Home Thoughts from Dubai : We give you the knowledge. You decide how it is used.
Tip when visiting/moving to Dubai:
The new Atlantis Hotel opens in September. There are some excellent introductory rates. Worth a look.
Reflections from the week:
And so the pain of the Irish is about to intensify. How could the ECB (European Central Bank) possibly consider an increase in interest rates. Do they not have any hearts. At a time when so many are attempting to persuade (sometimes with large amounts of mis-truths) their bankers to continue their support, this heartless organisation throw another grenade into the war-zone. Now tell me how long will it be before one of the banks has to ‘break ranks’ and foreclose. The current phase of ‘tolerance’ is totally within the teaching manuals of bankers. In difficult times don’t go for wholesale foreclosures. That will only worsen the impact on their balance sheets. WORK with your customers. Reschedule. Get additional security. Grab any spare income/cash etc. But now they have worked their way through this territory, you can now expect some more decisive action. Sorry Ireland Plc. Some big names are about to fall. So over to my friends on Stephens Green, Baggot Street and Ballsbridge. The ECB has surely forced you to recognize reality.
I have a new ‘best friend’ in Dubai. It all started with a nice relaxed sauna. The usual Friday post-gym 5 minutes where I just relax and reflect on how Everton can win the English Premiership. Or at least some similar global challenges. Usually the sauna is empty. Nothing related to people knowing my timetable. Thankfully not last Friday. Within seconds of opening the sauna, I knew this man was ‘special’. And so it was. It all started with the mandatory ‘how are you’ – his in ‘splintered’ but very understandable English. Then he told me that ‘I live here’. ‘Yes so do I’ was my response. ‘No I live HERE, at the Burj al Arab’. Now that got my attention. ‘For SEVEN years’ only added to his now unconditional appeal. The ‘arithmetic men’ in my head had done a quick ‘cost evaluation’. Euro 2.5 million – over the seven years. My standard 5 minutes seemed like 2 – despite it being in fact 7 if you know what I mean. Now throw those thoughts of ‘SHALLOW’ out of your head. Its unfair. I am a businessman. I will also accept the word ‘opportunistic’. But never ‘SHALLOW’. An exchange of views on life and where our respective business interests were in Dubai, soon galloped us to exchanging business cards. And so a new ‘best friend’ was born !!! We have since ‘layered’ this friendship with a meeting and many emails/texts. And my world will now include oil and gas and the territories of Iran, Qatar and Russia. So please if I don’t answer your emails promptly in future, please understand !!!
Many of you have picked up on the fact that I tend not to criticize the Ruling Family of Dubai or the decisions/rules of the Dubai Government. Or at least I ‘cushion’ the negatives. Well this week I need to show you that I am not shy of delivering a ‘punch’ when required. And this week I have unfortunately to report one of the most sickening and vile events I have ever heard of in ALL of my life. Truly the worst. By far. A deplorable cover-up. And the local press are NOT allowed to cover the story. Censorship at its worst. The event ? Well a very powerful ‘Local’ was driving through the Madinat Souk entrance area. A taxi which was in the taxi queue made the careless, if totally cultural, decision to pull-out from the queue. Bad decision. On any other day, it would probably not have been a problem. But, today, ‘Mr Big Local’ was ‘cut-off’. As is the norm for many Locals, they have ‘match-tip’ length ‘anger-fuses’ he jumped from his car. Raced to the taxi and dragged him from his vehicle. Punches followed. As some well-intentioned humans moved from the taxi queue to intervene and save the poor taxi from serious harm, ‘Mr Big Local’ returned to his car in anger, and hit the accelerator. Mindless and heedless of the fact that there were people in the way. Word is that one person was killed and three injured. Surely the authorities cannot allow such an happening to be covered up. Or can they ??
