When GDP data prompts this kind of debate one does wonder - less than 3 months away from a seminal election - about the independence and integrity of the Bureau of Economic Analysis.

Editorial balance demands, on the the hand, noting that the opposition side in the November contest stars a squad containing some members of exceedingly imaginative disposition: Hillary “sniper fire” Clinton and Joe “Daddy was a coal miner” Biden.

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In this week from Eurostat:

"The EU27 population is projected to increase from 495 million on 1 January 2008 to 521 million in 2035, and thereafter gradually decline to 506 million in 2060. The annual number of births is projected to fall over the period 2008-2060, while at the same time the annual number of deaths is projected to continue rising. From 2015 onwards deaths would outnumber births, and hence population growth due to natural increase would cease. From this point onwards, positive net migration would be the only population growth factor. However, from 2035 this positive net migration would no longer counterbalance the negative natural change, and the population is projected to begin to fall.

The EU27 population is also projected to continue to grow older, with the share of the population aged 65 years and over rising from 17.1% in 2008 to 30.0% in 2060, and those aged 80 and over rising from 4.4% to 12.1% over the same period."

May turn out all those young, potential EU28 pension contributing Turks (42% of whom are under the age of 18 according to UNICEF) are actually sufficiently European after all.


NB: According to Eurostat, "The age dependency ratios are used as indicators of the level of support of the young (aged 0-14 years old) or of the old (aged 65 years or over) by the working age population (conventionally aged 15-64 years old). They are expressed in terms of the relative size of the young or the old age population to the working age population."

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A brief message to the serial optimists at the Fédération Nationale de l'Immobilier (FNAIM):

  • New stock sales are down 34% year over year in Q2 (Ministry of Ecology and Sustainable Development)
  • In some regions the decline is over 50% (Aquitaine, Lorraine, Bourgogne, Limousin and the Midi-Pyrénées)
  • Despite builders pulling over 27% of their stock off the market available inventory sits at a record 110,500 units
  • New starts stand at 402,000 suggesting overhang is on the way
  • The downward sales trend concerns both investment properties and, notably, primary residences (Fédération des Promoteurs-Constructeurs de France).
  • Even Paris has seen transactions drop 20%
  • Some observers have bolted from the comfort of forecasting gentle single digit declines: Société Générale expect a 25% fall (10% in the capital) over the next 2 years.
Possibly the FNAIM's carefully chosen data samples ("quelle crise?") are painting an overly rosy picture. Which may explain the optimism of this seller, observed Monday in Paris, however prestigious his location.



As for commercial property the anecdotal evidence is not good: these (also from last weekend in Paris) all in the space of 500 metres.

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Results du jour from Brixton: Tim Wheeler wheels out Bob Dylan lyrics to help interpret the state of the UK property market as seen from his Chief Exec’s perch at UK REIT Brixton plc (the equity price graph of which nicely mirrors the cycle since 2000). He quotes (or maybe even karaokes) from “All Along the Watchtower” thus:

There must be some way out of here
Said the joker to the thief
There's too much confusion
I can't get no relief
Businessmen they drink my wine
Ploughmen dig my earth
None of them along the line
Know what any of it is worth
And adds his own, less musical but uncomfortable for the serial deniers, contribution:

“Certainly, a fundamental current problem with direct property is indeed assessing value to "know what any of it is worth".

The IPD UK Quarterly Index has shown relatively modest falls in capital values during H1 08: -8.3% throughout the commercial sector and -8.2% for industrials. But there have been few relevant comparable transactions. There is no real depth of evidence of willing buyers and sellers - the RICS Valuation Standards' assumption. Financing remains difficult and sellers are reluctant to crystallise lower prices.

If the "thieves" are the funded or equity based opportunist buyers and the "jokers" are the owners who won't sell, there is no "way out" of this impasse - yet.

[…]

So what is the "way out of here"? We believe that the sector could start to stabilise and recover if increased volumes of secondary and tertiary stock are traded in the next 6-12 months as distressed property starts to be made available. Initially, this should enable a return to more appropriate mark-to-market pricing.”

Full text here; and the vulnerability of the portfolio's yield is best enjoyed with Hendrix.


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Via new site Decision by Squiggle - technical analysis direct from the vineyard.

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Sorry. Significantly concerned.


"Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability."


NB: Table courtesy Dow Jones Newswires

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Gold may be a shelter from the storms but when everyone and his dog jump in first and ask questions afterwards there may be a few problems. Such as when bullion heavy crowds, suffering equity selling fatigue, start eyeing up the financial crocks of the night and thinking, gee, in this light that one looks pretty good for a crock.

Fear and the blind stampede back into gold will return but, for now, feedback buying has moved on. Still, spare a thought for the diggers in the trenches who suffer through these things.

Gold producers tend at times like this to lie back and cite various bewildering costs per ounce ranging from $200 - $370 (Goldcorp and Barrick) to $530 - $612 (La Mancha Resources and New Gold). On the face of it, then, nothing to worry about.

Yet careful reading of the notes to the accounts is often needed to work out who is including capital expenditure or, for example, the start up costs of new mines. Nick Holland, the CEO of South African miner Gold Fields, puts his firm's operating plus capex costs at about $800/ounce. He also sees this number as a price-floor. But, economically speaking, that depends a teeny weeny bit on market demand (and, of course, momentum chappies).

With production costs rising and gold sitting at $805.25 (off $57.25) that level is about to be tested.

