February 2011 Archives

I was having an email exchange today on my Tucker's Point SDO post, with someone who I respect immensely and really understands tourism in Bermuda. He presented the pro-SDO case, which paints a picture which hasn't really been presented publicly by Tucker's Point or the PLP:

While I understand and agree with a lot of what you say on the T's P SDO, there are other factors also to consider.

1. The impact on Bermuda's reputation in the marketplace if yet another hotel (and there haven't been many) that has invested a ton of money in the Bermuda product goes under.

2. The impact on the potential to attract ANY hospitality investors going fwd to Bermuda as destination...potential which is already at a low...this would sink it..and affect more than just HSBC and the owners of T's P.

3. The impact on jobs if there is another receivership. Don't kid yourself, there is no guarantee that another buyer would pick it up and operate it in the same way..or that this would happen quickly. Example - Four Season in Exuma, Bahamas went under...it is now a Sandals resort that Butch Stewart bought for pennies on the $...nothing like what a FS would have been to that island.

4. The impact on Bermuda's marketing and brand (weak as it may currently be) with the loss (before it started) of a Rosewood hotel - only the 2nd brand in here (Fairmont being the other).

I know that this is all tough to offset against what is being proposed...but it should at least make people stop and think (particularly those who purport to have all the answers as to how to turn Bermuda tourism around - not talking about you, my friend...!!)).


But I don't think people here understand what REALLY makes tourism work.

It is VERY complicated..and there is a new model that is still unfolding..the old one is "broke" (pun intended...!!)


Trust me, HSBC WILL be taking a haircut..that debt WILL be written down..by
how much who knows, but there is no way they can carry it on their books at
current levels (I'm told it's north of $120 mil).

However, we'll never know because, unlike Butterfield which is local, HSBC
doesn't have to produce a financial statement to that degree of detail.

Re Tuckers Point taking a hit...they have been taking it for YEARS with
losses upon losses. They will NEVER ever be profitable enough to see the
shareholders getting a return. Privately they might acknowledge that, but
publicly it can never be said. They could certainly prove it.
It makes me laugh when people ask for their accounts..if I were them, I'd
hand them out...publish them, let it all hang out...!

There is a lot of merit to these points, and I would admit to finding many of them difficult to dismiss out of hand if Bermuda wants to remain in the tourism business.

This suggests that a Tucker's Point failure would present a systemic risk to Bermuda's tourism product.

What I think is particularly problematic is that the Government and Tucker's Point, perhaps out of political need to not admit the true state of Bermuda's tourism product post Brown's fictitious 'Platinum Period' and pride to not have Tucker's Point's financials laid bare, have really not presented the case well - or at all. They've asked the public to accept this with little information.

If this is indeed the state of tourism in Bermuda (and it is), Bermudians need to know. We all know it's not healthy, but years of political spin have been painting a different picture with the PLP even recently posting on their website about Tourism's turnaround being 'alive and well', when it seems more like a death spiral.

So a little food for thought. I don't think there is an easy answer here, but I would not be able to support the SDO based on the lack of information presented, and if I was Tucker's Point I would present the financials, and if I was Government it's time to be honest on this front for the first time in a decade.

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The FM signal for Parliamentary broadcasts is awful. Static-y at best, too weak to get in other spots.

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For what it's worth, with the Tucker's Point SDO up for debate today, I don't support it. Certainly not in its current form, and potentially not at all.

This is a bail out of private investors and an HSBC loan, and neither pose a systemic risk to the Bermuda economy. Tucker's Point is an important tourism development and everyone wants it to succeed, but that will arguably be more achievable not by cutting down huge swaths of protected land and selling it to non-Bermudians so the investors can add assets to their balance sheet, but by having HSBC take a hair cut on the hotel loan, restructure it and then the economics of the hotel work better.

If Government bails out this loan by HSBC will they bail out, or require HSBC to restructure, residential loans for Bermudians which may be in trouble for example (the banks already do this I know, but I mean require)? This deal looks like a one way street with Government securing little in exchange for what Tucker's Point and HSBC are asking.

Simply giving them more real estate to sell for a very uncertain outcome doesn't strike me as worth it at all.

The US bail-out, while you can disagree on it, at least was built around an apparent systemic risk from the banking sector. This is just a bad investment if you ask me.

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I've been a bit short of time, and remiss on commenting on the UBP's Budget Reply, which I hope to do properly tomorrow. It was first class, and really built in two parts, the first the analysis of local and international economic conditions and history, and then the second being a way out of this mess.

To those who insist on saying the UBP only complains and never offers solutions, this is a direct rebuttal, a devastating rebuttal of the PLP's disastrous fiscal policy as highlighted by the warnings from the UBP over many years that this was where Bermuda was headed.

