THE
EXCHANGE
BETWEEN THE TRADING FLOOR AND THE FINAL SCORE...
FOCUS THE TRADING JOB MARKET BEGINNERS’ GUIDE TO FX
LONDON 2.0 REDESIGNING THE WORLD’S
CELEBRITY TRADER WE’VE GOT THE X FACTOR SKI WEEKENDS FOR EVERYONE BINARY TRADING GETS CLEVER
FINANCIAL CENTRE, THE SKY’S THE LIMIT
10
PAGES OF CHRISTMAS GIFT GENIUS
ISSUE 2 NOV 2010 £7
.........SPREAD BETTING...............FOREX...............SPORT BETTING...............CFDs..........
THE EXCHANGE | WELCOME
THE
EDITOR’S LETTER
EXCHANGE
EDITOR MATT GUARENTE DEPUTY EDITOR FRED PALLEY
Announcing our engagement... WE’VE SPOKEN – as you might imagine – to quite a few trading and spread betting companies since we launched The Exchange last month. And the conclusion we’ve come to is that trying to run a trading or betting platform is a lot like publishing magazines. From our perspective, people will pick up a publication aimed at their demographic; it looks nice, they can see it’s meant for them, and they might read it later. Then when someone asks them if they’ve seen Acme Magazine, they can say, ‘Oh, yeah, I had a quick look, yeah.’ Which means, in shorthand, ‘I am in the loop, I belong’. They might flick through it, pick up one or two ideas, and get interested. The Holy Grail is when they call you, or write to you, and say ‘X was crap’, ‘Y was great’, or ‘we want more of Z’. Then you know they’re in. They’re engaged. And the great thing is, people are in to The Exchange, and are engaged. The response to the first issue has been fantastic. But as we spoke to more and more trading outfits, banks, spread companies and even the poker guys, it became clear the issue is the same for them; getting you engaged. Getting you looking at the offer, making a decision, placing some money, booking a win (they fervently hope – or you won’t come back, and most models are about getting paid on every trade, not the ‘you vs. me’ of the bookie). Because bums on seats is just the start of the issue; the trick is keeping them there. What makes me stick with my spread bet company? Inertia, for one thing, but also the fact
that they have tight spreads and I got very fed up with a few others I tried where the quoted price moved away from me like a French civil servant on his way to lunch. When I was moving towards profit, the quoted spread versus the cash price was as closely related as George Osborne is to Ozzy. So I switched, but with this new company, any buttering me up, giving me a nice metaphorical hug? No. They’ve sent me a customer appraisal form to fill in, ‘to make the experience better’. But like all punters, I ask: ‘What’s in it for me?’, and if there’s no mention of a trading credit or an M&S voucher, I’ve got better things to do than gratis market research. And finally, before you write in, I know George and Ozzy have different surnames; I welcome engagement, but no-one likes a smart-arse.
CONTRIBUTORS NICK BEECROFT ELLIE BLOOMFIELD DAVID BUIK ROBBIE BURNS DECLAN FALLON KEN FISHER SHAI HEFFETZ CHRISTINA MADDEN JEFF MILLS GEOFF NORCOTT RESEARCHER GAIL HEPBURN ART DIRECTOR NICK BROWN PRODUCTION ISABEL FERRER SUBSCRIPTION@ THEEXCHANGEMAGAZINE.COM COMMERCIAL DIRECTOR NATALIE KENNEALLY COMMERCIAL MANAGER GERARD LOGAN ADVERTISING SALES DANIEL STOREY LUXURY MANAGER CHRISTIAN PRICE PUBLISHING DIRECTOR ALEX SORO
MATT GUARENTE EDITOR
PRINTED BY STONES PUBLISHED BY THE EXCHANGE 102-103 HARBOUR YARD CHELSEA HARBOUR LONDON SW10 0XD T: +44 (0) 20 7351 1818 F: +44 (0) 20 7352 7182 ADMIN@THEEXCHANGEMAGAZINE.COM WWW.THEEXCHANGEMAGAZINE.COM
© 2010. The Magazine is published by The Exchange. All rights reserved. The publishers declare that any publication of any advertisement does not carry their endorsement or sponsorship of the advertiser or their products or services unless so indicated. Contributions are invited and, whether or not accepted, submissions will be returned only if accompanied by a stamped addressed envelope. No responsibility can be taken for drawings, photographs or literary contributions during transmission or while in the Managing Editor’s hands. Proof of receipt is no guarantee of appearance. In the absence of an agreement, the copyright of all contributions, literary, photographic or artistic belongs to the The Exchange. This publication (or any part thereof) may not be reproduced, transmitted or stored in print or electronic format (including, but not limited to, any online service, database or part of the internet), or in any other format in any media whatsoever, without the prior written permission of The Exchange. The Exchange accept no liability for the accuracy of the contents or any other opinions expressed herein.
