Camel Money
In the world of finance, everybody understands the term Camel Money. It means money that has, what we call on Wall Street, a high talk-to-ticket ratio. It is the money that has supposedly been flowing from the middle east since the Oil Embargo of 1973 and OPEC’s wanton thrashing of the U.S. consumer. That was when Petrodollars first came into visible existence and we began to understand that people who had scads of money (money that we and other westerners paid them for oil) could and would rule our lives in various unpleasant ways. In that case it was with alternate day gas fill-ups and long lines at the pumps.
Over the years Camel Money as a concept has migrated and mutated with the times. In the 1970’s it was the cause of worldwide double-digit inflation that got felt in higher house prices and rising consumer goods prices that started to strangle the U.S. and world economy. In the 1980’s it took on a different manifestation. Those Petrodollars got recirculated through international banks that had to find somewhere to put all that money. The highest return place (since real estate had already bubbled and burst), was in loans to Latin American and other LDC economies. This started in the ‘70’s and by 1982 this came crashing down as the international debt crisis reared its ugly head. In the later 1980’s the Camel Money flowed into LBO funds in various forms as that trend got underway. Finally, by the 1990’s the hedge fund market started to blossom and the Camel Money started chasing those deals with some still going into private equity and venture capital, especially during the go-go .com years. By the early 2000’s the Camel got tired.
During the last fifteen years I think it is fair to say that the Camel has become somewhat emaciated by the volatility of oil prices since the first Gulf War. That and the alternative sources of energy, including natural gas fracking, have impacted the revenues available to the Camel owners. There are also lots of new Asian Camels in town, so the dominance of middle eastern Camels has clearly waned. The fortunes of the world ebb and flow, but despite all of that, there is still a big wallet in the middle east that people often look to as a source of funding for deals of all sorts. Hence, Camel Money is alive and well and still very much on the prowl.
I should take a moment to explain that the concept of Camel Money is usually about what can be called a unicorn investor. That is very different from a unicorn investment. Those are things like Facebook, Uber, Snap, Air-BnB and other high-flying Silicon Valley stars that rocket into the stratosphere. Unicorn invetors are equally rare, but they tend to refer to investors that can be sold on great and optimistic stories of 100X investment theses based usually on new technology that will change the world. These invetors will put big hot sweaty wads of money into deals that are noticeably high risk / high reward. I am not talking about Theranos-like deals of questionable underpinning necessarily, but certainly unproven technologies that have yet to be fully commercialized and can arguably be extremely disruptive.
There is a big word in the Camel Money game, disruptive. Sounds bad, feels good. Disruptive means that this company is expected to change the world and in so doing, generate a handsome profit opportunities denominated in the billions of dollars. It is fair to say that this is happening more and more every day (at least in the digital realm or the traditional purveyor replacement realm). Between ABnB, Uber, Lyft, WeWorks and others, it is right to wonder what industry can’t and won’t be up-ended. Understanding how to parse these claimants to the next throne is the challenge and it’s a perfect place for the Camels to play.
I spent over 200 business days traveling through the middle east between 1988 and 2007. That 20 year span saw me calling on the big parastatal funds like GIC, to the high net worth community all across the region and eventually to the asset management community and the sovereign wealth funds. Any way you slice it, they all represented big money in their day and they all had that gamblers instinct to want to have a few home run swings every year. That is a wonderful breading ground for Camel Money and may only be bested by Macau for the risk-taking tendancy.
Back in the 1980’s the topic of Camel Money was mostly a big joke. If you got a call or email from somebody representing somebody from the middle east who wanted to put a whole bunch of money to work for something better than 8%, you would be inclined to chase it. It was always a big number and the rate was always attractively low enough that you almost had to chase it. Many a banker came back from his travels to the region with little but sand in his shoes and a commitment to never chase Camel Money ever again.
As a guy who managed lots of real money from the region, I never thought of it as a mirage. I thought that some offerings were pretty flaky and I always feel that one has to be wary of intermediaries, who generally have little to lose in throwing a bare hook into the water in hopes of snagging something. The game is that once you get a fish snagged, you go back to the Camels and talk up that investment opportunity. This is where you pull both ends of the rope towards you and try to tie the whole thing off. Surprisingly enough, it sometimes works. It’s just that the odds are pretty low when you don’t really have a client on either side to begin with, but are fabricating a client.
So, where does the Camel Money of the world stand these days? Well, it is alive and well because not only are opil prices unpredictable, but supply horizons are now visible and political uncertainty has shifted dramatically. The U.S. needs the oil less and the Russians want more regional power, but they are not so economically strong (or ethical for that matter) as the Americans. The Camel drivers are still out there in good supply offering to invest in all sorts of interesting ideas. And lo and behold, there are still people willing to chase the Camels around the wadis. Some things never change.
