Tuesday, September 13, 2011

The Story of Agent Clean Slate

( As financial policy drifts further into the realm of fiction there is very little need to take policymakers seriously anymore. Meet Agent Clean Slate the future of financial policy.)

Money Honey: So I hear you have a story for me.

Agent Clean Slate: Yes, my name is Agent Clean Slate. I'm here from the not so distant future in a last ditch effort to save the global economy.

Money Honey: Come on, you don't expect me to believe this nonsense. How did you get this meeting?

Agent Clean Slate: Believe what you will, but I spent seven long years at TIBET preparing for this mission, if I fail then all hope is lost.

MH: You are from Tibet?

ACS: Yes, the agency for Time Interfering Based Economic Therapy, or TIBET for short. The abbreviation throws off the Chinese.

MH: Agency? Chinese?

ACS: Yes, we are ETC's, economic time cops. Project TIBET is part of the Clean Slate Initiative.

MH: Clean Slate Initiative?

ACS: See, where I come from, or more appropriately, when I come from; the earth's economy is a mess. 2/3 of the S&P 50 trades at a negative enterprise value. Central Banks are bust. Gold has been banned by the governments.

MH: S&P 50?

ACS: Yes, after a wave of consolidation and bankruptcies the index is whittled down to fifty firms.

MH: And what about gold, why has it been banned?

ACS: Governments believed that the loss of confidence in paper money was due to gold, and they figured this could be reversed by banning the metal altogether. Anyone caught holding gold is to be charged with high treason.

MH: So, what do they do with the confiscated gold?

ACS: All gold on the planet is stored in Iceland.

MH: Iceland?

ACS: Yes, iceland is the most advanced and stable economy on earth. Having abandoned markets and banking altogether and returned to their roots, the Icelandic people experience an economic rebirth. Breakthroughs in fishing and geothermal power allow iceland to become an economic powerhouse. They then volunteer to take over global financial regulations.

MH: That makes no sense. You want me to believe Iceland is an economic power. What about Japan, the U.S., China…….

ACS: There is no Japan.

MH: No Japan……Was it a Tsunami or an Earthquake?

ACS: Worse, it was AHDS.

MH: AHDS, what's that?

ACS: Advanced Hyper Deflation Syndrome. It's a nasty little bug.

MH: Hyper Deflation destroyed Japan. That's a bit much. No economic problem can be that bad.

ACS: My friend if you have seen a hundred year bond trading at 1bp you would understand what I was talking about. And if I fail in my mission I can assure you that you will live to see that day.

MH: 100 year bond? What are you talking about?

ACS: In 2012 the Governments of the World Institute the 100 year protocol to end the sovgn debt crisis. All sovereign debt is rolled over to 100 year maturities. It ends up being the worst financial policy decision in history.

MH: Why?

ACS: It completely destroys the time value of money. Money tomorrow becomes worth the same and in many instances more than money today. Finance collapses, and Governments follow. That is why Japan is now the home of the Apple community. A post apocalyptic UI driven society started by its predecessor the Apple corporation.

MH: Apple owns Japan?

ACS: No, Apple is Japan. Once the Yen collapsed Apple bought the island on the cheap and stopped selling its products to the rest of the world. If you want to use Apple products you have to move to the Apple island and convert to Jobsism. Basically, Apple concluded that they had reached the limits of the classical UI experience. To preserve Jobs' vision Apple needed control over all expects of daily life. Call it technological evolution. Their new slogan is "An Apple a Day for the Rest of your Days".

MH: Wow, and what about Europe?

ACS: After flirting with the idea of a fourth reich, Germany chooses an isolationist path. It is now the Wonka state. Plenty of goods come out of there, but nobody is ever allowed in. The rest of Europe is a mess.

MH: And China?

ACS: The Chinese are doing ok. Around 2020 we discovered that they were behind the housing bubble and the collapse of the US economy, and that Greenspan was a Chinese agent. But by that point the US military, after a decade of austerity inspired budget cuts, is in such a state of disrepair that there is nothing they can do about it. Outside of Germany and Iceland the rest of the world is at the mercy of China and their economic and military power. That's where i come in. The goal of CSI was to develop time travel technology so that we could travel back in time and fix the great economic policy mistakes of our ancestors. Hindsight replaces stimulus. The project is top secret and funded by the few remaining members of the S&P 50 and the investment bank Goldman Farmorgan.

MH: Goldman Farmorgan?

ACS: Yes, Morgan Stanley, Jp Morgan, Wells Fargo, and Goldman are merged into one bank.

MH: Wow.

ACS:So, Goldman Farmorgan provided a bridge loan for the project with GooGamaZon ventures putting up most of the equity.

We code named it TIBET to confuse the Chinese who we knew would do anything in their power to stop this project from succeeding. And we located the primary research facility underneath the abandoned World Cup mega complex in Qatar because that's the last place we figured anyone would look for anything.

MH:What is your mandate?

ACS: To develop the ability to successfully send someone back in time to stop the collapse of Lehman

MH: So Lehman was a mistake?

ACS: Not exactly, the stimulus that followed Lehman was the mistake. Lehman was just the excuse. By stopping it we aim to temporarily slow the chinese down and buy ourselves time to fix the real problems.

