Autumn Sales Start Early

The Autumn sales seem to have come around very quickly this year. First of all we read of the private equity firm, Blackstone’s sales plans for part of its portfolio of businesses. Blackstone is the world’s largest buyout firm, and has now just recently changed its tune about the state of the financial markets, after being a voice of doom for so long. Its founder Steve Schwarzman, now with a more positive air, is feeling that the worst is over for private equity, and that this might be the time to start off loading (sorry obtaining better value for) some of their investment portfolio.

Successful private equity companies thrive on turning over their investment portfolio of
businesses, if only to ensure that they are bringing real cash and are not just sitting on an illusory and often unprovable paper value. The past couple of years has led to a clogging up of the private equity channel as willing buyers and investors dried up, thus leaving the private equity firms with sedentary assets with no capital inflow for further investment.

Now however, Blackstones feel that there is enough investment appetite to list and float up to eight of their businesses and potentially sell at least another five. If successfully carried out, this is a major turnaround for hard pressed private equity firms and a sign of confidence in investment markets and which may mark an easing of the market gripes as they awake from their torpor.

Meanwhile at the poorer end of the high street, our own Government has floated the idea of some sales of national assets in order to raise a little bit more cash. Earlier last week you may have read a list of state assets which might be up for consideration of sale. With the campaigning for the UK election next year having already unofficially started, any such announcements were bound to be greeted with a level of cynicism.

However, when you look at the list and the potential sums being talked about, the list and its potential value does look rather pathetic. Hardly the family silver, which of course is now mostly owned by the French and Germans (in terms of utilities), but rather the silver plated cutlery that was forgotten and finally found in an old canteen in the loft.

So what could be included? The Tamar Bridge linking Devon and Cornwall, the throbbing travellers’ communications hub of Newquay Airport, or even the stationary (in every sense) Dartford Crossing - not exactly a mouth watering selection of unique British assets that the world would be clamouring for, but rather the “garage sale” of what might be left over by a desperate government in disastrous financial straits trying to raise some cash - any cash. Better to sell Tower Bridge and chuck in Lundy as well.

With an estimated sale value of £16bn this hardly goes far in addressing the UK debt mountain of £800bn. So why sell future income generating assets at knock down fire sale prices - have we not learnt anything? Can someone please remind our leaders of their pathetic management of the sale of our gold reserves back in the late 90’s - then at around $275 per troy ounce and now over $1,000. Anyone booked the IMF any hotel rooms yet?

The UK needs a clear plan to manage our way out of this mess and we are not getting it, and every day that this goes on will put further pressure on our currency and our ability to raise funding cost effectively.

You have shown that you can’t manage your own expenses, and you can’t manage our national expenses - so just go, will you?

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Another red flag warning went up on China last week when figures on the aggressive Chinese stimulus plan showed some worrying signs. Although the world must appreciate this huge package in terms of its expenditure and stirring up of global economic activity, there are downsides and risks as well.

One area to watch has been the massive increase in bank lending (see the graph below) which will have helped to propel the growth figures due later this week and are likely to show a growth level of 9% in GDP. The increase in lending and money supply is giving a legitimate concern about overheating and price bubble concerns, but it may be looking a little further out there may be a more important issue to watch.

Although the trade surplus figures have reduced quite significantly, much of this seems to have been caused by commodity stockpiling (with copper imports up 87% compared to last September) this may well bounce over the forthcoming months as the strategic stockpiling comes to an end. This will be exacerbated by the effective currency peg of the Renminbi to the US$ which due to the latter’s depreciation, has effectively devalued it by some 10% against many other currencies.

The effect of this could be then to hear those old accusations of cheap product dumping again as more products are produced and being sold and apparently cheaper prices. The protectionist cries will be heard again and louder.

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And finally... having trouble with your marriage and worried about the cost of a divorce?
Maybe there is an answer from a Malaysian state government, which says it is planning to offer free honeymoons to save the marriages of couples who are on the brink of breakup.

Ashaari Idris, a government official in northern Terengganu state, says troubled couples will be allowed to spend two nights at the state's scenic islands or beach resorts to help them rekindle their romance under a "Second Honeymoon program”.

He said on Monday that couples who enrol in the program must however also undergo
counselling. Mind you for a holiday on a Malaysian island it’s probably worth having a decent argument.

Have a good week and happy Diwali.

Justin A Urquart Stewart
Director
Seven Investment Management Limited

For previous editions of our Weekly Update, please click here

This article represents a personal and light-hearted view from Director, Justin Urquhart Stewart of Seven Investment Management Limited, and is based on current financial news and events around the world. Its content should not be used for investment purposes and you should contact an independent financial adviser before making any investment or financial decision. Seven Investment Management Limited is authorised and regulated by the Financial Services Authority. Member of the London Stock Exchange. Head office: 23 Austin Friars, London EC2N 2QP. Telephone 020 7760 8777. Registered in England and Wales number 4092911. Registered office: 3 More London Riverside, London SE1 2AQ.