Jon Zehner: Final Learnings from Davos

Jon ZehnerThis snow goose was blown off-course yesterday and I didn’t write my last blog for Davos , but I haven’t forgotten and I did want to summarize my perspectives from the last day.

As the wandering albatross/investors sessions finished on Friday, I was able to get to some of the sessions that related to other topics:

Learned the following:

  • The U. S. has reduced its energy costs in the last few years by three times as a result of the shale gas revolution (shift of coal to gas) and horizontal drilling. Fracking is part of this change, but has been around for 60 years and is not the only driver. The experts believe that other countries (Argentina, China and Libya are all high on the list) have the potential to do similar things given their geological attributes, but the U. S. is far ahead due to the clear rule of law, the depth of skilled oil and gas entrepreneurs and the support of local and regional governments. Europe’s electricity costs are now three times those of the U. S. This is similar to some crows being creative and finding new food sources that are readily available and allow them to spend much less time foraging than other crows.
  • Robots will significantly grow in terms of their sophistication and usage and this will have a near-term impact on societies and may well impact job creation and the types of jobs that are available to the current generation of emerging job seekers. In the ornithological world this is roughly similar to eel grass largely disappearing for many brent geese as a food source due to disease, forcing brent geese to find less valuable food sources such as winter cereals.
  • A panel of economists/central bankers including Christine Lagarde of the IMF, Governor Kuroda of the Central Bank of Japan, and Mark Carney, Governor of the Bank of England, as well as Larry Fink of Blackrock concluded that 2014 will be more volatile than recent years but will still end up in a good place. Their concerns centred around the remaining risks in the global economy that result from structural reforms (e.g. Solvency II), tapering risk and the still low inflation rate in several countries making these economies vulnerable to shocks that could result in deflation. In contrast, the wandering albatrosses seem to be more focused on the causes and timing of the next downturn. This is roughly like a flock of red-faced cisticolas being concerned about finding their next food source while the flock leaders are worried about the peregrine falcon circling overhead as well as the sustainability of the water in the current watering hole.


Anuj Puri: Robert Shiller, David Cameron And More On China

Anuj Puri

For me, day four at the World Economic Forum was a whirl-wind of business meetings, with media meetings and some very interesting sessions. I particularly enjoyed ‘A Journey of Discovery’ with Robert Shiller – Nobel Laureate and Yale University professor. The session’s touch-points ranged from path-breaking empirical analysis of asset prices to profound insights on risk, bubbles and other aspects of finance in society. Also, it appears that Bitcoin has not found much fancy.

I had reason to pay close attention to Shiller, who had predicted that the markets would slump in 2007. In fact, his book was published in March 2007 and the markets crashed in September 2007. He referred to the whole BRICS debacle as ‘dissatisfied optimism’, but conceded that BRICS are still strong economies. In the case of India, foreign investors want to see action and not merely intent, which has been the case so far.

The session on Israel made some interesting points. What came forth most clearly is that in a well-managed economy, private companies receive wholesome nourishment, governments subsist on lean diets and barriers to growth are removed – thereby leading to a surge in GDP.

I did not meditate too long on where India stands in context with such a progressive approach; it makes me uncomfortable.

I came away from David Cameron’s session with the opinion that in the future, more high-value jobs will be created in UK; jobs coming from the East, and not at their cost, but as a result of growth in manufacturing and services. This should lead to higher revenue flows and an increased value addition to the economy.

Finally, I attended the China session, which had a sizable turnout and provided some interesting insights. In 2014, China’s GDP growth should hover around the 7.5% mark (a couple of years ago, it stood at 10 %.) There is surely a shared story between China and India somewhere. In fact, China has its own anti-corruption movement, and it is gaining momentum. Interestingly, it was opined that this movement may result in a period of slow growth for the next year or so. Because of the anti-corruption mindset, spend on luxury products and services in China has decreased considerably.