If you need proof that the reply was compelling and on point, just read the PLP website's rebuttal which of course has to try and paint it as the polar opposite of what it was: "Richards Delivers Weakest Opposition Budget Reply of His Tenure" (therefore his best).

The headline and content is delusional and dishonest of course, but that's to be expected. The PLP cannot admit that not just was this a brutally honest and pragmatic reply delivered in the most down to earth language of Bob Richard's tenure, but its credibility is built on the back of successive Budget Replies by successive UBP Finance Ministers predicting what has come to pass.

If you ask yourself the question of 'would we be stronger financially if the UBP had been in power', the answer is obviously yes. And that's not just bias, that can be empirically proven by the UBP's fiscal history and commentary in their budget replies.

The Reply was a bit depressing in its truthfulness, but it does present a path for progress and if Government had the strength of character to follow through Bermuda's trajectory could be pointed up not down again.

I remain an optimist at heart, but a realist as well.

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The UBP's Budget Reply is a must read with a remedy & vision. It won't end 'all they do is complain', but it should. http://bit.ly/gEGCGk

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My main takeaway from this budget, other than the pre-election feel to it, is that Bermuda politics is becoming firmly divided into two camps: the Realists and the Delusionals.

Unfortunately the Delusionals are running the show and continue to assert with a straight face that the tens of millions of dollars of waste - or perhaps more accurately termed 'control fraud' - were 'investments in people' or stimulus. It's just not serious, or credible, and quite frankly it is hard to believe it wasn't intentional with the 'disregarding or rules' resembling a business plan if you ask me, consistent across multiple projects with familiar contractors and familiar politicians at the centre of it all demanding those in positions of influence 'just make it happen'.

Paula Cox appears pathologically incapable or unwilling to make the hard choices. She keeps talking about doing things differently, but that's where it ends. Talking about it. The Premier and Finance Minister seems to prefer to attempt to reframe and re-cliche what is essentially more of the same into 'resetting the dial', whatever that means.

This new budget isn't resetting anything, it's minor tinkering on the fringes - some of it worthwhile - but much of it accounting gimicks and a reliance on external forces to bail out the Government while the debt mountain grows and threatens more and more social programs in the future.

I'm convinced that this is a budget to try and get past the middle or end of the year for an election, but unlike with investments where the disclaimer says that past performance doesn't predict future results, with this Finance Minister it seems to.

The only major change was the implicit acknowledgement, coupled with an explicit claim to the contrary, that the payroll tax hike last year was ill-advised and counter productive.

Otherwise it was mostly tinkering and rhetoric. The general theme was more honest than in the past, where the Finance Minister described our economy which was accelerating its contraction as 'post-recession', but it remains mostly committed to the same culture of spending, waste and overly optimistic budgeting and forecasting that has been the hallmark of all PLP administrations.

Bob Richards is again correct in his early summation of the budget, but Bob is a realist, as is the Chamber of Commerce, the accounting firms and just about anyone who has been calling for realism in Bermuda's finances and debt levels. The chorus is getting louder, but it's really up to the public to decide they want realism over rhetoric - and an Opposition that is well positioned and well organised enough to capitalise on this.

The tweaks are welcome, but it's just not going to be enough.

For those of us who were vilified for suggesting (repeatedly) that - gasp - Tourism under Brown was a farce (to be kind); for suggesting that the Music Festival had morphed into the Ewart Brown vanity project rather than tourism events, as I was by the PLP's 'race advisor' in one of the few articles I refuse to link to, the canceling of it as a 'low return on investment' event, is the closest we'll ever get to an acknowledgment that we were correct - not racist. Apology accepted.

And I would add, it is also a positive to hear the news from this budget that St. George's Golf Course is being reopened as a matter of priority, as I called for just 3 weeks ago.

These are some of the small and immediately achievable things, many of them the undoing of Ewart Brown's disastrous vainglorious and self-serving tenure, that can add up to minor wins and validate much of the constructive criticism that received such vitriol in return.

Those are the baby steps. But what Bermuda really needs is a genuine 'resetting of the dial', not more PR, more documents and speeches delivered and printed in heavily politicised PLP green, with grandiose claims to change but very little substantive change.

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Just back from vacation, and catching up on a number of issues.

Today's Budget is curiously devoid of any hard choices, and feels very much like an election year budget. The Premier and Finance Minister appears to be trying to downplay, deny and defer the economic reality and consequences of her continuing failure in Finance.

More over the weekend.

