Quote of the week:
'Cowardice asks the question: "Is it safe"? Expediency asks the question: "Is it politic"? Vanity asks the question: "Is it popular?" But conscience asks the question:"Is it right?" And there comes a time when one must take a position that is neither safe, nor politic, nor popular but one must take it because one's conscience tells one what is right.' - Martin Luther King Jr. (Hat-tip to Mr. & Mrs. Pappano Hussain)
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.
Commentary of the week:
Belly-dancing while Rome burns:
At times of economic stress, many of the most unusual sources become the best places to find entertainment. For example, when times are good, we become very trusting of people in power and begin to speak of concepts such as Leadership and Experience. We begin to admire expertise in exotic fields of study and begin to perceive of the people in those fields as people that know what they are doing. When times are bad, pronouncements that would usually be seen as prophetic and full of wisdom come to be seen as they really are: comedic guesses in the dark. The economics department at one of the banks comes to mind here, but since we shouldn't get personal (not that the economics department at a bank is very personal), we shall let them escape unnamed. What is more alarming than our minor pop-economists though is that our full slate of 'Global Leadership' is completely and utterly flummoxed and confused at how to deal with this crisis. While Ittihad does not yet have a complete solution to the world's problems because our photocopier is being difficult, we do recognize bad ideas when we see them - and at the moment, all these various 'solutions' that we have come across seem to be terrible ideas.
Idea #1 is a bailout of all, if not most failing businesses, especially if they are in the financial space or in the business of manufacturing bombs or cars that might as well be tanks. Idea #2 is to let people who took on unsustainable debts pay it off over longer terms. Idea #3 is to let the government buy everything. Idea #4 is to not do anything but talk a lot. Idea #5 is for everyone to take up farming. Needless to say, there is a good story we can tell around each idea but it won't save your retirement funds because half of those are toast already and they won't allow your kids to buy the shiny new car they want in their first year of college. So what is a good idea then, you ask? Well, as I said the photocopier is not working so the full plan cannot yet be shared - but once again, each losing investment has its own dynamic so specific advice over the newsletter is difficult. Nevertheless, there are some general timeless principles that we would do well to keep in mind and I will share two of them with you today.
The first thing to do at times like this is to manage cash-flow such that unexpected events have a minimal impact on the family finances. Although I have spoken about the dangers of uncovered debts before, this would be an excellent time to take two pieces of paper and make up two statements. One is a balance sheet of your assets and liabilities to get a handle on what you owe and to whom. The other is a statement of cash flows that shows on a monthly basis how much is coming into the house and how much is being siphoned away by the marketing departments at the companies that keep sending you bills. Once you have an accurate picture of these, look at how you can move your outgoing cash from your discretionary spending and needless bills (you do not need satellite TV for example, or a TV for that matter) to the regular paying down of your liabilities. For most of us, liabilities come in the shape of a gigantic house that is not sealed too well and so gets very hungry for natural gas in the winter, so the sooner we can get it away from the clutches of the friendly neighbourhood banker, the better it is. For others, these come in the shape of cars that protect us from the company of bus-people and bicyclists so the sooner we can actually own the wheels that move us the better it is. The idea here is to weather the coming economic storm in a manner that does not leave you too vulnerable and exposed to happenings outside your control that can still be messed up further by our political and economic leadership.
The second thing is a little less financial and a little more personal. All of us at some point find that we are at some plateau in our careers and that we are neither moving forward at a great speed, nor dropping into the abyss of becoming forgettable. If this is where you are at work, then my friend, this is a dangerous time for you. With the way things are shaping out, the teenage math prodigy who couldn't get a job designing weapons of mass destruction but found one designing debt instruments which are almost as bad has ensured that your company will probably lose customers over the next little while. This means that you have to become indispensable, which may mean that you have to improve your schooling, your areas of expertise, or be willing to do more than what is merely your job in order to ensure that neither you, nor none of your colleagues at work get laid off for 'economic reasons'. Be the person that will make and facilitate the creation of indispensable teams that pull in the same direction and accomplish great things. Be the pleasant antidote to the slow poison that is workplace stress, and then go home and be even better with the family as well. A few years of being excellent at work and considerate at home will get you into the habit of being that way forever and will IA rub off on your kids and significant other as well - finding you some peace at a time where there seems to be only strife.
The one thing that you cannot, under any circumstances, even think of doing, is trusting that what is happening inside the circles of power around the world, particularly the financial world, is somehow guaranteed to provide your family with some benefit. While this may be the friendly cynic in me speaking, I fail to see much inspiring leadership around this economic crisis at this crucial time. Just as the Emperor Nero once played the harp while half of Rome burned down, we seem to have our own makers of useless noise. The difference is that while the sound of the harp is somewhat soothing, our policy-makers seem to be doing little more than belly-dancing of the noisy and tasteless kind. All this managing of the public's emotions and the relentless flip-flopping is making some of us quite dizzy. Perhaps you will protect yourself and turn this noisy dance on the nightly news off for a while. After all, you have a job to do and a family to take care of - what are you doing watching all this economic belly-dancing on TV while the education of your kids is at stake?
