A Grape
I come with excuses. You plug your ears.
So I accept every difficulty.
If you would say I don't exist,
I would be grateful.
When this longing makes me disreputable,
then I have a little self-respect.
This vine begins to become wine
as you say, Pressure is necessary
for you to burst open under my foot.
Wednesday, September 9, 2009
Saturday, July 18, 2009
The media needs to calm down
Since the past few days, a lot of good news has been thrown on the financial papers. The Yen is coming back strong against the US Dollar breaking the 94 mark at Friday close. This is good comeback from a 3 month low reached just over a week ago. Manufactiuring news from the US and China is positive. The Indian markets were rallying a few days ago boosted by Realty and Metals. Singapore reported 20.4% GDP growth (annualized) from April to June. Japanese central bank also said that the worst of the recession is over. And of course, who can forget the blockbustre results by GS and a strong JPM performance. This prompted several media channels to paint a bright and rosy picture misquoting econmists such as Dr. Roubini et. al. This further triggered market rallies in the US. You just needed to see the markets section on any internet newspaper over the last few days and you would see green.
But as points out, what these media channels are hiding are Dr. Roubini's views that this recession is a U shaped one instead of V-shaped recessions we've seen in the past. So the recovery would be slow and challenging. Over 75% of US corporate results disclosed have beaten the analyst forecasts but it should be realized that these are boosted by inventory liquidation and reduced labour cost. The question we should be asking is that, is this rally sustainable? The Citi and BOA results yesterday should calm the media frenzy a little. Both posted quarterly profits but if it weren't for one-off gains (Citi divesting Smith Barney and BOA selling its stake in China Construction Bank), these behemoths would have been in the red.
There are some good signs out there for sure, but let's not get carried away.
But as
There are some good signs out there for sure, but let's not get carried away.
Thursday, July 2, 2009
The "deflation or inflation" argument
One might get confused by reading the newspaper these days. Some analysts claim that the US is heading for a deflation whereas there are others who still believe that the plethora of money printed would lead us to inflation. John Lee discusses this debate in an article on marketoracle.co.uk. He argues that it is unlikely the US will go through a deflationary phase like the one experienced by Japan in the 90s.
The deflationists cite the examples of the Great Depression of the 1930s and the Japanese lost decade of the 90s in support of their argument. They claim that the real estate and equity market bubbles were fueled by debt and an implosion of leverage caused more than a 50% devaluation in both these asset markets.
In the Japanese case, the crisis took its roots in the 80s where easy credit and excessive borrowing fueled real estate and stock market bubbles that burst at the turn of the decade. The Nikkei fell by over 70% and commercial real estate prices in major cities plummeted over 80% from their peaks. These created non-performing loans worth $2-3 trillion, a sum greater than Japan's GDP.
The mortgage market in Japan was steady througout the turmoil owing to the willingness of banks to defer payments. As a result the default rates were very low. The budget deficit went into the double figures only after 1997. Since Japan enjoys current account surplus and does not have a significant proportion of foreign borrowing, the yen was safe from attacks by debt and/or stock redemption.
As the interest rates were virtually zero, Japan had to resort to Quantitative Easing (Purchasing public and private assets by printing money). But this was only tried 11years after the bubble burst.
The US situation is a total contrast to the Japanese one in the early 1990s because the US is already running a double-digit budget deficit (at 12%). As mentioned above, Japan's budget deficit only reached double digits as a percentage of GDP in the 7th year of the crisis. Japan was one of the larget creditors in the world whereas the US is one of the l;argest debtors with $12 trillion owed to international lenders. The US is also in a current account deficit importing $670 billion more than in its exports in 2008. China alone holds $800 billion of US Treasury and if it wants to sell there will not be many buyers. This means that the Fed will have to buy all those by printing money. Actually, the Fed has already signalled its intent to purchase all sorts of US Treasuries.
This means that as long we have a paper money system, and a trigger happy Fed, we would be hard pressed to experience inflation. In only 2008 and 1009, the Fed has bought $2 trillion in toxic AIG notes and has committed to buy an additional $1.7 trillion of MBS and US Treasuries. It took Japan 10 years to get into quantitative easing and the US is looking at printing $4trillion by the end of 2009. So it is clear that the US will not take a similar trajectory to the 90's Japan but the concern is that it might take a path similar to that of Argentina in 2002. Hyperinflation!!