MH: Why not just go back and replace Greenspan?

ACS: It's not that easy. Time travel is complicated. We are using an Einstein-Scholes bridge to enter and exit through funding holes in the time based capital structure. We never know when we will arrive, and we lack the power to remove principal actors. We can simply seek to influence, but as Greenspan is an agent for the Chinese that wont work.

MH: So how does it work then?

ACS: Well, the Googamazon search engine locates funding gaps in the time structure and then send agents in to fill those gaps.

MH: How do you fill the gaps?

ACS: With Gold from iceland of course. It still has financial value in your time. We structure a swap between two parallel universes, and presto the bad debt is gone.

MH: But how do you hedge your parallel exposure?

ACS: We don't. If we do our job right our universe will cease to exist, thus we are inherently delta neutral.

MH: Is that all?

ACS: No there is one more thing.

MH: What's that?

ACS: We fix the bankers.

MH: What do you mean you fix the bankers?

ACS:Well, every TIBET agent must deal with your investment bankers. Why do you think we wear these suits?

MH: Yes, you are kind of like those guys from the film MIB.

ACS: We are MIB's. Men in Brioni, and there is a good reason for that. We need bankers to trust us before we give them them their BONUS back.

MH: What? You are going to give them a bonus?

ACS: Yes, a bonus. A banker's onus.

MH: A banker's onus?

ACS: It's a sense of responsibility. We give them their b-onus by taking away their bonus.

MH: Ok, i'm confused.

ACS: Well,every agent has neuralizer which can be used to wipe memories. Much like the movie MIB except that we use our neuralizer to simply readjust the memory of investment bankers. We don't wipe, we plant powerful suggestions.

MH: And how does that work?

ACS: We make them believe they don't deserve their bonus.

MH: So what?

ACS: It's actually a very powerful tool. Once a banker believes he or she never deserved their bonus they become overwhelmed with guilt. They then feel that they have a debt to society that they must repay.

MH:How can you be so sure?

ACS: Easy, I was the first person this was tested on.

MH: You are a banker?

ACS: I was an investment banker. That is why I am here today.

MH: What do you mean?

ACS: I told you I was here to stop Lehman.

MH: Yes.

ACS: And i told you that when it comes to principal actors in time we can only seek to influence and that we cannot remove them.

MH: Correct.

ACS: Well then, how do you think i am going to stop Lehman?

MH: Convince the government to bail them out I guess.

ACS: There is no way for me to change the events of that weekend. There are too many actors involved and too many opposing forces at work.

MH: Then, you need to go back in time and convince Dick Fuld to sell Lehman before it is too late. But how are you going to convince Dick Fuld of anything?

ACS: (Smiles) Thanks for your time.

MH: That's it?

ACS: Oh, I almost forgot, one more thing.

MH: What?

(Agent Clean Slate flashes MH with his neuralizer)

ACS: You will remember nothing about the conversation we just had other than the fact that my name was Agent Clean Slate and that you really enjoyed talking to me.

MH: Wow i really enjoyed this conversation….Mr……..

ACS: Fuld…..but you can call me Dick.

MH: Dick Fuld? You know that's the same name as the former Ceo of Lehman. And you kind of look like him….that must be a tough combo.

ACS: Yeah, i know. I get it all the time. They tell me if i was just 25 years younger i'd be a dead ringer for him.

MH: Yep. (MH's phone rings) Just give me a sec Dick I need to take this. (MH steps away to take the call)

Agent Clean Slate: Ok.

(MH returns)

ACS: Sorry, Dick that was……. that's strange where did he go?

(Agent Clean Slate has vanished)

To Be Continued

Monday, February 15, 2010

UAE Real Estate Stocks: "The Switch is now Obvious"

“The obvious is that which is never seen till someone expresses it simply”-Khalil Gibran

Some thoughts on Aldar…..

When the headline came across I thought it was a q4 number, it turned out to be the fy09 number. That’s never good. In this case the miss was large, but then again what’s a miss when you sell nearly zero cost land. Though when you factor in the zero land sales and the provisioning these numbers are not that bad, but that’s not the point I am going to focus on in this note. I have received some emails questioning whether or not this report pokes a hole in my sudden relative bullishness on the UAE or in particular Emaar. The short answer is no, but before I get into that a little background.

When I first showed up in Dubai late 2007 I had an interview with the real estate analyst at what was then a notable bulge bracket bank. (At the time I thought I wanted to be a research analyst) I had done some homework on the local market and concluded that I preferred Abu Dhabi to Dubai when it came to property stocks. My logic was really simple. I was uber bearish on America(I was leaving the states to look for work….my parents had done exactly the opposite 35 years ago), and Dubai’s largest publically listed company had just recently made a large acquisition of US homebuilder. When you’ve been shorting Fannie Mae and Freddie Mac, and abandoned your country to pursue a career opportunities; you are going to have a hard time believing a European real estate analyst that thinks a luxury homebuilder in California is a good idea. The question was really quite simple: Why would I buy a late cycle Dubai developer that was pouring retained earnings into what I felt were stupid acquisitions in the US and that was now focusing on expanding outside of its home market when I could buy an early cycle similar version of that developer in Abu Dhabi?