On a more positive note, but with a tinge of criticism, Katie Melua made a cameo appearance at the new Westin Hotel on Monday evening. The diminutive singer looked beautiful (yes I was there in person) but had to keep her performance to just 20 minutes due to the frustrating local municipality approval rules for such events. It is a classic example of rules that bring it clearly home to you that you are living in the Middle East. And the attendant irritating censorship deprives us of the rights and freedoms we took for granted, and appreciated, when we were young. If Dubai is truly interested in winning a growing slice of the Democratic Worlds money, some of these ‘rules’ will need review. I mean how much damage is a 60 minute concert from a girl who looks sweeter than a very young mother Teresa going to do ? And her songs are ones of love and harmony. But it probably gave a local bureaucrat some pleasure that he had the power to restrict the level of pleasure of the Westin audience. Does Sheikh Mohammed even know these things are going on ? Also present, and part of the organizing committee, at the concert was the blonde Westin and Cork born dynamo, Erin. She abandoned, for the night, her Westin ‘uniform’ and turned out in a St Trinian’s style school outfit. Now don’t get me wrong. She did not look strange in it. In fact it looked classy. So well done Erin. Maybe the Municipality should have reviewed the dress code for the evening, instead of asserting its hopefully temporary power to control such innocent, and Dubai enhancing, events as a the Katie concert.
One notable absentee from the occasion was Garhoud Carmel (she likes to be mentioned, even when she does not turn up). Well it would have been a long journey for the Garhoud Mayoress to make. Maybe she was aware of, or involved in, the decision to reduce the concert period to 20 minutes. I am not aware on any event on ‘her side of the city’ that has had such restrictions. The Dubai Film Censor (they must all drink (coffee) together) has also got on stage this week. The new Sex in the City movie, cannot stop at the airport. And if he finally has to concede to ‘pressure’, it will be more a tv rather than a movie length experience.
On a positive note for the Dubai Administration, they have stepped up the battle against smoking in public places. Any offended will pay a fine of AED 1,000 and the premises owner will have to pay an ‘eye opening’ AED 10,000. It is estimated that 30% of the UAE population are smokers. And most ‘Locals’ believe these laws do not apply to them. Lets see.
One area not slowing due to lack of oxygen is the Dubai infrastructure. Its heart-pumping pace continues and we were proudly advised this week that the new Al Moktoum airport (previously to be called Dubai World Central) will have a limited opening next year. The first phase will be capable of handling up to 7 million passengers. When complete this capacity will increase to 120 million. The cost will be nearly three times what Abu Dhabi are spending on their airport upgrades. Now what does that say to the intelligent amongst you !!!
In a week where Home Thoughts choice of candidate for the US Presidential elections finally won the Democratic candidacy we should perhaps also comment on another ‘human strangeness’ or decision. Why is her opponent, Hillary Rodham Clinton, so frustratingly stubborn. While I know many of my female readers will see this as ‘strength’, I cannot get beyond words beginning with ‘s’ – stubborn, stupid, selfish etc. But have you ever in your whole life seen such raw stubbornness. The ‘rules’ of the US Presidential Primaries are clear. Get beyond a certain number of Delegate votes and you win. Barack did just that. But THIS woman, refused to accept the result. What is going on in her head. It is like a golfer continuing to the 19th hole when the result was decided at the 18th. Can you imagine the shock of the crowd if this were to happen. Or if the bitter jockey on the second horse across the finish line in the Grand National continuing to race for a further distance. What reaction would you expect from the crowd ? Or any tournament that was over but the opponent decided to ‘continue’. It is just ridiculous. How can you possibly ever respect THIS woman. She did not even have the dignity to allow the WINNER have a victory night speech that was unconditional. How totally weak. How totally outrageous. How totally shocking. If she thinks these tactics will get her a key role in any Democratic Administration, I hope America is better than that.
