Reading points - September

Reading in the last few weeks.

1- Tortilla Wars
Interesting article by Noam Chomsky. Imagine, how oil can have an impact and ignited tortilla wars in Mexico? Tortilla is a staple food for Mexican, where it is made from corn flour. Simply said: Instability in Middle East :- uncertainty oil price that US ended up paying :- US increasing its biofuel production [corn based ethanol] as energy substitute :- increased demand of corn, driving supply from mexico to US :- creating short supply within Mexico, raising prices :- increased of more than 50% prices of tortilla in Mexico :- local mexican suffering !!

Mexican economist believe US-sponsored NAFTA back in 1994 with Mexico plays a significant role. The "free trade" regime drives Mexico from self-sufficiency in food toward dependency on US exports.

In March, Bush's trip to Latin America, made deal with Brazil on joint production of ethanol. But Bush, while promoting free trade emphasised forcefully that the high tariffs to protect US producers would remain, along with the many forms of government subsidy for the industry. Is this fair ??



2- "Real" Wars??
SCO's war games [Shanghai Cooperation Organisation, currently have 6 countries as members, with Iran has been invited as observer and several other countries waiting to join as member] vs US led Malabar war games. Both gave strong signal to each other. With Russia actively "networking" with other asian countries [the latest with Indonesia arm deals], China with many "strategically" central asian and africa countries [mostly driven by oil and other minerals], US is under-pressure to show its dominant [arming up middle east, India etc]. Even Uzbekistan, previously US ally, has now joined SCO, after Bush critised its president Islam Karimov for a violent crackdown on protestors. Several occasions now that Russia has re-established its cold war exercises, sending long range fighter to international airspace [recently, British fighters have been scrambled to escort Russian long range bombers]. Is this just a political gimmick, or something more?



3- The big players? consolidation?
Stock exchanges
LSE [London Stock Exchange] had 55% up in profits after resisted hostile takeover by US rival Nasdaq. LSE then agreed to take over Borsa Italiana [one effort to ensure LSE's independence rather than being taken over by other exchanges], while Borsa Italiana in itself is exercising its option to buy out stake in Euronext. LSE is now collaborating with Singapore Exchange [SGX] and LSE is planning to take a large stake in SGX in the next few months. Borse Dubai and Nasdaq are bidding for taking over Sweden Exchange owner, OMX. The Qatar Investment Authority, which is also preparing to buy J Sainsbury, the British supermarket chain, is joining forces with three major Italian investors to take Nasdaq’s stake in the LSE, worth around £1billion. Nasdaq is selling its shareholding in LSE [after fail in hostile takeover] to increase its offer for OMX to compete with Borse Dubai.
There are several other profitable stock markets being watched by the world major players. This is the beginning for consolidation of world stock markets.

Financial Data Vendor
Thomson financial, agreed £8.8bn acquisition of Reuters, creating effectively duopoly with Bloomberg. The merged company and Bloomberg eash has 24% of the financial data market. Standard & Poor's and Moody's have 13% and 10%, while Interactive Data is the closest rival to Thomson-Reuters and Bloomberg, with 3 %.

Rating agencies
Big three - standard & poor's, moody's and Fitch are under fire, recently by Michel Prada - head of the main french financial regulator, who is now trying to put the blame on regarding subprime issues. Of course someone has to pay for the services of these rating agencies and similarly, in investment banks, most research being done in house, That is why we have "Chinese Wall" policy.



4- Dubai
The ruler, realised when the oil was first found in 1966, the oil reserves will only last 30yrs or so, after the drilling started. They realised that the only way is to diversify the investment and revenue streams, using the oil money. In 1975, oil revenue made up 64% of Dubai's GDP. By 2010, the aim is for 25% economy from knowledge economy [everything from education , media to biotechnology] 70% from tourism and 5% from oil and gas.

Some projects in the pipeline including Dubai Internet City, Dubai Media City [also includes Dubai Studio City], Dubai Knowledge Village [1km long campus designed for mega universities and colleges etc], Dubiotech [Dubai Biotechnology and Research Park - a vast technology part for biotechnology, pharmaceutical and life sciences sectors - due to open early 2008], Dubai Health Care City [opening 2008], Dubai Festival City [1,600 acre project, opening 2010], Dubailand [aiming to be the main key to attract 15m tourists a year by 2010 - leisure city covering more than 100 square miles, twice the size of all Disneyland and DisneyWorld resorts put together - first phase opening in 2008, final phase between 2015-2018], and some other mega projects including series of artificial island projects.

Dubai now has [or will have] "the" of almost everything, from the tallest building, the largest man made island, the largest indoor ski slope, the largest airport [Dubai World Central International airport], to the biggest shopping mall, Dubai Mall.