If you asked me, Emaar had done Aldar’s work for them. It had created the property frenzy that Aldar would now be able to cash in on. The equation was simple:
Almost zero cost massive land bank+ surging oil price= pure play high margin printing machine

I wanted to be long Aldar on an absolute basis, and definitely on a relative basis against Emaar. I thought it was a no brainer.

The analyst didn’t seem to see it that way. He really liked Emaar. His argument had shifted from smart acquisitions and diversification( what I’d read in his earlier reports) to cheap valuation and know-how. See, in his mind, Aldar’s land sale driven earnings quality was not sustainable(he would eventually be proven right), while Emaar’s US hiccup wasn't going to get any worse(he would eventually be proven very wrong).That is not to say I didn’t see his point on Emaar. They had operating assets coming on line that would be generating somewhat predictable cash flows, and the market didn’t seem to care.(some could argue it still doesn’t) But at the time his overall thesis felt weak. We agreed to disagree. I never heard back from them.

Fast forward to the summer of 2008. After an eye opening experience at Mall of the Emirates(Dubai Real Estate- On the Ground Floor), I concluded that the odds of a devastating property crash sometime in the immediate future were improving. This changed my entire property stock thesis. I no longer wanted anything to do with land sales or early cycle developers. There was nothing complex about this sudden shift in outlook. It was property investing 101, you steer clear of land bank stories when a property bubble pops. Surprisingly or not surprisingly, depending upon how you view the world, few people seemed to be making this argument. Once the crisis started we were inundated with the Dubai-to-Abu Dhabi switch argument. I got the economic argument. Dubai has virtually no oil; Abu Dhabi does. A fifth grader could figure that out. What I didn’t get was how all these rather intelligent people felt this argument should also apply to the Emaar-to-Aldar switch thesis.

The story was simple. Abu Dhabi has oil, less units, and more demand; buy Aldar because property prices there will hold up. Seeing as I was from North America I had a hard time buying this argument. Most people don’t pay multiples per square foot in one city when they can find an abundant supply of completed brand new apartments or villas 45min away. What they end up doing is commuting until the prices start to converge to a point where the convenience factor/ opportunity cost/ quality of life differential is no longer negated by the cost savings. Thus, I strongly felt there was no way you could make a compelling real estate argument for Abu Dhabi property that didn’t also involve some element of a solid dubai property recovery. What you could make was a sustainability argument that favored Abu Dhabi over Dubai. So, buy Aldar debt, but not Aldar stock, that’s what I recommended. Of course the market didn’t seem to agree with me on that; Aldar largely outperformed for almost all of 2009. See, if a billionaire is willing to burn a lot of money to achieve a certain goal you have to respect the fact that he doesn’t care, but you don’t have to buy a residual claim on that venture. After yesterday’s report, I think more than a few people will start to rethink their relative value Aldar arguments. I emphasize the word relative. If you are going to love this stock just because Abu Dhabi has oil, that’s an absolute property market argument which involves across the board asset reflation. In my book, that argument works for every real estate and financial name in the region, and not just Aldar. In Aldar’s case, it is relatively attractive when compared to real estate related names in the region largely because it can survive and execute its strategy, but once the argument goes beyond survivability the compelling reasons to buy equity in it drastically decline. This is because, relatively speaking, the alternative choices of Emaar and Sorouh are much more compelling.

Emaar is cheaper, operationally attractive, and gradually climbing the value food chain by diversifying into life-style services. Sorouh on the other hand is more return on equity oriented and less sovereign development focused.

So, what’s my point?

I guess what I am trying to show is that the reasons put forth for buying Aldar shares have never made much sense to me since the property market in Dubai froze up. It similar to the criticism I made early in the summer of last year regarding buying UPP shares because Emirates bank would roll over their debt. I didn’t doubt that UPP’s loans would not be called in, but I also didn’t care at the current billion dollar valuation. Aldar has a market cap of 2.6billion USD. I don’t doubt that the company will continue to be able to operate and meet its development goals, but at the current market cap I don’t think that’s the debate we are having.

Now back to why I don’t think this report is bad news for the whole market…….

The Aldar news if you look closely demonstrates that local firms are showing a level of proactivity that we have not seen before. That’s a good sign. Taking a write-down and recognizing costs upfront shows that management is becoming more realistic. Furthermore, the sales of assets to the government should not go unnoticed. Aldar has ways of addressing funding issues that most other real estate developers don’t posses. Which brings to the topic of policy flexibility.

I just spent a good deal of time explaining why Aldar is not relatively attractive, but that argument only holds water if certain tools that I think are clearly available are not employed.

First, the government of Abu Dhabi could if it so desires buy land at inflated values from Aldar to support profitability. It could then transfer this land back to Aldar at zero cost somewhere down the road. Why would the government to this? Well, there is only one reason, to support the market. It is tantamount to the fed buying GSE paper. The only difference is that the fed is doing it electronically. In this case, the sovgn would be using their own wealth to support the liquidity of the real estate market and the profitability of one of the Adx’s most liquid names. This would be the most aggressive way of addressing deflation in asset prices in Abu Dhabi, and Aldar would be the biggest beneficiary of a move like this if we got one down the road.