4 | THE EXCHANGE | November 2010
THE EXCHANGE | ISSUE 2
contents THE OPEN 09 10 12 14 15 16 18
IN THE BLACK UPS & DOWNS ROBBIE BURNS TRADING PLACES FILM CORNER CELEB TRADER DAVID BUIK
COVER STORY 20 22
LONDON SKYLINE CITY OFFICE
THE LONG
22 56
29 30 34 36 38 40 42
FEELING QUEASY? MARKET FOCUS BINARIES KEN FISHER CHART WONK STRATEGY CITY JOBS
THE SPREAD
70 48
64
47 48 56 58 62 64 66 68 72 74
ICE DRIVING, SWEDEN CHRISTMAS GIFTS PARTY VENUES CITY GUIDE CITY LIFE WEEKENDER WATCH WORD TRADING UP BLUE CHIP FILES LIQUIDITY
THE CLOSE 79 80 82 86 88
BEST ADVICE EVER GREAT TRADES WHO’S WHO GLOSSARY GEOFF NORCOTT
November 2010 | THE EXCHANGE | 7
LET’S GET GOING
OPEN THE
IN THE OPEN... UPS AND DOWNS ROBBIE BURNS, NAKED TRADER CHART WONK TRADING PLACES FILM CORNER CELEBRITY TRADER DAVID BUIK
IN THE BLACK (AND GOLD) THIS MONTH WE had a look at the new Beaufort Bar in the Savoy, opened on October 10, and were struck by how upbeat it feels. There seems to be a strange feeling around the markets, and the country at present - almost as though, since nothing has gone terribly wrong for a while, we might just be OK. We’re still, though, a long way from being out of the woods, but we can look on the bright side – it’s not as bad as being in our featured movie in Film Corner this month (Boiler Room), nor is life in the markets as bad as being on The X Factor. Is it? Ask this month’s Celebrity Trader...
November 2010 | THE EXCHANGE | 9
THE OPEN | UPS AND DOWNS
UPS&DOWNS
From new bars to trading catastrophies, a round-up of the things that have caught our eye this month
SERIOUS ISSUE OF THE MONTH
.
Send us your news, views, and unprintable gossip at: editor@ theexchangemagazine.com
SOFT CURRENCY?
Get £1500 for predicting GBP/EUR by month end… not a bad offer came through our e-letterbox towards the end of last month, but we can’t help but think if we really knew, we’d make a lot more than £1500. It’s easy, says the comp promoter, Currencies.co.uk. In theory, yes – if you treat it like a sweepstake. However as it’s a it’s a riskfree punt, well done to Currencies.co.uk for using it as an intro to their currency trading site. My guess was €1.1788. As Jim Royle wouild say, err-errr…
BETFAIR SET FAIR?
Betfair successfully got its IPO away in October, with the market watching wide-eyed as the stock soared from its 1300p debut to settle at 1550p on the first day of trading. This is always a bit of a bicycle-clips job for the advisors, because the client may well pipe up at some point with something like ‘Er, chaps, could we have squeezed another quid out of the offer price?’ One commentator – in fact, our own David Buik – commented that it was like being back in the days of the TMTs again, and he sagely pointed out the rather toppy forward price/ earnings of 30x. Betfair’s gestation has been around a decade and while there could well be upside in new international markets, is the price justified? We went to press on the day the shares went unconditional, but it seems that the entire industry is heading towards different models and different markets and Betfair is ploughing a new and deep furrow.