The problem that policy makers should be concerned about should be about minimizing the devaluation of the USD. Argentina's peso has still not recovered from the inflation phase. The per capita foreign debt on a US citizen is $186,717 and a meagre 7% saving rate is not sufficient. Even at 10% saving rate, it would take 10 years for the US to pay off the existing loan needless to say that every quarter sees more loan piled on. This could easily make the politicians to print more money but that would be devastating for the dollar. So what needs to be done is to cut back budget deficits and increase interest rates as soon as deflation worries fade away.
The deflationists cite the examples of the Great Depression of the 1930s and the Japanese lost decade of the 90s in support of their argument. They claim that the real estate and equity market bubbles were fueled by debt and an implosion of leverage caused more than a 50% devaluation in both these asset markets.
In the Japanese case, the crisis took its roots in the 80s where easy credit and excessive borrowing fueled real estate and stock market bubbles that burst at the turn of the decade. The Nikkei fell by over 70% and commercial real estate prices in major cities plummeted over 80% from their peaks. These created non-performing loans worth $2-3 trillion, a sum greater than Japan's GDP.
The mortgage market in Japan was steady througout the turmoil owing to the willingness of banks to defer payments. As a result the default rates were very low. The budget deficit went into the double figures only after 1997. Since Japan enjoys current account surplus and does not have a significant proportion of foreign borrowing, the yen was safe from attacks by debt and/or stock redemption.
As the interest rates were virtually zero, Japan had to resort to Quantitative Easing (Purchasing public and private assets by printing money). But this was only tried 11years after the bubble burst.
The US situation is a total contrast to the Japanese one in the early 1990s because the US is already running a double-digit budget deficit (at 12%). As mentioned above, Japan's budget deficit only reached double digits as a percentage of GDP in the 7th year of the crisis. Japan was one of the larget creditors in the world whereas the US is one of the l;argest debtors with $12 trillion owed to international lenders. The US is also in a current account deficit importing $670 billion more than in its exports in 2008. China alone holds $800 billion of US Treasury and if it wants to sell there will not be many buyers. This means that the Fed will have to buy all those by printing money. Actually, the Fed has already signalled its intent to purchase all sorts of US Treasuries.
This means that as long we have a paper money system, and a trigger happy Fed, we would be hard pressed to experience inflation. In only 2008 and 1009, the Fed has bought $2 trillion in toxic AIG notes and has committed to buy an additional $1.7 trillion of MBS and US Treasuries. It took Japan 10 years to get into quantitative easing and the US is looking at printing $4trillion by the end of 2009. So it is clear that the US will not take a similar trajectory to the 90's Japan but the concern is that it might take a path similar to that of Argentina in 2002. Hyperinflation!!
The problem that policy makers should be concerned about should be about minimizing the devaluation of the USD. Argentina's peso has still not recovered from the inflation phase. The per capita foreign debt on a US citizen is $186,717 and a meagre 7% saving rate is not sufficient. Even at 10% saving rate, it would take 10 years for the US to pay off the existing loan needless to say that every quarter sees more loan piled on. This could easily make the politicians to print more money but that would be devastating for the dollar. So what needs to be done is to cut back budget deficits and increase interest rates as soon as deflation worries fade away.
Wednesday, February 25, 2009
Of Lattes & Wrenches
Below are 2 notes that I wrote for the IR Tribune at IUJ:
The Defence Housing Authority (DHA) is one of the most opulent localities in Lahore – the second largest city of Pakistan. The crème de la crème of the society thrives in DHA – a popular destination for many Lahorites to have pancakes and café lattes and of course, the notorious dance parties. The Lahore University of Management Sciences (LUMS) – my undergrad school is also located here with its $3000 annual tuition making it hopelessly inaccessible for most Pakistanis. Barely 3 kilometres from LUMS is a slum called Chararpind. The inhabitants are mostly day labourers and helpers in DHA houses. The monthly income of the families there would range from $80 to 175 – and this is the combined sum for both husband and wife. These are large families (average size, in my opinion, would be 6-7) and the children are expected to contribute to the family income as soon as they can pick up a wrench. The girls would help their mothers as helps whereas the boys might work in auto workshops, grocery stores etc. Those families, who are able to send their children to school, would discriminate between the sons and the daughters – the former getting the preference over their sisters.