My main takeaway from this session was the ‘Sandwich Theory’. The top layer of the sandwich – the government and the Premier along with the Chinese masses as the bottom layer – are done with the bureaucratic middle-layer (the leaders of government-owned enterprises) and are trying to edge them out to get in more efficient management. I found the fact that the Chinese government is trying to get professional leaders to head state-owned enterprises extremely interesting. It stands to reason that professional CEOs will be more efficient than mere nominated functionaries.

I perked up when real estate was mentioned. Residential real estate in China has apparently improved considerably, but prices – which need to come down – will not grow in tandem with the GDP increase. In fact, they are expected to remain stable for the next 3-5 years. I could not help but draw certain parallels to India.

Best Regards,


Davos Wrap-up: 4 days, 3 themes

Colin Dyer

At the World Economic Forum Annual Meeting last week, several colleagues and I traveled to Davos, Switzerland to join more than 2,000 other delegates for speeches, discussions, meetings and other events surrounding the conference’s theme, “Reshaping the World.”

I left Davos thinking about three themes: two positive, one less so.

The first positive theme is undoubtedly the good mood of the attendees — the best since 2006. You’ve been hearing this from the members of our JLL delegation have shared throughout the week in Davos. The meeting was not preoccupied with a major financial or security issue to dampen the mood.

Growth is back, everywhere, and the combination of all this engenders a sense of calm confidence, and points to a good year to get back to growing businesses. Indeed you could catch enough passing conversations to know people were getting down to business, as deals were being floated and discussed.

The second positive is the general agreement that the wave of regulation of the world’s financial system is coming to an end. The frameworks are in place, and the details are being filled in. The positive from this is that banks can begin to focus fully on their job of financing new business and oiling growth, and we can all be more secure knowing that the regulations will protect us better (but not completely) from another meltdown.

The less-positive theme is the need for structural reform across many economies. I call it a theme because it came up repeatedly in discussions and presentations on many countries; Japan (Prime Minister Shinzo Abe committed to firing his third arrow in his speech), many Eurozone countries, India, Brazil, Argentina, U.S. tax and spending processes, and the European Union’s monetary and banking coordination.

The reforms vary hugely between countries, but they all involve tough work in removing or adjusting vested interests, acquired rights and established ways of doing things. These changes run into opposition really fast and don’t usually win votes. So politicians are reluctant to take them on, and that’s why they are not happening quickly, or in too many cases, not happening at all.


Colin Dyer: Expanding in Africa and Avoiding Real Estate Bubbles

Colin DyerApologies for missing yesterday’s blog posting. With the dawn-to-dusk (actually dawn-to-midnight) schedule here, I admire our colleagues who were able to post while also meeting with current and prospective clients, and occasionally, attending conference sessions to further our understanding of progress in the world.

To compensate, a longer than usual blog tonight, written at midnight, having just returned from a long formal dinner with JLL’s lead bankers. The Bank of Montreal leads a consortium of 19 major banks that have committed to lend us up to US$1.2-billion. They all do this with great confidence, reassured by our investment grade balance sheet. So BoM is an important partner of the firm.

Two interesting, but unrelated, topics for this post: Africa and real estate bubbles.

First, Africa.

Our corporate clients, who account for 50% of our revenue today, have been asking us for some time to develop our footprint in Africa. We’ve struggled with this, trying to work out safe, ethical and profitable ways to develop beyond our offices in South Africa, Morocco and Cairo, and in neighboring Dubai.

So one of my goals in Davos is to understand how others are handling their growth into what, for many companies, is not just a new market, but a new continent. Talking with accountants, lawyers and consultants here, I’ve learned of several approaches. These include “fly-in-fly out”, which is to say, establish no permanent presence in Africa, but fly people in from Europe, the Middle East or Asia to do specific jobs for specific clients.

A second approach, which is consulting-led, involves advising specific clients on development projects, on setting up offices or finding space for them.

