Great Recession Fallout- Part I: Economic Mutations - Eric Janszen

[GRG55]

Re: Great Recession Fallout- Part I: Economic Mutations - Eric Janszen

@GRG -- thanks for the great post.

From what I've heard from friends and contacts in the area, things in Dubai are a long way from reaching an equilibrium point; still lots of defaults to come; assets aren't yet being recognized at their true value on corporate or bank balance sheets, lots of resistance to paying back Western lenders and investors, etc, etc.

Does that correspond with what you've heard? Do you think it's widely recognized / accepted in the area yet?

Your description fits with what I saw and heard. They are about the point where the USA, UK and much of Europe was one year ago...so lots more to come as you point out.

Apparently the Abu Dhabi government has put the clamps on any new investments by its sovereign wealth funds, anticipating it may need cash reserves of as much as US $100 Billion for upcoming bailouts, mostly related to Dubai - I have no verification but this was repeated to me by several sources that would be knowledgable. They did close a deal to buy a stake in London's Gatwick airport while I was there, but that deal was probably in the works for some time, so it will be interesting to see how much activity there is from Abu Dhabi, if any, in the coming weeks.

Abu Dhabi wealth fund buys into Gatwick Airport

LONDON/AMSTERDAM (Reuters) - Abu Dhabi Investment Authority (Adia), the world's largest sovereign wealth fund, said on Friday it had bought a stake in Britain's Gatwick Airport as it increased its exposure to infrastructure assets...

[GRG55]

Re: Great Recession Fallout- Part I: Economic Mutations - Eric Janszen

Well, if history is any guide, oil will probably head down to $60 right about the time "everyone" is convinced that won't [can't?] happen...

I remain quite certain that this global economy cannot tolerate $80 oil, and that only the distortion of massive monetary and fiscal reflation efforts keeps it from adjusting - your store of value argument. Yes, US Dollar purchasing power has declined this decade, but so has the absolute purchasing power of every other major currency in the world...everyone is seeing higher oil prices, not just US Dollar economies.

It's very difficult in the current environment to get a good bead on the supply and demand dynamic.

I'm just back from another trip to the Arab Gulf countries [GCC]. The bank centred financial crisis that swept most of the rest of the world in the winter of 2008/09 has finally arrived in the GCC.

Six months ago many there were still talking confidently about the global financial crisis largely bypassing the GCC, and most pointed to the rapid rebound in oil prices last year to support that view.

To some degree the rebound in oil prices probably did contribute to the delayed onset of the banking stress. 2009 revenues from oil and oil products surpassed government budget estimates that were set in the spring of 2009, and the major oil exporters Kuwait, Saudi Arabia and Abu Dhabi went back into surplus before the end of the year. Ongoing high levels of government spending in economies already dominated by the government was a stabilizing factor...

...Until the widening cracks in the one area of these economies with large scale private participation...the property sector...were finally exposed with the blow up in Dubai. The pent up correction is now contracting the regional economy faster than the stimulus from $80 oil and budget driven government spending increases.

The Islamic banking system, which was a huge enabler and participant in the GCC region real estate insanity, is now under enormous stress and there is fear within the governments that a default by any one of the Islamic banks will completely wreck this embryonic banking sector in which they have lavished much support and reputation. This is the reason that the first Abu Dhabi bailout was primarily to make good on and pay out the Nakeel sukuk [Islamic bond].

The Algosaibi/Saad Group debt defaults shocked Saudi and the region. The surplus governments are now hunkering down and keeping their powder dry as they now realize that they will need to intervene and likely fund more bailouts.

Unfortunately, these surplus governments are also the regions major oil exporters. My take is that as they build cash reserves, spending on hydrocarbon development is already being curtailed [they will never admit that, of course] compared to the high levels of the past few years, and future supply increments are likely to be below previous forecasts.

So the game of supply destruction and demand destruction continues, and how this will play out in the short to medium term is anybody's guess. I expect volatility as fears of one and then the other alternate depending, in part, on the news flow of the moment...but timing the shifts in sentiment in the markets will be a real challenge.

