mohammed Mousadegh, the last Pahlavi Shah of Iran, Colonel Gaddafi and Saddam Hussein can attest. Despite four Ivy League degrees, I consider myself illiterate about the world until the moment I finally read Daniel Yergin’s magnus opus “The Prize”, the epic quest for money and power in the global oil business. The education Mr. Yergin provided me enabled me to earn hundreds of thousands of dollars drilling (or shorting) oil and gas stocks on Wall Street.

Exxon Mobil is the lineal descendant of Standard Oil, the corporate colossus created by John D. Rockefeller in the 1880’s. I concede that this is one of America’s most hated names in Big Oil and the shares have been a bow wow in 2019’s fabulous stock market rally. Yet at $70 a share, I see minimal risk in Exxon as long as there is no recession in 2020, a scenario I do not expect. Though Exxon has an estimated $16 billion negative free cash flow deficit next year, its investments will generate an elephant gusher of cash that will force the Street to rerate the shares. Exxon also intends to sell $15 billion dollars in assets in high political risk countries around the world. This is a potential low risk 15 – 18% total return payoff for me best generated via option spread strategies on XOM calls/puts listed on the Chicago Board of Option Exchange (CBOE).

Chevron is the same Standard Oil of California (Socal) whose geologist struck a gusher in a Damam salt dome in the reign of King Abdulaziz Al Saud and changed the history of the Middle East forever. At $117, I consider Chevron shares a no brainer for its 4% dividend yield and one of the best positioned portfolio of assets among US energy companies now that its Australian LNG projects have come on stream. Chevron has the best shale oil and gas assets in West Texas’s Permian Basin and can well increase output by 4% per annum even as capex at $20 billion has halved since 2014. I loved Chevron’s capital discipline in not engaging in a bidding war with Oxy for Anadarko. No wonder Oxy shares were shredded in 2019.

Brent is well below its $75 April high at $61 a barrel. So the market correction provides a great opportunity to re-enter BP shares at 512 pence in London or 6.5% dividend yield that is amply covered by its Tsunami of free cash flows at a time when it will sell $10 billion in core assets to cut its balance sheet leverage. BP’s upstream production growth will be 5% till 2023, way higher than any of its supermajor peers. BP produces 2.8 million barrels of oil equivalent (ex-Rosneft) even now and has started developing three high margin projects in the Gulf of Mexico, Egypt and Trinidad in 2019. This means a major potential valuation rerating that could take the shares well north of my 650 pence internal target.

The political drama in Westminster last week was pure Sophocles, as nemesis gutted Boris Johnson’s hubris. Boris Johnson’s agenda for a “do or die” hard Brexit was killed by two humiliating defeats in the House of Commons parliamentary votes and a bitter schism in the Conservative Party (and the UK Cabinet) after the Prime Minister expelled 21 Tory rebel MP’s who voted against the government. This led to the mother of all sterling rallies I had expected all summer and cable rose 3% to 1.23 after falling to three year lows on Monday.

The City of Londonium, obviously, is as skeptical about Johnson’s cherished no deal Brexit as the rebel Tory MP’s, the opposition parties in Parliament and even his own brother Jo Johnson, who quit the party as he claimed Boris was not governing in the “national interest”.

Of course, the pop in sterling is modest compared to its steep fall since June 23, 2016, the day when the British electorate voted 52 – 48 to leave the EU in history’s biggest economic own goal. Sterling was, after all, 1.50 against the US dollar on the eve of the Brexit referendum. The Labour Party has even rejected Boris Johnson’s plea for a snap early election in mid-October as a ploy to railroad hard Brexit before the October 31 deadline. The conclusion is unmistakable.

One, Boris Johnson is now a political zombie in 11 Downing Street. Two, the Article 50 exit deadline will be extended to January 2020 as a 31 October no deal Brexit is now impossible. Three, the UK could be all set for a general election that the Conservative and Unionist Party will not necessarily win. Four, I expect the sterling to trade significantly higher, to as high as 1.30 in the next six weeks. Those who gaze into a crystal ball on Planet Forex must be prepared to swallow crushed glass – but I am a sterling bull now on momentum, positioning and option market skews, not the eventual political risk of Prime Minister Jeremy Corbyn, a Marxist Leninist/socialist in the classic pre-Tony Blair Labour Party tradition.

The key variables now are the timeline of another Article 50 extension and the possibility of an eventual UK-EU trade deal, that would be a steroid shot for sterling, which could well soar to 1.34 – 1.36 if Brussels and London finally negotiate a deal. I would not rely on a House of Lords filibuster if I were Boris Johnson – Old Etonian earls, dukes and baronets who inherited their titles cannot match the political power of the elected House of Commons. Poor King Charles Stuart learnt this lesson the hard way when he lost his head off Trafalgar Square (then Whitehall palace) in the English civil war.

