Quote of the week:
'None of us will ever accomplish anything excellent or commanding except when he listens to this whisper which is heard by him alone.' - Ralph Waldo Emerson.
One assumes it works the same way for women, but I cannot be sure. I thought to share this quote because I thought the idea of listening for whispers amongst all the shouting in life is a powerful one - I hope all of you have an excellent Ramadan, devoid of loud disturbances and full of whispers that inspire you.
Commentary of the week:
The Colour of Ramadan:
As many of us know, the month of Ramadan is just around the corner. Some of us are stocking up on the ice cream and the parathas (exquisitely made fried pita) for those midnight cravings, some of us are planning cricket matches in parking lots at mid-night and some of us are even looking forward to the annual redevelopment of the discipline involved in the denial or control of our various appetites, such as the one for food and drink from sunrise till sunset. This is thus a special time, because we force ourselves to think of things in a different context. It is no longer about what we need to eat or feel like eating or doing on a daily basis, but rather about how best to spend the month reconnecting with our own spirituality and to the family and community around us. It is a time that we force ourselves to be generous, courteous and sensitive to others such that we begin to remember what it is like to be the genuine people that we really are but perhaps forget to be for the rest of the year because of our sometimes pedestrian, work-a-day lives. One wonders of course, and perhaps this is a question for all of us, about what would happen to our lives if we were able to apply the same consciousness and spirituality that we try and re-discover every year during Ramadan to our lives for the rest of the year as well.
So here are my top 3 suggestions for a special Ramadan experience - it may be wise to ignore them completely as I am no scholar of any faith, but perhaps something here will resonate with you as well.
1. Sacrifice not just food, but the appetite for living a consumptive life. This simply means that instead of planning to just cut down a bit on the eating during the day and then making up for it by frying up a few cows or sheep in the evening, try to actually consume less over the month. If you are feeling particularly adventurous and really want to get into the spirit of things, consume less of even stuff such as gas, electricity, water etc. for the duration of the month. Too often we deny only one aspect of consumption by eating no food during the day but then make up for that by polishing off a few defenceless chickens in the evening. Try to spare the chickens, the eggs and the water in an absolute sense. Not only will you have saved some holiday money as your various utility, gas and junk food bills come down, you will also have built up habits of modesty in those areas of life where our modesty is not usually applied.
2. Reconnect with not just the Divine, but also the signs of the Divine that are present around us all year. We are blessed in the sense that we have an infrastructure of places where we can worship but in some ways, even the sincere appreciation of something beautiful is a form of worship. So spend some time with your family visiting beautiful parks that we gladly pay for with our taxes between prayer times. If you have kids, get to know their dreams and aspirations so you have a better idea of how you can help them grow into excellent people that you would be proud to know even if they were not related to you. If you are young, spend some quiet and gentle moments with your parents getting to really know them again. Try and be helpful to friends, smile at yourself and others even though you are hungry and want ice cream. Forgive yourself for those mistakes for which you can and ask Divine Forgiveness for those that are beyond just you and those around you. The idea of Ramadan is meant to be something of a renewal of the beautiful aspects of your life so surround yourself with your beautiful neighbours, teachers, friends and the lush greenery and beauty that we are blessed with here in Toronto (and Canada) when you have a moment or two. Let the colour of this Ramadan be green.
3. Remember the big deal we made about the Olympics? Think of this Ramadan now as a spiritual, physical and mental Olympics that is open and accessible to everyone, not just the religious or even the Muslim elite. There are no obvious medals for success and just a genuine try to be better than the petty circumstances of our lives is a win. Also, nobody has to lose in order for others to feel successful. This is a challenge for ourselves to be better than we were a month ago, not for us to be better than others. It is also a time of inclusion such that we reach out make friends with our neighbours and co-workers regardless of differences in faiths. It is meant to be a time when we stretch beyond any petty tribalism and really connect with people.
Someone asked me recently why I wrote something against the Olympics. I tried to clarify that what I wrote was not against the Olympics as much as it was against an intense focus on the events to the detriment of other things. Perhaps I should have added that we have an annual event of our own that deserves some focus as well. Many athletes tell us that the Olympics is a special time for them because they push themselves physically and they have to wait for it for four years. This Ramadan, we again have an opportunity to push ourselves on not just a physical level, but a spiritual and mental one as well. Let us then - take this opportunity to be good, to be well, and to be helpful to those that cross the path of our lives for even a short time. After all, we don't really have to wait for four years to push ourselves a little more.
Ramadan Mubarak - May this month be full of blessings for you all IA.
--------------
Upcoming Events:
Go ahead, invite us ...
Office for Rent:
As we have recently moved all our staff to the glass-enclosed cage that we call our head office, we have an entire fully furnished, gorgeous office for rent in a Medical Building at the corner of Sheppard Ave. and McCowan. The rent is minimal and the salient features of the space - such as the beautiful windows, the spacious Board-Room, the Corner offices, the nice faux mahogany furniture are enough to motivate your employees to work long hours while being paid whatever little you grudgingly give them. As this is a Professional Building (not just any building mind you, this one has achieved professional status through years of just sitting there), it would be most suitable for a growing real estate, accountancy or legal practice. You can visit the space and see the endless possibilities that this new location presents for your business by clicking here or calling Mr. Azeez at (416) 412 3999 ext. 115.
__________
Finance News:
1. CIBC still can't get all the bad news out ... read more here
2. Gotta love the banks. Information Privacy at its best ... read more here
3. World's largest bank getting even larger ... read more here
Economic News:
1. Business bankruptcies in the US surge more than 42% from last year ... read more here
2. An excellent, short, simple (but not too oversimplified) column on the link between inflation and standard living (using the US as a case study) ... read more here
Islamic / Middle East / Emerging Markets:
1. For many countries less blessed with fresh water than Canada, water is the new oil ... read more here
2. Chinese companies in Iraq? ... read more here
3. Saudi Arabia allows foreign ownership of their public stocks ... read more here
Interesting but not all Finance:
1. The 'Big Bang' experiment is about to be held under the mountains of Switzerland ... read more here
2. The not-so-secret Brain Food behind Ittihad's genius. Please, stick with the Green Tea ... read more here
Saturday, August 30, 2008
Friday, August 22, 2008
Olympic Goals
Quote of the week:
'We live in an age when unnecessary things are our only necessities.' - Oscar Wilde
Office for Rent Immediately:
As we have recently moved all our staff to the glass-enclosed cage that we call our head office, we have an entire fully furnished, gorgeous office for rent in a Medical Building at the corner of Sheppard Ave. and McCowan. The rent is minimal and the salient features of the space - such as the beautiful windows, the spacious Board-Room, the Corner offices, the nice faux mahogany furniture are enough to motivate your employees to work long hours while being paid whatever little you grudgingly give them. As a sweetener, there is even a nice, clean and neat private washroom that we will throw in for free. As this is a Professional Building (not just any building mind you, this one has achieved professional status through years of just sitting there), it would be most suitable for a growing real estate, accountancy or legal practice. You can visit the space and see the endless possibilities that this new location presents for your business by clicking here or calling Mr. Azeez at (416) 412 3999 ext. 115.
Commentary of the week:
Torching the Olympics (but not literally):
As the world's athletes gather in Beijing and China showcases the organizational abilities the state has gained after many years of central planning even minute details of people's lives, many of us are watching the Olympics with a mixture of awe and regret. Awe because we realize that the athletes are indeed talented and regrets because of course if we had spent all our waking hours either running, walking or swimming from point A to B, or throwing oddly shaped objects here, there and everywhere, we would not be sitting in front of a computer right now thinking about finance. Someone would probably sponsor our clothes, our sunglasses, our shoes, our nail polish (if you are into that kind of thing) and our trip to China where we would put on a good show and forever call ourselves Olympians.
But alas, regrets of such kind do not get us far, and keep us away from the issue at hand - which is, how much money, really, do we have to spend on relatively frivolous pursuits in order to be entertained, when we could actually solve some of the world's problems? For example, while the ability to run from point A to point B quickly might have been useful in an age without bicycles, or is perhaps useful in situations where the neighbourhood's mad dog is chasing you at the tail end of your weeknight jog - is it really a humungous achievement to be able to do it in 9.63 seconds rather than in 9.64? Of course, this question may be envy disguised as profundity from someone who would probably not make it to point B if he was asked to actually run at all, but I hope you see that there is a valid point somewhere in there.
