December 22, 2005

12:00:01 am Thursday, December 22, 2005 - Lisbon, Portugal; London, UK; Chicago, USA.  

My final diary post. I'm writing this ahead of time; hopefully, the day will unfold as expected. Flew from Lisbon to London on British Airways, then from London to Chicago on American Airlines, the final leg of 20 on our around-the-world ticket. Altogether, including these two, we took 104 flights this year. Our first flight leaves Lisbon at noon, our second flight lands in Chicago at 7:10 PM, plus a 6-hour time change. The year has been phenomenal, but naturally, we are very much glad to be home. I've captured all of my meaningful summary thoughts in other recent posts (click on the Lists category), so I'll close out now.

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December 21, 2005

10:58:58 am Wednesday, December 21, 2005 - Lisbon, Portugal - Mostly Cloudy, mid 50s.  

I took another walking tour, this time of Lisbon's Old Town. Deanna sat this one out, as she is still not feeling well. I'm well on the road to recovery, still coughing, but otherwise about 90% normal. She is about four days behind me though. The Old Town guide said that about half of the homes in the area, built in the 18th Century after the 1755 earthquake, still do not have running water. Can you imagine this? There are public baths in the neighborhood where residents shower and use the toilet. Our two nights at Ayer's Rock, Australia--where the only rooms available had shared bath facilities a short walk away--taught me how different it would be to have to go outside every time you needed to use the toilet or run some water. I had not heard of a similar area like this on our trip where such a high percentage of houses in a central part of a city in a developed country did not have running water. The guide said that as owners renovate units, they install water. There is a lot of renovation, but I would have thought this would have completed a few decades ago. Portugal joined the EU in 1986 after all.

In the afternoon, I went to the city museum. It had some interesting drawings of the 1755 earthquake, but no English. I breezed through in 15-20 minutes.

Overall, I liked Lisbon. I would not necessarily want to spend more time here, although in summer more time could be called for. From the plane on the way in it looked like there are beaches close by. The city is a reasonably good bargain for Europe--like Spain, it is cheaper than the rest of Western Europe. It's a bit more expensive than Eastern Europe, but definitely more developed, so I'd have to rank it, again along with Spain, near the top in terms of European value for money.

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December 20, 2005

06:10:56 pm Tuesday, December 20, 2005 - Lisbon, Portugal - Sunny, mid 50s.  

I went to the Military Museum in the morning. Deanna stayed in the room resting up for our afternoon walking tour. She did not miss anything. The museum had limited English, and was mainly a collection of weapons, with no insight provided. Like many museums around the world, the building was more impressive than its contents. The walking tour focused on the areas affected by the 1755 earthquake that destroyed the city. While Lisbon was inhabited in the Roman times, it is a relatively new city because the earthquake meant the city started over 250 years ago. We stayed the second of three nights at Clarion Suites Lisbon. Our room has a kitchenette, allowing us to eat breakfast and dinner in the room. After a year of traveling, this is probably the best hotel amenity we could ask for.

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03:33:18 am Monday, December 19, 2005 - Marrakech and Casablanca, Morocco, Lisbon, Portugal - Overcast, mid 50s in Lisbon.  

Two flights, Marrakech - Casablanca, Casablanca - Lisbon, on Royal Air Maroc to get to Portugal, our final destination of the trip. Portugal is the 65th country we have set foot in this year. These are our 101st and 102nd flights of the year. Two more flights to go--Lisbon to London and London to Chicago in three days time.

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December 18, 2005

04:32:24 am Wednesday, December 14, 2005 - Aswan and Cairo, Egypt - Hazy, High 70s. Includes comments on the US, UK, and New Zealand.  