UAE is reckoned currently to be home to almost a quarter of the world's 125,000 construction cranes, while some estimates that Dubai alone has 18% of the world total, more than 22,000 cranes.

On the other point, The World Economic Forum ranks the UAE as the most competitive economy in the arab world. When Dubai is isolated from the rest of UAE, it is even better, ranking ahead of Japan, Britain and Germany in terms of government efficiency and economic competitiveness.



5- China
China recently announced moves to allow Chinese investors to invest indirectly in foreign equities and derivative products. The annoucement itself enough to surge prices in Hong Kong listed stocks in the mainland. Why? Because, yuan deposits in China at the early May was $4.8 trillion. Fitch ratings estimates China held nearly $500bn in external assets last year, excluding forex reserves. At the same time, Chine is setting up an agency to invest part of its $1.2trn reserves in world markets.

This change is especially good news for global money managers that havent set up domestics operations in China, as they can now partner directly with Chinese banks to sell foreign equity products to chinese investors. Global fund houses will be long term winners from China's decision to let banks invest client money in overseas stocks, offering a new channel for the international fund managers to tap into more than $2trn in personal savings.



6- Technology:
Free software
To fight with Google Apps and OpenOffice, Microsoft will be launching free software, its ninth edition of Microsoft Works package end of this year. Of course, it will be ads supported and this will be a testing ground. Who knows, maybe later, more free Microsoft software will come, such as Microsoft Office?

Cyborg
Japanese invented mechanical suit [Hybrid Assisted Limb -HAL] that potential restores movement to stroke victims and paraplegics. It potentially be in the market as early as end of next year. Hope to those unable to walk.



7- Minerals
Seabed mining
The potentially largest seabed mining for metal [not oil] ever? Nautilus' project is progressing well off the coast of Papua New Guinea.

Glencore
one of the largest private mineral companies [incl oil, coal etc] in the world...and the most secretive of all.
yet, they have only basic info on their website [http://www.glencore.com/]. It was founded by former fugitive financier Marc Rich.



8-People
Warren Buffet
His parent company, Berkshire Hathaway [BK], has several setback lately. Sequoia Fund, has sold off their shares, reducing their stake in BK from 35% to 26%. Similarly Weitz Partners Value Funds, has reduced their holdings of BK shares. And significantly, Davis Financial Fund has exited from BK, reported selling $49m worth of BK A shares. But why these mutual fund managers, who are apparently have close relationship with Buffet, selling their stakes? Is it due to Buffet's age, 77? These selling of shares were despite Buffet has assured shareholders that a change in management [he is yet to name a successor] and a possible shift in control to Bill & Melinda Gates Foundation will have NO IMPACT on Berkshire's fortunes.

Most powerful Twin
For those didnt know, perhaps, Jaroslaw and Lech Kaczynski, is the most powerful twins, as the first is the prime minister of Poland while the later is the President.



9 - Right time
There are several heavy-weights who are now [or about to] mobilising their surplus funds to buy out many undervalued shares [ie to take advantage of the market chaos - buying when people are panickingly selling at cheap]. Below are examples:
- Alchemy Partners - has £300m stanby, which up to £100m could be spent up within the next few weeks. Currently working on 5 public-to-private deals.
- funds that making profits from sub-prime chaos [they hedged on the opposite direction], such as Paulson Credit Opp that made profit of about $800m, MKP Capital, Brigadier Capital, Pursuit Opp, Highland Capital, etc.
- even Berkshire Hathway [ie Warren Buffet] who is ready with $50bn cash, is waiting for the right time - when share and bond prices dropped due to panic investors and private equity executives are desperate to close multi-billion deals. Buffet has done similar thing during dot-com crashed. City analysts and fund managers, who have available cash, are likely to follow Buffet's next moves.



10- Statistics
- Foreign investors now own 40% [worth £742bn] of the shares listed on the London market. [36% at the end of 2004]. The biggest are held by North American investors [about 33% of all foreign-owned]
- British private investors only owned 13% [14% in 2004]
- Insurance companies account for 15% of the London market [17% in 2004]
- Pension funds only 13% [165 in 2004]
- hedge fund 10% [3% in 2000]
- the rest, owned by others

amongst the best performing markets:
- commodities [mineral - mainly diamond] in Botswana [index returns for the last 12 mths - 109%]. To take advantage of the soaring price of Diamond, The Diamond Circle Capital, is expected to float in LSE as early as Nov 2007.
- Riga [Latvia] experienced property appreciation of 61.91% in the first quater of 2007 [however, recent data by Latio shows that prices have started to fall in Q2 2007]
- XXI Century Investments fund - made total returns of 108.3% over the past 12 mths - the funds invested in properties, mainly in ukraine. Another excellent property fund is Dolphin Capital Investors [returns of 76.1% over the last 12mths] -mainly investing in Greece, Turkey and Croatia



Zifri
14 Sept