One great American is the 83 year old Warren Buffett. His words and thinking genuinely appetizing. And this week he showed banks (and the world) the great and rewarding investments that STILL exist in this difficult world. $400 million of premium/income for underwriting $ 20 billion of debt. Not bad eh ? A full 200 basis points. Particularly given the debt in question is good old Uncle Sam. Yes the US Government is, in the current credit markets, a 2% risk. But just in case you think this mans decision-making is ‘bullet proof’, last weeks results also contained a $ 1.6 billion of derivative write-offs. So the word ‘Sage’ does not mean that all your decisions are right.
For all you people who torture me with questions about investment in India, maybe you should just follow the growing violence that has hit the streets of its larger cities. Caste warfare is growing and don’t say you have not been warned. In a country where there are such extremes of poverty and wealth, what do you expect. A new law was quickly introduced by the Dubai Police during the week. It is now an offence to jump from tall buildings. Not sure if the rule applies if it is as a result of you trying to escape a fire or for those jumping without a parachute, but a 36 year old British man has found himself in jail for jumping, with parachute, from the 150 storey Burj Tower. In a subsequent court hearing he was fined Euro 4,000. He does now however have the world record for a ‘BASE jump from a building’ – whatever that means.
Finally Abu Dhabi’s real estate projects now total AED 2 trillion – nearly 6 times its GDP. Be careful.
Finally finally did you know that Starbucks sells 227 million gallons of coffee EVERY day. Now I am impressed. Is it any wonder coffee prices are rising. But obviously these sales are on the decline. Starbucks Corporation are playing with the idea of changing its well established Logo with that of a bare-breasted mermaid. While I may not switch to coffee, it would tempt me to buy the ‘Cup’. I presume we will be left with the old Logo in Dubai. I mean how could such a cup get the approval of the ‘cup police’.
Property corner:
So many of my Investors have got spoilt. When I offer anything under 20% - for a six month period, the interest simply recedes. But these turbo-returns will not last beyond the next twelve months. I am now calling the peak, and maybe even the ‘start of the crash’, of the Dubai (and possibly Abu Dhabi) property market as the third quarter of 2009. Allowing for some ‘variance’, I called the peak of the Irish market 15 months early, you may get into early 2010. But that’s it. I will be exiting my Investors early 2009. But I have many longer term options. At the moment I have a FULLY SECURE 12 month investment product that yields a straight 15%. The product is so safe that I am happy to add my personal guarantee. I also have a ‘batch’ of property rentals which give an annual yield of 11% - which is also open to a pension investment. But for so long as I am feeding you with the juicy ‘40% pa steaks’ why would you go for a ‘15% burger’. Please there must be some of you out there who are boringly cautious. Surely you are not all greedy. These ‘products’ will become part of my 2009 offering to you, but don’t expect me to be able to offer them as regularly as your bank balance might allow.
I also have a floor in Dubai Waterfront at AED 900 per sq ft. It however requires a full cash payment up front. Euro 2.5 million. I have commitments for Euro 1.5 million. But it is an all or nothing. Selling prices in this location are as high as AED 2,500 per sq ft. So you can see the potential profit. I would however approach the investment as a ‘quick in and out’, selling at an average AED 1,100 per sq ft – which would give a yield of c 20% over 3 months. We could however go for the ‘jackpot’. There is a cool 100% in there if we were brave. Anybody interested ??
Pig Corner:
I will have to be brief this week. Let me just give you my three ‘Project Pigs’ in Dubai. Projects that I believe will start to deliver negative investment returns over the next twelve months. In a city where there are profits to be made, these should just be avoided. 1 – Jumeirah Beach Residence 2 – Falcon City 3 – Many of the projects in City of Arabia And there are many more. Remember under NO circumstances pay more than AED 2,000 per sq ft for residential apartments or more than AED 2,500 per sq ft for commercial/office. I will support villa’s for the short term – but only because some of my friends have not sold yet !! Some of the prices in ‘this space’ are becoming ‘toxic’ and will start to drive people from living in Dubai. Dubai is already suffering from people not prepared to move here because of living costs.
