Having commented yesterday on continuing manifest delusions in Dubai, it is only fair to cast an eye outside the region.
Today's FT regular feature
"The Short View" contains the following lead paragraphs:
"There was a sense of relief in the markets yesterday. Abu Dhabi's $10bn bail-out of Dubai was cheered while Greece, the wobbliest eurozone member, strove to reassure investors of its plans to manage its own parlous finances.
Put them together and they look like a calming of the sovereign risk fears that arose last month. Of the two, Greece is the more important as an example of the danger posed by the market's lack of faith in a government's ability to manage its spending."
The FT has captured the market's reaction quite well.
One wonders (well, at least AA does) what the "efficient" markets are thinking. Or precisely if they are thinking.
A borrower with by some accounts $100 billion in debt has avoided a default by the timely kindness of the Shaykh up the road. But the charitable contribution was for only for one-tenth the sum. Upcoming debt maturities still loom. The value of the borrower's largely debt-financed assets - which are composed primarily of overpriced and extravagant domestic and foreign adventures - are still depressed and unlikely to rise in value to their original cost in the next few years. Operating cashflow remains weak - ignoring of course unrequited transfers as defined in balance of payments terminology.
As far as I can see, there has been no fundamental change in that borrower's debt position or its financial resources., including cashflow which according to my experience is what most debtors use to settle their obligations. There is even some disturbing indication that the borrower has yet to put aside its own delusions. Yet markets are euphoric.
A politician from another borrower in the "developed West" has stated what everyone with a modicum of intelligence has known about his country for years. He has vowed to do something about it.
Yet again markets are relieved and calmed.
Developing a severe case of financial euphoria based on last minute bailouts and the apparent magical belief that they will continue seems a bit of an over reaction, one potentially hazardous to financial health. Though I suppose there is something to be said for consistency. After all by and large the original commitments seem to have been based on the same sober theory.
Even more puzzling is what charitably might be described as naive credulity in the promises of politicians. While as the mandated warming on finance literature says "past performance is no guarantee of future results", it does seem that a careful investor would scan the historical record for some insight into probabilities. In AA's experience a politician's promise generally has less worth than the famous implicit guarantee.
All this I suppose explains the
Cobalt IPO. A company with a
postulated market value of US$5.3 billion despite the lack of any current revenues and no prospects for revenue for the next two years. The shares of which are described by one wag as a lottery ticket.
Sadly, I'll have to turn this down. I've just received a compelling email investment proposal from a chap in Nigeria. And not only will I be making myself rich but I will be helping out someone retrieve his father's ill gotten gains temporarily blocked by unsympathetic authorities. But prudent investor that I am, I'm not putting all my money in just one bright idea. I've got another email today and for a small sum, I can buy a share in ElGordo ticket.
I see an apartment in the Palm in my future. High floor only. A very high floor. AA does read more than just the financial press.
Posts
