Saturday, 2 June 2007

Twenty reasons to panic

The media have suddenly discovered that something is rotten with the UK economy. Today, the Times published twenty reasons to panic. Only 20? With a little thought, I am sure that we could come up with another 20 without too much difficulty.

1. Mervyn King’s bewilderment at house prices: the Governor of the Bank of England has been perplexed about what has happened to the ratio between house prices and average incomes. The ratio of London house prices to first-time-buyer incomes has gone from 3 in the first quarter of 1997 to 6.8 in the first quarter of 2007. Ten years ago people were paying three times what they earned in a year for their first home. Now it is nearly seven times. It’s time to ask: is this the top of the market?

2. Stan Thomas’s hotel: Mr Thomas, from Atlanta, Georgia, has bought an old insurance building for £1 million a room. Once it is refurbished, it will have cost £2.5 million a room (give or take a few luxury apartments). This is more than double Claridge’s or The Berkeley. And the Willis Building is not in Mayfair – it’s in Tower Hill. It’s time to ask: is it the top of the market?

3 Florian Leonhard’s violins: a London-based violin dealer is launching the $50 million (£25 million) Fine Violins Fund, which will invest in old violins. It’s not that the value of violins doesn’t appreciate, like wine. It’s that the appetite for offbeat investments is at an unprecedented pitch. And how this is a hedge fund – how it guards against a downturn in the market – heaven knows. It’s time to ask: is it the top of the market?

4 The deal frenzy: so far this year deals have totalled $2.3 trillion, up 71 per cent from a year ago and well on course to beat last year’s record high of $3.6 trillion. Average deal premiums have also risen, with companies making offers, on average, 49.5 per cent higher than the target’s stock price compared with only 24.4 per cent for 2006. It’s time to ask: is it the top of the market?

5 Edward Eisler’s white needle tea: a couple of restaurants in London are serving tea at £10 a pot. It is flown in specially from China, and while it may claim to have antiageing qualities, it can also boast that it’s more expensive than any other pot of tea. It’s time to ask: is it the top of the market?

6 Stefano Pessina’s buyout: the Italian has been able to double his stake in Alliance Boots, buy out the company and still pocket half a billion pounds, thanks to the help of KKR, the private equity firm, and seven banks falling over one another to lend. The deal is a cracker for Mr Pessina, but it seems to distort the link between risk and reward. He actually gets to take money out of the business and increase his ownership of it. It’s time to ask: is it the top of the market?

7 Mike Ashley’s stake in Newcastle United: a successful private businessman has floated his focused retail business and used the money to buy into the Magpies. Shifting assets from the high street to the Premier League looks like a move from the rational business world to the irrational. It’s time to ask: is it the top of the market?

8 Chelsea Barracks, a King’s ransom: Chelsea Barracks, a 13-acre site, was sold on April 5, in a deal worth £900 million, to the Project Blue Consortium backed by the State of Qatar and CPC, the offshore fund controlled by Christian Candy. The buyers offered £800 million upfront and a top-up when planning consent is granted. The MoD put the site up for sale in October through Drivers Jonas, the agent, with a price guide of £250 million. It’s time to ask: is it the top of the market?

9 Loans and fundraising: in Europe, private equity firms borrowed €115.8 billion (£79 billion) for acquisitions during 2006, compared with only €15.2 billion in 1999, and they raised in excess of $263 billion in funding, more than double the $113 billion raised in the boom of 2000. Given that these funds typically take several years to spend, because private equity firms rely mostly on debt for acquisitions, these cash-rich buyout firms will be able to keep on going and going, even if overall market conditions sour. It’s time to ask: is it the top of the market?

10 Ryan McLean’s tent: the 30-year-old pitched a tent in the middle of an Exeter property development, camping there for eight days to have the first pick of the flats, which start at £150,000. “It’s the only flat I can afford,” he said. Again, it’s in Exeter. It’s time to ask: is it the top of the market?