With Abu Dhabi now flexing its very impressive muscles, Dubai prices need to recognize this competition. But the Middle East also needs to recognize there is a price ceiling. It is not exactly the ‘geography of choice’ for the Western World – which is an important population to this Region. They are the ones with expertise and other added value skills. Also the ones who can afford to live here.
Restaurant Watch:
Without doubt the best value and quality steak house in Dubai is the Grand Grill at the Habtoor Grand.
Fun corner:
Lets have a go at salespeople this week ;
When a young salesman met his untimely end, he was informed that he had a choice about where he would spend his eternity: Heaven or Hell. He was allowed to visit both places, and then make his decision afterwards. “I’ll see Heaven first,” said the salesman, and an angel led through the gates on a private tour. Inside it was very peaceful and serene, and all the people there were playing harps and eating grapes. It looked very nice, but the salesman was not about to make a decision that could very well condemn him to a life of musical produce. “Can I see Hell now?” he asked. The angel pointed him to the elevator, and he went down to the Basement where he was greeted by one of Satan’s loyal followers. For the next half hour, the salesman was led through a tour of what appeared to be the best night clubs he’d ever seen. People were partying loudly, and having a, if you’ll pardon the expression, Hell of a time. When the tour ended, he was sent back up where the angel asked him if he had reached a final decision. “Yes, I have,” he replied. “As great as Heaven looks and all, I have to admit that Hell was more of my kind of place. I’ve decided to spend my eternity down there.” The salesman was sent to hell, where he was immediately thrown into a cave and was chained to a wall, and he was subjected to various tortures. “When I came down here for the tour,” he yelled with anger and pain, “I was shown a whole bunch of bars and parties and other great stuff! What happened?!” The devil replied, “Oh, that! That was just the Sales Demo.”
Oh that was so good lets to again : The Devil tells a salesman, “Look, I can make you richer, more famous, and more successful than any salesman alive. In fact, I can make you the greatest salesman that ever lived.” “Well,” says the salesman, “what do I have to do in return?” The Devil smiles, “Well, of course you have to give me your soul,” he says, “but you also have to give me the souls of your children, the souls of your children’s children and, as a matter of fact, you have to give me the souls of all your descendants throughout eternity.” “Wait a minute,” the salesman says cautiously, “What’s the catch?” A door-to-door vacuum cleaner salesman manages to bull his way into a woman’s home in a rural area. “This machine is the best ever” he exclaims, whilst pouring a bag of dirt over the lounge floor. The woman says she’s really worried it may not all come off, so the salesman says, “If this machine doesn’t remove all the dust completely, I’ll lick it off myself.” “Do you want ketchup on it?” she says, “we’re not connected for electricity yet!”
So this old man owns this farm and lives my himself. He has a hobby where every evening he walks down to his pond to pick fruit off the fruit trees around the pond, which he brings back to his house to make juice. One day, he goes down to the pond with his fruit collecting bucket and notices that there are 4 college girls skinny dipping with all their clothes under one of the fruit trees. The girls get nervous and only keep their heads above the water as they swim to the other end of the pond. They turn to the man and yell, “we’re not getting out until you leave!” The old man says, “you know, I’m 90 years old and didn’t come down here to kick you off my property or to see you naked.” Then the old man holds up the bucket and says, “I came here to feed my alligators.”
A man named John received a parrot as a gift. The parrot had a bad attitude and an even worse vocabulary. Every word out of the bird’s mouth was rude, obnoxious and laced with profanity. John tried and tried to change the bird’s attitude by consistently saying only polite words, playing soft music and anything else he could think of to “clean up” the bird’s vocabulary. Finally, John was fed up and he yelled at the parrot. The parrot yelled back. John shook the parrot and the parrot got angrier and even ruder. John, in desperation, threw up his hands, grabbed the bird and put him in the freezer. For a few minutes the parrot squawked and kicked and screamed. Then suddenly there was total quiet. Not a peep was heard for over a minute. Fearing that he’d hurt the parrot, John quickly opened the door to the freezer. The parrot calmly stepped out onto John’s outstretched arm and said, “I believe I may have offended you with my rude language and actions. I am sincerely remorseful for my inappropriate transgressions and I fully intended to do everything I can to correct my rude and unforgivable behaviour.” John was stunned at the change in the bird’s attitude. As he was about to ask the parrot what had made such a dramatic change in his behaviour, the bird continued, “May I ask what the chicken did?