Second, the government of Abu Dhabi could directly buy Aldar debt and the debt of Abu Dhabi lenders. This would be almost a replica of what the Fed is doing and similar to some of the stuff we have seen out of the Qatar government.

Third, they could buy delivered operating assets and take over ownership of these long-term assets to continue to facilitate development. This is the least aggressive reflation choice, and the one that it looks like AD has chosen to implement.

So, yes i do think the switch from aldar to emaar has now become quite obvious. Your only caveat is that maybe the two end up becoming one sometime in the future.

Oh, some quick thoughts on Dubai World...

Dubai world shook up the market yesterday. My short answer to that is that’s ridiculous. If you ask me there is no real equity market news here that goes beyond anything but noice. Dubai World will seek to pay the least amount it possibly can at the most accommodative terms it can obtain. The creditors will push back with an approach that will be completely defiant up until that point in time at which they believe Dubai World will respond with a simple ‘Good luck, and I’ll see you in court’. However, as dubai wants to maintain its image, and the bankers can't politically or legally afford to play real dirty hard ball, an agreement will be reached somewhere between these two poles. Whatever that agreement may be it is better than what Dubai is currently expected to pay. So, Dubai World as a selling point catalyst continues to be in my opinion not worth the weight the market is putting on it. It only factors into the equation if you view it within the context of the larger global sovereign debt situation.

Sunday, December 27, 2009

"My Crazy 2010 Predictions"

It’s only a matter of time before we get some ridiculous predictions about the region from certain geographically located pundits. So, I thought id beat them to the punch with my own absolutely ludicrous predictions. You can’t poke fun at us if we beat you to the punch.

Jan 4th- Burj Dubai, the world's tallest building, opens its doors.

Jan 6th- Having completed a successful on time official opening, Burj dubai closes so that minor renovations can be completed over the next few months.

Jan 9th- Dubai World reaches standstill agreement.

Jan 10th- Dubai Planetary Investments is created by decree. Initial paid up capital of $5billion.

Jan 12th- Dubai Planetary investments acquires controlling stake in Iceland. Icbc and BOC provide financing of 20x on transaction.

Feb 1st- In an attempt to meet immediate cash needs, Dubai World announces a special valentines week cruise on board the QE2.

Feb 14th- Somali pirates hijack QE2.

Feb 15th- Somali Pirates not realizing how precarious the finances of the QE2 were, crumble under the leverage.

Feb 16th- Somali Pirates seek a standstill with QE2 creditors.

Mar 1st- Saudi Arabia announces Kingdom’s long-term strategic vision. Plans $30 trillion in infrastructure spending by year 2412.

April 1st- Kuwait Parliament approves legislation bailing out all consumer debt of Kuwaiti nationals.

April 2nd- Louis Vuitton International daily sales increase 5000%.

April 3rd- Kuwaitis request another bailout.

April 15th- Damas Jewelry closes doors.

April 16th- Damas Financial Advisors, the middle east’s largest financial planning firm opens its doors.

May 1st- To ensure the long-term viability of all Abu Dhabi projects, ADIA announces $200 billion investment in sand replication technology. Construction
on the world’s first sand synthesis plant begins immediately.

June 1st- AD Sand Synthesis One opens its doors.(goes down in Guinness book as fastest plant construction in history)

June 15th- Dp world is taken private by an Abraj led consortium.

June 16th- Chinese acquire 40% stake in Jebal Ali Free Zone.

September 1st- Abu Dhabi starts to experience water shortages.

September 3rd- Abu Dhabi discloses that it is in the midst of a water crisis. The cause of crisis is the extremely intensive water needs of its sand replication plant.

Sep18th- After letting them sweat it out for a few weeks, Dubai bails out Abu Dhabi with fresh water from its Icelandic stake. Appreciating the gesture Abu Dhabi pays off all of Dubai’s debts. Dubai Planetary Investments exits Iceland stake with 10000000000000000% return. The buyers are the Government of Qatar.

Dec 21st- A giant sand storm hits the gulf. Within 24 hours the region is swallowed whole by the earth.

Dec 22nd- Western journalists say I told you so.

Dec 23rd 2010- The World Ends. (The Mayans were off by exactly two years)

Happy Holidays!!!

Thursday, December 17, 2009

Dubaican on Debt, Diversification, Denninger, and Transparency"

"It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so"
-Mark Twain

Attended the Bloomberg Conference on Debt, Danger, and Diversification in the GCC.

I feel like the recent news and crisis as well as some of the topics discussed yesterday warranted a post….

Debt is good? Speaking from personal experience I think I can safely say I would never say debt is good.

Debt to the extent that it is serviceable across a wide range of possible economic outcomes is good.(actually I don’t even like the choice of the word good, I’d go with a ‘has a place’) Of course determining what level of debt falls into this broad definition is no easy task. What one model shows as serviceable another may find unfeasible depending on your assumptions, hence, the desire for a definition that allows for a broad range of economic outcomes. While it is difficult to determine what level of debt is good/manageable/marginally boosting return on equity without in anyway jeopordizing the existence of that equity stake, it is not difficult to identify a level of debt that is malicious, predatory, paralyzing, or potentially cripiling. For the individual too much debt leads to losing control of your own life. The corporations problem is less severe as all that happens is it gets transferred to creditors or liquidated. Debt is good or even great until it is not, and then it can be disastrous. So, while some level of debt may be good or even great, no debt is always good provided that you know what to do with your savings.

