Big picture stuff…

The motor racing world is a gloriously inward-looking one. People worry more about the number of sets of tyres that should be allowed for a weekend rather than whether the world is teetering on the brink of a new economic crisis. It has always been like this, but the relative ease with which F1 sailed through the crisis of 2008-2009 helped maintain the bubble attitude. There were significant losses in the crisis, notably Toyota, BMW, Honda, Bridgestone, the Royal Bank of Scotland and other financial institutions but long-term contracts and some sensible cost-cutting by the teams meant that the impact of the downturn was minimised. There is an argument that in the end the sport became stronger because the economic situation weeded out the companies which were not meant for success.

Those who do look out at the real world are now seeing the potential threat of a eurozone crisis. The problem (in case you have not heard of it) is that a debt crisis in Greece has meant that the European Central Bank has had to bail the country out. Other governments are now running into similar trouble and the massive public debts are becoming more and more difficult to service. The markets
are now getting to the point at which they no longer believe that these debts can be repaid so countries are having to look at rescue packages. The problem is that the politicians traditionally do not want to have to impose the necessary remedies because they fear that it will affect their popularity, so they delay decisions and make the problem worse.

At the start of August the European central bank began buying up Spanish and Italian government bonds in an effort to stop the debt crisis from spreading. European confidence is sinking. Growth forecasts are being trimmed and the risk of recession is increasing. Manufacturers are pessimistic about their export order books and the traditional safe havens such as gold, silver and the Swiss Franc have all been galloping ahead as investors look for solid ground. In the last 12 months the Swiss Franc has climbed 20 percent against the Euro, and 30 percent against the dollar. The downside of this is that Switzerland has become expensive for visitors and that is now affecting its competitiveness.

A lot of money has been pulled out of the stock markets and being turned into tangible assets, such as classic cars. The recent Monterey sales raised $166.7 million, compared to the previous year’s $150.2m in 2010. A Ferrari went for $16.4 million, a new record for any car at auction, although the record for a private sale is still believed to be approximately $35 million paid for a Bugatti Atlantique a few years ago. A 1931 Duesenberg was sold in Monterey for $10.3 million, a new record for an American automobile, while a 1937 Mercedes-Benz 540 K Spezial Roadster also went for $9.7m.

Over the weekend the German Finance Minister Wolfgang Schaeuble said that he believes that the global economy may need seven years before it can expand again.

The fear in racing circles is that these problems will result in sponsorship revenues, TV rights and race fees slowing down, which will affect the sport.

At the weekend in Belgium, the F1 teams agreed amongst themselves to have four tests next year: three in the winter period and then one in Europe before the start of the European season… Cost-cutting remains on the agenda but at the same time the manufacturers in F1 are having to invest heavily in the new engines for 2014.

17 thoughts on “Big picture stuff…

  1. Out of the crisis the thing that amazed me most was that RBS continued with their sponsorship of Williams. Not only did RBS not have the money to do it but they needed several billion just to break even. So it was either an act of great faith in the ability of F1 to maintain their image or an obligation that could not be got out of, though I would have thought that mega bankruptcy was force majeur enough.

    Motor racing in all it’s forms, has always been about money, even in club racing the one who can spend on new shockers and tyres wins more than the others. Sport, particularly expensive sport, like motor racing, yacht racing, power boat racing has always attracted people with lots of money, it is exclusive, literally, it keeps the rest of us out. Then there are those who have status in companies wielding vast fortunes who are wannabes, these are the targets for the sponsorship hunters. Wouldn’t it be nice to take your friends and family on a freebie F1 weekend, if we could just have your company’s sponsorship of a million or so, just have word at the club.

    Though the USA has avoided QE3, the USD is now barely functional as a “reserve ” currency any more. Trillions has been invested in gold in the last few months, I have seen forecasts of $4000/oz in a couple of years time, but it has to fall another 20-30% first. No one believed the forecast of gold to reach $900 but here we are at $1829.92 (live spot price) as I write.

  2. In the parlance this is to my mind a “hold” not a “buy” of a website, because it is simply wallowing in the gloom, but ZeroHedge still digs up ugly facts well before, still gets the boys and girls at e.g. the FT a little excited. Really, though, it has become a miserable place, and not constructive. Proceed with pinch of salt at ready. They are very good on numbers still, just political overtones overflow their cup. (comes from banging on the same old too long maybe but some did it 50 years ago) That said, try to find an unbiased outlet for economic news. In the late 90s i suddenly got sent on spec a nebulously named but very nicely printed glossy called “Princeton Economics Quarterly” – nothing to do with the university. Then it disappeared. It preached monetary real economics very similarly to how ZH (mentioned above) does now. Better, had tons of social history you could read. Somehow it’s author ended up in a never ending jail sentence. Don’t take that as an indicator, some people are just great at shooting themselves in the foot. Been there, shooting my foot, done that. I think i got sent it because of numismatical interests in antiquity. Saying this because we really do have better information flow now. Иди и смотри. (Come and See, another movie reference, worthwhile if you dare)

    Back to F1 – phew – you can always up the game in advertising. It’s an attitude thing. If you suck at attracting readers or audiences, i assure you that is an attitude thing. There is a tangible positive loop to be attained. Miss it, and goodnight sweetheart.