YOUR MONEY AND YOUR MOUTH When it comes to losing weight, giving up smoking or foregoing the post-work drinks every Thursday night, kicking the habit is something most of us have neither the strength nor desire for. Yet if we had money on the line, in the form of a ‘financial commitment contract’, there may just be the incentive to stick to the straight and narrow. And that’s exactly what stickK.com offers; members can select a goal, put money on the line with friends and even appoint a referee to watch over the challenge. Over 80,000 people including a growing number of Brits are registered on the US site, and with more than $5,000,000 currently being wagered in commitment contracts, founders Jordan Goldberg and Dean Karlan may just have stumbled on the winning formula. If you’re going to sacrifice booze fags and pies, a gold-plated sweetener will more than make up for it. www.stickk.com
10 | THE EXCHANGE | November 2010
THE OPEN | UPS AND DOWNS
FROM RUSSIA WITH LOVE
BEAU SELECTA
+
There’s certainly no shortage of online poker action in this day and age, with players just an internet connection away from round-the-clock real money games. It’s little surprise then that those in it for the money are unlikely to devote much of their time to iPhone poker applications, where they’re up against computers for no financial gain. But pitch them against a saucy Russian spy, and they may just plump for the app after all. Anna Chapman, the 28-year-old redhead who was one of 12 Russian agents the FBI deported from the US in July, has launched an iPhone poker app with her branded as a Russian Bond girl. Players can take on Chapman in a virtual hand of Texas Hold’em or Five Card Draw, with winners able to access exclusive aspects of her private life including subscription to her diary, Facebook friendship and, perhaps most enticingly, access to a raunchy photo album. The app will soon be available for download on the iPhone, iPad and iPod touch, giving some much needed spice to the poker app war.
The Beaufort Bar at the newly invigorated Savoy Hotel is a brand new venue, and while traditionalists had fretted about the iconic American Bar, it’s the Beaufort that has drawn all the wows of admiration. The scope and ambition is laudable, with acres of black velvet and gold leaf and a decadent line in refreshment to boot. There are sharing cocktails at £40 for four, served in the individual absinthe fountains found at the tables, while there are some intriguing sounding single offers too. We’ll see you there.
FAT FINGER OF THE MONTH Another month, another exchange, another exercise… this time, a software upgrade glitch on NYSE Euronext’s Arca platform caused an out-of-hours flash crash on an ETF tracking the S&P. The $80bn SPDR S&P 500 ETF, managed by State Street, was marked down by almost 10% in after-hours trading with 150 trades going through on the ETF at the lower price. Oops, said NYSE, and busted the trades. If you have the stamina to go back and research it, this is the latest in a long line of errors and busted trades which have necessitated ‘circuit breakers’ kicking in to stop algo trades causing a total meltdown.
November 2010 | THE EXCHANGE | 11
OPEN | BEGINNERS
ROBBIE
BURNS
BUFF UP
THE NAKED TRADER, ROBBIE BURNS, HAS PENNED A BOOK ON SPREAD BETTING. IT’S GOOD – AND WE MANAGED TO GET HIM TO WRITE A DISTILLATION OF IT FOR THE EXCHANGE IS SPREAD BETTING right for you? I’ve just written a book on this subject because I wanted to answer the question: Should investors, as well as traders, be spread betting? I think the answer is ‘yes’ – it’s a great tax-free way to make money whether the market goes up or down... but not everyone is suited to it. And that’s confirmed by various figures on the number of losers. More than 90% of daytraders lose for a start. And the figure for those who don’t trade that much is still over 70%. Why is that? Spread betting sites are very addictive. The spread bet firms – or perhaps we ought to call them bookies – make money every time you trade so therefore they want to make it as easy as possible. New entrants to spread betting tend to go crazy as there is no commission (you pay the spread instead) and trade way too much, then wonder why they lose. I received lots of horror stories for the book from users of my website – nakedtrader.co.uk. There’s a whole chapter of these and the chapter itself contains so much helpful info – things that have gone wrong or right for real people. From all this I must warn beginners of the silly mistakes that can be made with spread betting – little mistakes which could turn a potential winning account into a losing one. The biggest thing that can go wrong with spread betting, I reckon, is placing a stop-loss in the wrong place. I got bunches of aggrieved tales. Lots of wailing about “The spread bet firm deliberately stopped me out and I lost, the rotten stinking ******* ** **** **********!” Conspiracy theories abound of shifty blokes in dark corners deliberately taking out stops. Having visited a number of
12 | THE EXCHANGE | November 2010
firms, I’d say it’s not true – it’s a shifty computer that takes you out. The lesson about stops is easy. They should never ever be set too close to an entry price. It’s mad, for example, to try and buy the Dow Jones at say 10500, setting a stoploss just 30 points away. The Dow is so volatile, that stop is too tight. A losing bet from the moment it was placed. Oh, and that was a real bet made by someone. On shares and indices, my stops would be well away from the current price. One thing betters forget is that spreads can be wide at the start of the day, say 8am, and stops can be taken out on a silly spread. It’s always worth going through your stops every evening to check you won’t get stopped out at 8am.
