Monday, October 20, 2008

Nowhere to Hide

Quote of the week:

'A half truth, like half a brick, is always more forcible as an argument than a whole one. It carries better.' - Stephen Leacock. After listening to people's solutions for the economy, this is a very fitting quote.

Some previous articles from the IWB have been picked up by the International Business Times. Please click here, drive up traffic and leave some comments. This way, perhaps the usually faulty media coverage of Muslim issues will change for the better.


Commentary of the week:

Nowhere to Hide:

Many of us go through life collecting one bad decision after another, but live reconciled to our choices because we do not have to live with their full consequences. We choose to eat unhealthily, but let our doctor or family worry for us; we choose to stress out about gas prices, but still buy SUV's that compound the problem and we invest somewhat wisely, but borrow irresponsibly. Thus, the contradictions in our lives are endless, but they don't catch up to us because life usually moves too fast for us to take too many moments to reflect; too fast for us to know what we are doing and all too quickly the moments to right the wrongs pass. There are other moments though, when the pace of life slows down as well and our mistakes come back from the mess we call the past to haunt our excruciatingly long present. This is what is happening in the financial markets these days, where every day there is some new low that was quite obvious in hindsight. At moments like these, one is reminded of the ultimate Judgement, when there will be nobody else to blame, and nowhere else to turn. This, in a nutshell then, is where we are. We have messed up as a society and twist and turn as we may now, there is probably no weaselling out of this one. What we call our standard of living is undergoing some destabilization and perhaps even re-standardization. All our financial decisions as a society over the past little while, are now coming back as a spectacular show of fireworks requiring the full blaze of our attention.

So how do we make sense of all this? And what are we to do in such times? Well, other than going back to read 'Dealing with Losses' once again, there is very little to do quickly - best to understand where we are and ONLY then can we make plans never to be here again. Jumping from one asset class to another just because that will be fashionable for the next three hours is like trying to jump from one donkey to another as they ride past one another silently in the night - it can be exciting and the action involved in switching will no doubt be satisfying, but only God knows where the new donkey will end up in the end.

The easiest way to understand this turmoil is to look at the stock market and deconstruct it a bit - and I apologize for being pedantic but I think it best to start at the beginning. The stock market, for those who are unfamiliar with its intricacies, is a place where people come to trade their shares in businesses. Usually, they trade with each other through brokers, without the underlying businesses themselves being involved in the trade. This is how the majority of trading takes place - between people, using third party shares. Now, some traders are bigger than others because instead of trading just their own life-savings, they make decisions for thousands of future pensioners or investors. These are generally called asset managers. More recently though, a new beast has come to play in this market - this is the leveraged trader - the trader who has little money of his own but lots of borrowed funds (usually from banks) to place (read 'invest' and / or 'speculate with') here and there as he sees fit. The latest estimates are such that around 30% of trading in the stock market is undertaken by this last kind of animal.

Now, with the credit crunch in the mortgage sector, many banks are simply unable to decide whether they want to call in all their outstanding loans, or if they want to keep loaning money to people with little cash. As they resolve this in their own sweet time at tax-payer expense, the hedge fund animal realizes that the game may be up soon and starts to sell what he owns in order to have cash handy in case his loans are called in. As 30% of buy orders starts to dry up in the stock exchange, and an extra 30% of sell orders pour in, what you have is yet another lop-sided trend. Just as the extra 30% of cash on the buy side drove the stock market up these past few years, the extra 30% of shares being sold now are causing many others to liquidate their holdings as well. This is the magic of leverage - as our Hedge Fund friends borrow at prime to invest at Prime times Ten, things seem great and their perceived expertise grows along with their portfolio. Suddenly though, out of no fault of their own other than excessive greed on behalf of their investors, if returns are now Prime times Negative Ten - these erstwhile geniuses are wiped out before they can finish the resulting sneeze from the solitary 'caffe latte avec cinnamon' they can afford on their new paycheque.

What is worse is that they now have to suddenly return their leased car and since their bosses are in line at the dealership just ahead of them, now the car business is affected also. Then the tire business is affected because there is no more demand for racing tires to be used in rush hour traffic and then soon the furniture business is toast because Mr. Hedge Fund has to give back the leased couch and use the plywood chair he is building himself because he is no longer employed and has extra time on his hands. Repeat this story a few thousand times because it is not just one part of the financial space that is affected but almost all of them and you have the beginnings of a fundamental restructuring of way business is done in financial circles.