Noteworthy News
Finance News:
1. The most indebted town in the USA ... read more here
2. As usual, women have it right when it comes to finance. A survey of what 'Financial Success' means ... read more here
3. Swiss Banking comes to Canada ... and leaves with $5.6B tax-free ... read more here
4. PM calls for global peer review mechanism for the financial sector ... read more here
Economic News:
1. Govts. Get together to redesign the Global Financial System (again) ... read more here
2. Reflating the Chinese Dragon ... read more here
3. Home Re-sales down by 14% ... read more here
Islamic / Middle East / Emerging Markets:
1. China calls for the technology transfer of the 'Green' kind ... read more here
Interesting but not all Finance:
1. Does anyone in Toronto really know what Garbage really is, and how the recycling system works? ... (hat-tip to S Qureshy) ... read more here
2. Saudi Arabia has the oil, but Oman has found the rock that consumes CO2 ... read more here
3. How easy it is to make fake news ... read more here
Wednesday, November 19, 2008
Tuesday, November 4, 2008
The Loony Loonie
Quote of the week:
'I tried to get cash out of the ATM but it said 'Insufficient Cash'. I didn't know if it meant them or me.'- quoted from the Globe and Mail speaking about Banks.
Some previous articles from the IWB have been picked up by the International Business Times. Please click here, drive up traffic and leave some comments.
Commentary of the week:
The Loony Loonie:
As you may have noticed if you went over to the US this last week in order to test whether the overzealous border guards are still keeping us safe by checking whether someone is sneaking in cats across the border, the exchange rate between the Loonie and the Greenback seems to be in a bit of flux. Currency traders don't know if the US$ is going up, down, sideways, into hiding or whether refugee status is about to be granted to the Japanese Yen. Sometimes the world's smartest people believe the CDN$ is worth $0.80US, sometimes $1.45 and sometimes it's worth more than what you can find at the dollar store. So what are we as Canadians subject to this kind of fluctuating standard of life supposed to think about this sad and confusing state of affairs?
Sometimes events such as this prove something, but by the grace of God we live in a theory-free environment here at Ittihad, so we know that events of this past week prove nothing - they just point us in many different directions. First, despite our various governments' assurances to the contrary, things are not fine and dandy and our beloved policy-makers have no clue about how to deal with the crisis or where the next blow-up (yes, this is actually a financial term nowadays) will be. Second, what started in the debt markets has spread to the real economy, to the fictional and now to the fantastic. After all, currency markets are fantastic in the sense that they are the most liquid (more money moves through these than anywhere else), most efficient (more or less instantaneous trades), they never close (yes, currency can be traded 24/7/365.25) and above all they generally enjoy the perception of having currencies backed by governments and thus essentially worth something. Third, we discover a link between resources and the CDN dollar, but a confusing absence of a corresponding link between the US$ and resources (this may not be entirely true, but bear with me for a moment). We thus discover that this link is not as solid and obvious in the short run as we would like for us to be happy about living in a sensible world.
In theory, currencies trade against each other based on supply and demand, meaning if someone from Mongolia wants to buy up lots of CDN oil, gas, maple syrup or beaver pelts (fur is wrong btw), they have to buy CDN dollars by exchanging Togrogs for dollars, driving up the price of dollars and driving down the price of Togrogs. Since Canada has lots of agricultural produce, oil, gas, meat and brains to export, people have enough demand for the dollar. When the price of any of these commodities such as oil, wheat, uranium etc. goes up, people from abroad need to buy more CDN loonies in order to buy the commodities they need and this excess demand drives up the value of the CDN loonie as well. Of course, this works the other way around as well. If the price of oil falls, less CDN dollars are needed by foreigners to pay for the oil, so demand for CD loonies falls and the value of the loonie falls as well. This is the theory anyway, and given what has happened to the exchange rate recently, this is the way things have been explained to us. Canada, it is said, is a resource based economy and as the price of Oil goes, so does the price of the Loonie. Sounds simple, doesn't it?
