Market Review: Brand Name Cities

Today’s issue is about cities…the most expensive cities in the world. Or ‘brand name cities’ as your Paris-based correspondent, Bill Bonner, labeled them last week.

"Cities have become like cars and watches," he said, "They are status symbols. People do not live in the heart of London in order to work in factories. They do not move to New York to save money. They do not relocate to the central cities for the job opportunities. Instead, a Manhattan address…or a pied-a-terre in Paris signals ‘I’ve made it.’ Major cities have cachet. Class. Style."

It didn’t used to be this way. Cities were centers of production. Smoke-belching hellholes insulated by slums and ghetto. They were magnets for the poor and unemployed who couldn’t make a living in the countryside any more. Now they are home to "the rich, the hip, the footloose and fancy free – as well as fashionable, upmarket, good-paying industries such as media, banking and finance."

"Is it any wonder [property] prices have been soaring?" asks Bonner.

Your Paris-based correspondent was in London last week. And once again, he was discussing big city prices…

"Maria and I went out for breakfast in London yesterday. We went into a cheap, unpretentious diner. Two cups of tea, two pieces of toast, two fried eggs, and two glasses of orange juice – $17. We’d expect to pay that, and more, had we gone into the Savoy or the Connaught. But this was one of those dives run by people who don’t speak English, where they only clean the counter once every other week."

While Bill was in London, your other Baltimore-based editor, Addison Wiggin was in Paris. "Yesterday Jennifer, Meritt, August and I paid $78 for a steak and frites, a pizza, two beers and an Orangina," he said. "Paris has got really expensive."

Eric Fry, the Rude Awakening’s man on Wall St., completed the ‘triple-witching.’ In Wednesday’s edition, Eric was presented with a bill for $64 after ordering two glasses of house wine and a bottle of Budweiser in a Manhattan chain restaurant. "Fortunately, a generous companion promptly tossed four 20s toward the barman," wrote Fry, "thereby obviating the need for your editor to satisfy the bill. UN-fortunately, because we all continued drinking our pricey libations, your editor found himself tossing SIX 20s on the bar to close out the tab."

This coincidence of emails from your three senior globetrotting DR columnists prompted us to look up the annual survey by Mercer Human Resources Consulting of the world’s most expensive cities, last published in June 2004.

Tokyo tops the list. It’s followed by London, Moscow, and Osaka. Hong Kong is in fifth place, then Geneva, Seoul, Copenhagen, Zurich, and St. Petersburg make up the top ten. The biggest surprise is Beijing. It’s in at number 11, ahead of New York at number 12. Paris is in 17th position.

Any number of observations can be made from this list. For instance, look at the currencies this list represents. The yen, the pound, the ruble, the Hong Kong dollar and the Swiss franc are all in the top ten, but no euro-based cities make it.

Or what about Beijing? We thought China would be cheap, but it looks as though Beijing is about to become the world’s most expensive city. Given that currencies movements are an important factor in this list – the compilers acknowledge this themselves – and that China’s currency, with its dollar peg, has become relatively cheaper these past few years, it’s amazing that Beijing is so high.

We hesitate to draw any conclusions from this research…it was designed for use by the human resource departments of multi-national corporations as they decide compensation for ex-pat employees. A similar survey from the point of view of a blue-collar worker or a peasant farmer would probably yield different results…

Instead, we’ll sign off now and head down to the local pub for a little research on global inflation of our own…


Tom Dyson
The Daily Reckoning

P.S. Canada featured highly in Mercer’s 2005 list of cities that offer the highest quality of life…Vancouver scored the #3 spot, and other Canadian cities weren’t far behind. And we believe it too. Canada is a wealthy country…the people, the scenery and of course, the oil. And they must be shrewd businessmen, because now they are signing long-term oil supply contracts with the Chinese…

THIS WEEK in THE DAILY RECKONING: For technical reasons, Thursday’s DR never got mailed. It was called Clash of the Titans. Just follow the link below for the full edition…and all the other DRs from last week:

By Bill Bonner
"There is much debate over the U.S trade deficit – some see it as a sign of the ‘decline of America;’ others insist that it reflects our country’s strength. We look at why seeing this deficit as an asset is America’s downfall…"

By Justice Litle
"To learn about the future of economics, you must be well aware of the past. Justice Litle shares some observations to help us get through, and possible even profit from these ‘interesting times’ between the U.S and China…"