The other thing about the Olympics (other than the triviality of the events) is that they take attention and resources away from genuine problems. We have a finite amount of attention that we can bring to bear on issues and every time we begin to lose focus, we end up just a little further off the straight and narrow path that we perhaps should be following. For example, as we worry about whether the world record for the number of medals to a single contestant will or has been broken, there have quite possibly been gross human rights violations committed in Iraq and Georgia, preparations have been made for war against Iran and worst of all, the ravages of disease in parts of Africa that remain underserved with health care workers has devastated quite a few families. Of course, all this is happening just outside the horizon of our attention while we provide non-stop coverage to events as applicable to our daily lives as the 'discus throw' and the 'pole vault' - as if we were all just about to throw our briefcases from one end of the parking lot to where our car is parked, or as if we were about to pole vault into our 7th floor office through the windows instead of taking the coffin-like elevator like reasonable people. Suffice it to say that the whole system of our priorities seems to be a bit off-kilter sometimes and every four years, the Olympics reminds us of not how far we have come as humanity, but how little we have really changed from the warring tribes we were centuries ago.
Nevertheless, lest you think I am trying to put a damper on this global celebration, I assure you that I am not. I just think we should get a bit of a grip, because it is not as if it's the World Cup. Also, one notices that the Olympics and the constant entertainment that we and our impressionable children are force-fed, really takes us away from being present in the lives of our neighbours and families and reduces our conversations to how fast someone we have never met, who probably spends 17 hours a day running, can get from point A to point B. It would still be okay if watching the Olympics motivated us to actually get up off the couch that is strategically placed in front of the big screen and made us try out whether we are still able to run the 100M in less than 12 without having a coronary, but how often does watching other people huffing and puffing on TV motivate one to do that?
--------------
Upcoming Events:
Barzakh Cemetery Services, a charitable, non-profit organization led by Muslim women, is hosting an event to discuss family financial matters from a Muslim perspective at 3:00 pm on the 23rd of August at the Northwood Community Centre, 15 Clubhouse Court, located here. The event is designed to address issues such as Wills, Taxes and the way to approach the complete financial planning process - so it may be worthwhile for you to attend. Sh. Yusuf Badat from the IFT will speak about the importance of Wills and the technicalities of Inheritance Laws, followed by Br. Ahmad Abdullah who will speak about the impact of Taxes during life and also at someone's passing. As for moi, usually one is invited to speak about Islamic Finance, but this presentation will IA be about Financial Planning in general and some of the challenges involved for us as Muslims. I have been told that one of the severest problems within the Muslim community is not really the lack of wealth, but the lack of financial sophistication - so this event should go some way towards addressing this critical issue. Lastly, as this is an educational presentation and we are just helping BCS, you will not need to write Ittihad a cheque at the end. You might still want to support BCS as a community organization however, so please don't leave your chequebook at home altogether. As seating is limited, please RSVP by replying to this email.
__________
Finance News:
1. The Economist that built his reputation by analyzing the market for used cars in a novel and extremely insightful way brings his intellect to bear on financial services (let us not hold his stint at the IMF against him) ... read more here
2. Conditions at Fannie and Freddie continue to worsen, making lenders twitchy about loaning out money for homes, making home-buyers twitchy about buying homes and thereby playing havoc with home prices even in Canada ... read more here
3. How Bank and Investment firm losses lead to changes in management ... read more here
4. Another ticking time bomb in the Real Estate market ... read more here
Economic News:
1. Russia saves up some of its Oil money for darker days ... read more here
2. Sovereign Wealth Funds cutting exposure to US$ (hat-tip to Mansoor Ullah) ... read more here
3. Food inflation in the UK goes to 10% ... read more here
Islamic / Middle East / Emerging Markets:
1. Credit crisis wary investors turning to Islamic Finance (hat-tip to Imtiyaz Ahmed) ... read more here
Interesting but not all Finance:
1. The entrepreneur behind the cream in your Tim Horton's coffee. This is what you call a self-made man ... read more here
2. Meeting etiquette at work ... read more here
3. Succession planning advice for small business-owners ... read more here
4. Example of creative, peaceful resistance to aggression ... read more here
'We live in an age when unnecessary things are our only necessities.' - Oscar Wilde
Office for Rent Immediately:
As we have recently moved all our staff to the glass-enclosed cage that we call our head office, we have an entire fully furnished, gorgeous office for rent in a Medical Building at the corner of Sheppard Ave. and McCowan. The rent is minimal and the salient features of the space - such as the beautiful windows, the spacious Board-Room, the Corner offices, the nice faux mahogany furniture are enough to motivate your employees to work long hours while being paid whatever little you grudgingly give them. As a sweetener, there is even a nice, clean and neat private washroom that we will throw in for free. As this is a Professional Building (not just any building mind you, this one has achieved professional status through years of just sitting there), it would be most suitable for a growing real estate, accountancy or legal practice. You can visit the space and see the endless possibilities that this new location presents for your business by clicking here or calling Mr. Azeez at (416) 412 3999 ext. 115.
Commentary of the week:
Torching the Olympics (but not literally):
As the world's athletes gather in Beijing and China showcases the organizational abilities the state has gained after many years of central planning even minute details of people's lives, many of us are watching the Olympics with a mixture of awe and regret. Awe because we realize that the athletes are indeed talented and regrets because of course if we had spent all our waking hours either running, walking or swimming from point A to B, or throwing oddly shaped objects here, there and everywhere, we would not be sitting in front of a computer right now thinking about finance. Someone would probably sponsor our clothes, our sunglasses, our shoes, our nail polish (if you are into that kind of thing) and our trip to China where we would put on a good show and forever call ourselves Olympians.
But alas, regrets of such kind do not get us far, and keep us away from the issue at hand - which is, how much money, really, do we have to spend on relatively frivolous pursuits in order to be entertained, when we could actually solve some of the world's problems? For example, while the ability to run from point A to point B quickly might have been useful in an age without bicycles, or is perhaps useful in situations where the neighbourhood's mad dog is chasing you at the tail end of your weeknight jog - is it really a humungous achievement to be able to do it in 9.63 seconds rather than in 9.64? Of course, this question may be envy disguised as profundity from someone who would probably not make it to point B if he was asked to actually run at all, but I hope you see that there is a valid point somewhere in there.
The other thing about the Olympics (other than the triviality of the events) is that they take attention and resources away from genuine problems. We have a finite amount of attention that we can bring to bear on issues and every time we begin to lose focus, we end up just a little further off the straight and narrow path that we perhaps should be following. For example, as we worry about whether the world record for the number of medals to a single contestant will or has been broken, there have quite possibly been gross human rights violations committed in Iraq and Georgia, preparations have been made for war against Iran and worst of all, the ravages of disease in parts of Africa that remain underserved with health care workers has devastated quite a few families. Of course, all this is happening just outside the horizon of our attention while we provide non-stop coverage to events as applicable to our daily lives as the 'discus throw' and the 'pole vault' - as if we were all just about to throw our briefcases from one end of the parking lot to where our car is parked, or as if we were about to pole vault into our 7th floor office through the windows instead of taking the coffin-like elevator like reasonable people. Suffice it to say that the whole system of our priorities seems to be a bit off-kilter sometimes and every four years, the Olympics reminds us of not how far we have come as humanity, but how little we have really changed from the warring tribes we were centuries ago.
Nevertheless, lest you think I am trying to put a damper on this global celebration, I assure you that I am not. I just think we should get a bit of a grip, because it is not as if it's the World Cup. Also, one notices that the Olympics and the constant entertainment that we and our impressionable children are force-fed, really takes us away from being present in the lives of our neighbours and families and reduces our conversations to how fast someone we have never met, who probably spends 17 hours a day running, can get from point A to point B. It would still be okay if watching the Olympics motivated us to actually get up off the couch that is strategically placed in front of the big screen and made us try out whether we are still able to run the 100M in less than 12 without having a coronary, but how often does watching other people huffing and puffing on TV motivate one to do that?
--------------
Upcoming Events:
Barzakh Cemetery Services, a charitable, non-profit organization led by Muslim women, is hosting an event to discuss family financial matters from a Muslim perspective at 3:00 pm on the 23rd of August at the Northwood Community Centre, 15 Clubhouse Court, located here. The event is designed to address issues such as Wills, Taxes and the way to approach the complete financial planning process - so it may be worthwhile for you to attend. Sh. Yusuf Badat from the IFT will speak about the importance of Wills and the technicalities of Inheritance Laws, followed by Br. Ahmad Abdullah who will speak about the impact of Taxes during life and also at someone's passing. As for moi, usually one is invited to speak about Islamic Finance, but this presentation will IA be about Financial Planning in general and some of the challenges involved for us as Muslims. I have been told that one of the severest problems within the Muslim community is not really the lack of wealth, but the lack of financial sophistication - so this event should go some way towards addressing this critical issue. Lastly, as this is an educational presentation and we are just helping BCS, you will not need to write Ittihad a cheque at the end. You might still want to support BCS as a community organization however, so please don't leave your chequebook at home altogether. As seating is limited, please RSVP by replying to this email.
