Tuesday, 2 June 2009

Distribution at work in the wake of market's recovery

The following news item illustrates classic distribution at work as the recovery continues.

The wealthy Persian Gulf investor who bought part of a £7 billion ($10.4 billion) stake in Barclays PLC last fall has decided to cash in his stock, almost doubling his investment thanks to the company's stock-price rise.

Sheikh Mansour Bin Zayed Al Nahyan, a member of Abu Dhabi's royal family and the chairman of Abu Dhabi's International Petroleum Investment Co., was part of a controversial capital raising last fall that Barclays pulled off against investor opposition. The other Middle Eastern investors were from the Qatari government.

The investors were portrayed as long-term partners of the bank at a time when the bank was seeking to avoid turning to the U.K. government to meet capital requirements.

Now, Sheikh Mansour will dispose of 1.3 billion Barclays shares that he obtained through the convertible notes he bought as part of the plan, Barclays said Monday.

This quick rotation from Barclays equity to cash (it is not as though the Sheikh needs the cash) underlines my concern that the holding of assets predicated on increasingly high frequency rotation and pure market timing, is the new bubble. Value is not created by market timing, I would maintain, only transferred.

The Sheikh seems to be implementing the simple rule of Lord Rothschild - it's better to sell too early than too late.

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