NYC

No writing over the past two days due to travel, NYC if you want to know.  First, this is my first trip to New York City in about two years.  I left Montreal with no U.S. dollars, paid for hotels, lunch, cabs virtually everything with a credit card… the cashless society is here.  The other thing I notice is how “third world” U.S. infrastructure.  Comparing the security systems in place in Canada and the U.S. was day and night.  Whereas the system was fully computerized in Canada, their American counterparts had pen and black light – so basically relying on an aware and attentive controls – where as their Canadian counterparts could concentrate not on the paperwork, but on the passenger demeanour (if you look at the Israeli security system you will see that the focus is not paperwork but rather personal interaction).  Granted that our American cousins are far more interested in the security theatre – when going through the security process in the U.S. there was zero eye contact – procedure was everything, removing belts and shoes… sade!

I also noted that virtually every public washroom has pressure taps, where you press down on the knob and water flows for a specific amount of time... no more electronic water taps (like we have in Montreal), its like they are getting ready for the next power outage...third world I tell you!

The news stays bad both side of the Atlantic, no job growth in the U.S. and with state and local government under pressure to balance budgets (13% of GDP) its going to get worse before it gets better.  The Greek tragedy continues, Merkel’s government continues to go right to left up and down, completely dysfunctional.  Surprisingly, CDS spreads are staying put, but then again when the yield is over 70% on short term paper there’s just no point in selling anymore (keeping the instrument is almost like a risk free option on the upside!).

The most notable aspect of the capital markets now is their high correlation; let me explain generally markets are to some extent correlated (stock prices tend, over time, to rise) but lets say for the sake of argument that stock markets correlation is around 75% -- the last few weeks the correlation has been around 90% and over the past few days its been 97% -- which makes no sense, unless you take all the players (and with high frequency traders involved) and lower volume you have an end of trend risk (think just before the failures of Lehman and Bear Stern – we had the same tendencies).  We only need very simple catalysts to switch the sentiment from bull to bear.  Such change could be the re-rating of American’s corporate earnings (right now around $95 whereas many believe it should be around $75) will impact the S&P500 from the 1,150s to 900s.

Back to my American theme, the place was hopping like Tokyo was in the mid ‘80s.  The wealth of the place is not an indication of America’s wealth, no empty stores, sales on Fifth Avenue seem brisk, the economy of NY is on fire.  This says nothing about the country as a whole, but one thing absent were cranes, on both flights coming and going I had a good view of NY City and there was virtually no construction (excluding the World Trade Centre).  NYC reminded me of Montreal in the mid 90s, in the core things were good, shops were full, but there was no evidence of growth – no building projects anywhere (or if there were, it was muted in the skyline).  You have a sense of End of Empire when travelling to NYC, the place is amazing, but you get the feeling that decay is just below the surface and that there is no real growth.

Granted I was very busy, and it was very hot.  Still the overwhelming impression was welcome to the third world.