Perhaps too simple. While it may be true that the correlation between the price of Oil and the CDN Loonie is such that we think they are stalking each other harmoniously, there is something deeper that drives both of them perhaps. Let us use the price of Oil as an example to make this point clearer. Let us say that the world uses X barrels of Oil per day and this demand is somewhat inelastic in the sense that regardless of whether gas is 90 cents or $1.50, driving around Northern Ontario in the fall is still a necessity and un-give-up-able. Let us now ask what the price of oil has been over the last little while given that demand for oil is somewhat constant. Lo and behold, we find that the price of oil has gone from $140 this past summer to around $60 now, but demand has been steady in the sense that there are still as few bicycles on the street as there were over the summer (perhaps even fewer) and we have not discovered any new ocean of Oil under yet another Arab country which has doubled our supply. Why then, according to the theory, is the price of Oil falling?
Well, this is where the theory of course breaks down a bit and all sorts of qualifications have to be added. It seems that it is not just present demand that we have to take into account but the futures markets as well. This means that you and I (actually just you, because my bicycle does not use gas) have been paying for gas at $1.40 for a few months not because there was some present demand, but because there were all sorts of investors who had borrowed money from banks in order to buy futures contracts of oil for speculative purposes. Now that the banks have called back those loans and these investors are realizing once again that prices can move both up and down, this pressure in the oil market is gone and we are seeing Oil drop to $60. It is this cooling of speculative froth that has brought down the price of oil and through its effects on the Loonie, our standards of living as well.
One gets the impression more and more that the stock market is just daily theatre for the masses while the real business of the day gets done in the futures and derivatives markets by people of 'vision'. What is worse is that the ideas being bandied around to solve the issues at hand are being developed by the same visionaries that thought making commodities expensive for the rest of the world in order to make trading profits. Over $700Billion in the US and tens of Billions of CDN tax dollars later, perhaps our short-sightedness in trusting fantastic visions of the future over a little bit of sense now will finally become clearer.
Noteworthy News
Finance News:
1. Wachovia Bank declares a $24B loss for the quarter. This is the bank that financed and has grown along with RJ Reynolds (of Marlboro cigarettes fame) since the 1950's ... read more here
2. 10 Reasons to be Optimistic about the markets ... read more here
3. Some Investment Banking humour ... read more here
4. 5 things to know if you're thinking about Real Estate (not all advice is beyond question of course) ... read more here
5. A good column on Investor Psychology ... read more here
Economic News:
1. The wonders of Globalization. Iceland's financial system is the first to collapse completely, requiring a 'bailout' by the IMF ... read more here
2. Interesting video on the way the Monetary system works (or doesn't really work) ... read more here
3. The best picture to describe the US economy I have seen yet on this page (good article too btw) ... read more here
4. The investment views of one of the finest investors in Canada (who has also lost lots of money) ... read more here
Islamic / Middle East / Emerging Markets:
1. Slowdown in Persian Gulf has grave implications for non-oil exporting Arab countries ... read more here
Interesting but not all Finance:
1. Is sentence length is important if you are running for President in the US? ... read more here
2. Margaret Atwood on the Debt Crisis and how fairness should be the cornerstone of finance. I wonder if someone pointed her to the usury laws of Abrahamic faiths ... read more here
3. Very interesting article on the politics of being Muslim in the US during the election ... read more here
4. Rotterdam gets a Muslim mayor ... read more here
5. Personal stories of some great risks ever taken by people in business for themselves ... read more here
6. A nice story about the biggest mosque in Germany ... read more here
'I tried to get cash out of the ATM but it said 'Insufficient Cash'. I didn't know if it meant them or me.'- quoted from the Globe and Mail speaking about Banks.
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.
Commentary of the week:
The Loony Loonie:
As you may have noticed if you went over to the US this last week in order to test whether the overzealous border guards are still keeping us safe by checking whether someone is sneaking in cats across the border, the exchange rate between the Loonie and the Greenback seems to be in a bit of flux. Currency traders don't know if the US$ is going up, down, sideways, into hiding or whether refugee status is about to be granted to the Japanese Yen. Sometimes the world's smartest people believe the CDN$ is worth $0.80US, sometimes $1.45 and sometimes it's worth more than what you can find at the dollar store. So what are we as Canadians subject to this kind of fluctuating standard of life supposed to think about this sad and confusing state of affairs?
Sometimes events such as this prove something, but by the grace of God we live in a theory-free environment here at Ittihad, so we know that events of this past week prove nothing - they just point us in many different directions. First, despite our various governments' assurances to the contrary, things are not fine and dandy and our beloved policy-makers have no clue about how to deal with the crisis or where the next blow-up (yes, this is actually a financial term nowadays) will be. Second, what started in the debt markets has spread to the real economy, to the fictional and now to the fantastic. After all, currency markets are fantastic in the sense that they are the most liquid (more money moves through these than anywhere else), most efficient (more or less instantaneous trades), they never close (yes, currency can be traded 24/7/365.25) and above all they generally enjoy the perception of having currencies backed by governments and thus essentially worth something. Third, we discover a link between resources and the CDN dollar, but a confusing absence of a corresponding link between the US$ and resources (this may not be entirely true, but bear with me for a moment). We thus discover that this link is not as solid and obvious in the short run as we would like for us to be happy about living in a sensible world.