What about other things that can go wrong? Well, overusing the leverage or credit you get. For example if you deposit £10,000 you’d be able to buy £100,000 worth of FTSE 100 shares. Traders often blow out because they overuse the leverage. One firm told me it had someone open an account with a small amount and got their winnings to millions. But the person went crazy using the credit and ending up blowing all his winnings and even ended up owing the firm.
So here’s my list of the biggest mistakes you can make when spread betting: • Allowing positions to run away to huge losses. Always use a stop but never set it too tight! • Trade forex. Nearly everyone loses. • Over-trading. Going bonkers and trading a few times a day. It will end in disaster. • Getting emotional. It’s a business. Don’t fall in love with any share. • Buying against a trend. Trying to spot a turning point in the market is impossible unless you’re lucky. • Not running profits. Good positions should be held. No point in taking tiny profits and big losses. Remember, spread betting needs tight discipline and a cool head. And you need a trading plan. What is your exit strategy and when will you take a loss? I guess if there is one abiding thought for those thinking of starting it’s: take it slowly and steadily. Learn about it as you go and start with small stakes. Take your time with trades and let them develop. One final thing to remember: you aren’t buying or selling real shares – you are in essence playing with a bookie. You can beat the bookie but it might not be easy. Go slow... and best of luck! • To order a copy of The Naked Trader’s Guide to Spread Betting, with a 30% price discount, go to www.nakedtrader.co.uk
VISIT OUR WEBSITE TO GET ROBBIE’S BOOK!
THE OPEN | WHERE DO YOU TRADE?
.....................................TRADING PACES #2: YOUR PHONE .......................................................................................................................................................................................
MAKING THE RIGHT CALL WHEREVER YOU ARE
Be it swanky cocktail bars or rundown football terraces, the four walls of a trading office can be whatever we make them thanks to our oldest new best friend, our mobile MOBILE TRADING IS on the rise. With financial markets moving quickly, 24 hours a day, seven days a week, it’s crucial that spread bettors are able to react instantly, whether it’s to get into a new position or out of an existing trade. The ability to trade whenever you want, wherever you are, could be the difference between a winning trade and a losing one. For example, when news of BP’s well explosion in the Gulf of Mexico broke, how many spread betters were sat behind their desks, at their computer screens, able to act? The first live trading app for the iPhone came from City Index in October 2009. On the way, it says, are new apps for a range of devices including Android and iPad, as well as making upgrades to existing products. Mobile is the future, because you can act like you need to in the markets – instantly. In the last year, the average percentage of total trades placed via a mobile device at City Index grew from 2% to 15% – representing a 650% explosion in growth. The percentage of trading clients using a mobile device to trade also increased to 25%, a growth of 150%. But the company issues a health warning to its increasingly mobile clients. “If you are trading on a mobile device, remember your trading methodology,” says Joshua Raymond, market strategist at City Index. Mobile trading psychology is one of the many aspects covered in the company’s seminars, regularly held by Sandy Jadeja, recently hired as chief technical analyst and one of the best in the industry. www.cityindex.com
14 | THE EXCHANGE | November 2010
THE OPEN | FILM CORNER
EACH ISSUE, THE EXCHANGE DIPS INTO ITS FILM VAULTS, GETS THE POPCORN OUT, AND THINKS HOW HOLLYWOOD CAN HELP HONE YOUR TRADING SKILLS
.
FILM CORNER
PHOTOGRAPHER: EVERETT COLLECTION/REX FEATURES
The Film Boiler Room is not a great film, objectively. Still, it was voted the fourth best film about money by readers of Forbes, which might be an indictment of the quality of money films. It’s the story of a good kid gone bad, and good again; he works his way through the moral maze of a chopshop 1990s brokerage with a Fed charge prompting his conversion.
