My Outlook for 2008

2008 will be a very volatile year for financial markets. Indeed in only one month most indexes decreased by at least 15%.
Moreover, the 4,9 billions lost from the rogue trader, Jerome Kerviel didn’t really calmed down the markets.
Even thought markets looks dangerous it doesn’t mean that you have to be behind the market, indeed a lot of opportunities can be made thanks to this variation.
I have picked 4 quotes that are my Top Picks for 2008.
After a deep analyze, I noticed that those quotes were undervalued. The reason of this undervaluation is due to January’s panic. But companies are actually in good health, which will involve a sharp increase of their prices:

• Nutreco Holding: Small Cap – Very good figures – Starting 2008 with solid bases.

• Rodriguez group: Small cap - With a Beta of 1,4, which means 40% more volatile than the market, it will allow you to instigate your portfolio.

• Essilor International : Big Cap – A low Beta in order to secure your portfolio.

To conclude I only picked 3 quotes but in order to have a good portfolio, you must have an average of 20 different companies from at least 5 or 6 different sectors.
Consequently I will along the year give you my Top Picks in order to clear up your mind on the best investments.
Regarding the beginning of the year, Investors did over reacted so don’t worry the most important is to be able to keep good securities and throw away those which are useless.

Citigroup helped by an Arab Prince

Isn’t that chocking, Citigroup which is the first bank of United States is forced to accept petrodollars in order not to finish the year in the black. In fact it is an Arab melt of investment, which entered in the capital of Citigroup.
Abu Dhabi which is one of the 7 emirates of United Arabes Emirates, injected 7,5 billion US dollar, which is making the Sheik the number one stakeholder of Citigroup.
Since the beginning of the year, Citigroup share lost 46% of their value, due to the sub prime crisis, consequently it looks as a good investment for the Sheik, since the company suffered from this crisis but will certainly make it back.
But this investment shows something not god, indeed it means that Citigroup is really in bad health for the moment, since they didn’t care about selling her shares to foreign countries. Consequently Wall Street is still worried and this financial market doubt could last during several months.

Raw materials : A good investment ?

By looking at this table we can notice that the growth of raw materials is quiet impressive.
More particularly, if we look at uranium, lead (plomb) and nickel, the growth is even larger. We might wonder when does this increase of prices will stop. According to many expertises this growth will last until 2015 at least, consequently it might be a good investment.
This increase is due to different factors; first the depreciation of the money which involved the boost of raw material prices. Second, in 2001 the offer started to decrease due to the lack of resources, and the ask growing due to the investors which anticipated an increase of prices.
To conclude, regarding the petrol, the political situation in Middle East is the main factor that affect the oil price, consequently if we have a look at the last 6 years situation, it makes sense that the price increased by 388%.

The Housing Market

In this article I am going to describe the French and the Spanish housing market which are both approaching new phases. Regarding the French market, since 1996 prices went crazy, indeed they grew by 135%. In the beginning of 2007 we noticed that prices were more constant. According to many expertises, the market will calm down during the next years.
Usually after a big growth we are used to see prices going down, as in United States due the summer credit crunch. But in France there is no reason that prices go down as well, since the growth wasn’t a speculative one, as in United States or in Spain. Moreover the demand for housing is reasonable and the offer of house or flat is still very low. This is why I think that the French housing market will not follow the American crisis, which was due to the high risk mortgage.
But I think that the Spain housing market is going to pass through the same crisis than in the United States and that the prices will sharply decrease. The principal problem is that in Spain there is no law in order to forbidden high risk credit to the population. Consequently many poor Spanish people bought a house in order to become owners. Logically since the demand was high the prices increased sharply. Moreover investors from the all world invested in the Spanish market as well. This is why I think that this speculative bubble will exploded and that Spain will unfortunately live the same crisis than in the United States.

Middle East : The new Wall street ?

After Oil the Middle East found a new activity in order to attract the all world.
We noticed that the Middle east developed her economy sharply thanks to one city which is Dubai. Dubai is located in United Arabes Emirates and his one of the 7 emirates. Poor of petrol they choose to develop the tourism and ports in order to attract investors and tourists from Asia and Europe. Thanks to lot of promotion of the city, and impressive constructions, Dubai is from now on, the hinged plate of the world, indeed all goods from Europe and Asia are transiting to the port of Dubai named Jeb Ali. Moreover the Airport is the biggest one in the world, and brings millions of passengers every years.
But the main purpose of my article is to present a new phenomena that the Middle East is from now on implied to, which is the stock exchange.
Indeed during the last 3 years many cities from Middle East opened their own stock exchange, like Dubai, Koweit or Quatar.
With the income from the petrol they have a lot of money to invest, from now on the different Middle East stock exchange weight more than 1 billiard of US Dollar, which is a nice performance since those stock exchanges are only 3 years old.
As a new market, the average performance of the Middle East stock exchange his very high, such as those in Asia. The weakness of this market is that the structure is mainly based on speculation; consequently they are high-risk investments where the quotes of Midlle East stock exchange can collapse at any moment. The second weakness is that only people from the Middle East can invest for the moment, the stock exchange from Dubai will only be opened to all investors in 2 or 3 years.
The advantage is that since it is a high risk investment, the benefit can be as well high. For the moment I will advice investors, to invest only in short term since the fragility of those markets.
It will be interesting to see in 2 years if those new markets will be more structured and less high risk when investors from all world will be able to get in.