Here is a variation on the ‘two cows’ story I gave you some months ago :
AN AMERICAN CORPORATION: You have two cows. You sell one, and force the other to produce the milk of four cows. Later, you hire a consultant to analyse why the cow dropped dead.
A FRENCH CORPORATION: You have two cows. You go on strike because you want three cows.
A BRITISH CORPORATION: You have two cows. Both are mad.
LEBANON SYSTEM: You have two cows. One is owned by Syria and the other is controlled by the government.
EGYPT SYSTEM: You have two cows. Both vote for Mubarak.
DUBAI SYSTEM: You have two cows. You create a website for them and advertise them in all magazines. You create a ‘ Cow City ‘ or ‘ Milk Village ‘ for them. You sell off their milk before the cows have even been milked to both legit and shady investors who hope to re -sell the non-existent milk for a 100% profit in two years time. You bring Tiger Woods to milk the cow first to attract media attention.
SHARJAH SYSTEM: You have two cows. You sell them to an investor in Dubai. The cows get stuck in traffic between Sharjah to Dubai and die. You have zero cows now, but someone in Dubai is willing to sell them back to you.
ABU DHABI SYSTEM: You have two cows. So what? WE HAVE OIL !!!
Ah heck I don’t have that many Limerick readers !!!
Q. Two Limerick girls jump off a cliff. Who wins? A. Society.
Q. What does a Limerick girl use as protection during sex? A. A bus shelter.
Q. Why did the Limerick girl cross the road? A. To start a fight with a complete stranger for no reason whatsoever.
Q. What do you call a Limerick girl in a white tracksuit? A. The bride.
Q. Two Limerick kids in a car without any loud crap music - who is driving? A. The policeman.
Q. What’s the difference between a Limerick boy and an Limerick girl? A. A Limerick girl has a higher sperm count.
Q. Three Limerick youths drive over a cliff in a Ford. What is wrong? A. The car seats four.
Q. What’s the most confusing day in Limerick? A. Fathers day
Q. How do people know Jesus wasn’t born in Limerick ? A. You try finding 3 wise men and a virgin there!
We did a variation of this some weeks ago, and the male response was enormous. So here goes :
(1) Fine: This is the word women use to end an argument when they are right and you need to shut up.
(2) Five Minutes: If she is getting dressed, this means a half an hour. Five minutes is only five minutes if you have just been given five more minutes to watch the game before helping around the house.
(3) Nothing: This is the calm before the storm. This means something, and you should be on your toes. Arguments that begin with nothing usually end in fine.
(4) Go Ahead: This is a dare, not permission. Don’t Do It!
(5) Loud Sigh: This is actually a word, but is a non-verbal statement often misunderstood by men. A loud sigh means she thinks you are an idiot and wonders why she is wasting her time standing here and arguing with you about nothing. (Refer back to # 3 for the meaning of nothing.)
(6) That’s Okay: This is one of the most dangerous statements a women can make to a man. That’s okay means she wants to think long and hard before deciding how and when you will pay for your mistake.
(7) Thanks: A woman is thanking you, do not question, or Faint. Just say you’re welcome. (I want to add in a clause here - This is true, unless she says ‘Thanks a lot’ - that is PURE sarcasm and she is not thanking you at all. DO NOT say ‘you’re welcome’ … that will bring on a ‘whatever’).
(8) Whatever: Is a women’s way of saying F*cK YOU!