A couple of related articles from the FT:

Debt threat to Kuwait investment houses

By Robin Wigglesworth in Kuwait
Published: February 21 2010 21:31 | Last updated: February 21 2010 21:31

Most of Kuwait’s multibillion-dollar investment company industry could be wiped out by debt repayments on the finance houses’ leveraged investments made before the recession, senior bankers have warned.
Spurred by cheap credit, abundant liquidity and few other opportunities in the government-dominated economy, Kuwaitis have set up scores of investment houses to bet on international and regional real estate, private equity and stocks. At its peak, the industry had assets of more than $50bn...

...While bankers said the investment company woes were largely contained in Kuwait and should not spread, they could lead to distressed sales of overseas assets and were weighing on the exposed local banking sector.

Two of the largest investment companies defaulted on international loans last year. While no other finance house has publicly collapsed, bankers and analysts said almost all were struggling to meet debt repayments in the face of crippling losses – some of them on investments in Dubai, the troubled Gulf emirate. There were 100 investment houses in Kuwait but “you will not see half of them still operating in 2011”, said Jasem Al-Sadoun, chairman of Alshall Investment...

...The industry’s woes were having knock-on effects on Kuwaiti banks, which were reluctant to lend while they faced delayed payments or losses on loans to investment companies...


Kuwaiti investment model feels strain

By Robin Wigglesworth in Kuwait City
Published: February 21 2010 21:31 | Last updated: February 21 2010 21:31

Buoyed by inflows of petrodollars and cheap credit, Kuwait’s finance houses have been aggressive investors in regional and international markets in the past decade, snapping up trophy assets in everything from luxury car brand Aston Martin to property and stocks.

But the financial crisis has starkly exposed a toxic mismatch between short-term loans and often illiquid assets whilst also highlighting a reliance on paper investment gains rather than asset management or brokerage fees, or recurring revenue from portfolio companies.

The sector’s woes are not new. Problems first emerged towards the end of 2008 and two of the largest finance houses are now tentatively emerging from restructuring after defaulting in the wake of the collapse of Lehman Brothers.

However, bankers say the rest of the bloated sector has yet to tackle its debt woes, depressing lending and weighing on the oil-rich emirate’s economy...

...Common to all of them were freewheeling investment strategies that swelled the sector’s total assets from $16.5bn in 2004 to a peak of $52bn in 2007, according to Kamco research.

While the value of assets has since shrunk to $47bn by September 2009, analysts and bankers say the true extent of the global financial crash has yet to be recognised by investment companies.

Meanwhile, liabilities have remained relatively steady at about $31bn...

...International bankers say that, rather than facing up to the fact that many investment companies may never be able to repay their debts, clean up their balance sheets and rebuild capital bases, local banks are merely rolling over loans to avoid embarrassing themselves and their clients – a common practice in the Gulf.

“Banks are pushing as much as possible under the carpet, restructuring and rescheduling loans so they don’t have the true extent of the hits, and the central bank is tacitly allowing it,” a Kuwait-based analyst says...

[icm63]

Re: Great Recession Fallout- Part I: Economic Mutations - Eric Janszen

NOTE TO EJ:

Is it possible subscribers can download a PDF of the lastest report(and in the future), as reading a large report on the browser is just not that easy.

[phirang]

Re: Great Recession Fallout- Part I: Economic Mutations - Eric Janszen

Good Soros interview:

http://english.caing.com/2010-02-24/100120459.html

[ThePythonicCow]

Re: Great Recession Fallout- Part I: Economic Mutations - Eric Janszen

NOTE TO EJ:

Is it possible subscribers can download a PDF of the lastest report(and in the future), as reading a large report on the browser is just not that easy.

A search for "convert html to pdf" will find a number of tools and websites, often free. On the first one I found, I ran Post #1 of this thread through that site and got the attached pdf document. Some of the graphics lost resolution to the point of being unreadable. Otherwise it is readable.