It is ironic that Boris Johnson, the biographer of his hero Winston Churchill, may go down in history as Neville Chamberlin, who was also dethroned by Tory rebel MP’s voting in concert with the Labour Party after Hitler’s armies overran Norway.

Sterling’s fate hinges on the outcome of the next British general election. Ordinarily, sterling bulls would be terrified at the prospect of a left wing Labour government under Jeremy Corbyn determined to nationalize industries, raise taxes and hostile to shareholder capitalism. Yet Jeremy Corbyn has one redeeming quality – he wants Britain to remain in the EU. Polls (a dubious gauge to the future at the best of times) suggest that Corbyn will be able to form a coalition government with the resurgent Liberal Democrats (who will take Tory seats in the Home Counties), the Scottish Nationalists and the Greens. This would be a sterling bullish scenario as long as Corbyn’s coalition partners dilute his loony left tendencies and force him to move to a traditional center-left position. The other scenario is that Prime Minister Johnson allies with Nigel Farage’s Brexit Party and manages to secure a parliamentary majority. Since the financial markets are horrified by the prospect of no deal Brexit, this will mean a sterling collapse, possibly down to 1.15.

Political uncertainty since June 2016 has taken its toll on the UK economy. The plunge in sterling and the rise in food/petrol prices has hit consumer real wage growth. Property prices in prime London’s West End have fallen by 20 – 25% since the Brexit vote as offshore buyers shun UK assets. Manufacturing and construction are in contraction and High Street retail is in distress. However, the mediocre 130,000 growth in US non-farm payrolls and manufacturing recession means the Federal Reserve will cut the overnight borrowing rate by 25 basis points and issue a dovish statement at the September 18 FOMC conclave. This will lead to a dip in the US dollar and reinforce the momentum of the sterling bulls, a tribe to which I now belong.

It is dangerous to speak truth to power in a time of cholera. It is dangerous to tell the truth, to call billionaire oligarchs who have looted state owned banks “crooked”, to call the Maharajah’s political courtiers “venal”, to criticize religious intolerance when a lifelong RSS zealot is the Indian Prime Minister. So Raghuram Rajan, the most brilliant central bank governor to serve India’s 1.2 billion people, obviously had to go. Billionaire oligarchs and the RSS’s brown shorts, stick wielding ideologues are the real kingmakers in Modi’s India seven decades after a RSS assassin gun down Mahatma Gandhi.

Raghu, as he once asked me to call him the only time we met at a New York conference in 1999, stabilized the Indian rupee, slashed inflation and the repo rate, saved India a sovereign credit downgrade, restored monetary credibility with the offshore fund managers who bankroll its 7.6% GDP growth rate, was the most respected Asian central banker at the IMF, the World Bank, the Fed, the Bank of England, the political chancelleries of the world. But a bigot BJP lawmaker, a nonentity who lost his teaching job at Harvard for his communal, extremist poison, branded him “not mentally fully Indian”. This would be hilarious if it were not so tragic that a peanut brained intellectual joke dares to judge Raghu, who I am almost certain will win the first Noble Prize in economics for India since Cambridge’s Dr. Amartya Sen.

This world class economist, a gift from the gods to India and my professional dismal science tribe, was not given a term extention while his predecessor, whose money printing cost Indians a 50% free fall in the rupee and who inflicted the draconian regressive tax of double digit inflation on 500 million poor Indians, served a full five years. Raghu, a man hailed as a genius by the cognoscenti of Wall Street, Liverpool Street and, yes, Dalal Street is sacked by the Prime Minister while men who have plundered India’s public banks and inflamed religious intolerance grace the inner sanctums of the BJP. This is wrong. This is shameful. This is unreal. This will haunt India for decades after Modinomics is exposed as nothing remotely similar to the Reagan/Thatcher economic revolutions that embraced the free market and rolled back the state in the 1980’s. But, friends, Romans, I publish this column to bury Dr. Rajan, not to praise him.

Raghu returns to the realm of ideas in Chicago where he is happiest. I do not blame him. A man who refuses to toady up to the political masters as RBI Governor is anathema to both Congress and the BJP’s imperious, imperial court. Arun Jaitley is a loyalist and a lawyer, not even an economist but he and not Arun Shourie is the Finance Minister. Men who value ideas and beauty do not crave petty power or black money slush funds in a Swiss private bank. Raghu should have heeded the advice of Lord Tennyson and the lesson of the Light Brigade. Ours is not to reason why, ours is but to do and die. We need meek, timid, compliant yes men at the RBI who do not call oligarchs and banksters “crooked”, who do not brand the Netaji Crooks R Us Brigade “venal”, who do not evoke the memory of the Nuremberg Laws (strange, I will be in Nuremberg next week!) in New Delhi 2016. We need men who can bat and ball, hail Caesar on command, dutifully scream yes sir, no sir, three bags full sir (sirji, in Pakistan, in the court of King Assi Tussi!).