Dubai fails to grasp the concept of transparency? Will they Change? This came up a times and the panel pretty much was of the view that they are progressing down a road towards more transparency. I don’t disagree, but I think labeling transparency a Dubai problem is either a narrow minded way of looking at transparency or just plain wrong.

In my opinion, the Dubai dilemma is at the end of the day a simple story. It is a reflection of the flaws of the financial system which I think were evident to many observers. From the moment I got here, I took the view that Dubai was the world’s first sovereign hedge fund. Dubai, or as Moody’s dubbed it, Dubai Inc., was set up as a complex limited liability company. Anyone with a legal background or any experience looking at convoluted structures understands that there are only two reasons to adopt such a model. The first being to limit liability in case anything goes wrong. The second reason, which is not as obvious, but clearly was the main driver of such structures over the past decade, is to maximize leverage. By creating layered holding company, you can embed leverage at many different levels. To succeed at such a model you need to limit transparency, in fact, you actually need to get pretty good at being opaque. Those questioning Dubai’s transparency should understand that it was most likely by design, and not the result of some fatal regional flaw. Now that transparency will serve them well, they will provide a high level of it.

To put Dubai on the map outlandish feats needed to be accomplished. In many instances, what many thought was only imaginable was turned into reality in a span of a few years. Such a model once it gets going isn’t designed to naturally cool off. Someone or something has to intervene to slow it down or grind it to a halt. Dubai’s only problem is that some people just don’t want to let them invoke their limited liability shield.

Diversification- There was a lot of talk about the failures of diversification. I blogged about this at the peak of Middle East Mania in June of 2008(LandMark Properties, Rich Foreigners, and American Know How). My views on the topic have not changed. The region needs to employ better financial planners.

The average Arab in the gulf doesn’t wake up in the morning wanting to buy a gulf course in Scotland or a ski resort in Colorado. Typically, what happens is an ex-banker(consultant or lawyer works too) who is now in the employ of a government related investment entity in the Gulf generates such an idea. It most likely comes from his ex- colleagues at certain investment banks or consulting firms that are advising the western owner of such an asset. Furthermore, these ex bankers have usually gone skiing at said resort or played a few rounds on the famous course that is up for sale. Thus, they have no problem selling themselves and subsequently their bosses on the deal. Furthermore, the ex-banker has been hired to do deals, so it should be no surprise that he gravitates to what he knows and also what his former colleagues in NYC and London are recommending. So, when you criticize the gulf for diversification, you are in effect criticzing the hiring decisions they have made. Now, this doesn’t mean all bankers who worked in the west are likely to always lose you money, but it does mean that if someone is just showing you a non-stop pipeline of deals in the same sector that do nothing but lose you money, you should probably consider finding someone a little more discerning.

Debt markets and Politics-
The fact that it costs more for GCC nations to borrow than most developed nations is in my opinion quite ironic. Their balance sheets are better, they posses relatively miniscule populations, and they are resource rich. The only reason to pay a spread is that you believe the political situation will turn on you or that the governments and people in the region will be fleeced consistently across multiple economic cycles by buying high and selling low and thus ultimately transferring away accumulated oil wealth. If Naomi Klein or John Perkins was commenting on this I am sure they would take favor the latter. Banks lending money at completely ludicrous terms to people or governments in the region, they are either incompetent or following an agenda. As far as incompetence, I think that has more to do with the compensation structure at banks being flawed and thus incentivizing excessive risk taking. As for the agenda view, it’s not very complicated. Take someone that is resource rich and get them to borrow against their resources to buy overpriced and unproductive assets from you. Then pressure them to borrow even more money to repay the bad loans you might still be carrying on your books or to refinance at higher rates under the guise of systemic risk, thus effectively gaining more control over the resources in the ground. Use a massaged/engineered crisis to further your own regional political agenda by providing debt relief in exchange for strategic concessions.(think iran)

Denninger’s Ridiculous Rant-

Karl Denninger of the market ticker is someone I have read for quite a while. He can at times come off as a crazy conspiracy nut, but he usually does offer some very insightful commentary. When Dubai World announced that they were seeking at a stand- still he was quite complementary of the fact that there was no bail out. However, when the nakheel debt was paid he reversed course. I have no problem with that. What does bother me though is that he turned it into an opportunity to launch a political and cultural attack on the UAE and the region. Zero hedge has not been much better, but at least i understand where they are coming from.