And a third approach, which KPMG calls ‘Clusters,’ is to affiliate countries with their former European imperial occupiers, so Angola with Portugal, Algeria with France and so on.

We’ve reached no conclusions, but now have useful input to add to the discussion with Christian Ulbrich, Vincent Lottefier, and Mark Bradford, who are moving forward with our growth there. Interestingly, there are clearly many more delegates from Africa than in previous years.

Second, real estate bubbles.

We at JLL asked for a discussion on this subject, and today I chaired a panel which discussed just that.

Why? Because real estate is the world’s largest asset category and carries the greatest proportion of the world’s bank debt. So when it goes wrong, it becomes an issue for the entire financial system.

The panelists included Bob Shiller, the Nobel-winning economist who predicted the last real estate crash, Jaime Carauna, Chairman of the Bank for International Settlements (BIS) and former Governor of the Bank of Spain, and Klaas Knot, Head of the Dutch Central Bank. An interesting group!

It was a great dialog, and we will capture and develop the content to use with our clients.

Some headlines:

  • Simply put, bubbles are easy to spot, but hard to admit to.
  • The tests and tracking mechanisms employed by central banks gave them a very clear picture that, in 2004 – 2006, we were in a global real estate bubble, both commercial and residential. The banks warned but lost credibility when nothing happened for several years. They were seen to have ‘cried wolf’ too often.
  • Those same banks now have the tools to detect, and also to dampen, asset bubbles, and one hopes they will do just that before future stresses become severe.
  • We are not in a global property bubble today. BUT the current cycle has several more years to run. That gives bubbles plenty of time to develop – especially if credit remains easy, and lending standards continue to slip – and for a frenzy to build among commercial and residential buyers.

There was much more, but just these headlines will help next time China TV asks me if there is a residential bubble in Shanghai.

Enough for tonight, I’ll send a wrap up on Sunday.



Jon Zehner: Perspectives of the long-term investor

Jon ZehnerTo begin my last day at Davos, I will try to regain my ornithological story line, which time did not permit yesterday.  My day was largely spent in sessions with a variety of Wandering Albatrosses/Long-term Investors.  The topics discussed included:

  • What is the definition of long-term from the perspective of corporates, fund managers and capital providers?  The corporates were focused on time to transform companies, recognising that a transformation process is not likely to be executed in a straight line.  Much discussion of how corporate managers are compensated over several years’ performance while most investment managers are compensated on an annual basis. Conclusion is that it truly long-term is an attitude that needs to come from corporate and institutional boards (and is actually becoming more short-term). For a Wandering Albatross this equates to a  long-term flight plan while the oceans experience disrupting storms.
  • How is value created in the long-term?  Focus was on clear strategies and their implementation as well as capital allocation discipline.  The other primary focus was on people development to make sure that the best talent was constantly identified and supported.  Once again this equates to developing strong chicks and helping them develop effective flight plans.
  • What are the levers that investors have at their disposal?  The focus of the discussion here was on the importance of strong personal relationships and non-financial metrics.  There was a recognition that investors needed to have good industry knowledge to be effective.  This is simply recognising that wandering albatrosses, snow geese, robins and narina trogons are all different species with foraging strategies that vary.

A different session focused on prosperous longevity and the importance of integrated pension fund, health-care, and healthy real estate communities to support an ageing population.  This is hard to translate, but is roughly how to maintain older whooping cranes in the crane community, recognising that they have migrating habits that are valuable to remember but that they need more support in terms of food and familial backing (not sure that it really works this way, lest I mislead you).

Lastly, I attended a session in which U. S. Secretary of State John Kerry spoke about the various Middle East hot spots, particularly the Israel/Palestine issues and how hard the U. S. was working to help solve the challenges.  He spoke eloquently and forcefully about how important solving these issues is to everyone in the Middle East and in the world.  An involved bald eagle chirping (they really have a funny call) in an articulate manner.