__________
Finance News:
1. The Economist that built his reputation by analyzing the market for used cars in a novel and extremely insightful way brings his intellect to bear on financial services (let us not hold his stint at the IMF against him) ... read more here
2. Conditions at Fannie and Freddie continue to worsen, making lenders twitchy about loaning out money for homes, making home-buyers twitchy about buying homes and thereby playing havoc with home prices even in Canada ... read more here
3. How Bank and Investment firm losses lead to changes in management ... read more here
4. Another ticking time bomb in the Real Estate market ... read more here
Economic News:
1. Russia saves up some of its Oil money for darker days ... read more here
2. Sovereign Wealth Funds cutting exposure to US$ (hat-tip to Mansoor Ullah) ... read more here
3. Food inflation in the UK goes to 10% ... read more here
Islamic / Middle East / Emerging Markets:
1. Credit crisis wary investors turning to Islamic Finance (hat-tip to Imtiyaz Ahmed) ... read more here
Interesting but not all Finance:
1. The entrepreneur behind the cream in your Tim Horton's coffee. This is what you call a self-made man ... read more here
2. Meeting etiquette at work ... read more here
3. Succession planning advice for small business-owners ... read more here
4. Example of creative, peaceful resistance to aggression ... read more here
Friday, August 15, 2008
Financing War
Quote of the week:
'To be clever enough to get all that money, one must be stupid enough to want it.' - G. K. Chesterton.
Office for Rent Immediately:
As we have recently moved all our staff to the glass-enclosed cage that we call our head office, we have an entire fully furnished, gorgeous office for rent in a Medical Building at the corner of Sheppard Ave. and McCowan. The rent is minimal and the salient features of the space - such as the beautiful windows, the spacious Board-Room, the Corner offices, the nice faux mahogany furniture are enough to motivate your employees to work long hours while being paid whatever little you grudgingly give them. As a sweetener, there is even a nice, clean and neat private washroom that we will throw in for free. As this is a Professional Building (not just any building mind you, this one has achieved professional status through years of training on how to just sit there), it would be most suitable for a growing real estate, accountancy or legal practice. You can visit the space and see the endless possibilities that this new location presents for your business by clicking here. Please do not email or call me directly - if you do, we will fiddle with the lock such that it does not open from the outside in emergencies.
Commentary of the week:
The Financing of War:
With the Russian advance into Georgia almost complete, our topic for the week suggests itself in a manner too difficult to ignore. Although we cannot determine from our plush offices here in Toronto what exactly went on in the Kremlin and why exactly our Russian friends decided to destroy half a country named after George W. and whether there is any symbolism involved here, we could either ignore the subject completely or find an opportunity here to discuss an area of finance that is usually swept under the rug. The choice is obvious, really and the question we have to explore is not really why this has happened, but how exactly these, and other hostilities, are sustained financially. In other words, how do Wars like this get financed, and what can we learn from this particular case.
By now everyone knows that the Russian army has pretty much settled down in some areas of their previous colony, and that it is unlikely that they will simply get up and go back as if all of this never happened or as if this was just a mistake. Money was spent planning this venture out and money will be spent keeping the army on a war-footing. How was this financed, and where will the money continue to come from? The case of Russia is a bit complex so let us tackle the simpler example first, which is that of the US and their adventure in Iraq.
For the US - it is quite simple. More or less the entire financial structure is built on Govt. bonds. Every time a foreign misadventure is planned, the govt. simply plans to sell more bonds at around 5% and the majority of the world, including your pension fund managers, simply line up and buy all they can afford. In this way, the government is able to borrow a practically unlimited amount for any expenditure they would like to make in order to get re-elected, and because the US actually does have a somewhat sophisticated knowledge based economy that keeps producing googles, Microsofts, Apples etc., the taxes are usually enough to at least pay off the interest on the bonds. Very simple.
For Russia, things are a bit more complex. There is no real tax base because the population has been through a decade plus of poverty resulting from the breakup of the USSR. Economic activity and production is limited and manufacturing exports are virtually nil (ever driven a Lada?). There is just one bright spot in the economy and that is energy production. Even though it is ironic that it is the US adventure in Iraq that has caused energy prices to rise to a level that has the Russian war planning department jumping with glee at the infinite possibilities available now that they can actually pay their troops, this is a heady moment for Russia. The barrel of Oil they were selling for $50 just a few years ago, is bringing in more than double that amount. Furthermore, since expenditures have been contained thanks to privatization and the retreat of the public sector, Russia's exports of gas and oil to Europe and China are profitable in the extreme. This already wonderful state of affairs is made even better for Kremlin by the fact that unlike the way it is in Canada, in Russia it is actually government entities and companies that control and own most of the oil and gas fields.
So for us now, what can we learn from this situation (other than the fact that war is a wasteful activity)? The first thing is that governments really shouldn't be borrowing. The borrowing of the US has created a mess in the US, Iraq, in Georgia and a mess in even my small bank account because of my frequent trips to the gas station. The second thing is that governments that do not depend on people's taxes or their consent for government, can do pretty much anything they want without the population's prior knowledge or approval. The third is that the gas we put in our cars for quick jaunts here and there and the omelettes that my German friend Hans (I kid you not - that is actually his name) makes every morning using the gas imported from Russia really pays for a lot more than just warm eggs. The fourth is that looking at the state of the world in this way means that it is not just the Russians or even the Americans that are to blame for all this. The simple fact of living in a gas-consuming, over-dependent-on-energy lifestyle makes us a party to much that is faulty around the world. Perhaps one solution is to disengage as much as possible from over-consumption so it is not so easy for Russia to sell its gas and for the US to sell Treasury Bonds; but that would require actual changes in the way we live and what we buy. Much better to pin the blame elsewhere - as you have probably noticed from what passes for 'news' these days - it is easy to blame others when we ourselves are a part of the problem.
--------------
Upcoming Events:
Barzakh Cemetery Services, a charitable, non-profit organization led by Muslim women, is hosting an event to discuss family financial matters from a Muslim perspective at 3:00 pm on the 23rd of August at the Northwood Community Centre, 15 Clubhouse Court, located here. The event is designed to address issues such as Wills, Taxes and the way to approach the complete financial planning process - so it may be worthwhile for you to attend. Sh. Yusuf Badat from the IFT will speak about the importance of Wills and the technicalities of Inheritance Laws, followed by Br. Ahmad Abdullah who will speak about the impact of Taxes during life and also at someone's passing. As for moi, usually one is invited to speak about Islamic Finance, but this presentation will IA be about Financial Planning in general and some of the challenges involved for us as Muslims. I have been told that one of the severest problems within the Muslim community is not really the lack of wealth, but the lack of financial sophistication - so this event should go some way towards addressing this critical issue. Lastly, as this is an educational presentation and we are just helping BCS, you will not need to write Ittihad a cheque at the end. You might still want to support BCS as a community organization however, so please don't leave your chequebook at home altogether. As seating is limited, please RSVP by replying to this email.
__________
Finance News:
1. Even though we don't like debt, there is nevertheless a half-decent framework here to evaluate which kinds of debt are better for you financially (we won't get into the spiritual aspects this time around). If you are going to go into debt, at least be somewhat smart about it ... read more here
2. A good deconstruction of coat-tail investing ... read more here
3. House prices in Ontario now falling also ... read more here
4. A film about National Debt ... read more here
Economic News:
1. Inflation in the US at the highest level in 17 years (and these are just the official numbers) ... read more here
2. Trade protectionism is back, starting with agricultural exports from developing countries ... read more here
Islamic / Middle East / Emerging Markets:
1. China allows the listing of foreign companies on its stock exchange ... read more here
Interesting but not all Finance:
1. Farming practices better than organic? ... read more here
2. Definitely a 'why didn't I think of that?!' moment ... read more here
3. Loblaw's going into local produce (yes, but will grocery be cheaper?) ... read more here
'To be clever enough to get all that money, one must be stupid enough to want it.' - G. K. Chesterton.
Office for Rent Immediately:
As we have recently moved all our staff to the glass-enclosed cage that we call our head office, we have an entire fully furnished, gorgeous office for rent in a Medical Building at the corner of Sheppard Ave. and McCowan. The rent is minimal and the salient features of the space - such as the beautiful windows, the spacious Board-Room, the Corner offices, the nice faux mahogany furniture are enough to motivate your employees to work long hours while being paid whatever little you grudgingly give them. As a sweetener, there is even a nice, clean and neat private washroom that we will throw in for free. As this is a Professional Building (not just any building mind you, this one has achieved professional status through years of training on how to just sit there), it would be most suitable for a growing real estate, accountancy or legal practice. You can visit the space and see the endless possibilities that this new location presents for your business by clicking here. Please do not email or call me directly - if you do, we will fiddle with the lock such that it does not open from the outside in emergencies.