“Let's face the facts about Dubai - you've run an effective slave labor camp over there for the last decade - a practice that supposedly disappeared worldwide in the 1800s.
But in point of fact, effective human trafficking and slavery have not ended. It was, however, the necessary condition for "Dubai World" and its similar adjuncts to be a viable economic entity, given that Dubai has zippo for natural resources (unless you count the raw material for high-quality glass to be a natural resource, although it is not exactly in short supply - or expensive) and was entirely reliant on conspicuous consumption of oil revenue - which incidentally also seems to all belong to what amounts to absolute monarchies and those who they have enabled - for its continued "prosperity."
We are here today to reassure investors, financial and trade creditors, employees, and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices. Dubai is, and will continue to be, a strong and vibrant global financial center. Our best days are yet to come.
Do those "best days" continue to include dumping raw sewage - complete with the condoms used by your Islamic friends who use Dubai as a place where they can ignore Islamic Law (provided you're one of the privileged rich) a few hundred yards from your "pristine" beaches?
Go have another hit off your hookah Sheikh. Your vision of a "global financial center" for those with too much money and too few brain cells will eventually be reclaimed by the desert, as it should be.
I continue to believe that the "infidels" will get hosed, and as noted above, there are plenty of weasel-words in your "statement" to keep anyone from claiming you lied through you teeth when the unilateral imposition of haircuts - against all but UAE-aligned interests, of course - begin.”-Market Ticker, Karl Denninger

To be fair. This is not new for Karl. When it comes to politics and foreign policy he often appears to be as ignorant as the people he so astutely criticizes on economic and financial market issues. I challenge Karl to compare the living conditions and treatment of construction workers in Dubai to those of Mexicans working in slaughterhouses or food processing plants in the US. I also challenge him to defend the treatment these people get from immigration while the massive corporations that knowingly employ, and in fact depend on cheap and unlikely to be able to defend themselves labor force, get away without even a slap on the wrist. As for his concerns that the UAE will seek to make local creditors whole before foreign ones; is he being serious? Check the language of most of the stimulus legislation that was passed this year? If you don’t see favoritism in there you are blind. Ask the single mother’s in the US that are working at a fast food chain what the eligibility requirements are for the earned income tax credit or a whole host of other tax credits. I once had a Mexican-American client in a tax clinic who was stripped of her tax credit because her husband was not a citizen and did not have a valid social security card, despite the fact that she was legal. And isn’t that how it should be? If you are a true believer in government economic support, shouldn’t the subsidies or assistance go to those firms employing people on the ground whose entire business is domiciled in the state first, or should they go to MNC’s that have contracts everywhere on planet earth?

Anyway, bottom line is Karl is criticizing the Gulf and UAE for stuff that exists in his own backyard. He just seems blinded by the fact that it is concealed in thousands of pages of legislation or buried by giant conglomerates.

Sunday, April 26, 2009

Real Estate 2023: Galactic Bailout

The Final Chapter of my markets are just “too awful series”…

CNBC Interview Dec 14, 2023:
M. Honey and Anonymous A.

M. Honey:
We are here today with Akram. A who until recently was believed dead. Mr. A has not spoken publicly about his whereabouts over the last year. So, to say the least, this should be a very interesting interview.
Mr. A, thanks for giving us this exclusive interview. Getting right to the point where have you been for the last 12 months?

Mr. A:
Well, Mrs. Honey, as you know about a year ago I went to the Moon for a routine site visit. We were having some problems with our Moon development that I had to tend to in person. While I was on the Moon I was approached by a member of the Inter Galactic Financial Union (IGFU). At first, I thought it was a hoax, but after they showed me their ship I knew these people were legit.

M. Honey:
Inter Galactic Financial Union, people?? A ship? Are you saying what I think you are saying?

Mr. A:
Yes, Aliens. But we are not talking about little green men. These are people just like you and me. They look like humans. They just live on planets in different galaxies. It turns out that the IGFU is very much like our United Nations, except that all the respective members are planets. They have been monitoring the Earth's development for quite some time and actually reviewing a pending planetary application for IGFU membership for the last 200 years.

M. Honey:
Monitoring? 200 years? Wow, are you being serious?

Mr. A:
Completely serious Mrs. Honey. See, the IGFU has specific criteria for member planets. The Union is monetary, economic, and political. If you do not meet the criteria you cannot be admitted. Much to the dismay of the IGFU, Earth has struggled to progress. As I understand it, our biggest flaw is our propensity to create asset bubbles which destabilize our planetary economy. This is not unusual as every planet goes through this phase of bubble cycles(IGFU economists call it the “infancy stage”), but to enter the union a planet must finally realize that bubbles are inherently destructive. The Earth's failure to progress past the bubble stage in a reasonable time frame has perplexed most IGFU economists. In fact, they even have broken from protocol over the past fifty years by placing economists on Earth to warn about the risk of bubbles.

M. Honey:
Really? Anyone we know?

Mr. A:
My understanding is that men like M Faber and N Roubini have been greatly influenced by IGFU economists. I can't really get into the details, but there has clearly been some level of subconscious interaction between IGFU economists and economists on our planet who were deemed capable of delivering the appropriate message.

M. Honey
Fascinating. What about investors like W Buffet?

Mr. A:
Ahh, funny you should ask. I asked them the same question. It turns out Mr. Buffet is as legit as they come. He is actually quite a celebrity in the Galactic Financial Markets. So much so, that at least 7 planets have approached him over the past 50 years with offers of citizenship. They tried to lure him to planets where value investing and sound buy and hold strategies are employed on a consistent basis, but he turned them all down. It seems Mr. Buffet just couldn't abandon his loyal shareholders even if it meant going to a world without bubbles and dangerous derivatives.