Dear Mr. L R,
I obviously am in waters way over my head when you speak of various monetary products and convoluted packaging of all sorts of investments. Yet, what the hey, I’m diving in anyway. I remember all too well the oil embargoes, gas lines, odd/even license plate fill up days, etc.. It was fun all around. One industrious fellow went down a line of waiting cars and collected money from the drivers for their prospective gas purchase. He would ask how much they were planning on spending , he took the cash and gave them a receipt to give at the pump. If asked why, he would explain it was to save time. Of course when the hapless drivers arrived at the pump they were told the station wasn’t doing that and the receipts were worthless. There’s always people playing angles even when, as you said, the prospective returns are so ridiculously high that they should raise a few eyebrows.
As far as the ‘wanton thrashing ‘ reference to OPEC, I disagree to so strong an indictment of them. I saw an interview with an Emir, Sheik, or some potentate shortly afterwards. The interviewer asked him how they could raise the price of a barrel of oil from $2.50 to $12.50 or so overnight. The response was very interesting. He pointed to their price going up 5 or 6 times yet the cost of gas at the pumps barely doubled. So he asked who was really making such a ‘high profit’ before and long after. Later I saw an interview of one such high profile individual and he was asked why the middle easterners were still investing so much money in the US after the embargoes and political discord had died down. He said because it was still the safest place in the world to put their money.
As I said, I never dealt on the lofty levels of finance that you did. I was on the street level dealing with Joe Q. Public and in my own experiences I could often pick up on financial trends well before they materialized. The carpenters, who couldn’t build without beer present, would come in a little less and less. Housing was slowing. I can’t say this was purposely done, but the commuter bus stop was directly in front of a liquor store. I had customers who worked on Wall Street and their moods often telegraphed changes in the wind. I particularly remember the day the market dropped 500 points and trading was halted. Those financial guys were shell-shocked. Their faces wore a combination of bewilderment and worry. They almost walked like zombies. I saw certain similar signs of ups and downs in other areas too. Tells I guess you would call them.
Now I’m going to take a tangent into my business and what I consider totally questionable practices, legal or not.
In 1973 there was a significant sugar ‘shortage’. As you know, there’s money to be made when resources become less available. Even some well known supermarket chains were caught short weighting bags of sugar. I was involved in the beverage business, primarily beer and soda. Coke and Pepsi immediately raised the prices of a case of soda threefold from about $2 a case to $6. After all, roughly a third of soda is sugar. First, I don’t believe for a second that those companies don’t buy their supplies very far ahead on the futures market and were not as affected so quickly. As I recall, the shortage lasted about 6 months. When sugar prices normalized at about the price they had been pre-shortage, Coke and Pepsi lowered their price to $4 a case. They had seen their sales at the highest prices drop by a much smaller percentage than you would have expected. So from that point on you have to wonder where the extra $2 (100 % increase) in the price went. Hmmm. Somewhere along the line somebody was raking in a lot of found money. Today you can still find the sales of three 12 packs of cans of soda for $10. That’s an increase of only 2 and a half times from the $4 price…… over a 45 year span. Of course they have been developing sugar alternatives such corn fructose but even that cannot explain all of it. The ‘sales’ alternate. One week it’s Coke and the next week it’s Pepsi. What a happy timing coincidence.
The federal government should have taken the soda companies example after the oil crisis. The cost of R & D wasn’t merited as cost effective for private industry, so they didn’t bother. That is where the role of the government should have kicked in. Part of its job is to protect its citizens from things that endanger them. I would definitely define an energy shortage as such a problem. Lord knows they spend plenty galore on the military complex. If they had just taken a small portion of those dollars and had begun to put them toward development of alternatives to oil for energy back in 1973, imagine how much further along we could be with those sources today. I have heard, but can’t swear to it, that just modernizing our power distribution grid would save roughly 50% of the electricity that gets lost to our present system. And the energy crisis was back when there was some across the aisle cooperating going on.
I won’t go into depth with the other practices that I cannot see as kosher. Stores make more money from selling shelf space than on the products themselves. The big established companies buy up all that space and guess what? There isn’t any space left for new competition. A small startup can’t afford to match the big boys in the buying of shelf space department. Then there’s the rebates per package on product sold if the store reaches certain sales goal numbers. I don’t know about you, but I believe bag money passed below or over the table is still bag money. Then there are the games of aisle placement which I’ll wager involve $. If you read Vance Packards’ book ‘Hidden Persuaders’, you already know about those games. The jockeying for the end space of the aisles is even more viscous. Then there are the placement of the magazine racks at the front of the checkouts. I can go on and on. Even about decisions made by those Wharton graduates who never worked a day getting their hands dirty on the street level but know what’s the best way to do things there.
See that ? I’ve just left the door open for me to comment on lots of other topics. As relevant or not my thoughts may be. Enticing, isn’t it ?
Sincerely, John’s Father, and Proud Of It