Modi should really appoint another Tamil to be governor of the RBI. Dr. Subramanian Swami would be an ideal Indian ambassador to Wall Street. Rekha would be even better, a lady of grace and beauty even greater than Swami’s. It does not matter who is the next governor of the RBI because now we know why they get the job.

My Indian friends tell me Dr. Rajan’s sacking in a storm in a teacup, that he was no jewel in India’s crown, that it is rude to expose Emperors who wear no loincloths. I passionately disagree. As an investor in emerging markets, I live and die by the Latin world credere – belief. Without credere, there is no credit. So Modi and Jaitley have gravely damaged India’s sovereign risk and raised the risk premium for inflation, G-Sec issuances and the rupee. Yet this is far less important than the BJP’s power of politics and patronage – the Congress was no different, only far sleazier. The next RBI governor will have to curry favour at the court of the BJP princes, not insist that India’s powerless be defined in the image of the powerful, as they have been for all these centuries. I hope to shake Raghuram Rajan’s hand for the second time in my life. Raghu, you are my hero. India will never forget you.

One Response to “Dr. Raghuram Rajan’s lost passage to India”

1. yasmin says:July 11, 2016 at 4:42 pmRespected Sir,Many years have rolled on my sleeve reading your analysis as a ritual in Khaleej times – on Monday. Very few writers dominate their acumen with simplistic language so that ordinary readers get their flavor. I thank you for making us literate with your usual sense of aplomb. It was always there in my sense of reckoning but now is the appropriate time.Since the day, Dr. Rajan announced not seeking his second term at RBI the media had their field day and reams of obituaries written by individuals having political affiliations. I was awaiting your take on his abdication from RBI because an unbiased mind shed more realistic and sincere outcomes. In all this mayhem, along your lines a handful individuals merited approbation likewise, Mr. Luigi Zingales, Mr. Sam Pitroda, Mr. Ashok Desai and Mr. Mohandas Pai.From all these quarters, we understand the entrenched nepotism, crony capitalism and polarized Indian society. As a non-resident what is our position in homeland. We never show inhibitions in flaunting being Indian. Whereas the litmus test is our success story as an expatriate celebrated in grandeur but our requirement or call to serve homeland becomes the subject of deception and contention.Nevertheless, my own analyses of Dr. Rajan term at RBI lead me to your path. If destiny and luck favors’ him it is just the matter of time he will give us noble prize for economics joining the distinguished faculty of his own Tamil clan of Sir C.V. Raman, Chandrasekhar and Venkata Krishnan.From the South of Vindhiyas lies this strong tradition of imparting knowledge and personally, his tenure ensure that young minds harnessed traversing the geographical boundaries in his academic pursuit (Dr. APJ Abdul Kalam did so). Each lecture by him was in fact a thought process for an in sated mind.Nevertheless, every time you shake hands with Raghu we expect you share that experience of conversation with us. Once again, thank you for all those years of nurturing our skills.Best regards,Yasmin Ahamad

Australia’s largest privately owned hotel management company StayWell Hospitality Group (SWHG) today announced the signing of a management agreement to open and operate the company’s first Park Regisproperties in Makkah Saudi Arabia.

Expected to open in the second quarter of 2018, the remarkable two hotels boast 286 and 344 guest rooms respectively (630 rooms in total). This Park Regis development will be one of the latest openings for the fast growing international brand which has a presence in Australia, Singapore, United Arab Emirates, India, United Kingdom and Indonesia.

StayWell Hospitality Group CEO Mr Simon Wan said that formalising the management agreement for the hotels is a strategic move for the Sydney based company in entering the established Saudi Arabia market to grow its presence in the Middle East further.

“These two unique hotels will offer guests superb dining options as well as deluxe accommodation within walking distance to the Grand Mosque in Makkah.

Expected to open in the second quarter of 2018, the remarkable two hotels boast 286 and 344 guest rooms respectively (630 rooms in total). This Park Regis development will be one of the latest openings for the fast growing international brand which has a presence in Australia, Singapore, United Arab Emirates, India, United Kingdom and Indonesia.

StayWell Hospitality Group CEO Mr Simon Wan said that formalising the management agreement for the hotels is a strategic move for the Sydney based company in entering the established Saudi Arabia market to grow its presence in the Middle East further.

“These two unique hotels will offer guests superb dining options as well as deluxe accommodation within walking distance to the Grand Mosque in Makkah.

“The hotels are targeting to open in time for the 2018 Hajj and will welcome guests for the annual Islamic pilgrimage to Makkah visitors in this religious destination. We are looking forward to both hotels complementing our existing Park Regis Kris Kin and our upcoming Park Regis Business Bay hotel, located in Dubai. We are also actively looking for further opportunities to expand our network in the Middle East,” he said.