(9) Don’t worry about it, I got it: Another dangerous statement, meaning this is something that a woman has told a man to do several times, but is now doing it herself. This will later result in a man asking ‘What’s wrong?’ For the woman’s response refer to # 3.
Here is an actual sign posted at a golf club in Scottsdale, Arizona:
1. BACK STRAIGHT, KNEES BENT, FEET SHOULDER WIDTH APART.
2. FORM A LOOSE GRIP.
3. KEEP YOUR HEAD DOWN.
4. AVOID A QUICK BACK SWING.
5. STAY OUT OF THE WATER.
6. TRY NOT TO HIT ANYONE.
7. IF YOU ARE TAKING TOO LONG, LET OTHERS GO AHEAD OF YOU.
8. DON’T STAND DIRECTLY IN FRONT OF OTHERS.
9. QUIET PLEASE…WHILE OTHERS ARE PREPARING.
10. DON’T TAKE EXTRA STROKES. WELL DONE. NOW, FLUSH THE URINAL, GO OUTSIDE, & TEE OFF!
Here have got to be the most STUPID suggestions of all time :
1. Before attempting to remove stubborn stains from a garment, always circle the stain in permanent pen, so that when you remove the garment from the washing machine you can easily locate the area of the stain and check that it has gone.
2. Don’t waste money buying expensive binoculars. Simply stand next to the object you wish to view.
3. Clumsy? Avoid cutting yourself while slicing vegetables by getting someone else to hold them while you chop away.
4. Always poo at work. Not only will you save money on toilet paper,but you’ll also be getting paid for it.
5. Weight watchers. Avoid that devilish temptation to nibble at a chocolate bar in the cupboard or fridge by not buying the f**king thing in the first place.
6. Save on booze by drinking cold tea instead of whisky. The morning after, you can create the effects of a hangover by drinking a thimble full of washing up liquid and banging your head repeatedly on the wall.
7. Recreate the fun of a visit to a public swimming pool in your home by filling the bath with cold water, adding two bottles of bleach, then urinating into it, before jumping in.
8. Don’t buy expensive ‘ribbed’ condoms, just buy an ordinary one and slip a handful of frozen peas inside it before you put it on.
9. Thicken up runny low-fat yoghurt by stirring in a spoonful of lard.
10 An empty aluminium cigar tube filled with angry wasps makes an inexpensive vibrator.
11. Olympic athletes. Disguise the fact that you’ve taken steroids by running a bit slower.
12. Smokers. Save on matches and lighters, by simply lighting your next fag from the butt of your last one.
13. Vegetarians coming to dinner? Simply serve them a nice bit of steak or veal. Since they’re always going on about how tofu, Quorn, meat substitute etc ‘tastes exactly like the real thing’, they won’t know the difference.
14. Invited by vegetarians for dinner? Point out that since you’d no doubt be made aware of their special dietary requirements, tell them about yours, and ask for a nice steak.
15. High blood pressure sufferers. Simply cut yourself and bleed for a while, thus reducing the pressure in your veins.
16. Heavy smokers. Don’t throw away those filters from the end of your cigarettes. Save them up and within a few years you’ll have enough to insulate your roof.
17. Nissan Micra drivers. Attach a lighted sparkler to the roof of your car before starting a long journey. You drive the things like dodgems anyway, so it may as well look like one.
18. A mouse trap placed on top on of your alarm clock will prevent you from rolling over and going back to sleep.
19. Avoid bickering and petty arguments by immediately punching anyone with whom you disagree.
20. Fool next door into thinking you have more stairs than them by banging your feet twice on each stair.
21. At supermarket checkouts a Toblerone box makes a handy ‘Next customer Please’ sign for dyslexic shoppers.
22. Putting just the right amount of gin in your goldfish bowl makes the fishes’ eyes bulge and cause them to swim in an amusing manner.
23. A next door neighbour’s car aerial, carefully folded, makes an ideal coat hanger in an emergency.
24. AVOID parking tickets by leaving your windscreen wipers turned to ‘fast wipe’ whenever you leave your car parked illegally. Brilliant!