JIM: Now before I get started I have a question. Has anyone here passed the Series Seven? SERIES SEVEN GUY: I have a Series Seven license. JIM: Good for you, now you can get out too. SS: What? Why? JIM: Because we don’t hire brokers. We train new ones. This is the deal. I am not here to waste your time and I can only hope you’re not here to waste mine. So I’m gonna keep this short. You become an employee of this firm and you will make your first million within three years. (pauses) Okay? Let me repeat that. You will make a million dollars within three years of your first day of employment at JT Marlin. Everybody got that? There is no question as to
The Scene Ben Alleck (Jim) is ‘interviewing’ the new recruits for the pumpand-dump operation at brokerage JT Marlin. One has been kicked out for being disrespectful. The recruits are full of awe and wonder; and Jim paints a tough but alluring picture.
whether you will be a millionaire working at this firm, the question is how many times over. You think I’m joking. I am not joking. I am a millionaire. It’s a weird thing to hear, right?
I’ll tell you, it’s a weird thing to say. I’m a fucking millionaire. Now guess how old I am? twenty-seven. You know what that makes me here? A fucking senior citizen. This firm is entirely comprised of people your age, not mine. Lucky for me, I am very fucking good at my job or I’d be out of one. You guys are the new blood. You’re gonna go home with the kesef. You’re the future Big-SwingingDicks of this firm. Now you all look money hungry and that’s good, Anybody who says money is the root of all evil, doesn’t have it! Money can’t buy happiness? Look at the fucking smile on my face. Ear to ear, baby.
MORAL OF THE STORY Eventually, every reward has a commensurate risk.
WHAT WOULD GEKKO DO?
THIS MONTH: CHRISTMAS PRESENTS
Matt G, from London, writes: Gordon, I face a dilemma. My wife pretty much has everything she could need and also her birthday is a few days from the Main Event. I appreciate that you probably have a few more spare coins swilling around than I do, but any ideas?
Gordon responds: Listen pal, I got a new mantra. Money isn’t everything. Time is everything. Give her time, which is something that money can really, truly, never buy. The gift of time is precious and it slips by without us ever knowing, like the pages flying off the calendar in some goofy festive season film they always put on this time of year. So it’s all about time. And if you can’t find any, a Cartier Lady Santos with a few diamonds on will do the trick, or near as dammit. Next! Stephen P, from Chelsea, writes: Mr Gekko, I run an unruly team of ne’er-do-wells in an office
in Chelsea and while from the goodness of my heart I do not charge them for things like the air they breathe or the water they can carry back from the toilet in their own mugs, I am under pressure to think about a Christmas party and some kind of Secret Santa. What would you have done when you were running Gekko & Co.? Gordon responds: Stevie it was easy back then. Ollie the Killer Trader wanted an expense account at Fanny Farmer, which you Brits need to understand is a candy store, not some weird agriculturalthemed whorehouse. Alex, being French, was happy with one of those
little cashmere scarves they like to wear all the time with their pocket books. Natalie on front desk, I got her to organise the party at the Rainbow Room and we’d fly in all our people from around the world on the Gekko BBJ. But, sport, you sound like a hell of a nice guy and I expect what your staff would really like is an unlimited tab at the Lots Road Pub, which I hear is an excellent little place. Natalie K from Essex writes: Mr Gekko, am I wrong to give my boyfriend a Christmas list? Gordon responds: No. Ask. Get. Write a nice thank you card.
EACH MONTH WE PICK UP THE PHONE TO GG AND SEEK HIS ADVICE ON MATTERS NEAR TO OUR HEARTS. WRITE TO HIM AT GG@THEEXCHANGEMAGAZINE.COM November 2010 | THE EXCHANGE | 15
THE OPEN | CELEBRITY TRADER
KIAN
EGAN
TRADING WITHOUT WINGS…
…but with some success. This month’s celebrity Trader is Kian Egan, one quarter of Westlife, one half of the glammest couple of the moment, and business partner with X Factor judge Louis Walsh. Great. But can he trade? KIAN EGAN, SIGNING superstar and more commonly spotted on the pages of Hello! and Heat than humble trading publications such as ourselves, managed to put quite a few trades into play with a little help from Sam Steele, head trader at City Index. He had £5,000 to start with, and went straight in with a profitable long bet on the UK rolling 100, nabbing £270. The rest was in equities, and a look at Nymex crude oil, before another nibble on the FTSE. Total gain was £450, putting him in second place on our Leader Board behind last month’s trader, rugby legend Ben Cohen. And if you’re flummoxed by our headline, clearly you don’t remember the saturation airplay Flying Without Wings received a decade ago; no worries, they’re on tour again in spring, so you’ll be reacquainted soon.
or do you have a friend or relative in the markets? You’re Irish after all, born traders!