Commentary of the week:
The Financing of War:
With the Russian advance into Georgia almost complete, our topic for the week suggests itself in a manner too difficult to ignore. Although we cannot determine from our plush offices here in Toronto what exactly went on in the Kremlin and why exactly our Russian friends decided to destroy half a country named after George W. and whether there is any symbolism involved here, we could either ignore the subject completely or find an opportunity here to discuss an area of finance that is usually swept under the rug. The choice is obvious, really and the question we have to explore is not really why this has happened, but how exactly these, and other hostilities, are sustained financially. In other words, how do Wars like this get financed, and what can we learn from this particular case.
By now everyone knows that the Russian army has pretty much settled down in some areas of their previous colony, and that it is unlikely that they will simply get up and go back as if all of this never happened or as if this was just a mistake. Money was spent planning this venture out and money will be spent keeping the army on a war-footing. How was this financed, and where will the money continue to come from? The case of Russia is a bit complex so let us tackle the simpler example first, which is that of the US and their adventure in Iraq.
For the US - it is quite simple. More or less the entire financial structure is built on Govt. bonds. Every time a foreign misadventure is planned, the govt. simply plans to sell more bonds at around 5% and the majority of the world, including your pension fund managers, simply line up and buy all they can afford. In this way, the government is able to borrow a practically unlimited amount for any expenditure they would like to make in order to get re-elected, and because the US actually does have a somewhat sophisticated knowledge based economy that keeps producing googles, Microsofts, Apples etc., the taxes are usually enough to at least pay off the interest on the bonds. Very simple.
For Russia, things are a bit more complex. There is no real tax base because the population has been through a decade plus of poverty resulting from the breakup of the USSR. Economic activity and production is limited and manufacturing exports are virtually nil (ever driven a Lada?). There is just one bright spot in the economy and that is energy production. Even though it is ironic that it is the US adventure in Iraq that has caused energy prices to rise to a level that has the Russian war planning department jumping with glee at the infinite possibilities available now that they can actually pay their troops, this is a heady moment for Russia. The barrel of Oil they were selling for $50 just a few years ago, is bringing in more than double that amount. Furthermore, since expenditures have been contained thanks to privatization and the retreat of the public sector, Russia's exports of gas and oil to Europe and China are profitable in the extreme. This already wonderful state of affairs is made even better for Kremlin by the fact that unlike the way it is in Canada, in Russia it is actually government entities and companies that control and own most of the oil and gas fields.
So for us now, what can we learn from this situation (other than the fact that war is a wasteful activity)? The first thing is that governments really shouldn't be borrowing. The borrowing of the US has created a mess in the US, Iraq, in Georgia and a mess in even my small bank account because of my frequent trips to the gas station. The second thing is that governments that do not depend on people's taxes or their consent for government, can do pretty much anything they want without the population's prior knowledge or approval. The third is that the gas we put in our cars for quick jaunts here and there and the omelettes that my German friend Hans (I kid you not - that is actually his name) makes every morning using the gas imported from Russia really pays for a lot more than just warm eggs. The fourth is that looking at the state of the world in this way means that it is not just the Russians or even the Americans that are to blame for all this. The simple fact of living in a gas-consuming, over-dependent-on-energy lifestyle makes us a party to much that is faulty around the world. Perhaps one solution is to disengage as much as possible from over-consumption so it is not so easy for Russia to sell its gas and for the US to sell Treasury Bonds; but that would require actual changes in the way we live and what we buy. Much better to pin the blame elsewhere - as you have probably noticed from what passes for 'news' these days - it is easy to blame others when we ourselves are a part of the problem.
--------------
Upcoming Events:
Barzakh Cemetery Services, a charitable, non-profit organization led by Muslim women, is hosting an event to discuss family financial matters from a Muslim perspective at 3:00 pm on the 23rd of August at the Northwood Community Centre, 15 Clubhouse Court, located here. The event is designed to address issues such as Wills, Taxes and the way to approach the complete financial planning process - so it may be worthwhile for you to attend. Sh. Yusuf Badat from the IFT will speak about the importance of Wills and the technicalities of Inheritance Laws, followed by Br. Ahmad Abdullah who will speak about the impact of Taxes during life and also at someone's passing. As for moi, usually one is invited to speak about Islamic Finance, but this presentation will IA be about Financial Planning in general and some of the challenges involved for us as Muslims. I have been told that one of the severest problems within the Muslim community is not really the lack of wealth, but the lack of financial sophistication - so this event should go some way towards addressing this critical issue. Lastly, as this is an educational presentation and we are just helping BCS, you will not need to write Ittihad a cheque at the end. You might still want to support BCS as a community organization however, so please don't leave your chequebook at home altogether. As seating is limited, please RSVP by replying to this email.
__________
Finance News:
1. Even though we don't like debt, there is nevertheless a half-decent framework here to evaluate which kinds of debt are better for you financially (we won't get into the spiritual aspects this time around). If you are going to go into debt, at least be somewhat smart about it ... read more here
2. A good deconstruction of coat-tail investing ... read more here
3. House prices in Ontario now falling also ... read more here
4. A film about National Debt ... read more here
Economic News:
1. Inflation in the US at the highest level in 17 years (and these are just the official numbers) ... read more here
2. Trade protectionism is back, starting with agricultural exports from developing countries ... read more here
Islamic / Middle East / Emerging Markets:
1. China allows the listing of foreign companies on its stock exchange ... read more here
Interesting but not all Finance:
1. Farming practices better than organic? ... read more here
2. Definitely a 'why didn't I think of that?!' moment ... read more here
3. Loblaw's going into local produce (yes, but will grocery be cheaper?) ... read more here
Monday, August 11, 2008
Globalization of Chaos
Quote of the week:
'Do a Goodly Act and cast it into the river; the Divine will recompense thee in the desert'. - Muslihuddin Abu Muhammad Abdullah ibn Mushrifuddin Sa'di
Office for Rent Immediately:
As we have recently moved all our staff to the glass-enclosed cage that we call our head office, we have an entire fully furnished, gorgeous, non-glass enclosed office for rent in a Medical Building at the corner of Sheppard Ave. and McCowan. The rent is so minimal that I don't think we should even talk about it - much better to speak about how gorgeous the office is. As for the salient features of the space, other than the beautiful windows, the spacious Board-Room, the Corner offices and the nice faux mahogany furniture, there is even a nice, clean and neat private washroom that we will throw in for free. As this is a Professional Building (not just any building mind you, this one is a professional), it would be most suitable for a growing real estate, accountancy or legal practice. You can visit the space and see the endless possibilities that this new location presents for your business by clicking here. Please do not email or call me directly - if you do, we will charge extra for the washroom.
Commentary of the week:
Globalization of Chaos:
So much has been written about the credit crunch that it is difficult to add anything to our understanding of what has happened and what is happening in financial markets without being drowned out by the voice of the crowd. Although it is difficult to add anything new to the debate without seeming totally off the wall; being categorized in that manner has never fazed your humble correspondent before and as all of you have no doubt been waiting for the IWB for 2 weeks now, noblesse oblige.
While many people ascribe our latest economic woes to improper lending practices in the US and the overinvestment into overvalued real estate, the meaning of all this is not usually discussed within a global framework. While links between a home-buyer who is buying an overpriced home in a Floridian swamp, the price of food and Central Bank interest rate policy within the US and Canada have perhaps been addressed in previous IWB's, there is another angle we may have missed until now. A news item came out recently that spoke about how Central Bankers from across the Globe had gotten together and were fretting about the risks to the 'financial system' as a whole and were encouraging each other to act in some kind of controlled, harmonious manner in order to complement each other's moves and guide their local systems through this crisis in a manner that causes the least amount of pain to their respective constituents. The idea here is that as long as the Banks continue to sing the same song, nobody will be left holding the bag at the end and they will all be able to pass the buck without anyone going out of business and (this is key here) without any major political upheaval. To us enlightened few of the IWB readership of course, surely this sounds too good to be true.
While it is true that international cooperation on financial issues has come a long way from the failure of the Hertstatt Bank in the 1970's and has become fairly seamless for the quick hither-thither movement of money, it is much less harmonious during times of trouble. Furthermore, as relations become less harmonious (and there was a hint of this as Asian CB's became openly critical of the Fed), the buck gets passed onto the most unlikeliest of candidates. So while the fault began in the US perhaps, the people suffering the most for example, may be seniors on fixed incomes in Sub-Saharan Africa; or it may be the Palestinians, who have to contend with hyperinflation in food prices to further compound all their other problems.