By Lord Rees-Mogg
"With the price of oil heading up rapidly, the only logical step would be to consider other sources of power… and in China and Japan they have been developing two new technologies that could change the world…"

By Byron King
"We look at the stir caused by Edwin Drake, the man who drilled the world’s first commercial oil well. It’s interesting to see what a look into history can tell us about the present-day oil frenzy…"

By The Mogambo Guru
"The basics of economics prove too difficult for some to understand… realizing this, and not wanting anyone to miss out in the joy that is the story of the U.S economy, The Mogambo explains it in way that we can all grasp…"

FLOTSAM AND JETSAM: There She Blows! Oil Surges Past $57 to Make Another New Record… Plus, Tips on Playing Both Sides of a Volatile Market…

By Kevin Kerr

Another stunning week in the energy patch, as oil snapped through $57 and left the bears in the dust, shaking their heads. The fact of the matter is that crude oil is a bit overpriced for the short term. That in no way means that this rally is just on hype and speculation, as some would have you think. It does, however, mean that the front-month prices simply can’t be supported at these levels without some retracement at some point.

I imagine that point is near at hand. Justice and I see things much the same way. In Outstanding Investments, we have a great combination of long-term energy plays, and some have had stellar returns. Under no circumstances is that run over with. However, from time to time, it’s a good idea to take profits on some of the highfliers and then buy them again when they pull back a bit – we call that "buying the dips."

There is another way to play this, and I will tell you about that next. But first…

*** Playing Both Sides of a Volatile Market

When a market is as volatile as the crude oil and gasoline markets are now, you have to think out of the box. To rush in at this point and try to get in on the bull run is sheer suicide for many investors. The inevitable pullback is bound to happen, and when it does, you want to be a buyer ready to snatch up bargains. Justice is working on some other plays right now that the average trader is not even considering. It’s imperative to approach the sector this way during these extremely volatile times.

Another way to play it can be confusing to some "equity-only" traders. You’re solidly long on the energy sector with Outstanding Investments. You’ve got drillers, transport companies, exploration companies, even energy funds. Viva la energy bulls! Now, how do we hedge ourselves during the inevitable oil profit-taking and retracement? Simple: put options on crude oil.

"Oh no," you’re saying. "Kevin, I don’t like futures. Commodities are too dangerous." Nonsense. Put options simply give you the right – but not the obligation – to own crude oil within a certain time frame. Your risk is completely limited, but your profit potential is unlimited.

So you’re asking yourself, "If it’s so easy, why doesn’t everyone do it?" Answer: They are afraid to. At the end of the day, trading options is easy and eliminates almost all of the concerns that come with trading futures, like margins, unlimited risk, etc. Again, I want to stress that you know your total risk of loss upfront, and it can’t ever be more than what you put into the option.

So why do we buy puts if we say oil is going to keep going higher? The reason is clear: Our equities in Outstanding Investments give us a long-term approach to the rising oil price. Meanwhile, by using trades like those we recommend in Resource Trader Alert, we can catch the faster-paced corrective moves that always come. If you aren’t using this type of trading service, you are missing out on a whole other segment of profits.

It’s important to take your trading to the next level — to never get emotionally attached to one direction in the market. Sure, I am a die-hard bull on the energies, as I’m sure you’re well aware of by now. However, I make just as much money playing the short-term bearish market as well, and so should you. I will be happy to help you understand it better in Resource Trade Alert. Together, OI and RTA help you have all your bases covered in the energy sector… and sometimes, a single trade can cover the cost of both subscriptions.

Justice is busy working on the next OI issue, and I am working on my submission, too. So don’t ever think I am not in touch. Justice has some great ideas for next month, and I know he is going to take things to a whole new level. Also, Justice will be sending you a hot line early in the week from now on, and I will continue to send you our Friday hot line as always. With the resource markets so red hot, we need to be in touch with you even more frequently.

Have a great weekend.

Yours for resource profits,

Kevin S. Kerr
March 20, 2005


AND THE MARKETS…(Courtesy of the Rude Awakening)



This week

















10-year Treasury





30-year Treasury





Russell 2000


























JPY 104.67

JPY 104.54



Dollar (USD/EUR)





Dollar (USD/GBP)





The Daily Reckoning