Fewer Cranes in the Skyline

The 50 Billion Dirham lending facility created by the Central Bank of the United Arab Emirates last week helped ease concerns over short term liquidity issues in the Dubai real estate markets but it has not been able to stem the concerns over slowing development going forward. Local media outlets have recently begun to feature bearish sentiment from developers like Mohammed Nimer from the Moafaq Al Gaddah property development department, while bank analyst estimates for property value declines range from 5 to 15% in the near term.

The declining share price of local construction and development firms are only the most visible manifestation of the cooling pace of new building starts –from scrap prices in the US driven by Gulf rebar demand to worker remittances critical to the Philippine economy, the massive Dubai construction boom of the past decade has truly been a global phenomenon. Though UAE leaders are anxious to project the image of an economy insulated from global turmoil by the flowing torrent of petrodollars, stock investors enriched by that same oil money have begun taking their chips off the table.

Andrew Barber

Shipping capacity available

While CNBC, and the consensus investment community broadly, have been focused on the global credit situation, we have had our “Eye” on the Baltic Dry Index, which is making multi-year lows. The Baltic Dry Index is a proxy for world trade as it tracks shipping rates for large ships that move dry goods and commodities around the globe.

The chart below outlines rates for Capemax, SupraMax, Panamax and Handysize ships, whose day rates have imploded since the July/August 2008 time frame. Collectively these ship types transport more than 95% of the dry bulk goods (primarily cement, coal, iron ore, and grain) around the world.

As per Wikipedia:

“Because dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finished goods, such as concrete, electricity, steel, and food, the index is also seen as a good economic indicator of future economic growth and production, termed a leading economic indicator because it predicts future economic activity.”

We couldn’t have said it better. Declining shipping rates means growth is slowing and will likely continue to slow. For those “Fast Money” enthusiasts who believe global growth is going to bail out the U.S. economy, it may be time to study the chart below.

It’s global this time, indeed.

Daryl Jones
Managing Director

Solid Gold: Yes - I'm Staying Long GLD today in the Portfolio...

I received a lot of questions on why I bought gold last week. As long as the US government stays the course, de-valuing the US Dollar and levering up the US' Balance Sheet, I’m bullish on gold. I have a 96% position in cash, and a 3% position in yellow rocks – that works today.
  • My immediate term target for gold is $946/oz.
chart courtesy of

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Visitation to Hawaii took a steep dive in August - down 17.3% from the same period last year. We suspected that the Hawaiian tourism industry had tough times ahead (see “IN TIMES LIKE THESE ALOHA MEANS GOODBYE , 9/20), and the August figures, while ugly, are no surprise to us. The factors we outlined in our 9/20 post continue to hold. The weakening global economy, stronger dollar, and less airline capacity have outweighed the significant discounting. The deals are not attracting more visitors. Furthermore, the visitors that are going to Hawaii are spending less – 18% less in August – than in previous years. This clearly indicates that we are seeing a genuine downturn in the tourism industry rather than any sort of transient blip. Hawaii has been among the most robust markets but is now in serious difficulty. This is yet another glaring signal that HOT and other lodging companies must heed when outlining their guidance. In order to be credible, EBITDA and EPS estimates need to be reduced by 10-15% and 20-25%, respectively, partly due to Hawaii.


Pakistan’s Tourism Development Corporation (PTDC) and the Tourism Ministry and National Highway Authority (NHA) put their collective heads together to address the issues facing tourism. As reported by the Daily Times, these groups felt climate change impacted tourism more than terrorism. “They said tourism was a victim of climate change mainly due to global warming and lawlessness. They said climate change inflicted socio-economic stresses on tourists, often leading them to criminality.”

Apparently, the fear of being blown up in a Marriot Hotel pales in comparison to the thought of being a touch warm and driven to criminality by the heat.

I bring this up because the threat of global unrest is moving up our concern list and there are not many sectors that would be impacted more than lodging, leisure, and tourism.

Shifting Gears

Feet on the floor – the weekend is over; it’s time to get at it again. It’s global this time, indeed…

I’ve exhausted my batteries attempting to handicap the US bailout’s timing. This morning, I am going to shift gears back to the global macro grind. The two critical revelations today are that the US government bailout plan went from 3 pages to 106, and that the government bailout contagion isn’t just local; it’s global.

In the UK, the British are seizing and nationalizing their 2nd bank this year. Germany is bailing out Hypo Real Estate (largest German Real Estate investor). The third largest Icelandic bank, Glitnir, needs bailout cash. Belgium’s largest lender, Fortis, is getting $16.3B in bailout capital from 3 countries – Belgium, the Netherlands, and Luxembourg.

European markets are getting tagged on this, as they should. The Netherlands is down over -4%; Belgium is down -3%; and markets from Ireland (-5.2%) to Austria (-3.5%) are waking up to their own European economic and political realities. Away from the global leverage contagion, there are plenty of geopolitical issues at work that need to stay in focus. Austria for instance is seeing record gains in anti immigration support, while the Ukrainians have lost their government in the face of grave Russian threats. These people couldn’t care less about crack-berries and up to the minute coverage out of Washington D.C.

That said, for whatever reason, the Europeans do pay attention to Obama, and the post US Presidential debate polls have moved decidedly in his favor. The Bloomberg/LA Times poll had the post Friday debate score at Obama 49% over McCain at 44%. Interestingly, that same poll saw Obama up 46/33 and 48/36 on who “seemed more presidential” and who is more apt to handle the financial crisis, respectively.

Obama winning certainly doesn’t have positive implications for US free market capitalism as we knew it, but I am having a hard time defining what a Republican thinks that is these days anyway. When it’s all said and done, Regulation and Regionalism may very well be the main outputs of this crisis of confidence. If that’s the case, it will not auger well for the rest of the world. This morning, from Asian stock markets and currencies to European real estate and markets alike, investors are not buying into the fundamental outlook.

Asian markets were led lower by -4.3% and -4.2% meltdowns in Hong Kong and India, respectively. China was closed, but Japan was open, and as sure as the sun rising in the East, the Nikkei closed down again. We remain short Japan in the Hedgeye Portfolio via the EWJ etf, and my immediate target for the Nikkei is 11,493. Last week, we wrote a note titled “Is The Top For The Chinese Yuan In?” (, 9/26), and we discussed linear correlations to that potential conclusion. The Yuan is one of the few Asian currencies holding together here, but mean reversion is an unfriendly critter to wake up to. The Indian rupee hit its lowest level since 2003 this morning; inflation there remains sticky, as economic growth is decelerating at an accelerating rate. This is Asia. It is global this time, indeed.

Morgan Stanley is waking up to this today, cutting their growth targets for South East Asia and India. Gee, thanks. Citigroup, is cutting their target for nickel prices by 40%, after the fact as well. These are reactive rather than proactive “investment strategy” calls. Do not expect the quality of the research from these institutions to improve as the zero bonus factor plays into year end planning.

My shifting gears this morning also requires my shifting to finding some proactive solutions to this global economic mess, so expect that from me as we start to invest some of our 96% cash position into market weakness this week. Our research team is especially interested in high dividend yielding stocks which have solid balance sheets. This isn’t rocket science, but stylistically at least, it’s all of a sudden unique.

With Q3 of 2008 winding down, politicians and portfolio managers alike are crying wolf about the worst financial crisis since the Great Depression. The facts, however, paint a different story. The Russell 2000 is actually +2.2% for Q3 to date. Pardon? Yes, facts are stubborn little critters aren’t they?

Good luck out there this week,

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