It is in this setting that Society for the AdVancement of Education (SAVE Inc.) has opened its first school by the name of Mashal Primary. Faraz Sheikh, the founder of this Indiana based NGO, is studying PhD at Indiana University Bloomington and SAVE Inc. is his brainchild. His vision is to run such schools from primary to post-secondary levels and to run them absolutely fee of cost. SAVE Inc. has started in Pakistan but is intended to be a global mission and does not differentiate between race or religion. I personally know Faraz from our time at LUMS and am very good friends with his younger brother, Samir Sheikh who is based in the UK and actively involved in SAVE Inc. All details about the school can be obtained at. There is also a community on facebook.com by the name of “FREE Primary School in Lahore Project” which has information on this NGO. More on this in the next edition of the IR Tribune.
The following is due to be printed in the next edition…
In the last month's edition of the IR Tribune, the concept and motivation behind SAVE Ins. was introduced. The first project, Mashal Primary, is schooling 170 students from poor households free of cost. The syllabus being taught is entirely in English and matches those of the private schools in the city. Public schooling in Pakistan, if available at all, has a curriculum solely dependent on Urdu, the native language. Students emerging from the Urdu-medium stream face severe challenges and often emerge second best when compared to those who had the luxury of a private, English-medium education.
Only 1 out of 2 children in Pakistan begin school and if you think that’s bad, only 70% of those that begin primary education actually complete it. This is the biggest challenge that SAVE Inc. faces in Pakistan. They have taken a few steps to tackle this. Firstly, they have a free dispensary on-campus which not only provides basic medication and health check-ups to students but their families as well. This acts as an incentive for the parents not to pull their kids out of school. The school also conducts monthly parent-teacher meetings in which the students with the best attendance record are rewarded. The mothers of these students are also gifted a suit for ensuring regularity of their child.
The idea of Mashal Primary is to cap its present enrollment and take this batch of 170 students all through class 5. It has also begun an accelerated program in the evenings for those students who are relatively old for the classes that they are in currently.
Mashal Primary will hopefully change lives. The reason for sharing this piece in the IR Tribune was to promote this wonderful project and so that we can acknowledge that we do not have to be Bill Gates or Bono to change the world. Every small contribution counts.
I am only one, but still I am one. I cannot do everything, but still I can do something; and because I cannot do everything, I will not refuse to do something that I can do. – Hellen Keller
To know more about SAVE Inc. visit http://www.educationsaveschildren.org or join Facebook community called “FREE Primary School in Lahore Project”.
The Defence Housing Authority (DHA) is one of the most opulent localities in Lahore – the second largest city of Pakistan. The crème de la crème of the society thrives in DHA – a popular destination for many Lahorites to have pancakes and café lattes and of course, the notorious dance parties. The Lahore University of Management Sciences (LUMS) – my undergrad school is also located here with its $3000 annual tuition making it hopelessly inaccessible for most Pakistanis. Barely 3 kilometres from LUMS is a slum called Chararpind. The inhabitants are mostly day labourers and helpers in DHA houses. The monthly income of the families there would range from $80 to 175 – and this is the combined sum for both husband and wife. These are large families (average size, in my opinion, would be 6-7) and the children are expected to contribute to the family income as soon as they can pick up a wrench. The girls would help their mothers as helps whereas the boys might work in auto workshops, grocery stores etc. Those families, who are able to send their children to school, would discriminate between the sons and the daughters – the former getting the preference over their sisters.
It is in this setting that Society for the AdVancement of Education (SAVE Inc.) has opened its first school by the name of Mashal Primary. Faraz Sheikh, the founder of this Indiana based NGO, is studying PhD at Indiana University Bloomington and SAVE Inc. is his brainchild. His vision is to run such schools from primary to post-secondary levels and to run them absolutely fee of cost. SAVE Inc. has started in Pakistan but is intended to be a global mission and does not differentiate between race or religion. I personally know Faraz from our time at LUMS and am very good friends with his younger brother, Samir Sheikh who is based in the UK and actively involved in SAVE Inc. All details about the school can be obtained at
The following is due to be printed in the next edition…
In the last month's edition of the IR Tribune, the concept and motivation behind SAVE Ins. was introduced. The first project, Mashal Primary, is schooling 170 students from poor households free of cost. The syllabus being taught is entirely in English and matches those of the private schools in the city. Public schooling in Pakistan, if available at all, has a curriculum solely dependent on Urdu, the native language. Students emerging from the Urdu-medium stream face severe challenges and often emerge second best when compared to those who had the luxury of a private, English-medium education.