M. Honey:
Sorry to interrupt Mr. A, but what do they want from us and why did they approach you?

Mr. A:
Well, after Obama was elected President of the U.S. the IGFU political committee cleared Earth's application. And then when we went back to the gold standard in 2010 the IGFU Monetary Committee also signed off on our application. So, we are 2/3 of the way there. All we need is the approval of the Economic/Financial Markets Committee. However, they are pretty strict, and thus won't let us into the union until they are sure that we won't pose a bubble threat to the Galactic economy.

M. Honey:
So gold really is a global store of value?

Mr. A:
Actually, a galactic store of value would be more appropriate.

M. Honey:
Right. Interesting stuff.

Mr. A:
Yes, very. And that is why they approached me. The path the Earth has taken over the last 3 years has troubled several member planets. They feel we are regressing. So, they have decided to take extreme action and alter the application process. Earth will be granted temporary IGFU member status. In return, we will allow the Central Bubble Watchdog Agency (cbwa) to take over all of Earth's financial market regulatory oversight for a period to not exceed 500 years. The IGFU has also agreed to recapitalize Earth's financial system by injecting significant gold reserves into the planet.

M. Honey:
500 years? Seems a bit strict.

Mr. A:
Well, if you read their auditor's report on Earth's Central Banks and Regulatory Agencies you'd understand.

M. Honey:
So, they are really willing to recapitalize our financial system?

Mr. A:
Yes. And it gets better. The Intergalactic Food Bank is immediately going to remit 500 billion tons of food to earth as payment for past services received.

M. Honey:
Past services received?

Mr. A:
It turns out that Reality TV and Earth Football are very popular in the rest of the Galaxy, and since IGFU members take intellectual property rights very seriously; they have been maintaining an account that tracks all Galactic usage of Earth IP. With accrued interest the account is now worth over 29 trillion ounces of gold.

M. Honey:
Are you serious?

Mr. A:
Amazing isn't it. We are actually one of the wealthiest planets in the Galaxy and we never even knew it.

(NOTE: The characters and content of this postl are purely fictional, although in some instances they may refer or represent people or places that have influenced the author in some way. Any resemblance to actual person or places, living or otherwise is purely coincidental.)

"Real Estate 2023: A Mogul Teeters"

Another down day…another piece of entertainment……

We appreciate you coming back on the show to discuss the current global crisis and all the rumors circulating around Himadeh holdings. Many pundits are now calling this the worst financial crisis since the great “credit crunch” of 2008, and many comparisons are now being drawn between your company and some of the failed institutions of the great financial collapse of 2008.

Mr. H:
Yes, these are clearly difficult times for the global economy and Himadeh holdings. Having lived through the great crisis of 2008, I am confident that we will be able to come out of this.

Well, your stock price is down 90% over the last three months, and cds spreads on Himadeh holdings debt have widened to 2900bps. Some analysts are saying that if you don’t raise money in the next few weeks your company will be in breach of several covenants and that your creditors could force an acceleration of a significant portion of your outstanding debt. One analyst was even quoted as saying that, “there are significant concerns about the ability of Himadeh holdings to continue operating as a going concern.” What do you have to say about all this?

Mr. H:
As of right now our cash situation is fine. We have plenty of liquidity. Furthermore, we have an amazing portfolio of assets that we could sell if we needed to raise some cash. But I don’t think it will come to that. The market is just a little bit jittery right now. We expect this period of volatility to eventually subside.

Fair enough. Would you care to comment on rumors regarding your government equities portfolio? Some people are saying that you have been forced to sell your stake in the Ukraine and that you have significantly reduced your Canada position. If that is true, this will severely impact your voting power in the UNLE and could jeopardize your ability to move forward with many projects.

Mr. H:
No comment

Ok. Moving on to another topic. There are now serious allegations being made regarding Himadeh GeoThermal Explorations and the role that your company may have played in destabilizing the Earth’s core. According to one geologist, your top secret deep earth geothermal drilling rigs in Canada, Iceland, and Antarctica may have led to the “destabilization” of the Earth’s core.

Mr. H:
Nonsense. Geothermal Drilling is 100% safe. It is also a proven method of capturing the Earth’s natural heat which has allowed us to warm the homes of billions of people. There is no way our drilling rigs had anything to do with the recent wave of earthquakes.

Are you sure? In 2018 Anonymous A. referred to Geothermal Drilling as a potential “Pandora’s Box”. He was a very outspoken critic of this technology and the potential dangers it posed to the environment.

Mr. H:
I thought we agreed we would not talk about my former partner. If anything I think it’s a bit odd that almost all of his real estate assets are located in areas that were untouched by the recent global wave of earthquakes. Maybe his hands are not as clean as you think seeing as his company stands to financially benefit from this crisis.

Well, I am no geologists, but as I understand it he was buying properties that he felt would survive a core de-stabilization. Moving on, is it true that your friend, world renowned writer/director/producer, KMAN is about to release a documentary, that to put this mildly….doesn’t paint a very favorable picture of Himadeh Holdings.

Mr. H:
Well, I don’t really keep in touch with KMAN anymore. We sort of parted ways after CUT VII flopped. Himadeh Productions took a pretty big hit on that film. So, let’s just say that the relationship is a bit strained these days. As for the documentary, I have not seen it. So, I can’t comment on it.

Ahh, I see. So, you don’t think that your insistence on casting your wife in the leading role had any impact on the film. Particularly, since she was completely untested as a leading lady.

