“The Spanish property market is collapsing!” announced colleague Merryn Somerset Webb this morning.
“Only three countries in the world have a serious subprime problem – the U.S., Britain…and Spain. But no country has taken more advantage of low interest rates to build more houses and sell them at prices they don’t deserve to more people who can’t afford them. They just built too many new houses…
“One building company had gone up 1,000% since it listed only a few months ago. It got whacked yesterday…so did the other builders.”
Today our question is, “How much is too much?”
Many people thought you couldn’t build too many holiday homes in Spain… just as you couldn’t build too many hotel rooms in Las Vegas… or pay too much for Chinese stocks… or pay too much to hedge fund managers… or have too much money in private equity… or too many dollars at large in the world financial system.
Since the expression ‘too much’ has been extant in the English language for a very long time, we assume it must mean something. What we’ve been waiting… and waiting… and waiting… to find out is what it means in financial affairs.
The latest figures show that hedge fund manager Jim Simons earned $1.7 billion last year. Is that too much? He takes an unbelievable 5% of his clients’ assets each year, in payment for his services – plus, and even more unbelievable, 44% of profit. Is that too much?
Readers will remark that his $6 billion Medallion fund rose 84% last year (Simons is good with figures). Investors came out ahead more than 40% even after paying the outrageous fees.
Or what about Ed Lampert or Kenneth Griffin, each of whom also earned more than $1 billion last year. Was that too much? We don’t know. But we came back from our vacation, opened our eyes, and thought we saw ‘too much’ everywhere we looked.
Money streams into new investment funds. Even Brian Hunter, who lost $6 billion trading energy for Amaranth, is starting up a new fund. And John Arnold, formerly of the Enron energy-trading desk, earned more than $240 million last year – partly by taking the other side of Hunter’s trades.
Over on the Las Vegas Strip, Goldman Sachs (NYSE: GS) is buying Carl Icahn’s four casinos…for $1.3 billion. Is that too much? Again, we don’t know; but when it comes to excess, what Las Vegas doesn’t already know probably isn’t worth knowing. The place had a total of 35,000 hotel rooms in the 1970s, which seemed like too many to us. Now, it has five times as many – 151,000 – which seems like more than enough.
But ‘too much’ has dropped from the English vocabulary in Nevada… and perhaps the rest of the world, too. The Venetian alone is adding 3,200 new rooms. And over at the old Stardust Casino, the owners judged it too small, so they blew the place up last month… to build a new development, Echelon Place, with more than 5,000 rooms.
Meanwhile, MGM is spending $7 billion putting up the City Center development – the most expensive development in Las Vegas history. Isn’t that a little too much?
Who knows? All we know is that throughout the world, a great boom is on.
Markets and Money