25. HOUSEWIVES. I find the best way to get two bottles of washing-up liquid for the price of one is by putting one in your shopping trolley and the other in your coat pocket.
26. OLD telephone directories make ideal personal address books. Simply cross out the names and address of people you don’t know
27. If a small child is choking on an ice cube, don’t panic. Simply pour a jug of boiling water down its throat and hey presto! The blockage is almost instantly removed.
Currency corner:
Despite better than expected jobless and sales data from the US, which would normally trigger a belief that interest rates in the US will be increased, the US$ weakened by nearly 1% against the Euro. The reason ? Well the good old ECB, through the boring lips of JP Trichet, has suggested it will increase interest rates next month. So again a HT prediction comes through. For all you who thought the next move was DOWN, you have just got ‘soaked’. It does NOT matter that the PIGS (Portugal, Italy, Greece and Spain – and yes you can add Ireland) are in serious economic trouble. The ECB interest rate agenda is driven purely by inflation. Nothing else. And when the headline rate is a full 1.5% above your targeted rate of 2%, there is only one choice. It does not matter that current global economic circumstances are unusual. With oil/energy costs at near all time highs, and this feeding into other ‘outputs/services’, surely some ‘tolerance’ is appropriate. But not to Mr Trichet.
So what looked like a bright week for the US$ against the Euro (it was 1.5380 before the data was released), instantly reversed. This mornings rate still only brings us back to the 1.558 that we had on Monday, but I was hopeful that we would see a $/Euro of 1.50 shortly. But lets wait for another day. Remember the ECB decision will only make a bad (economic) position worse, since it is motivated by inflation rather than other economic factors. US rates will probably also head north in the final quarter, but this decision will be driven by broader economic considerations. Sterling had an interesting week. It was strong earlier in the week, but has weakened savagely over the past 24 hours and is now within a whisker of 80 against the Euro. My changed view of the currency, some weeks ago, is now proving to be a wise change of ‘horse’. The UK is about to go through the roughest economic patch in its recent history. So brace yourself.
Equity corner:
I know I have been a bit ‘dogged’ over the past few weeks. All you have heard from me is Royal Bank of Scotland. And we have had some very stressful moments on this journey. But for those of you who were brave and held my hand, we are now getting the rewards of ‘a good call’. I am hopeful, although life is usually a lot more cruel, that we can get out this morning with a very nice profit. All the ‘whisperers’ that suggested the Rights would be a failure or that the ‘rump’ would be large have had to pay for this ‘expensive call’. Even it the ‘rump’ is 10% (Sterling 1.2 billion pounds) it is only 3 days normal volume and could be easily absorbed. But lets not push our luck. Lets take profits. As we come around the worst of the global sub-prime crisis we now have to return to fundamentals. Bank revenues in particular will have to be recalibrated to recognize a different income/revenue composition.
There will be no more ‘lucrative’ sub-prime lending with its juicy margins. A significantly reduced ‘derivative’ product range. Core lending will contract as banks come to grips with the ‘damaged property markets’. While M & A activity will probably be driven by ‘value plays’ around the globe, it will not be as exciting as the last few years. The ‘Credit/Risk Guys’ are now firmly in the driving seat in most banks, and this is bad news for most of us. So bank revenues will fall. This means they will need to reduce costs, investment and dividends. Yes perhaps all three. No matter what the decision, I believe profits will also fall, and this requires us to adjust our price/earnings measures. Once this is done we will be back to a more normal world. I also just want to mention, again, the difference between ‘write-downs’ and ‘write-offs’. Watch for this distinction as we move forward. The banks with ‘write-downs’ could have some nice ‘write-backs’ in future years. So my tip for this week ? Fresh from our RBS success, lets go for a stock that is also in the rights-issue space and that has got battered by sectoral weakness. HBOS.