Perhaps, just perhaps, this is one reason why Muslims and many of our other faithful friends believe that God knows Best, and that there are deep reasons in Islam and other faiths to avoid speculation, uncertainty and the Riba-i and usurious forms of debt that are so prevalent in the world of Finance today. Indeed, one could almost say that if done the right way, Islamic Finance has the potential to be medicinal for the world. Sadly, we are nowhere close to this potential and at this point, there is nowhere to hide.

Just the way we feel as if we are being cooked on a hot, humid and sunny day at a beach without any shade; our portfolios and retirement strategies are being cooked by a faulty system that stands outside our control because of our own mistakes. In our next column, perhaps we can discuss some possible strategies to find some shade. In the meantime, I hope you enjoy the tan ...

Noteworthy News

Finance News:

1. 10 things to learn from the credit crisis ... read more here

2. A very good FAQ section on questions such as 'Why countries can't go bankrupt? ... read more here

3. The CDN govt. buys $25B of mortgages using our tax dollars! ... read more here


Economic News:

1. The Economist now predicts a Global Recession. It's a good thing journalists don't have long term memory ... read more here

2. Will the cure for our economic ills be worse than the disease? ... read more here

3. Lots of bankruptcies on the way ... read more here

4. Canadian job growth in trouble ... read more here


Islamic / Middle East / Emerging Markets:

1. Real Estate in Dubai falters ... read more here


Interesting but not all Finance:

1. An interesting, dissenting view on the Chinese Economy ... read more here

2. Trousers in Sudan are 'Disturbing the Peace' ... read more here

Wednesday, October 8, 2008

Pointers for Eid

Quote of the week:
'Islamic financial institutions, in an attempt to compete in "the conventional, interest-based marketplace," have churned out products that give lip-service to Islam while using "ploys that sound minds reject and bring laughter to enemies.' - Taqi Usmani [quoted on Portfolio.com (big hat-tip to Owais Qureshi)].

Eid Mubarak - All of us at the Ittihad tribe wish that you all have a wonderful Eid with your loved ones, your nearest and dearest and even the people you have to meet on Eid because you just have to.

Some previous articles from the IWB have been picked up by the International Business Times. Please click here, drive up traffic and leave some comments. This way, perhaps the usually faulty media coverage of Muslim issues will change for the better.


Commentary of the week:

The Economics of Eid:

The end of Ramadan is just around the corner and it seems that many of us are making plans for finally rewarding ourselves with home-made Halal steak in the afternoon while sipping the lemonade we couldn't even think of during the fast because of its mouth-watering aspects. But before all this hullabaloo about Eid parties carries us away into a festive spirit that drains us of the piety that we built up over the month in a matter of days, perhaps a deep breath and some reflection on what it is that we have done to deserve the kheer (look it up, or better yet, try it) we have been blessed with is warranted. The answer of course, is very little. The kheer, just like Eid, just like your monthly paycheque, just like the cash your uncles and aunts gave you on Eid for no reason other than the fact that you were cute once (but only when you were young), and the love within your family and friends is a blessing and a gift from the Divine. So as you have enjoyed these blessings and continue to enjoy them, the question to ask yourself on Eid is: Are you going to be someone that just enjoys what you have been given from Above, or are you going to be a vehicle through which these blessings pass on to others as well? The reason I bring this up is that Eid is actually a wonderful time to teach responsibility, gratitude and resource-management to the young and the still youngish (unfortunately, it may be too late for the old-ish, who like to believe that they are set in their ways and thus cannot change). These are some things I will be thinking of teaching my brand-spanking new nephew (even though he thinks what I say is gibberish) and perhaps you will find some food-for-thought in them as well. At the very least, you can find some young person who has been brought up the right way, is polite and therefore has to listen to you discuss these theories with him / her so he can get his mind off sports / cell-phone features.

Responsibility:
While Eid is a time of celebration in the sense that there are things to celebrate if we actually met our Ramadan goals, it is still not really a time to forget that we are still responsible for our long term future. So while we celebrate our private victory over hunger, we have not yet even made a dent on the abject levels of global or if one were to visit a homeless shelter or some Native reserves, even local poverty. So while during Ramadan we fasted so we would know in some shallow way what poverty of nourishment felt like, imagine the level of responsibility we should perhaps feel when we have been made familiar with that which was unfamiliar to our bourgeois lives, but is a constant reality for many below us on the totem pole of socio-economic status. Let us also celebrate the realization that this Ramadan, we disciplined ourselves to come close to a certain kind of poverty for a month. As we celebrate its end, let us also resolve to help others lift the burden of theirs.