    More specifically, there is no reason why one part of the world cannot do good, whilst the rest, assuming it does not burn like the library at Alexandria, into oblivion, treads water. Money and life are relative things.

    Sometimes to get to that positive loop, you have to disconnect. Look at F1 in the 70s, i can personally only look back at what a little boy saw, through the prism of a financially savvy dad indoctrinating me, but economic life was particularly crap then. IMF bailout for Blighty. Yup. 20% interest rates crippling anything and anybody which did not have a government krisha (roof or protection) Check. Blackouts and brownouts and service disruption. This was before the GDR paid for Scargill. But the self educated “spivs” of F1 proved themselves different, and cracked on, and was it awful sport? Nope. Bloody brilliant, allowing they just superannuated the worst safety record in anything anywhere not combat.

    This is the most difficult year for me, business wise (as opposed to me just growing up and being dumb). On ratios i have the most at stake, and it’s the most choppy time, and i am not making vig on the volatility. So, dig deeper. I know there’s some F1 sponsorship crowd read here. Pull yer finger out, find the story! 🙂

    all best,

    – john

  3. Your opening re motor racing’s world-affairs-obliviousness reminds me of a similar observation made in some US publication in the ’70s, which warned that someday, the racing community would emerge from Watkins Glen after a race, to find that the whole world had been nuked.

  4. Can we sell Bernie in Monterrey? He’s an antique in perfect shape and we can add the Maybach as a bonus.

  5. With the Australian dollar rising against the Euro, the greenback and the pound, maybe Melbourne can keep the GP for another year or two, provided Bernie’s fees are not currency indexed.

  6. Its funny to think that many European countries are effectively broke yet no one is prepared to admit it, as that would swiftly end the career of any such politician. My favourite maneuver of recent times has to be the political skill of the Portuguese PM who resigned just before EU/IMF landed to campaign against a bail-out. That action goes in the same part of my brain as the news that luxury apartments are being built above my local fire station – the ‘fairly amusing idiosyncrasies’ part. Still, I’m pretty sure most German folk don’t find it too amusing to be paying off other’s overdrafts. As for tangible assets, surely most um.. ‘printing companies’ must be doing rather well at the moment, knowing that every printed note inflates the value of their business in every possible sense.

    It is also interesting to note the difference in the actions of ING and RBS and their respective F1 pull-out. I think it was just down to sheer luck that ING found a solid and perfect excuse to pull right out, if Nelson Piquet was not the employee of that month – even in proxy terms – he should have been. I have never worried about F1’s viability, as rpaco said – there are plenty of wannabes who would like to be in the club. F1 as a window into the world, I see no better.

  7. Why four tests rather than non championship races? The perfect time to test new drivers and upgrades plus you can sell more tickets. I can think of at least four tracks that would be full to the brim with fans.

  8. wee correction…

    ‘The motor racing world is a gloriously inward-looking one. People worry more about the number of sets of tyres that should be allowed for a weekend rather than whether the world is teetering on the brink of a new economic crisis’

    Without accusing anyone of being inward-looking, the WORLD is not teetering on the brink. It is (mainly) Europe and the US.

    I don’t think Brazil, China, Russia, Mexico, Australia, India et al would tell you there is a worldwide crisis. Their economies seem to be doing rather well, and they are bigger countries than any of us here in europe!

    Don’t buy into the bullsh*t line from politicians that this is a ‘worldwide crisis’. they are hoping that the majority believe this. It is a US and European BANKING meltdown, predicated by the most corrupt and illegal actions I have seeen played out and covered up in my lifetime.

  9. If Spain and Italy do need bailing out, could their Grand Prix be under threat? I know it doesn’t matter in the grand scheme of things but is worth thinking about.

  10. paul,

    and when we stop buying commodities and cheap electronics . . .

    please think that these are not the most sophisticated of economies. All of them might take two more generations to reach what we are used to. Bit harsh on Aus, but common language made sure they’re not lost.

    They all have great cultures, wonderful people, but to be clean about this i am scared witless as to any idea of spending a lot of time without my mod cons. Don’t get stung by the grass is greener fallacy, which affects you only if you are in a very sweet position indeed.