The evolution of the stock exchange

The atmosphere on the stock exchange is very special since September. Indeed few investors thought the Subprime crisis was over, which was a possibility, but actually nobody knows for the moment. Nevertheless the federal reserve announces yesterday a decrease of O,25%, which brings the interest rate to 4,50%. In spite of good figures, from the American GDP with an increase of 3,9% the FED is still showing her fears toward this crisis.
In my opinion the FED made a mistake by decreasing the rate, for two main reasons. First, from now on the US dollar is even weaker and has reached a record with the exchange euro rate (1,45). Second, Another factor important is the oil baril which has reach a peak of 95$. Those two factors can hide future issues that the United States will have to face. By decreasing the interest rate, the inflation is going to increase even faster which is not good for the consumers. We can already see this by the skyrocket increase of the Oil. 3 weeks ago the increase of the petrol was one of my articles, where I was explaining that the Oil should reach the $100, today the brent is negociated at 96 dollar which is a new historical record. You may wonder how come there is this kind of increase, this is still due to the decrease of interest rate which give a facility to all the world to buy oil since the dollar is weaker, and that is why the prices are going crazy !
I am very worried regarding United states situation, indeed when the united states will have to increase the interest rate in order to slow down the inflation, the financials markets are going to react in a bad way. This is due to the fact that the investors are from now on, reacting according to Fed’s decision which is really risky ! Thanks to Fed’s summer decision, the stock exchange didn’t collapse that much, but from now on, it is the everyday life consumers which are paying at a high price, goods that they need for their leaving like petrol!

My Bloomberg’s experience

When Mr. Philimore told us in the beginning of our course, that we will visit Bloomberg London’s offices I was really exited by the idea to discover one of the most important actor of the financial markets. Indeed Bloomberg is used by every investment banks in order to get news, statistics and information from companies really fast.
Blommberg is based in 140 countries with 3 main offices which are located in New York, London and Tokyo. 10 000 employees are working today in the company which is quiet impressive for a company that has been created 26 years ago.
Before the visit, I knew Bloomberg from the TV channel, which enables me to analyse information from the market and manage in a better way my portfolio. I knew the existence of the Terminal but I’ve never had the chance to use it.
The visit started with a presentation of the company, a very professional girl from the public relations explained us in details the framework of Bloomberg.

Let me summarize the main departments:

• The sale department is the main activity from the company. The product which is sold is the Terminal, this software which enables you to get any information from all over the world regarding financial markets. Bloomberg has is own network which you can use to reach any CEO of financial company that are members from Bloomberg’s terminal. Another advantage is the simplicity of the system, which permit to send messages or receive information twice fast as if it was a regular message send by Electronic mail. The mission of the sale team is to sale this product to investment banks or other companies which are implied in the stock exchange and could get advantages by using this wonderful tool. The cost of this tool his not has wonderful as his utility, indeed for one computer the cost is $1500 each month. Is that expensive ? Yes I think so, but on the other hand when you know that this software is able to collect and give information two second faster than any other programme it’s getting interesting. Indeed financial markets is all about information and be the first one to know can enable you to earn few millions !!!

• Regarding the media department, we can divided it in 3 parts. First the television with reporters based in 140 different countries, 10 channels in 6 languages. There is also Bloomberg radio, which you can listen on Internet and in Bloomberg’s elevators (LOL). And last the Internet, which convey information and give us a preview of the Terminal. I was surprised to discover that this department generate only 1% of Bloomerg’s turnover.

• The human resources department
They are the one who interview the future employees in order to choose the best one. They are also in charged of the public relations of the company by doing presentation and guide the visitors in the offices and explain them the image that they convey which is based on the “transparency”.

• The analysts are the one who analyse and collect the information in order to give it back in an objective way to Bloomberg’s customers. The objectivity and transparency of information are the main goal for Bloomberg’s analyst. The difference has investment’s banks which are giving you advices and invest your money in financial markets.

At the end of this presentation we were guided around the building in order to discover the spirit of the company and particularly the “transparency”, indeed as you can see there is no walls in order to let the ideas circulate between the employees of the different departments.
To conclude this presentation, I would like to notice that Bloomberg is a great tool to get information on companies quoted on the stock market very fast, as her last financial report. Nevertheless traders from investment banks use it a lot for her objectivity, but the terminal has some limits. Indeed it is known that biggest profits are usually made on information that few peoples knows, and Bloomberg’s provide information that is years after years known by more and more people.