This is what I mean when I speak of the Globalization of Chaos. We have slowly opened up our local economies to each other's goods and services in order to enjoy lower prices and better variety of products, have allowed an uncontrolled globalization of vital commodity markets; and have also allowed consolidation of entire sectors within large conglomerates. We have not however, loosened the grip of local currencies, interest rates and the infrastructure of monetary control on the imagination of our local authorities and they continue to labour under the assumptions that tinkering here and there with short-term rates will guide our economies towards even growth. As such, we are now left in the twilight zone of being able to control local economic policy, but not the local economic outcome of those policies (let alone the outcomes for the global economy). Furthermore, because of the uneven ways in which globalization has worked - we only control the financial, no longer the real.
Even if local authorities act in concert, it remains questionable whether they can manage inflation, economic growth and their local financial sectors at the same time. Furthermore, as the tightening of credit necessitates absolutely the sacrifice of some unsuspecting party, we have to figure out who the unfortunate people or countries that will be left holding the bag are likely to be. One has theories of course, so here is one that is somewhat plausible. As the larger, more powerful countries of the G-8 try and control inflation, keep their financial sectors from imploding and keep the economy growing to boot - they will necessarily create further pressure on real markets such as the ones for agriculture, transportation and resources, which are fully globalized already. While the political skill and management infrastructure within the G-8 might be able to put a damper on population unhappiness here at home, the effects of our economic policies here will create unrest in countries that are politically weak. This is already happening in areas of Sub-Saharan Africa and places in the Middle East and is likely to get much worse as the lack of an economic cushion in poorer countries creates deep unhappiness and perhaps even something more in a people squeezed between declining incomes due to faltering economies and higher food and fuel prices. If one remembers correctly, the consolidated bailout for the banks in the US has been to the order of almost $200B, but given who is most likely to suffer at the end of all this - at what price really, are we saving our beloved lenders?
--------------
Upcoming Events:
Barzakh Cemetery Services, a charitable, non-profit organization led by Muslim women, has invited yours truly to speak about family financial matters from a Muslim perspective at 3:00 pm on the 23rd of August at the Northwood Community Centre, 15 Clubhouse Court, located here. The event is designed to address issues such as Wills, Taxes and the way to approach the complete financial planning process - so it may be worthwhile for you to attend. Usually I am invited to speak about Islamic Finance, but this presentation will IA be about Financial Planning in general and some of the challenges involved for us as Muslims. I have been told that one of the severest problems within the Muslim community is not really the lack of wealth, but the lack of financial sophistication - so this event should go some way towards addressing this critical issue. Lastly, as this is an educational presentation and we are just helping BCS, you will not need to write Ittihad a cheque at the end. You might still want to support BCS as a community organization however, so please don't leave your chequebook at home altogether. As seating is limited, please RSVP by replying to this email.
__________
Finance News:
1. Is this the future of home prices in North America? ... read more here
2. 5 mistakes to avoid in Real Estate ... read more here
3. UBS settles a case with the State Regulators for $19B over deceptive sales practices towards average consumers ... read more here
4. Seven websites to 'make you a better investor' ... read more here
5. Did you know your CPP funds were invested in Tobacco stocks?! ... shocking really ... read more here
6. A risk manager explains the Credit Crunch from an 'insider's' perspective ... read more here
Economic News:
1. Inflation in the US is now showing up in the official numbers also ... read more here
2. Merrill Lynch economist has terrible outlook for the Canadian Housing Market, particularly in the West ... read more here
3. Warren Buffett, one of the richest people in the world because of his investing abilities, lambasts US economic policies ... read more here
4. A report on the way out of the financial crisis. (Sheer hubris, of course) ... read more here
Islamic / Middle East / Emerging Markets:
1. Dubai buys into Cirque Du Soleil ... read more here
2. Middle East stock markets the only ones with positive outlooks? ... read more here
Interesting but not all Finance:
1. Nice profile of one of the better financial authors in the world these days ... read more here
2. The bribery and corruption case against Saudi officials in Britain ends with a miscarry of justice ... read more here
3. Game Theory - In Theory and in Practice ... read more here
4. The largest machine in the world is about to come online. Funny that it is designed to find the smallest 'things' in the universe ... read more here
'Do a Goodly Act and cast it into the river; the Divine will recompense thee in the desert'. - Muslihuddin Abu Muhammad Abdullah ibn Mushrifuddin Sa'di
Office for Rent Immediately:
As we have recently moved all our staff to the glass-enclosed cage that we call our head office, we have an entire fully furnished, gorgeous, non-glass enclosed office for rent in a Medical Building at the corner of Sheppard Ave. and McCowan. The rent is so minimal that I don't think we should even talk about it - much better to speak about how gorgeous the office is. As for the salient features of the space, other than the beautiful windows, the spacious Board-Room, the Corner offices and the nice faux mahogany furniture, there is even a nice, clean and neat private washroom that we will throw in for free. As this is a Professional Building (not just any building mind you, this one is a professional), it would be most suitable for a growing real estate, accountancy or legal practice. You can visit the space and see the endless possibilities that this new location presents for your business by clicking here. Please do not email or call me directly - if you do, we will charge extra for the washroom.
Commentary of the week:
Globalization of Chaos:
So much has been written about the credit crunch that it is difficult to add anything to our understanding of what has happened and what is happening in financial markets without being drowned out by the voice of the crowd. Although it is difficult to add anything new to the debate without seeming totally off the wall; being categorized in that manner has never fazed your humble correspondent before and as all of you have no doubt been waiting for the IWB for 2 weeks now, noblesse oblige.
While many people ascribe our latest economic woes to improper lending practices in the US and the overinvestment into overvalued real estate, the meaning of all this is not usually discussed within a global framework. While links between a home-buyer who is buying an overpriced home in a Floridian swamp, the price of food and Central Bank interest rate policy within the US and Canada have perhaps been addressed in previous IWB's, there is another angle we may have missed until now. A news item came out recently that spoke about how Central Bankers from across the Globe had gotten together and were fretting about the risks to the 'financial system' as a whole and were encouraging each other to act in some kind of controlled, harmonious manner in order to complement each other's moves and guide their local systems through this crisis in a manner that causes the least amount of pain to their respective constituents. The idea here is that as long as the Banks continue to sing the same song, nobody will be left holding the bag at the end and they will all be able to pass the buck without anyone going out of business and (this is key here) without any major political upheaval. To us enlightened few of the IWB readership of course, surely this sounds too good to be true.
While it is true that international cooperation on financial issues has come a long way from the failure of the Hertstatt Bank in the 1970's and has become fairly seamless for the quick hither-thither movement of money, it is much less harmonious during times of trouble. Furthermore, as relations become less harmonious (and there was a hint of this as Asian CB's became openly critical of the Fed), the buck gets passed onto the most unlikeliest of candidates. So while the fault began in the US perhaps, the people suffering the most for example, may be seniors on fixed incomes in Sub-Saharan Africa; or it may be the Palestinians, who have to contend with hyperinflation in food prices to further compound all their other problems.
This is what I mean when I speak of the Globalization of Chaos. We have slowly opened up our local economies to each other's goods and services in order to enjoy lower prices and better variety of products, have allowed an uncontrolled globalization of vital commodity markets; and have also allowed consolidation of entire sectors within large conglomerates. We have not however, loosened the grip of local currencies, interest rates and the infrastructure of monetary control on the imagination of our local authorities and they continue to labour under the assumptions that tinkering here and there with short-term rates will guide our economies towards even growth. As such, we are now left in the twilight zone of being able to control local economic policy, but not the local economic outcome of those policies (let alone the outcomes for the global economy). Furthermore, because of the uneven ways in which globalization has worked - we only control the financial, no longer the real.
Even if local authorities act in concert, it remains questionable whether they can manage inflation, economic growth and their local financial sectors at the same time. Furthermore, as the tightening of credit necessitates absolutely the sacrifice of some unsuspecting party, we have to figure out who the unfortunate people or countries that will be left holding the bag are likely to be. One has theories of course, so here is one that is somewhat plausible. As the larger, more powerful countries of the G-8 try and control inflation, keep their financial sectors from imploding and keep the economy growing to boot - they will necessarily create further pressure on real markets such as the ones for agriculture, transportation and resources, which are fully globalized already. While the political skill and management infrastructure within the G-8 might be able to put a damper on population unhappiness here at home, the effects of our economic policies here will create unrest in countries that are politically weak. This is already happening in areas of Sub-Saharan Africa and places in the Middle East and is likely to get much worse as the lack of an economic cushion in poorer countries creates deep unhappiness and perhaps even something more in a people squeezed between declining incomes due to faltering economies and higher food and fuel prices. If one remembers correctly, the consolidated bailout for the banks in the US has been to the order of almost $200B, but given who is most likely to suffer at the end of all this - at what price really, are we saving our beloved lenders?