    Jakub,

    i think Germany got cold feet just now, about playing rich uncle. I once read a book on the history of the Bundesbank, which started off along the lines “germans consider the DMark more than they consider god”. Bit of a theme for me lately, but if we all just hunkered down and minded our own business, i reckon life would be less scary.

    all best,

    – john

  11. Just a up note, because one is needed every now and then:

    who put the word “bank” in bankrupt?

    individuals do not go bust, until they drop dead.

    Capital = capita = head = person.

    and despite all the doom and gloom, the measures are only against annual output, not what we can work off. So let’s get working. There’s no excuse, given this internet thing. Just those internet businesses want to centrally control stuff, which is not quite how the thing was designed. New tech, old model.

    I think i’ll be quite old, time this mess is settled. But if i believed every indicator i read, i’d have jumped out of my window or something by now! There’s tons of pleasure to be had in life. Just get more serious to seek it out!

  12. rpaco,

    this is possibly right up your street, in case you missed it:

    http://ftalphaville.ft.com/blog/2011/08/31/661311/the-overnight-black-swan/

    about how QE3 is actually happening.

    Things are quietly moving everything to where public cannot get in on the game, upside or downside . . but i do get hints that this could also be part of putting the burden back on the private sector who have been too sweetly insulated.

    Still nowhere near inflation adjusted gold highs, though. Just over two years ago, i got an email out of the blue from someone who is a friend, who is assuredly not full of it, asking if i could assist in a purchase of big physical tonnage. The trillions you see invested are not in the physical stuff. None of that to go around. For obvious reasons, i stepped away from that invitation, very politely. Rather stupidly, i did neither trade on the whopping great in my face wet slap with a kipper signal. Doh. But each to their own.

    This one i had to print and read slowly, a Fed Reserve report on shadow banking: http://www.cepr.org/2432/AdrianFinal.pdf

    I like best Marc Faber’s suggestion: “be your own central bank”. Alas, i deal in at best quaternary derivatives – adverts – which (reasons i shall never publicly discuss) demand even greater liquidity as backstop, compared with even metal repos. I’m sure i could deal at more ruthless scales, but there’s moral as well as mathematical dilemma to balance. Even look back at the big buyout names of the 80’s, they all started by grafting it, which is optimistically where i am or will get soon. You really might like Rainmaker: The Saga of Jeff Beck, Wall Street’s Mad Dog, by Bianco. My take is that’s a classic because it lays bare the painful contortions a obviously sensitive man went through to get to the first ever billion dollar deal. I keep that one as a touchstone, and as a private warning. If anyone bothers ever to write so well about me, i hope they will pick up on comparable contradictions. Least it would – hopefully – not say i was a quant geek bastard earning money on pure bunk theory. ’bout the time Liar’s Poker came to print, my dad chucked me a copy, (“get a load of this, learn from it!” and i never realized until lately how contemporaries took the flippant side of that so readily. I did not see a positive correlation between big brains in sciences and huge starter salaries in banking, amongst my school pals. To be cruel, i thought who got sweet jobs, salary beyond their years, in the merchant banks, were very middle of the road academically.

    Age and guile, rpaco, as if you needed reminding. Avoid what the whizz kids trade!

    Good luck with your dealings!

    – john

  13. Some great comments, John. All the export-led economies mentioned by Paul have also yet to see the other side of their housing bubble, some of which make Ireland’s massacre look like a blip. And Australia’s economy is effectively a 3x leveraged bet on China, so when China’s regional governments are ordered to stop building vacant apartments and ghost shopping malls, watch out if you’re Down Under, especially in the metals exporting business.

  14. Tom,

    first rule of reading me, bet hard against me just as i start sounding off like i got a clue! (or just disbelieve anyone who sounds a bit too sure)

    I’m deeply fascinated at a very personal level, as to what is going on. I plan to inhale some new style smoke stacks soon. Sometimes i think we all imagine we suddenly got a good look at the chessboard (internet, “newswires”, all that) and are thinking we understand the game because it appears visible (try Feynman’s quantum analogies there). Got a big wrong picture, odds on. Same with whoever thinks they’re running this lark. Pretty sure we muddled through before. Fairly sure we are cleaving to false constructs in business. Damned certain we are fussing out loved ones way too much in false panic, yet equally conning ourselves as to imaginary safety. There used to be this theory that stocks followed a “random walk”, which many people called bunk, did not work. But if i take a random walk in life, does that neutralize the randomness of my perspective (think number generator salts, Lorenz and all that) so i can see clearly??

    At a very personal level i’ll not start on, for me the only solution is walkabout. I shall try to not go full Nic Roeg with that. I think this mixup could work well, if we keep heads high. Not convinced any which way, yet.

    Take care fella, thanks for writing.

    – j

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