My guess is that this pdf conversion is too cumbersome for post individuals to bother with for their own use, but it might be worthwhile if the pdf were posted, as you suggest, for others to read.

I do not find much difference in readability between pdf and html myself, so I'm not suggesting anyone worry about this on my account. Given both formats, I'll tend to read the html form as it works better in a tabbed browser (Firefox) with many pages open at once on various sites.

[icm63]

Re: Great Recession Fallout- Part I: Economic Mutations - Eric Janszen

PDF: excellent tool..can you post the site you used as the results you show are very clear..

EJ time to install this on your docs...

http://www.web2pdfconvert.com/pdf-button.aspx

[jpatter666]

Re: Great Recession Fallout- Part I: Economic Mutations - Eric Janszen

PDF: excellent tool..can you post the site you used as the results you show are very clear..

EJ time to install this on your docs...

http://www.web2pdfconvert.com/pdf-button.aspx

Agree -- if for no other reason than we could search EJ postings much more effectively [envisions a folder of EJ pdf postings]-- and thus save Metalman some cycles.

[metalman]

Re: Great Recession Fallout- Part I: Economic Mutations - Eric Janszen

Agree -- if for no other reason than we could search EJ postings much more effectively [envisions a folder of EJ pdf postings]-- and thus save Metalman some cycles.

thx for thinking of me.

[ThePythonicCow]

Re: Great Recession Fallout- Part I: Economic Mutations - Eric Janszen

PDF: excellent tool..can you post the site you used as the results you show are very clear..

The site I used for that html to pdf conversion was http://html-pdf-converter.com/. Others may be as good; that was just the first one that came up in my Google search for "convert html to pdf".

A useful trick in the conversion was to click on the #1 (View Single Post) link for the post I wanted to view, in order to get a "clean" html version of the post I wanted to convert. This might not work as easily for articles on the "iTulip Select" side, as I doubt that another web server could access the page in question for you. You might have to save and upload the page to be converted in that case, rather than just giving the converter web server the URL of the iTulip page to convert.

[ThePythonicCow]

Re: Great Recession Fallout- Part I: Economic Mutations - Eric Janszen

EJ time to install this on your docs...

http://www.web2pdfconvert.com/pdf-button.aspx

You ask, they deliver. Cool.

I now see on each post:

[FRED]

Re: Great Recession Fallout- Part I: Economic Mutations - Eric Janszen

You ask, they deliver. Cool.

I now see on each post:

Glad you like it! Thanks for finding this service. Does not work for Select, however.

[ThePythonicCow]

Re: Great Recession Fallout- Part I: Economic Mutations - Eric Janszen

Does not work for Select, however.

For Select articles (not visible over the web to third party servers) I presume an iTulip select member could download (save) the HTML web page to their own disk, then upload to a site that does html-to-pdf conversions. The results might be ugly however, as I don't know if or how this would get graphical images included in the final result. A Google search for "html to pdf conversions" (or some such search phrase) should find sites that do html-to-pdf conversions.

P.S. -- See also Top 14 Convert To PDF For Free Sites for alternative conversion sites.

[EricPhan]

Re: Great Recession Fallout- Part I: Economic Mutations - Eric Janszen

One free program that I've found to be extremely valuable in staying organized by going paperless is CutePDF - it gives you an option to print to a PDF file. Simple and effective.

[jk]

Re: Great Recession Fallout- Part I: Economic Mutations - Eric Janszen

One free program that I've found to be extremely valuable in staying organized by going paperless is CutePDF - it gives you an option to print to a PDF file. Simple and effective.

just downloaded it and converted a doc file. thanks for the tip.

[icm63]

Re: Great Recession Fallout- Part I: Economic Mutations - Eric Janszen

NOTE TO EJ:

Is it possible subscribers can download a PDF of the lastest report(and in the future), as reading a large report on the browser is just not that easy

GREAT STUFF...thanks for listening !