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Today the Questor column in the Daily Telegraph slapped a 'buy' on Barclays Bank plc. Without judging this call - beyond wondering if libertine Mr Litterick is treading the path himself - it is borne of a wider 'feeling' lacing the current equity rally. A 'feeling' out of the 'money must work' and ' there will be a bottom in the next year' schools of thought. Thus are sidelined trillions leeching back in.

Of these, Sovereign Wealth Funds (SWFs) alone control circa $3 trillion. The Guardian produced a neat map illustrating this in February but a superior, more comprehensive (but less legible) version was published by La Tribune.

$3 trillion is not huge next to global market capitalization worth (circa $50 trillion). But it is significant and growing: Citi project SWFs to grow to $7.5 - $10 trillion by 2012. Today SWFs are worth about double the assets under management of private equity and hedge funds combined; and their risk appetite (fortunately for banks holding distressed loans and securities) spans what is available.

Compared to traditional asset managers the numbers are still small. The top 3 asset managers control about $5.5 trillion. But SWFs are incremental and focused increasingly on the financial sector. In 2007 and year to date 2008 they have invested about $65bn in financials - over 70% of all SWF investments.

Exhibit 1: Improving risk conditions for banks


These funds and the 'feeling' are what have driven the recent run of improvement in risk conditions and equity prices. But it is, ultimately, a gamble that US residential housing markets don't become another 15% (or more) worse; or that there is no inconvenient exogenous shock.

Cynics who consider it likely benefiting banks will end up lending a minority of the windfall - with most destined to buttress the destabilising effect of future write-down streams - may wonder if SWFs, carefully sterilised domestically, are merely breeding a new variant of Dutch Disease for export.

In the meantime everyone watches developments in the real economy.


NB: Chart background graphic courtesy the BBC website.

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When my three small children ask me what is I do for a living it is not a simple explanation to make to young minds. This situation is especially problematic for my oldest son who has his ear bent regularly by his best friend about his Dad’s engineering prowess. He wants to say I do something equally impressive as making prosthetic limbs.

Unfortunately, I can’t match that. Although I could tell him quite a bit about the US private equity firm that bought the French company in question and forced his best friend’s father to work longer hours and speak English.

So in the end, realising using words and phrases like ‘accounting’, cash flow’ and ‘price ratios’ could push them to put themselves up for adoption by a bunch of medical engineers, I asked them to give me a list of a few of their favourite things.

1. Coca Cola
2. Kentucky Fried Chicken (“for the taste”)
3. McDonalds (“for the games”)
4. Nintendo
5. Barbecue chips
6. Puzzles
7. Airfix models
8. Children’s books
9. Outboard electric motors (this the influence of recent holiday activity)
10. Small outboard powered boats (ditto)
11. Bowling

Notwithstanding the heresy in France of item 2 a few conversations later this led to construction of a broadly equal weighted portfolio on 1 August of the firms that make these goods.

Encouraging performance at the time of writing (though the tracking site is not yet handling the fx correctly thus hopelessly confusing the portfolio value and return data) and their interest is piqued. A bit.

Fortunately, the word ‘benchmark’ is still unfamiliar to the children so they are not yet asking for family league tables.

A live portfolio tracker of their picks is in the sidebar.

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Super, unfortunately untradeable, graphic from Le Monde.

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Buying gold producers is not the same thing as buying the metal itself.

Canadian majors Barrick and Goldcorp would be content to confirm this with discussions of loonie strength, energy input costs and stroppy labourers asking for higher wages. Which, in today's context, is another way of talking about inflation eroding margins.

So for gold producers the double edge is sharp - whilst gold price rises are welcome, the very forces responsible for them make controlling costs of production a serious challenge. A hedge for producers to watch carefully.

Thus on the day when inflation rears its head more than expected but crude is off a few dollars one might expect gold producers to be sort of pleased. Unfortunately, gold is not exactly glittering this afternoon - off $15 and change.

Barrick and Goldcorp, of course, tend to strongly track prevailing gold ore prices; and this is visible in their price graphs today. But what to make of Gold Eagle Mines' price action?

It is, apparently, all about synergies and boosting reserves. Gold Eagle were bought by Goldcorp last week and the divergence between spot gold and spot Gold Eagle in the weeks prior to the announcement (look carefully) shows some clever analysis by a few seers.

I mean that, for a change, sincerely. Well, partly. Gold Eagle held 8 kilometres of land adjacent to Goldcorp's vaunted Red Lake district. Agnico-Eagle Mines Ltd, a smaller rival to Goldcorp, bought over 5% of Gold Eagle in June. Goldcorp did not feel they could cede the turf. So the deal was hardly a complete bolt from the blue. But nor was its likelihood a no brainer either - it is , after all, a US$1.5 billion transaction that Goldcorp have undertaken.

But the point is that it is not just about synergies and reserves. And there is, perhaps, yet another subtlety in the episode. Agnico-Eagle stand to make over C$25m on their stake. That would be a 50% plus gain in less than 8 weeks. For a firm turning over circa US$425m annually that must appear to be mighty easy money. Certainly simpler than digging for it. A one-off?

That's possibly enough to make worthwhile the time spent looking over other gold/gold producer equity divergences in the sector.


Related articles:
Stocks decline following inflation reading
Barrick and Goldcorp: analysts make adjustments
Goldcorp Consolidates Red Lake Holdings With Gold Eagle Acquisition
Goldcorp Agrees to Buy Gold Eagle for C$1.5 Billion


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