11 Tobias Meyer’s art auction: at the contemporary art sales in New York a fortnight ago, Sotheby’s, Christie’s and Phillips de Pury & Co realised their highest sales totals, $837 million, and more than 120 artists’ records were broken. It’s time to ask: is it the top of the market?

12 Daniel Gross’s bubble: you know it’s time to start worrying when people are talking about paradigm shifts, supercycles and fundamental changes to the economy. And you know the market’s getting toppy when people start writing books titled Pop! Why Bubbles are Great for the Economy. Mr Gross, the author, explains that America needs “periodic outbursts of investor insanity”. It’s time to ask: is it the top of the market?

13 Steve Schwarzman’s IPO: private equity is booming. Across every metric, it’s shaping up to be another record year for private equity firms. The likes of KKR, Blackstone and TPG have gone on a rampage, notching up $489 billion of deals, or 98 per cent more than this time last year. Private equity accounts for about 21 per cent of all M&A, compared with only 3.5 per cent in 1999. The biggest advocate of private ownership – Schwarzman’s Blackstone – is floating its businesses, going public and abandoning its distrust of shareholder ownership to capture the passion for private equity. It’s time to ask: is it top of the market?

14 Blackstone’s expensive pizzas: there has been a spate of increasingly expensive restaurant deals, culminating in Blackstone paying £2.5 million a site for the Strada chain. That’s a lot for a pizza joint, but as Mitchells & Butlers, the pub and restaurant business, suggested last week, interest rates/taxes were starting to have an impact on its “mid-market consumers”. It’s time to ask: is it the top of the market?

15 Damien Hirst’s diamond skull: worth $100 million, it is being shown at the White Cube Gallery today. That is as much as the $103 million purchase of a 40-acre estate in East Hampton last month by Ron Baron, a money manager. As the Romans demonstrated, such decadence is surely a sign of the top of the market. Bring on the Visigoths. Or, if you want to be a little more genteel about it, you could simply ask: is it the top of the market?

16 Bridgepoint’s Fat Face: Fat Face, the clothing chain, was bought by Bridgepoint for £360 million in March, valuing it at 11.4 times earnings. It is normal for a retailer to go for about 8 times. It’s time to ask: is it the top of the market?

17 Dominion’s endless appetite for luxury: Dominion, the Switzerland-based fund manager, has launched a luxury-goods fund called Chic to allow investors who are convinced that the appetite for high-end goods can only rise to put their money into pertinent enterprises. Companies held by the fund include Hermès International, Porsche, Tiffany, Bang & Olufsen, Shiseido and Rémy Cointreau. Dominion expects to attract more than £1 billion over the next 18 months. It’s time to ask: is it the top of the market?

18 Canary Wharf’s soaring prices, slumping returns: last month HSBC sold its 210-metre Canary Wharf headquarters building for £1.1 billion to Metrovacesa, of Spain, the most expensive single office sale in the UK. Under the terms of the deal, the Spanish company, a first-time buyer in London’s commercial property market, will get a return of less than 4 per cent on its money, a record low for City offices. It’s time to ask: is it the top of the market?

19 Guy Hands’s love of music: it has to be near the top of the market for private equity when Mr Hands, who runs Terra Firma, is buying EMI with 46 per cent equity. Interest payments on the debt will hoover up 80 per cent of earnings in a falling market. It’s time to ask: is it the top of the market?

20 Le Million: GoldVish, a Geneva-based luxury goods company, has created the first €1 million mobile phone, made of gold and encrusted with diamonds. A limited, not to say bizarre, edition. It’s time to ask: is it the top of the market?

3 comments:

AC said...

Things DO look a bit toppy. What about the fact that the uk has not had a quarter of economic contraction since 1991. Many people do not know what a recession is. Even a mild recession will have a massive effect on asset prices.

Anonymous said...

"The MoD put the site up for sale in October through Drivers Jonas, the agent, with a price guide of £250 million."

~3.5 times initial estimate.

Nope, no bubble at all.

I hope G. Brown spends the money on something useful, like the NHS or the Tube.

vivek said...
This comment has been removed by a blog administrator.