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Patrick L Young Newsletter The Frontier Financier - Prologue
 

 

In Patrick's Opinion

 

008

Fundamental Values
 

“Capital must be propelled by self-interest; it cannot be enticed by benevolence.”

- Walter Bagehot

 

Dear <<First Name>>,


Of course to the casual onlooker it’s all so clear: famine, fire, pestilence and flood has ravaged the fabric of the world’s assets. Bubbles have burst, banks have collapsed and now we are heading towards recovery after a ghastly period of searing recession.

Now I don’t intend to be a party pooper in the negativity school with every missive I write but after all that entirely justified bullishness over Poland the other week, it is time to revisit the dark side of realpolitik. For wherever we look right now, it seems clear that western governments are failing. True the US had a major success breaking a Russian spy ring but that only proved how completely incapable of creating commercial opportunities the British government are. The raven-haired temptress of the tabloids, Anna Chapman, has now been stripped of her British passport in a move to make Britain safer. This itself seems bizarre as pretty much everybody on the planet could not recognize Anna Chapman more easily than the British Prime Minister who has had to start abusing Pakistan to get some facial recognition around downtown Islamabad. Rather banning Chapman was an act of rank stupidity as during the summer her reappearance on British soil would have been a massive tabloid farrago which would help Britain’s invisible earnings soar as the paparazzi exported their wares to the rest of the world.

...At this stage you may think I am digressing by dint of the fact that the silly season is upon us but actually dear reader, I am merely softening you up for the rest of this letter. Have another sip of your favourite poison and read on...

True markets have bubbled and burst. Prices of Latvian property dropped something like 26% y/y in Q1 2010, the market is easily about 65% off it’s peaks and probably more. In Ireland at least one unfinished development is being returned to farmland. And yet, something is subtly missing from all these horror stories, the element that makes fiscal sparks fly and creates wealth... oh yes, that’s it: value.

It is an intriguing world where property supplements are going weak at the knees about rental yields of around 7 or perhaps 8% on distressed Dublin property. True that might look exciting compared to the a few years ago but the problem is it just does not fit the usual bubble/bust cycle. For a major league bubble to have concluded its subsequent bust, I don’t have to see blood on the streets per se but we do expect very juicy returns. The worry here is that lots of properties at 65% or 75% below their bubble tops are merely cheaper. They don’t actually provide what could be called ‘value’ per se - not in any long term historical sense. Busts ought to be providing us with 12-15% property yields if the historical norms are being observed . True, interest rates are low but it seems unlikely that current surplus cash is going to suddenly mop up the vast quantities of houses that are currently surplus to requirements (some 200,000 in Ireland alone).

Equally there will be those who note that there is a lot of ‘hot’ money bolstering other asset classes. Meanwhile classic car values have continued to show appreciable increases across the board. Those with reasonable memories will recall that 20 years ago the classic car market kept going up in value after the 1987 equity crash when  the UK property market had tailed off and the economy was already mired in recession. Frankly I cannot see why this time is any different. Asset values of all kinds are remarkably high for this point in the recessionary cycle, particularly as I still can’t see anything but a double dip on the road ahead. Right now most assets are priced for a very optimistic recovery, not the continued downturn we are staring in the face...

As usual it's been a pleasure talking at you...


With best wishes,

Patrick

Patrick L Young
patrick@derivativesvision.com


 


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It’s summer so I am at home in Monaco but thanks to a lack of political leadership in Europe, there have been ample opportunities to speak with the media. For my most recent videos from RT News channel, have a look on my newly revamped web site: www.patricklyoung.net.
 
Various projects are in the works currently with more news to come!

In the Media



Current Projects

I'm hard at work on the final edits of a book for charity with contributions from a welter of serious hedge fund maangers, analysts and pundits...more news to follow soon!

Several new start-up exchange ventures are on my desk while various publsihing ventures are also nearing fruition!


Travel Plans

Various destinations in Europe likely during September including London.

About This Newsletter

Patrick L Young is the author of several financial market books such as "Capital Market Revolution!" and

"The Exchange Manifesto" His Op Eds have been published in most of the world's leading financial media such as the Financial Times and Wall Street Journal while he has appeared frequently on BBC,CNBC, CNN and other digital media throughout the world.

My expertise is, (in no particular order!) exchanges, derivatives, market infrastructure and financial centres, as well as emerging markets. I can claim modest provenance as an early adopter on the web, having published various online magazines along with other WWW ventures since 1995. Nowadays I enjoy a varied portfolio of advisory work (most notably for investors in exchanges) but along the way I have done just about everything from multiple financial start-ups through to advising government and other stakeholders in financial centres the world over. I also indulge in some  entrepreneurial projects too. After more than 20 years in finance some folk might think I am due a spot of remission for good behaviour. I think it is clear from this bulletin, my passion for markets remains as keen as ever!

 

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