Monday, January 26, 2009

Val Thorens and Skiing

Just back from a week-long ski trip at the highest ski resort in Europe (in the French Alps). This is the largest linked ski area in the world. And it is simply amazing.  

An even more amazing thing (for me) - I didn't see one Indian or Chinese in my week there. I can't remember any other time in my life that I didn't see even one Indian or Chinese for an entire week. 40% of the world's population had only one representative - me - at the resort. 
Now I haven't travelled that much to exotic locations to be sure. But from what I have read or heard - that even in the remotest jungles of Africa one can always find a Gujju hotelier - Val Thorens seems to have escaped the imagination of the Gujju entrepreneur.  

To be fair, I heard "Tu Roop ki Rani" from "Roop ki Rani Choron ka Raja" (that really bad movie of the early 90's) on the French Radio. Where Indians haven't reached, Bollywood has. It was bizarre to hear this song (of all) amongst all the other French songs playing on radio. 

The best thing that will happen because of Slumdog is - execs at Disney, NBC and Viacom who invested in Indian entertainment industry can go to their bosses and justify their investment because of the potential blockbuster resturns. Fox Searchlight has again hit the jackpot of the foreign Indian movie market - Slumdog, Namesake, Water etc are all Fox Searchlight distributed.  

Fox incidentally reports the highest operating margins of any studio (high teens vs high single digits for Paramount or Warner). There is probably something in the DNA of a movie studio - much like there is  something about the DNA of a bank (even though they are all going to 0 this time) - that can make one stand head and shoulder above the rest.  


Econlogic said...

Not sure I agree with either the micro or the macro basis for the investment.

1. "PM has a very strong balance sheet. Can it take advantage of the situation that unfolds in 2009 to acquire competitors in Russia or Indonesia or LatAm who might face trouble? "

Great point, yet some research I saw suggests - chances are less than even that an acquisition will go on to create value - firms overpay, integration issues etc.

2. "5% of EBIT is in Euros (Even Trichet was forced to comment at Davos that Euro won't disintegrate - remember Milton Friedman said Euro won't survive its first recession - now we shall see), 10% is in ruble (crashing), another 10% from Ukranian hryvnia and turkish lira (crashing even more), 25% in Sterling, Polish Zloty, Latam currencies, Indonesian rupiah, Aussie dollar, Saudi Riyal and Egyptian Pound (most of them are weak), and 10% in Yen (the only saving grace)."

What is the nature of their currency hedges? Short-term, the impact of FX may not be significant. Yes, overtime the hedges rollover at the new spot and the company is affected. Last year was well into an extended dollar bear cycle. It is hard to say anything about the short-term unless we know how their hedge book is positioned.

3 "Purchasing power parity: Yes all the EM currencies are depreciating against the dollar today. But doesn't it imply that there is one year of 10%-20% type inflation out there in all these countries somewhere in the next five years, in which PM's EBIT will jump by 25% in one year in EM countries and take care of some of the lost EBIT"

To the extent it works, PPP operates over long periods. Half life of a deviation from PPP is about 3-5 years (Rogoff). Then there are questions about whether it works at all when measured by CPI given presence of non-tradeables - see Balassa-Samuelson hypothesis.

There is another interesting question you raise. Which way does the causality flow? From exchange rates to prices or from prices to exchange rates? The answer to my mind is - when inflation expectations are well anchored, the causality flows from relative price differentials to the exchange rate. But in countries with a history of hyper-inflation, currency depreciation quickly feeds into inflation expectations and price formation.


Room for improvment.