Only 1 out of 2 children in Pakistan begin school and if you think that’s bad, only 70% of those that begin primary education actually complete it. This is the biggest challenge that SAVE Inc. faces in Pakistan. They have taken a few steps to tackle this. Firstly, they have a free dispensary on-campus which not only provides basic medication and health check-ups to students but their families as well. This acts as an incentive for the parents not to pull their kids out of school. The school also conducts monthly parent-teacher meetings in which the students with the best attendance record are rewarded. The mothers of these students are also gifted a suit for ensuring regularity of their child.
The idea of Mashal Primary is to cap its present enrollment and take this batch of 170 students all through class 5. It has also begun an accelerated program in the evenings for those students who are relatively old for the classes that they are in currently.
Mashal Primary will hopefully change lives. The reason for sharing this piece in the IR Tribune was to promote this wonderful project and so that we can acknowledge that we do not have to be Bill Gates or Bono to change the world. Every small contribution counts.
I am only one, but still I am one. I cannot do everything, but still I can do something; and because I cannot do everything, I will not refuse to do something that I can do. – Hellen Keller
To know more about SAVE Inc. visit http://www.educationsaveschildren.org or join Facebook community called “FREE Primary School in Lahore Project”.
Saturday, February 21, 2009
Analysis on the Current Financial Crisis - What happened?
I have found Marin Wolf of FT to be one of the best analysts of the ongoing turmoil in the global economy. Below, I paraphrase one of his video analysis:
The financial panic has ben cooking over a long period of time. One of the key reasons that we are in this mess is the over leveraging of the global economy. The amount of debt has been increasing rapidly since the 1980s. Nowadays, the private sector debt to GDP ratio is at an all-time high. If we look at the component of this debt, we can not miss the remarkable growth in the financial sector debt. It's increased from 20% of GDP 30 years ago to over a 100% of GDP now. The HouseHold debt has also doubled from 50% of GDP to 100%.
Another thing has happened in the last 10 years to exacerbate the economic woes. The global economy has witnessed a drastic imbalance of saving and investments. Countries like China with extraordinarily large savings resulted invested in the western countries, generating tremendous current account surpluses. The US was the principal borrower. Capital flew from the poor countries to the rich and it was basically the Households in the latter which did most of the borrowing. THe housing bubble in the US helped eat-up all this capital inflow.
The third element to this financial crisis was the cleverness of the financial sector in creating instruments in absorbing all this money. We saw the rise of all sorts of complex derivatives and what have you.
Now, when the prices began to tumble, people realizing that all these assets were not worth what they paid for them. They also found out the riskiness of these investments. This was the stage when panic set-in and turned into hysteria with the collapse of Lehman Brothers on September 13th. These assets became toxic and lending dried-out in the financial markets. The financial sector effectively stopped functioning. When there was no one willing to borrow, the demand in the western economies ala US, UK collapsed. This triggered a massive global recession since the excess savings from the East could not find a sink. The exporting companies began to worry now since they were living off the bubble in the US. In this manner the entire world is now effected by this crisis.
The financial panic has ben cooking over a long period of time. One of the key reasons that we are in this mess is the over leveraging of the global economy. The amount of debt has been increasing rapidly since the 1980s. Nowadays, the private sector debt to GDP ratio is at an all-time high. If we look at the component of this debt, we can not miss the remarkable growth in the financial sector debt. It's increased from 20% of GDP 30 years ago to over a 100% of GDP now. The HouseHold debt has also doubled from 50% of GDP to 100%.
Another thing has happened in the last 10 years to exacerbate the economic woes. The global economy has witnessed a drastic imbalance of saving and investments. Countries like China with extraordinarily large savings resulted invested in the western countries, generating tremendous current account surpluses. The US was the principal borrower. Capital flew from the poor countries to the rich and it was basically the Households in the latter which did most of the borrowing. THe housing bubble in the US helped eat-up all this capital inflow.
The third element to this financial crisis was the cleverness of the financial sector in creating instruments in absorbing all this money. We saw the rise of all sorts of complex derivatives and what have you.