--------------
Upcoming Events:
Barzakh Cemetery Services, a charitable, non-profit organization led by Muslim women, has invited yours truly to speak about family financial matters from a Muslim perspective at 3:00 pm on the 23rd of August at the Northwood Community Centre, 15 Clubhouse Court, located here. The event is designed to address issues such as Wills, Taxes and the way to approach the complete financial planning process - so it may be worthwhile for you to attend. Usually I am invited to speak about Islamic Finance, but this presentation will IA be about Financial Planning in general and some of the challenges involved for us as Muslims. I have been told that one of the severest problems within the Muslim community is not really the lack of wealth, but the lack of financial sophistication - so this event should go some way towards addressing this critical issue. Lastly, as this is an educational presentation and we are just helping BCS, you will not need to write Ittihad a cheque at the end. You might still want to support BCS as a community organization however, so please don't leave your chequebook at home altogether. As seating is limited, please RSVP by replying to this email.
__________
Finance News:
1. Is this the future of home prices in North America? ... read more here
2. 5 mistakes to avoid in Real Estate ... read more here
3. UBS settles a case with the State Regulators for $19B over deceptive sales practices towards average consumers ... read more here
4. Seven websites to 'make you a better investor' ... read more here
5. Did you know your CPP funds were invested in Tobacco stocks?! ... shocking really ... read more here
6. A risk manager explains the Credit Crunch from an 'insider's' perspective ... read more here
Economic News:
1. Inflation in the US is now showing up in the official numbers also ... read more here
2. Merrill Lynch economist has terrible outlook for the Canadian Housing Market, particularly in the West ... read more here
3. Warren Buffett, one of the richest people in the world because of his investing abilities, lambasts US economic policies ... read more here
4. A report on the way out of the financial crisis. (Sheer hubris, of course) ... read more here
Islamic / Middle East / Emerging Markets:
1. Dubai buys into Cirque Du Soleil ... read more here
2. Middle East stock markets the only ones with positive outlooks? ... read more here
Interesting but not all Finance:
1. Nice profile of one of the better financial authors in the world these days ... read more here
2. The bribery and corruption case against Saudi officials in Britain ends with a miscarry of justice ... read more here
3. Game Theory - In Theory and in Practice ... read more here
4. The largest machine in the world is about to come online. Funny that it is designed to find the smallest 'things' in the universe ... read more here
Thursday, July 31, 2008
Dealing with Losses
Quote of the week:
'Logic will get you from A to B. Imagination will take you everywhere.' - Albert Einstein.
Commentary of the week:
Dealing with Losses:
In most kinds of financial journalism, the story we are told as consumers is that investment losses are possible, but unlikely over the long term. We are told that the world (and the stock market in particular) will probably continue to 'go up' and that if we are investing in something for the long term, there is little reason to worry. As somewhat unsophisticated consumers of this financial fiction, we have very little idea of what it means to 'go up' and what exactly it is that is going to go up. We worry about just our dollars, and hope that each dollar we have put into the 'market' will come back either as a happy family of dollars, or at least as a dollar with smaller kids in tow. Yet even though we believe this to be true, and even though the markets cooperate by indeed going up most of the time in Canada, there is always the inevitable bust every few years that most financial commentators can only explain in hindsight. As you know, we are a bit different here at Ittihad, and take economic uncertainty and the unpredictability of public markets as more of a given. Also given the present investment climate, I think it is best to really begin to prepare for the possibility of monetary losses as the full impact of the bank failures in the US comes to light. This does not mean people pull out their savings, just that loss is as much a part of life as gain is and if we can presume to educate people about how to react when they make money, we should also try and do the same when they end up losing a bit. As it is, we have to be very careful about what is happening in the North American markets right now, so a discussion of some coping strategies to take away the stress of being invested are probably in order.
So, here are the top 5 things you can do (but don't have to) when you see the TSX (and your savings) dropping like the temperature in winter or like a stone in water:
1. Stop worrying already and just Panic - It is after all, your money and if you don't panic, who will? Also, call up your broker, call him names and warn him that you will sue him if he does not personally drive over in the car that you paid for and give back your money in old $20 bills. At the very least, this will calm you down, make you feel like you are in the movies and will thereby make you feel better about the loss. If you actually decide to follow through with your threat, it might also keep your lawyer friend in business while his investments go down even more than yours.
2. Become unreasonable with your kids - Kids love parents who are unpredictable and twitch nervously when the business news comes on. This gives them an opportunity to rebel in even more unreasonable and childish ways so they can thereby become more mature over time. Without this training of how to be unreasonable people, how would they survive in civilized society?
3. Become sullen and / or abrasive at work - Your boss is clearly unhappy at the TSX's lack of spirit because he has even more of his money invested than you, so why should you be nice while he gets to be the bully? Do some bullying of your own, hide someone's mouse or disconnect their keyboard and watch the fiasco as they complain to the IT people, who will no doubt misdiagnose the problem. Do not however, mess with the coffee - that would be mean.
4. Tell yourself the market dip is only temporary - Don't worry, what goes down must come up also, shouldn't it? (or was it the other way around?). History shows that after every bust, there was a boom. So what if you have to suffer through a few years of losses in order to enjoy the good times again? Remember, until the hope is gone, there is always hope.
5. Sell everything else that you own and buy more public stocks - This is for professionals only. Do not attempt this at home, or outside the home. Above all, do not attempt this anywhere near home, or with your home.
What I really like about this list is that the top 3 can be applied in your personal life as well. There is nothing like a bit of panic to wake you up, the kids are there to be pushed around anyway and having fun at work between the meetings is always helpful to overcome the monotony of being bullied.
Of course, the best way to deal with the issue of financial losses is to take some time out of our needlessly busy and cluttered lives and learn how these things really work so we can understand a little bit of what is really going on. In this way, both gains and / or losses will be more expected and so we will have calmer lives rather than becoming emotionally subject to the latest financial rumour. In my humble view, our faith in the financial markets and banks has been so solid for so long that we have become fundamentally unprepared to make decisions about our financial health on our own. To use a particularly timely analogy - if our car kept breaking down, we would either change the car or learn why it keeps breaking down on us. Why then, do we accept both a faulty financial system and such deep public ignorance of it as a part of our life that cannot be changed?
--------------
Upcoming Events:
Barzakh Community Services, a charitable, non-profit organization led by Muslim women, has invited yours truly to speak about family financial matters from a Muslim perspective. The event is designed to address issues such as Wills, Taxes and the way to approach the complete financial planning process - so it may be worthwhile for you to attend. Usually I am invited to speak about Islamic Finance, but this presentation will IA be about Financial Planning in general and some of the challenges involved for us as Muslims. I have been told that one of the severest problems within the Muslim community is not really the lack of wealth, but the lack of financial sophistication - so this event should go some way towards addressing this critical issue. Lastly, as this is an educational presentation and we are just helping BCS, you will not need to write Ittihad a cheque at the end. You might still want to support BCS as a community organization however, so please don't leave your chequebook at home altogether.
__________
Finance News:
1. Seems the Globe is a couple of days behind us at Ittihad (hat-tip to Kamran Niazi) ... read more here
2. Excellent column on the future for the home finance market in the US ... read more here
3. This column shows you everything (or almost everything) that is wrong with financial journalism ... read more here
Economic News:
1. Title of the week - ' Do Economists Need Brains?' (I would have asked whether they had brains but then realized that I have economist pretensions as well) ... read more here
2. Inflation is up in Canada also ... read more here
3. The situation in Britain is becoming a bit dire ... read more here
4. Article on whether Inflation or deflation is on the cards ... read more here
Islamic / Middle East / Emerging Markets:
1. Prices in Asia rise as Central Banks fail to agree on measures to contain inflation (as if this is within their power now) ... read more here
2. A new Asian Financial Crisis on the cards? ... read more here
Interesting but not all Finance:
1. The effects of a family feud on business (or business feud on family) ... read more here
2. Why Green and Islamic are somewhat different ... read more here
3. A 'cuil' story about a challenger to Google ... read more here
'Logic will get you from A to B. Imagination will take you everywhere.' - Albert Einstein.