Mr. H:
My wife is an excellent actress. It’s just a shame we couldn’t find a talented enough director to bring it all out. Anyway, what are we on the E channel; I thought I was here to talk about the financial crisis.

Oh, I’m sorry. Well, then what do you think…

Mr. H:
Sorry, this interview is over!

(NOTE: The characters and content of this post are purely fictional, although in some instances they may refer or represent people or places that have influenced the author in some way. Any resemblance to actual person or places, living or otherwise is purely coincidental.)

Dubai Real Estate 2022: A Mogul Speaks(repost)

As requested i have posted my real estate spoof/story from last november...enjoy...

Dec 14, 2022-
Transcript from CNBC Interview with Real Estate Mogul Mr. Himadeh.

We are here today with Mr. Himadeh of Himadeh Holdings who has been kind enough to join us in discussing the current property boom in Dubai. For those of you who are not familiar with Mr. Himadeh, he controls a global conglomerate with holdings in real estate, public equities, government equities, and a wide assortment of other assets.

Mr. Himadeh you are famous for having called the top in the Dubai Property Bubble of 2003-2008 at a very young age. How did you do it?

Mr. H:
Real estate is really about the cost of capital. I try to buy when it’s high and sell when it’s low. Really it is not that complicated. I just try to anticipate what the cost of money will be. In 2008, I got the sense that eibor, which had been as low as about 1.9% if my memory serves me right, was going to be going much higher over the next 18-24 months.

Sorry to interrupt you Mr. Himadeh…but in EIBOR…you are referring to the now defunct emirates interbank offer rate which was replaced with GIBOR in early 2010. Some of our listeners may not remember those days.

Mr. H:
Yes, exactly. Wow…am I feeling old. Anyway, since I thought Eibor was going much higher I started to synthetically short the real estate market. It wasn’t easy, but I found ways to do it.
And the rest as they say is history.

How did you feel about getting knick-named the Dubai Demon or Destroyer?

Mr. H:
Look, it wasn’t pleasant, but it never is pleasant going against the crowd. The reward was worth it.

Most people don’t realize it but the vast majority of your fortune was made going long real estate in the GCC. Particularly in Dubai.

Mr. H:
Yes, that is true. We were very opportunistic in 2009-2012 building a top notch portfolio of distressed assets. And it has paid off.

What about your foray into government equities? Is it true you own 35% of the Ukraine? And 15% of Canada?

Mr. H:
Well, for disclosure reasons I can’t specifically comment on the size my government stakes. But yes we did participate once the governments of the world decided to incorporate and list themselves on exchanges to raise cash, and we have done very well getting into Canada as we did feel that potential alternative energy solutions and oil supply globally were over stated.

Well, enough about the past. Care to comment on your new big venture the “Dubai FLOATS” the World’s first floating resort. Many people are saying this is a sign of a bubble and that it can’t be built.

Mr. H:
They said that about the Burj, they mocked the Palm, and then when we backed the govt in building an underwater luxury hotel; everybody said we’d lose our shirts. Then three years ago we finished the world’s only freestanding revolving residential tower. Every one of these projects has made me money, so I tell the naysayers…bring it on.

On a more controversial note would you care to comment on your former friend, Anonymous A’s, “Moon Magic” development? There are rumors circulating that you have used your votes in the U.N.L.E (United Nations Legal Exchange) to block his group’s moon building permit, as you were jealous that he would beat you to the moon.

Mr. H:
That’s ludicrous. We were originally funding part of his project, but because Mr. A is stubborn; we decided to part ways. The moon is a waste of time. There is plenty of land on earth that still needs to be developed. For example, our Antarctica Polar Park project is selling very well right now.

That’s not what we have heard. According to certain sources, you pulled the plug on his financing after he declined to name the iconic Dubai Moon Tower Rockopalooza 7 as he felt that the Rockopalooza chain had become oversaturated and too commercial.

Mr. H:
I am sick of this topic. If you want answers why don’t you ask him? I came here to talk about Himadeh holdings and all the exciting real projects we are working on and not about some crazy man who has sunk everything he owns and leveraged himself to the hilt buying small natural islands and moon property.

Well, we would but after you pulled the financing on the moon project Mr. A, who was already very levered, started getting massive margin calls. And then on a routine site visit to the moon last week he mysteriously disappeared.

Mr. H:
Really? Kind of sad. He used to know what he was talking about, but he lost his edge a few years ago and became obsessed with this whole earth’s core is unstable and about to implode theory. (Sounds of explosion in the background)Hey, what’s going on?

We interrupt this broadcast for an emergency message. Apparently the world has been hit by a wave of unprecedented seismic activity. Millions of people have died, and large portions of the planet have become uninhabitable. Certain well situated property developments remained strangely unharmed and moon real estate prices have supposedly climbed through the roof as world governments have begun bidding for assets. Interestingly, almost all of these holdings are now controlled by the now missing investing guru/recluse Anonymous A. who increasingly was being mocked by the main stream media for his odd real estate purchases on earth and obsession with moon property.

(NOTE:The characters and content of this post are purely fictional, although in some instances they may refer or represent people or places that have influenced the author in some way. Any resemblance to actual person or places, living or otherwise is purely coincidental.)