Now, when the prices began to tumble, people realizing that all these assets were not worth what they paid for them. They also found out the riskiness of these investments. This was the stage when panic set-in and turned into hysteria with the collapse of Lehman Brothers on September 13th. These assets became toxic and lending dried-out in the financial markets. The financial sector effectively stopped functioning. When there was no one willing to borrow, the demand in the western economies ala US, UK collapsed. This triggered a massive global recession since the excess savings from the East could not find a sink. The exporting companies began to worry now since they were living off the bubble in the US. In this manner the entire world is now effected by this crisis.
Tuesday, February 3, 2009
3 Cups of Tea by David Relin & Greg Mortenson
Three Cups of Tea is an amazing book. Probably the best I have read so far. First lesson that Greg Mortenson's tale taught me is of hope. It teaches us that we can achieve anything as long as we try hard enough for it. There were so many occasions in Mortenson's life when, if he were an ordinary person, he could call it quits. It's a story of clinging on to a cause. The guy went through uncountable hardships in trying to work on his goal of imparting education to the impoverished children in northern Pakistan and later Afghanistan. His girlfriend left him; he got kidnapped by the Taliban; and was called a traitor by his countrymen. Yet he believed in the purity of his task and in the end succeeded where an entire Pakistani government had failed.
Mortenson's determination and courage are extremely insipirational. It was very heartwarming to read how he learnt to tackle problems by considering the local people's point of view. For example when he got too uptight in managing the construction of the first school in Korphe, it was the numberdhar who made him realize that his objective needs to be achieved considering the local culture and working style. This is an important lesson even for business folks. We need to grasp the local psyche and be vary of irresponsibly applying our working style in alien environments.
Another important aspect about this book was the discussion on terrorism and the rise of extremism in Pakistan. I totally agree with Mortenson's idea that the best of tackling terrorism is by providing education. It would become very difficult for the militants to gather support if the population of that area has economic incentives to opt otherwise. Education goes a long way in achieving this.
All in all, the book was thoroughly enjoyable. I have started recommending it to all my friends. My copy has started doing rounds in our dorm. The more people read such views, the better idea they will get on Pakistan and Islam. I pray that Mortenson's work pays off for Pakistan in the long run. Our government should also recognize his work and give him the highest national award. I salute you, Mr. Mortenson!
Mortenson's determination and courage are extremely insipirational. It was very heartwarming to read how he learnt to tackle problems by considering the local people's point of view. For example when he got too uptight in managing the construction of the first school in Korphe, it was the numberdhar who made him realize that his objective needs to be achieved considering the local culture and working style. This is an important lesson even for business folks. We need to grasp the local psyche and be vary of irresponsibly applying our working style in alien environments.
Another important aspect about this book was the discussion on terrorism and the rise of extremism in Pakistan. I totally agree with Mortenson's idea that the best of tackling terrorism is by providing education. It would become very difficult for the militants to gather support if the population of that area has economic incentives to opt otherwise. Education goes a long way in achieving this.
All in all, the book was thoroughly enjoyable. I have started recommending it to all my friends. My copy has started doing rounds in our dorm. The more people read such views, the better idea they will get on Pakistan and Islam. I pray that Mortenson's work pays off for Pakistan in the long run. Our government should also recognize his work and give him the highest national award. I salute you, Mr. Mortenson!
Thursday, January 29, 2009
'Environment' - the term for this century
Becoming more and more convinced now that for future businesses, having an environment friendly business-model is imperative. These feelings were in my head somewhere but have been intensified by the Environmental Management class I'm taking this quarter. Just read a case on British Petroleum (BP) and how they decided to associate themselves with the green cause before it was imposed upon them through regulation. It must have been a very difficult decision for them especially given the fact that the US was not (and still hasn't) ratifying the Kyoto Protocol.
They say fortune favours the brave and I think the businesses going forward do not have any other option but to be bold in this direction. The shareholders would need to understand and obviously the companies would be required to educate them. But there doesn't seem to be an option not to be thinking and acting in this direction. The environmental impacts of the way we do business have to be considered. The deterioration of the climate is a very serious concern. There have to be measures taken and stricter laws imposed in this regard. It's a question of our future generation.
They say fortune favours the brave and I think the businesses going forward do not have any other option but to be bold in this direction. The shareholders would need to understand and obviously the companies would be required to educate them. But there doesn't seem to be an option not to be thinking and acting in this direction. The environmental impacts of the way we do business have to be considered. The deterioration of the climate is a very serious concern. There have to be measures taken and stricter laws imposed in this regard. It's a question of our future generation.
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