In theory, currencies trade against each other based on supply and demand, meaning if someone from Mongolia wants to buy up lots of CDN oil, gas, maple syrup or beaver pelts (fur is wrong btw), they have to buy CDN dollars by exchanging Togrogs for dollars, driving up the price of dollars and driving down the price of Togrogs. Since Canada has lots of agricultural produce, oil, gas, meat and brains to export, people have enough demand for the dollar. When the price of any of these commodities such as oil, wheat, uranium etc. goes up, people from abroad need to buy more CDN loonies in order to buy the commodities they need and this excess demand drives up the value of the CDN loonie as well. Of course, this works the other way around as well. If the price of oil falls, less CDN dollars are needed by foreigners to pay for the oil, so demand for CD loonies falls and the value of the loonie falls as well. This is the theory anyway, and given what has happened to the exchange rate recently, this is the way things have been explained to us. Canada, it is said, is a resource based economy and as the price of Oil goes, so does the price of the Loonie. Sounds simple, doesn't it?
Perhaps too simple. While it may be true that the correlation between the price of Oil and the CDN Loonie is such that we think they are stalking each other harmoniously, there is something deeper that drives both of them perhaps. Let us use the price of Oil as an example to make this point clearer. Let us say that the world uses X barrels of Oil per day and this demand is somewhat inelastic in the sense that regardless of whether gas is 90 cents or $1.50, driving around Northern Ontario in the fall is still a necessity and un-give-up-able. Let us now ask what the price of oil has been over the last little while given that demand for oil is somewhat constant. Lo and behold, we find that the price of oil has gone from $140 this past summer to around $60 now, but demand has been steady in the sense that there are still as few bicycles on the street as there were over the summer (perhaps even fewer) and we have not discovered any new ocean of Oil under yet another Arab country which has doubled our supply. Why then, according to the theory, is the price of Oil falling?
Well, this is where the theory of course breaks down a bit and all sorts of qualifications have to be added. It seems that it is not just present demand that we have to take into account but the futures markets as well. This means that you and I (actually just you, because my bicycle does not use gas) have been paying for gas at $1.40 for a few months not because there was some present demand, but because there were all sorts of investors who had borrowed money from banks in order to buy futures contracts of oil for speculative purposes. Now that the banks have called back those loans and these investors are realizing once again that prices can move both up and down, this pressure in the oil market is gone and we are seeing Oil drop to $60. It is this cooling of speculative froth that has brought down the price of oil and through its effects on the Loonie, our standards of living as well.
One gets the impression more and more that the stock market is just daily theatre for the masses while the real business of the day gets done in the futures and derivatives markets by people of 'vision'. What is worse is that the ideas being bandied around to solve the issues at hand are being developed by the same visionaries that thought making commodities expensive for the rest of the world in order to make trading profits. Over $700Billion in the US and tens of Billions of CDN tax dollars later, perhaps our short-sightedness in trusting fantastic visions of the future over a little bit of sense now will finally become clearer.
Noteworthy News
Finance News:
1. Wachovia Bank declares a $24B loss for the quarter. This is the bank that financed and has grown along with RJ Reynolds (of Marlboro cigarettes fame) since the 1950's ... read more here
2. 10 Reasons to be Optimistic about the markets ... read more here
3. Some Investment Banking humour ... read more here
4. 5 things to know if you're thinking about Real Estate (not all advice is beyond question of course) ... read more here
5. A good column on Investor Psychology ... read more here
Economic News:
1. The wonders of Globalization. Iceland's financial system is the first to collapse completely, requiring a 'bailout' by the IMF ... read more here
2. Interesting video on the way the Monetary system works (or doesn't really work) ... read more here
3. The best picture to describe the US economy I have seen yet on this page (good article too btw) ... read more here
4. The investment views of one of the finest investors in Canada (who has also lost lots of money) ... read more here
Islamic / Middle East / Emerging Markets:
1. Slowdown in Persian Gulf has grave implications for non-oil exporting Arab countries ... read more here
Interesting but not all Finance:
1. Is sentence length is important if you are running for President in the US? ... read more here
2. Margaret Atwood on the Debt Crisis and how fairness should be the cornerstone of finance. I wonder if someone pointed her to the usury laws of Abrahamic faiths ... read more here
3. Very interesting article on the politics of being Muslim in the US during the election ... read more here
4. Rotterdam gets a Muslim mayor ... read more here
5. Personal stories of some great risks ever taken by people in business for themselves ... read more here
6. A nice story about the biggest mosque in Germany ... read more here
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