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The logical conclusion of policies like term limits and now a moratorium on certain jobs is that Government doesn't believe that their work permit process works. If Immigration does its job then there is no need for additional policies to be layered on top of existing processes.

What is interesting is that the moratorium is to protect low and lower paying jobs like landscaping, pot washing etc. due to a sudden and severe contraction of the economy at all levels, but disproportionately hitting lower income workers.

It's a sign of how horribly the economy has been mis-managed that only a few years ago Government was talking about Sven and Johnny and that Bermudians should be in the top level jobs at billion dollar corporations. Now, they're saying "pot washing isn't beneath you. Don't turn down a job because you think it pays too little."

The PLP's politics have gone from aspirational to survival in 3 or 4 short years.

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I'm not sure what kind of numbers the PLP - outside of Cabinet - have in Parliament for this SDO for Tucker's Point. And regardless of how you feel about what essentially amounts to a Government bailout of a private corporation and HSBC's loan department, there is a lot going on here.

Firstly, and usually around election time, the PLP make a lot of noise about land being appropriated from black families by the Bermuda Government to create what is now Tucker's Town. So, with the SDO action they are demonstrating that when it comes to tourism they would have and will do the same, by handing over the same land for foreign ownership. They have now ceded that as an issue (not that they won't keep bringing it up when politically expedient and playing golf there with a clear conscience).

Secondly, if I were the Opposition, which I'm not, I'd be looking to apply some pressure here to force Government's hand (to the extent that they don't have the numbers themselves), and withhold any support for a re-zoning and additional sales of residential units to non-Bermudians until the Government:

  • abandons their discriminatory land license policy which prevents Bermudian families with one not yet Bermudian spouse from owning more than one property and disadvantages them in the real estate market.
  • reinstates the previous policy which allowed Bermudians with qualifying homes to sell those to non-Bermudians, which is what the Tucker's Point Special Development Order is designed to accomplish for a corporation.

Why should Bermudian individuals be treated as second class citizens while corporations, and foreign banks are given preferential treatment to prop up their bad business decisions?

I understand the value of a resort like Tucker's Point succeeding as being critical to Bermuda's tourism industry, but it's at least 50% a real estate sales model, and Government is demonstrating incredible hypocrisy and hostility to its own citizens - and undermining the local real estate sector of the economy - by treating Bermudian families as less important than corporations.

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Let's hope that the talk of another attempt at updating Bermuda's discrimination laws to include sexual orientation is successful this time, unlike the previous shameful episode.

And while we're on the topic, here is a great video from a 19 year old Iowan making the case for marriage equality.

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I think I have a solution to this hypocrisy where Government is keen to sell off residential units in politically and environmentally sensitive areas of Bermuda as 'hotel development', yet is making home ownership an expensive nightmare for Bermudians with not yet Bermudian spouses and their Bermudian families.

The answer is right in front of us, and is a win win for locals and Government.

Bermudians should designate their non-Bermudian spouses as tourists, and then Government will push through SDO's for the sale of their home to a tourist as a national priority.

And in exchange Government can include every non-Bermudian spouse as a tourist, pumping up the numbers.

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So, the UBP - BDA merger, into clearly a new entity, is imminent.

This is a very positive development that bodes well for both entities and puts months, or years of uncertainty and anxiety to bed. The leadership of the new group will surely be a mix of leadership from both and a mix in the Senate lineup as well which is a win for the BDA.

The social issues can be overcome, I just really hope that this marks the end of infighting, public spats and back-biting, and a renewed energy among the Opposition. The UBP has been fighting since the mid 90s, and the public, and themselves I suspect have had enough.

The BDA have managed to create a group of relatively inexperienced but energised Bermudians genuinely interested in moving the island forward, while the UBP still possess significant experience and credibility on the economic front which is paramount in people's minds, and Parliamentary skills.

If the new group can succeed in melding the best of each entity, and remaining focused on the ultimate goal of success at the polls, Bermuda will be well served.

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One of the PLP's most impressive traits is the ability to compartmentalize things so well, and express with a straight face or apparent sincerity completely incompatible views.

Just in the past few days the PLP have dismissed a UBP/BDA merger as "the same players, the same backers, the same policies" and try to place 400 years of history on them, yet today tried to reboot the PLP's disastrous 12 year tenure as "we're 100 days into Premier Paula Cox's term. How are we doing?" and are busily UBP-ifying themselves by accepting former UBP Cabinet Ministers and MPs into their ranks.

So while the UBP and BDA have relatively few MPs who've been in Parliament continually since 1998, the PLP have largely the same cabinet, just continually reshuffled, yet act as if they just took office 100 days ago (or whenever they get a new leader).

The cognitive dissonance, or lack of shame, or both, is impressive.

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