The Exchange: Have you any financial knowledge or interest,
Kian Egan: I’ve got an excellent finance management team who take care of that side of things, and I like to keep an eye on what the markets are doing. I think it’s important to keep up with world affairs and there’s no escaping from the finance news that’s dominating the news agenda. TE: So did you find it OK, or was it baffling? KE: Obviously unless you’re playing the stock market daily it’s inevitable that a relative newcomer would find a lot of the jargon and processes a bit overwhelming. Still, I like a challenge, and I’m a pretty quick learner, so I learnt a lot from the experience.
KE: It taught me to keep an eye on my finances to see how I can make the most of them, and when I have some free time in future I’ll have another look at creating a portfolio of my own. It’s fascinating to see your investments shooting up and down in real time. Hopefully mine will carry on shooting upwards in future!
KE: I really enjoyed the whole buying and selling on the move, and was surprised how easy it was to do it. I suppose the stress came from knowing that I was trading with £5,000 for a charity, and you care more when it’s your charity’s money you’re playing with. Well done on the gains, £5450 to your chosen charity, which is?
TE: Did it teach you anything? Will you do it yourself in future?
TE: Was it enjoyable? Was it stressful?
KE: It’s Operation Florian, which is a really brilliant
16 | THE EXCHANGE | November 2010
THE OPEN | CELEBRITY TRADER
9% KIAN’S QUICK CASH GRAB Kian turned £5,000 into £5,450 for Operation Florian. If you have a charity that has some superstar support, give us a call
THE EXCHANGE CELEB LEADERBOARD (WINNER’S CHARITY GETS £1,000 BONUS)
Ben Cohen Kian Egan
14.8% 9%
TRADER’S VIEW
charity which sends out fire engines to third world countries to save lives in some of the hardest places on the globe. www.operationflorian.com BIOGRAPHY: KIAN EGAN
Born in Sligo, Kian was schoolboy friends with some of the eventual bandmembers of Westlife, with whom he has notched up sales of 44m discs, and only Elvis and The Beatles have had more UK number
I THOUGHT ABOUT IRISH EQUITIES, BUT THAT WOULD BE A SHORT
one hits. He’s not just a pretty face and a great voice – he is a qualified piano and guitar teacher and also has moved into management and TV production with Louis Walsh, Westlife’s manager and, of course, judge on The X Factor. Last year was a rollercoaster for Kian; he was married to long-time sweetheart Jodi Albert, of Emmerdale fame, but tragically lost his father to a brain tumour later in the year.
Sam Steele, of City Index, walked Kian through the trades and was impressed. “He was interested, traded a pretty good range of ideas, a few equities and some oil as well as the FTSE, he did well.” There was only one losing trade out of the 14 that Kian completed – a £3 short of the FTSE for a £4.80 loss, so no big problems there. The bigger issue, said Sam, was not letting positions run. He did well on Lloyds TSB, Anglo-American, Royal Dutch-Shell, and a touch of Nymex crude too. “He’s knowledgeable and a pretty good trader,” says Sam. Does he think Kian will come back for a little financial spread action? “Perhaps, but he has a busy schedule. I was trying to get him interested in Irish stocks, mainly on the short side given that they’re all bankrupt!” CITY INDEX HEAD TRADER SAM STEELE
November 2010 | THE EXCHANGE | 17
THE OPEN | BIGGER ISSUE
DAVID
BUIK
WEATHER WARNING: STORMS AHEAD, WITH BRIGHT PATCHES LIKE MANY MARKET acolytes, I was asked at the end of last year to give my prognosis and forecast for the FTSE 100 for 2010. It seems I approached my task with a degree of misplaced intellect and logic, divining that the FTSE would reach 6000 at the end of June, but would spend the second half of the year giving much of the gains back ending the year at 5250. So far, so bad. But in my defence, the performance of equities so far this year could almost be described as irrational. Since the BP debacle in April, which triggered a sharp downward correction for the FTSE, from 5700 to flounder at 4800 in July, it has rallied in the last three months by 19.5%. It is hard to understand this surge in isolation. Those in the markets need no further convincing that stock markets have rallied thanks to quantitative easing, introduced globally in March 2009. That’s despite the world’s mature economies