Commentary of the week:
Dealing with Losses:
In most kinds of financial journalism, the story we are told as consumers is that investment losses are possible, but unlikely over the long term. We are told that the world (and the stock market in particular) will probably continue to 'go up' and that if we are investing in something for the long term, there is little reason to worry. As somewhat unsophisticated consumers of this financial fiction, we have very little idea of what it means to 'go up' and what exactly it is that is going to go up. We worry about just our dollars, and hope that each dollar we have put into the 'market' will come back either as a happy family of dollars, or at least as a dollar with smaller kids in tow. Yet even though we believe this to be true, and even though the markets cooperate by indeed going up most of the time in Canada, there is always the inevitable bust every few years that most financial commentators can only explain in hindsight. As you know, we are a bit different here at Ittihad, and take economic uncertainty and the unpredictability of public markets as more of a given. Also given the present investment climate, I think it is best to really begin to prepare for the possibility of monetary losses as the full impact of the bank failures in the US comes to light. This does not mean people pull out their savings, just that loss is as much a part of life as gain is and if we can presume to educate people about how to react when they make money, we should also try and do the same when they end up losing a bit. As it is, we have to be very careful about what is happening in the North American markets right now, so a discussion of some coping strategies to take away the stress of being invested are probably in order.
So, here are the top 5 things you can do (but don't have to) when you see the TSX (and your savings) dropping like the temperature in winter or like a stone in water:
1. Stop worrying already and just Panic - It is after all, your money and if you don't panic, who will? Also, call up your broker, call him names and warn him that you will sue him if he does not personally drive over in the car that you paid for and give back your money in old $20 bills. At the very least, this will calm you down, make you feel like you are in the movies and will thereby make you feel better about the loss. If you actually decide to follow through with your threat, it might also keep your lawyer friend in business while his investments go down even more than yours.
2. Become unreasonable with your kids - Kids love parents who are unpredictable and twitch nervously when the business news comes on. This gives them an opportunity to rebel in even more unreasonable and childish ways so they can thereby become more mature over time. Without this training of how to be unreasonable people, how would they survive in civilized society?
3. Become sullen and / or abrasive at work - Your boss is clearly unhappy at the TSX's lack of spirit because he has even more of his money invested than you, so why should you be nice while he gets to be the bully? Do some bullying of your own, hide someone's mouse or disconnect their keyboard and watch the fiasco as they complain to the IT people, who will no doubt misdiagnose the problem. Do not however, mess with the coffee - that would be mean.
4. Tell yourself the market dip is only temporary - Don't worry, what goes down must come up also, shouldn't it? (or was it the other way around?). History shows that after every bust, there was a boom. So what if you have to suffer through a few years of losses in order to enjoy the good times again? Remember, until the hope is gone, there is always hope.
5. Sell everything else that you own and buy more public stocks - This is for professionals only. Do not attempt this at home, or outside the home. Above all, do not attempt this anywhere near home, or with your home.
What I really like about this list is that the top 3 can be applied in your personal life as well. There is nothing like a bit of panic to wake you up, the kids are there to be pushed around anyway and having fun at work between the meetings is always helpful to overcome the monotony of being bullied.
Of course, the best way to deal with the issue of financial losses is to take some time out of our needlessly busy and cluttered lives and learn how these things really work so we can understand a little bit of what is really going on. In this way, both gains and / or losses will be more expected and so we will have calmer lives rather than becoming emotionally subject to the latest financial rumour. In my humble view, our faith in the financial markets and banks has been so solid for so long that we have become fundamentally unprepared to make decisions about our financial health on our own. To use a particularly timely analogy - if our car kept breaking down, we would either change the car or learn why it keeps breaking down on us. Why then, do we accept both a faulty financial system and such deep public ignorance of it as a part of our life that cannot be changed?
--------------
Upcoming Events:
Barzakh Community Services, a charitable, non-profit organization led by Muslim women, has invited yours truly to speak about family financial matters from a Muslim perspective. The event is designed to address issues such as Wills, Taxes and the way to approach the complete financial planning process - so it may be worthwhile for you to attend. Usually I am invited to speak about Islamic Finance, but this presentation will IA be about Financial Planning in general and some of the challenges involved for us as Muslims. I have been told that one of the severest problems within the Muslim community is not really the lack of wealth, but the lack of financial sophistication - so this event should go some way towards addressing this critical issue. Lastly, as this is an educational presentation and we are just helping BCS, you will not need to write Ittihad a cheque at the end. You might still want to support BCS as a community organization however, so please don't leave your chequebook at home altogether.
__________
Finance News:
1. Seems the Globe is a couple of days behind us at Ittihad (hat-tip to Kamran Niazi) ... read more here
2. Excellent column on the future for the home finance market in the US ... read more here
3. This column shows you everything (or almost everything) that is wrong with financial journalism ... read more here
Economic News:
1. Title of the week - ' Do Economists Need Brains?' (I would have asked whether they had brains but then realized that I have economist pretensions as well) ... read more here
2. Inflation is up in Canada also ... read more here
3. The situation in Britain is becoming a bit dire ... read more here
4. Article on whether Inflation or deflation is on the cards ... read more here
Islamic / Middle East / Emerging Markets:
1. Prices in Asia rise as Central Banks fail to agree on measures to contain inflation (as if this is within their power now) ... read more here
2. A new Asian Financial Crisis on the cards? ... read more here
Interesting but not all Finance:
1. The effects of a family feud on business (or business feud on family) ... read more here
2. Why Green and Islamic are somewhat different ... read more here
3. A 'cuil' story about a challenger to Google ... read more here
Tuesday, July 29, 2008
Homes and Economic Vulnerability
Quote of the week:
'Only six months ago, politicians were counting on Fannie Mae and Freddie Mac, the country's mortgage giants, to bolster the housing market by buying more mortgages. Now the rescuers themselves have needed rescuing.' - The Economist.
Commentary of the week:
Homes & Economic Vulnerability:
By now only the most ardent of optimists are still hanging on to the view that the N. American economy (both financial and real) is on a solid footing and will come through this Credit Crisis relatively unscathed. Indeed, the entire financial sector is in the kind of upheaval that many of us are not fortunate (unfortunate?) enough to live through more than a few times in our lives. While there are many theories about how we got here and what must be done to get out of this tight space, there are few that connect where we find ourselves with the very structure of the economy. What I mean to say here is actually quite simple. The point here is that there is a very strong link between dependency and vulnerability, such that it is the very things that we depend on that make us vulnerable. This is true in our personal lives, in our professional lives (think Microsoft's various and crashes at work) and in the broader economy also.
Starting with the personal, imagine for a moment that you are planning in life to become the King of China. To do this, you have chosen the path of working in Islamic Finance until you are simply offered the throne by those who read your newsletter. You work hard, make things happen and when you get home, all you really want is one plate of steamed broccoli and for your better half to stay out of your way until you unwind from these lofty goals a bit. This continues for long enough that you forget to thank God for the broccoli and your wife for boiling it alive. One day though, you arrive and see raw broccoli on the table next to a folded note. Now you are afraid - you read the note and it confirms your fears. It says: 'I have had it - steam your own damn veggies'. This creates complications - your lofty plans are now toast. There will be no throne of China and there will be no more steamed broccoli. That which you depend on without thinking has made you intensely vulnerable.
The US economy is undergoing the pangs of something similar. The US economy is a pretty simple engine (at least for our purposes today). It depends on cheap goods for consumers, cheap investment from foreigners which helps keep consumer credit cheap at home and finally consumer spending for economic growth. This chain now seems to be broken. Furthermore, what is worse and really unnerving for people is that the chain has broken at a point where not many people (ahem) predicted that it would. Most people who did not believe the US growth model was sustainable thought that foreign parties would pull the plug on the party. In actuality, it has been the breakdown in esoteric real estate investments instead that has proved somewhat fatal (foreign funds and entities are inexplicably still buying up American Assets and Treasury Bills as quick as ever). Why this last part is so can be the topic for another day, but let me reiterate and clarify a bit.
One of the ways in which consumer credit has been kept cheap is through credit against the 'solid' and tangible asset that is the family home (ever heard the marketing about consolidating all your debt?). As people have asked to borrow for homes and then re-finance those homes, lenders have forwarded them funds but then sold these loans to others such as the semi-government agencies lovingly called Fannie Mae and Freddie Mac. Once these loans are on Fannie and Freddie's books as assets, these organizations package the loans up as investments that pay out a stream of income (read interest) and sell them to the highest bidder. These investments, we now find, are in over-priced homes and have been made with the optimistic expectations that consumers will keep paying their interest payments forever.
For the longest time, this assumption has held up quite well - just like the plate of broccoli, you could depend on it. This financial engineering did very well for investors, the government and home-buyers in the past. It kept the cost of borrowing down and because the investments are almost guaranteed by Fannie and Freddie, & investors both foreign and local thought that they were solid. Of course, we realize now that almost half of Freddie and Fannie's present assets might be tainted because they are now non-performing (I don't mean to alarm you but we are talking $2Trillion+). The US govt. has been called in to guarantee up to $5Trillion of real estate assets. Even if my numbers are off by a bit because info is sketchy, this is the largest assumption of private debt that a government has probably ever taken up upon its books, or almost definitely ever. Now, not only do you owe taxes to the government, but in a roundabout way you owe it your mortgage payment as well. And since the government only gets its money to backstop all these bad loans from taxes anyway, guess who pays at the end? It is almost enough to make your mind spin, which is perhaps why reasonable people usually work outside finance.