Gratitude:
As I am one of the most popular people in Toronto and have therefore received a grand total of 1 invitation for an Eid Dinner (no, it is not from myself), there is nevertheless much to be thankful for. We must thank the divine for allowing us another opportunity to humble our various appetites, and be thankful to the people around us for being understanding of our temper tantrums, confusions, deliriums, chronic laziness and faulty decision-making that lack of nourishment forces upon our weak and impressionable minds. We must also thank the Divine for lining up all these uncles and aunts who want to give us cash, and for all the nephews and nieces that will be lining up to take their cut as well. I hope that we will remember that our wealth is entrusted to us from Above and the opportunity to make young people smile with the thoughts of spending money is innocent enough when they are young. Slowly but surely, they will grow old and realize that money is not their friend, but that you will always be family. Do not let the opportunity for this insight pass them by.

Resource - Management:
As we discussed at the start of the Ramadan series, this season is the time to be out and about in the beautiful places near us. As you have probably noticed if you are not above the tree line, the leaves have started to change colour and are lighting up the trails, streets, rivers and lakes with their blazingly bright show of seasonal goodbyes. There is a beautiful parallel here for us in this show of brilliance, which is that even the trees in this part of the world go through a fallow season, where they prepare to be poor in nourishment by shedding even their lungs. The autumn is their Ramadan - they die a small seasonal death while generously providing us the opportunity to look at the changes taking place within them with wonder. To make the point and my reasons for speaking about trees a bit clearer - as a wise man once said, 'the tree does not ask about those to whom its fruits go, it does what was intended of it, and lets God do the rest'.

So this Eid and this Fall, let us be less like busy people and more like trees. Be like a tree that was planted as a kindness to those around you and let this Eid be like your spring - blossom into the considerate, kind, loving, patient, ego-free and vivacious person that you asked God to make you the during your prayers in Ramadan. Now that would be worth a real celebration.


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Upcoming Events:
Yet another conference on Islamic Finance has found its way to New York. The topics will include heavy doses of truly innovative thinking such as 'Making Distressed Debt Halal' and 'Making Hell Freeze Over'. The Ittihad contingent will be there to ruffle some feathers and no doubt be told by other members of the industry that we are crazy. Our CEO and VP (of dreamy voice fame) will be there as speakers so if you are in the area feel free to drop by and give them a hand in dragging IF back outside the fold of conventional finance. As I have once again been grounded by the powers-that-be, I will not be going and therefore will be unable to report my findings to you later.

Muslim Friend of William Osler's Health Center will be hosting an annual charity Golf Tournament at 8:00 am on Saturday, Oct 4th. As it starts at the ungodly hour of 8 on Saturday morning and involves the painfully slow tapping of a small ball into an even smaller hole, no doubt this will be an unqualified hit with the Muslim masses. This is your chance to see me swing the new graphite driver I pilfered from our VP and wipe the field with my solid 7-iron play. We will give a fee discount to any corporate team that beats the Ittihad team for our investment banking services so if you have ever played ice hockey, ball hockey, field hockey or walked around with a cane in your life, you have a chance at rare glory. Be there ... email here for registration

Ittihad will be sponsoring the Eid festivities at the Rogers Centre downtown, so if you would like to see the unfortunate members of the staff who get to work on Eid, please come on down and say hello to me and give me an Eid hug. Of course, the event itself is always fun for the kids because I hear that there is a camel ride and free ice-cream for those who can answer a skill-testing question on Islamic Finance. Be sure to bring your friends and family, it will be an excellent opportunity to meet new people and reconnect with some long-lost acquaintances.

Useless fact of the day:
Regulators: Government-employed lawyers who, having failed to get employment on Wall Street, have trouble understanding what is happening on Wall Street.- (Edward Chancellor)

__________

Finance News:

1. And then there were none ... Investment Banking as a standalone business becomes pretty much obsolete ... read more here

2. The Doctor's bill for the US economy ... read more here

3. How AIG went bankrupt ... read more here


Economic News:

1. Harper says your home equity is safe. Phew, he had me worried there for a bit ... read more here

2. The Swedish approach to 'resolving' the financial crisis ... read more here


Islamic / Middle East / Emerging Markets:

1. Ruling from Islamic Finance Board cripples the Sukuk market ... read more here

2. The most popular Islamic Finance Shariah scholars in the world (hat-tip to Owais Qureshi... read more here

3. The background to story #1 in this section ... read more here


Interesting but not all Finance:

1. The Hadron collider breaks down ... (BTW - Absolute zero is -273 deg C) ... read more here