taking an inordinate length of time to recover from the recession, uncomfortably large global dole queues, unacceptably gargantuan budget deficits, and the threat of contagion from a terrifying sovereign debt crisis. Banks grabbed the opportunity to avail themselves of these QE funds and bought assets with gay abandon including equities, which instilled confidence back into the recovery process, at the expense of quotidian bank business where customers, desperate for loan support, almost certainly suffered. One could understand the banks’ rationale, in the wake of the financial meltdown 18 months before. The fact that RBS and Lloyds Banking Group were both controlled by the government necessitated vigilance towards lending. Perhaps we should spend a few minutes analysing where this last 19.5% rally came from. Well, we can attribute some of it to the
18 | THE EXCHANGE | November 2010
expectation of further QE facilities being made available in the US and the UK. However, there is no doubt that equities declared independence from economic reality a couple of months ago. Why? Large companies have taken the opportunity of making themselves mean and lean in the last 18 months, resulting in decent profits being posted and the return of much-needed dividends. Alternate asset classes such as money markets and the bond market
EVEN A MODEST HIKE IN INTEREST RATES WOULD BE VERY DAMAGING TO BOND HOLDERS are currently an unappetising alternative. If anything, with the level of debt out there and the start of a significant austerity programme, the bond market may well be as close to having its bubble burst as once could imagine. Even though interest rates are unlikely to go up for at least a year, inflation waits in the wings. Even a modest hike in interest rates would be very damaging to bond holders. How low can these yields go? 0.5% on a two-year gilt or even a tenyear gilt at a nominal 2.8% is a pretty skimpy return considering the length of exposure. There is no doubt that equities can and will fare well with the assistance of QE and in the face of high unemployment. We should also remember that 70% of the earnings from the FTSE 100 companies is earned from overseas. With China, India and the rest of Asia providing the current impetus for recovery, equities should well be able to hang in there
providing there is some correlation with exportdriven business. There are, though, cumuli nimbus clouds of concern. What happens if the US economy takes much longer to come to hand than we expect? That will leave the dollar in the ‘slough of despond’ for some months to come – good for US export, but lousy for the cost of oil and more to the point it dangerously compromises the rest of the world’s recovery process. These imbalances are becoming more pronounced as the days go by. No doubt by the time this missive reaches your doormat the die will already be cast for President Obama at the midterm elections. He may well have his hands tied behind his back by Congress. This could mean the rejuvenated Republicans, aided and abetted by the Tea Party, will force the beleaguered President to deal with the US’s colossal budget deficit. They may also force the banks to stand on their own two feet without excessive assistance from the Fed. Again, this could blunt recovery in the US. A faltering US economy will inevitably have an adverse effect on a global recovery. What of 2011? As equity acolytes do we stick with our portfolios? On the face of it, the FTSE 100 stocks currently command a 16 times earnings ratio, which looks reasonable. I believe the results from the ‘comprehensive spending review’ will create uncertainty and unrest, as the austerity programme won’t be fully implemented until the New Year; nor will the rise in VAT to 20% or increases in taxation be effected soon. Selectivity will be the name of the game. For the time being mining, energy, oil, drugs and tobacco stocks look comfortable bedfellows. They tick all the boxes, particularly the one marked ‘dividends’. I think it might be sensible to give the banking and retail sector a very wide berth; with retail we must not forget that the consumer will have less disposable income. Needless to say the supermarkets are excluded from these comments. M&A activity is likely to pick up next year giving fresh momentum for equities. However, 4th quarter earnings for this year will need to be decent to provide sustained confidence.