The owner’s representative Riyad Alhoraibi said “Discussions on the Park Regis Makkah hotels first started at ATM 2015 and over the ensuing months the relationship developed culminating in the signing of agreement for the two properties just weeks before the 2016 ATM.”

“We are delighted to be able to offer guests a range of accommodation in Ibrahim Al Khalil Street within walking distance from the Haram.”

The opening of the Park Regis Makkah hotels will bring the StayWell Hospitality Group’s portfolio to 31 hotels worldwide and 4 in the region and a step closer to the group’s strategic objective of expanding its portfolio to 100 hotels within three years.

http://www.hospitalitynet.org/news/4075135.html

https://www.zawya.com//story/Australias_StayWell_announces_1st_Saudi_hotel-ZAWYA20160328090322/

http://www.arabianbusiness.com/australian-hotel-giant-inks-deal-for-first-makkah-properties-626515.html

StayWell announces its first Saudi Arabia Property – Park Regis Makkah

David Cameron, Wall Street’s elite, Mutti Merkel, Obama, the Eurocrats of Brussels, the great and the good of the City and the IMF’s Lady Christine all got it so horribly wrong. I slept Thursday night with sterling at 1.50 on New York and awoke to see it trade at 1.34 on Friday, a 30 year low before the Plaza Accords. Britain has voted to leave the EU and Scotland’s Chief Minister has asked for a new referendum. The next domino to fall could well be Mrs. Merkel, Mother of Europe now that Cameron has committed political hara-kiri. There is now other way to gloss over the fact that, alas, all bets are off in global markets. I never thought I would live to see the day Nigel Farage sounded Churchillian, though with a hint of Lord Haw Haw’s sinister sneer. But I did.

Brexit will have a chilling impact on capex, growth, jobs in England (UK for how long?). Recession is certain if the Bank of England does not stimulate the money markets with a £80 – 100 billion gilt purchases. Morgan Stanley plans to move 2000 employees to Dublin (great) and Frankfurt (awful). This is the tip of the iceberg. Property prices from office towers in the City to cozy pied-à-terre in Belgravia, Mayfair, South Ken and Chelsea will plunge. Battersea’s offplan leveraged Ponzi scheme on the Thames? A 80% price fall in 2017-18.

I see no reason to buy sterling now as the Old Lady of Threadneedle Street has no choice but to resort (lender of the last resort!) to money printing if the recession deepens. It is also dangerous to bottom fish in British equities as profit forecasts will darken this autumn. Bookie stocks in London deserve to be shorted or even delisted for providing such lousy pole forecasts. They should stick to Kim and Kanye or Premier League WFG chav stories. It makes sense to position for second round geopolitical and financial shocks as Article 50 is invoked and the Tories begin another civil war now that Cameron has deprived them from the pleasure of a Thatcher/Heath style regicide.

UK economic growth will take a hit as the Foreign Office and Downing Street rearrange international economic relations. My friends on London currency desks tell me that the Swiss central bank intervened to stem the franc’s safe haven spike. I have loved gold and gold miners, (up 90%) since 2015. Cash is king, queen and grand vizier to me as I see asset prices slammed by contagion.

UK equities will benefit from the pound’s fall only when it bottoms – too bad they do not give us an electric shock in the derrière when this happens. Yet can the Bank of England really kick start the UK economy with rate cuts alone amid such protracted geopolitical and financial market volatility? No. Recession is certain.

UK bank shares, UK property firms and German machinery exporters are obvious shorts in this milieu. The pound is in free fall and can well fall to 1.25, lovely for UK exporters (Diageo, Unilever, Burberry, Victrex) while a disaster for banks and property, the reason Lloyds, RBS, Barratt, British Land and Persimmon are down 20%. The shock to the UK economy is far too traumatic.

All my friend, mostly fund managers and merchant bankers in the City, voted Remain. However, the cabbies I took in Chester and York (went to see Roman and Plantagenet ruins!) were informly Leave, as was my favorite pukka sahib Brit. CIO friend at a major Omani bank in Muscat.

Gold outperformed every other Brexit strategy hedges I know, with its 7% stellar move. I would not commit capital now as there is major blood on a Street far too complacent about Remain. We saw a 25% hit in Japanese equities but the Bank of Japan cannot risk 95 yen and the death rattle of Abenomics. This means massive intervention in the yen money market in Marounuchi, an argument to buy the Nikkei index fund (symbol EWJ). Expect to hear the Federal Open Mouth Committee (FOMC) jawbone markets in high decibel count as the terrified hoofbeats of the Wall Street herds trigger panic in the court of Mama Yellen. The capitulation trade? Deutsche Bank, UBS, Credit Suisse and, yes, Barclays Bank PLC!