Flew on Egypt Air from Aswan to Cairo. Flight delayed about two hours due to haze in Cairo. In Cairo, we toured the Egyptian Museum, home to the full King Tut exhibit and other Egyptian artifacts spanning thousands of years. Spent one night at Four Seasons Nile Plaza, which opened about a year ago and is fabulous. We were upgraded to a suite, which put us in a ridiculously large set of rooms, the largest we've had since our night at Burj al-Arab. Deanna stayed up to 3AM shopping for Christmas presents over the web. We've gotten numerous emails from people surprised that we (and this year that was 100% Deanna) were able to send out Christmas cards. That's the beauty of the internet. We did not buy a single postage stamp, lick an envelope, or print a single card. Yet we were able to custom design a card with multiple pictures from this trip, and send off dozens of cards to people in numerous countries. Go to shutterfly.com and you can probably still get your cards in people's hands before Christmas.

Now for a look at interest and exchange rates (normal readers may tune out here). The US dollar has had a couple of tough days, with the price of a euro increasing to $1.20 today. The dollar is weakening on the thought that the Fed is nearly done raising rates (4.25% after yesterday's increase) while the European Central Bank is just getting started with their increase to 2.25% a few weeks ago (their first increase in five years). I think the Fed is fairly certain to raise to 4.50% at the end of January, but a further increase to 4.75% at the meeting after that in March is only a 50/50 proposition at this point, in my opinion. If US economic growth slows next substantially next year (it is likely to slow, the question is by how much), then rate cuts at some point are possible, more likely in the second half than the first. Nevertheless, the Fed would be less likely to cut rates if inflation does not decrease, and oil prices will influence that. I can't predict oil prices, but my best guess is that they will remain in a $50-$60 range, but neither $30 nor $100 would stun me. My best guess is that Fed rates will end 2006 around where they are now, at 4.25%. That is, the Fed may follow one or two increases with one or two decreases. I expect the present two percentage point gap between the US and Europe to narrow to one percentage point as Europe ends 2006 around 3.25%, intermittently raising rates throughout the year as (and if) the EMU country's economies gradually improve (it is not certain that economic growth in the EMU will improve, though). I'm neutral on the dollar/euro exchange rate now. The dollar remains undervalued to the euro on a purchasing power basis but interest rate parity says the euro is due for a boost. The euro has greater political risk as the strains revealed in Europe in 2005 are not going away any time soon. On the other hand, the dollar has a greater issue with the US trade deficit possibly leading to a dollar decline. Thus, things could go either way. In any event, I no longer have the conviction of my March 20 call that the dollar was due to rise against the euro, so I will close out this prediction with a 12% gain (the dollar rose from 74.6 euro cents to 83.3 euro cents as the euro fell from $1.34 to 1.20). I am not saying that I now expect the dollar to fall; rather, I just don't feel as strongly that it must rise against the euro. My best guess is that the euro will range from $1.15 - $1.25 next year, but then I wouldn't be surprised to see it down to $1 or up over $1.35. About the only thing we can be sure of is now that I've closed out my prediction, the dollar will likely be very strong over the next week, hitting new highs for the year, and making my timing look foolish!

The yen also has also moved sharply up against the dollar this week after months of sliding. It is now 117, up from 121. Japan's central bank has not yet increased rates from near 0, but it sure looks like they will next year.

I still think the dollar is still in good shape versus the British pound. The pound began the year earning 2.50 percentage points more than a dollar (4.75% versus 2.25%) but now the rates have converged (4.50% versus 4.25%). With the UK economy looking weak heading into 2006, I expect it US rates to exceed the UK at some point in the first half. The UK also remains silly expensive on a purchasing power basis. Fair value in terms of purchasing power is probably for the pound to fall to $1.25, a 29% drop from $1.77 presently. I don't think we will see anywhere near that drop, but I do think the $1.40-$1.50 range that the pound traded in for much of the 1990s would be a reasonable target over the next couple of years based on purchasing power if Britain's economy stays weak, and if the US economy remains somewhat stronger than the UK.

Finally, I note that New Zealand's central bank raised rates to 7.25% last week. I continue to think--as I have since March--that New Zealand's economy is so good right now, that things there are far more likely to get worse than to improve or even stay where they are. Their currency is down some since I first said this, but their stock market is not. So I will keep saying it.

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