FEATURE | CITYSCAPES
Photographer Will Fox has superimposed the projects that look likely to transform London in the next 10 years onto a photograph of the existing capital skyline. The result? One city, two financial centres, and a world-class architectural heritage for the financial centre of the universe. On the following pages Christina Madden looks at some of the major developments in London and beyond
THE SH PE OF T
20 | THE EXCHANGE | November 2010
FEATURE | CITYSCAPES
HINGS TO COME
November 2010 | THE EXCHANGE | 21
FEATURE | THE FUTURE CITY
BUILD IT. AND THEY WILL COME. The skyline of London, as well as other British cities, is set to change as we embrace the coming century with a clutch of bold, innovative office developments, says Christina Madden
22 | THE EXCHANGE | November 2010
FEATURE | THE FUTURE CITY
November 2010 | THE EXCHANGE | 23
FEATURE | THE FUTURE CITY
ARCHITECTURE. THE AVERAGE Brit may not know much, but we know what we like. Right now, London is braced for the start of a once-in-a-generation facelift that will raise it – literally – head and shoulders above the rest of the world when it comes to ambition and realisation. There will be no counter-attack from Europe, and there is nothing on the planning agenda in New York that equals the changes that London will experience in the coming decade. Shanghai will keep rising higher – but it will take decades to match London as an international finance centre. But how have we gone from reactionary Nimbies to embracing the cutting edge of design that will deliver a skyline, and we hope a confidence, for the coming century? Perhaps it starts with one of the most conservative of all critics. Because in spite of (or perhaps even because of ) Prince Charles’s curmudgeonly dismissal
of the Swiss Re building when it was first topped out, Londoners took the ‘erotic gherkin’ to their hearts completely. Sir Norman Foster’s up-ended zeppelin was an instant hit – indeed it was voted the most admired new building on the planet in a 2006 survey of the world’s largest architectural firms. Whatever the design concerns of the architecturally conservative – royal or otherwise – the plain truth is that London’s skyline continues to evolve and change, as it has done for centuries. The near-completion of two dramatic new additions to the cityscape has prompted much debate, delight, and of course further handwringing among those of us who live in the capital. So what exactly does the future hold in terms of London’s built environment? And who precisely is funding, designing, and letting the slew of commercial new-builds slated to appear over the new few years? One critic openly complained that the composite effect of the 10 or so London proposals currently at planning stage will lead to an anarchic array of mediocrity: at the Architecture Foundation’s big debate on the subject at the Barbican this year, he dubbed the future Thames-scape the ‘Costa del Icon’.
24 | THE EXCHANGE | November 2010
law firm McDermott Will & Emery LLP will occupy the eighth and ninth floors, and pay £55/sq ft for the privilege. In terms of the financials involved, Chris Northam, director of City investment at Jones Lang LaSalle, says: “We’ve seen a 17% rental growth in prime City rentals – we’re currently commanding £50/52 per sq ft , but by the end of the year we expect that to rise to £55.” The reason for this rise during uncertain economic times? He says it is pressure of suitable available space for the big bluechip firms looking to relocate or upgrade their office space, or which need more room because of forthcoming consolidations. Gary Martin is a senior analyst with CBRE’s central London team, and broadly agrees: “In terms of the tenants signing pre-lets, and the large blue-chip companies offering the security of these long-term agreements… well it’s still too early in the cycle to speculate on that. “The space that will become available over the next few years remains uncertain still, largely because of funding issues. But there is nevertheless some positive signs, in spite of general caution in the sector. For example, UBS finally agreed last quarter to rubber-stamp 700,000sq ft of new build at Broadgate in a JV between British Land and Blackstone – it may not be a tower, but its capacity is twice that of Heron.”
PHOTO CORTESY OF KPF/CITYSCAPE
THE HERO SCHEMES In terms of iconic – well, sure. The newbuilds close to completion are certainly that, says Dan Burn, director of City agency business at Jones Lang LaSalle. He points out: “Today’s ‘hero’ schemes – the Heron Tower, the Shard – managed to get their planning consent and raise finances before the banking crisis. Effectively, when the market was booming in 2006/7 we saw a large number of these schemes underway, and good levels of tenant take-up.” He continues: “These are huge projects – the Heron Tower offers 400,000 sq ft – and other proposed schemes are even larger, up to 1.2m sq ft. The City has never before in its history developed anything in excess of these figures, and certainly not speculatively.” The Heron Tower (architect: Kohn Pederson Fox) is set for completion by February of next year, and will be a ‘six-star office block’ according to its flamboyant developer, Gerald Ronson. In spite of much regard for such an enormous scheme, the tower is not without controversy; Ronson was of course jailed for his involvement in the 1980s Guinness scandal of illegal sharebuying. Attempts by English Heritage to amend the construction of this behemoth, in order to conserve protected views of St Paul’s Cathedral, apparently nearly bankrupted the government’s conservation agency, and critics of ‘tower mania’ claim that it rendered the body toothless to protest about further schemes, given that its failed public enquiry ultimately cost £12m. Word within the community of high-end commercial property agencies says that Ronson secured his first tenant a few months ago for what will be the tallest tower in the City. An insider with knowledge of the deal (who declined to be named) said Chicago-based