I think we are witnessing the end of something that has almost been a fixture in world affairs for as long as I have been around (many, many decades). One of them was the robustness and dependability of the American Economy, another was the American Dream. There used to be this idea that it was best to be a Free - Market Democracy. This used to mean a Government of the People, by the People, for the People. Whether or not you agree with the idea, it had a certain panache and our neighbours sometimes pulled it off despite themselves. Now I am not so sure - they have developed a new definition of a Free Market Democracy. It now means Taxes from the People, Mortgages for the People, Profits to the Financial People. We have depended on US excess for our economic prosperity for so long that I wonder now if this makes us vulnerable as well.
--------------
Upcoming Events:
N/A
__________
Finance News:
1. Asian Monetary Authorities speak openly about a crisis in the 'financial system' (their phrase not mine) as brought to light by the Freddie and Fannie Crisis ... read more here
2. Excellent column on the Fannie Mae and Freddie Mac situation ... read more here
3. IndyMac (one of the largest lenders in California) is collapsing ... read more here
4. A sobering, person-centric story on how debt and the marketing of debt solutions really works ... read more here
5. The FED protests at critics and insists that the banking system is 'sound' ... read more here
Economic News:
1. House Prices fall for first time in 9 years ... read more here
2. The Economist puts securitization and Home Finance in perspective ... read more here
Islamic / Middle East / Emerging Markets:
1. N / A
Interesting but not all Finance:
1. Funny and pithy column on Love and Economics (he must have stolen the topic from my short-list of future IWB titles) ... read more here
2. Saving Ontario's Boreal Forrest or setting off a mad rush to the North? ... read more here
3. Interesting column on gene sequencing / analysis and what it may mean for medical treatments in the future ... read more here
4. A special Report on the future of Energy ... read more here
'Only six months ago, politicians were counting on Fannie Mae and Freddie Mac, the country's mortgage giants, to bolster the housing market by buying more mortgages. Now the rescuers themselves have needed rescuing.' - The Economist.
Commentary of the week:
Homes & Economic Vulnerability:
By now only the most ardent of optimists are still hanging on to the view that the N. American economy (both financial and real) is on a solid footing and will come through this Credit Crisis relatively unscathed. Indeed, the entire financial sector is in the kind of upheaval that many of us are not fortunate (unfortunate?) enough to live through more than a few times in our lives. While there are many theories about how we got here and what must be done to get out of this tight space, there are few that connect where we find ourselves with the very structure of the economy. What I mean to say here is actually quite simple. The point here is that there is a very strong link between dependency and vulnerability, such that it is the very things that we depend on that make us vulnerable. This is true in our personal lives, in our professional lives (think Microsoft's various and crashes at work) and in the broader economy also.
Starting with the personal, imagine for a moment that you are planning in life to become the King of China. To do this, you have chosen the path of working in Islamic Finance until you are simply offered the throne by those who read your newsletter. You work hard, make things happen and when you get home, all you really want is one plate of steamed broccoli and for your better half to stay out of your way until you unwind from these lofty goals a bit. This continues for long enough that you forget to thank God for the broccoli and your wife for boiling it alive. One day though, you arrive and see raw broccoli on the table next to a folded note. Now you are afraid - you read the note and it confirms your fears. It says: 'I have had it - steam your own damn veggies'. This creates complications - your lofty plans are now toast. There will be no throne of China and there will be no more steamed broccoli. That which you depend on without thinking has made you intensely vulnerable.
The US economy is undergoing the pangs of something similar. The US economy is a pretty simple engine (at least for our purposes today). It depends on cheap goods for consumers, cheap investment from foreigners which helps keep consumer credit cheap at home and finally consumer spending for economic growth. This chain now seems to be broken. Furthermore, what is worse and really unnerving for people is that the chain has broken at a point where not many people (ahem) predicted that it would. Most people who did not believe the US growth model was sustainable thought that foreign parties would pull the plug on the party. In actuality, it has been the breakdown in esoteric real estate investments instead that has proved somewhat fatal (foreign funds and entities are inexplicably still buying up American Assets and Treasury Bills as quick as ever). Why this last part is so can be the topic for another day, but let me reiterate and clarify a bit.
One of the ways in which consumer credit has been kept cheap is through credit against the 'solid' and tangible asset that is the family home (ever heard the marketing about consolidating all your debt?). As people have asked to borrow for homes and then re-finance those homes, lenders have forwarded them funds but then sold these loans to others such as the semi-government agencies lovingly called Fannie Mae and Freddie Mac. Once these loans are on Fannie and Freddie's books as assets, these organizations package the loans up as investments that pay out a stream of income (read interest) and sell them to the highest bidder. These investments, we now find, are in over-priced homes and have been made with the optimistic expectations that consumers will keep paying their interest payments forever.
For the longest time, this assumption has held up quite well - just like the plate of broccoli, you could depend on it. This financial engineering did very well for investors, the government and home-buyers in the past. It kept the cost of borrowing down and because the investments are almost guaranteed by Fannie and Freddie, & investors both foreign and local thought that they were solid. Of course, we realize now that almost half of Freddie and Fannie's present assets might be tainted because they are now non-performing (I don't mean to alarm you but we are talking $2Trillion+). The US govt. has been called in to guarantee up to $5Trillion of real estate assets. Even if my numbers are off by a bit because info is sketchy, this is the largest assumption of private debt that a government has probably ever taken up upon its books, or almost definitely ever. Now, not only do you owe taxes to the government, but in a roundabout way you owe it your mortgage payment as well. And since the government only gets its money to backstop all these bad loans from taxes anyway, guess who pays at the end? It is almost enough to make your mind spin, which is perhaps why reasonable people usually work outside finance.
I think we are witnessing the end of something that has almost been a fixture in world affairs for as long as I have been around (many, many decades). One of them was the robustness and dependability of the American Economy, another was the American Dream. There used to be this idea that it was best to be a Free - Market Democracy. This used to mean a Government of the People, by the People, for the People. Whether or not you agree with the idea, it had a certain panache and our neighbours sometimes pulled it off despite themselves. Now I am not so sure - they have developed a new definition of a Free Market Democracy. It now means Taxes from the People, Mortgages for the People, Profits to the Financial People. We have depended on US excess for our economic prosperity for so long that I wonder now if this makes us vulnerable as well.
--------------
Upcoming Events:
N/A
__________
Finance News:
1. Asian Monetary Authorities speak openly about a crisis in the 'financial system' (their phrase not mine) as brought to light by the Freddie and Fannie Crisis ... read more here
2. Excellent column on the Fannie Mae and Freddie Mac situation ... read more here
3. IndyMac (one of the largest lenders in California) is collapsing ... read more here
4. A sobering, person-centric story on how debt and the marketing of debt solutions really works ... read more here
5. The FED protests at critics and insists that the banking system is 'sound' ... read more here
Economic News:
1. House Prices fall for first time in 9 years ... read more here
2. The Economist puts securitization and Home Finance in perspective ... read more here
Islamic / Middle East / Emerging Markets:
1. N / A
Interesting but not all Finance:
1. Funny and pithy column on Love and Economics (he must have stolen the topic from my short-list of future IWB titles) ... read more here
2. Saving Ontario's Boreal Forrest or setting off a mad rush to the North? ... read more here
3. Interesting column on gene sequencing / analysis and what it may mean for medical treatments in the future ... read more here
4. A special Report on the future of Energy ... read more here
Monday, July 14, 2008
The Porsche Economy - Part II
Quote of the week:
'In Bradford all nurseries have been ordered to convert their dolls' houses into miniature mosques so that Muslim teddies have somewhere to pray'. - Mark Steel in a column about being Muslim in Britain.
Commentary of the week:
What is 'Finance'? (Part II - contd. from last week):
Now that all of you budding Islamic Financiers know how an Economy works, we should start drilling down a bit into how Finance works as well. Most people think you need to wear an over-priced suit and drive a Porsche to prove that you know anything about financial matters (who am I to argue with that?), but sometimes, just sometimes this knowledge seeps out and finds its way into the hands of bicyclists, paddlers and slow & short walkers like me who refuse to pay more for a suit than they would for a bad hair-cut - and who in turn, pass the protected word on to discerning readers like you in order to give you the tools you need to deflate the next overblown financial ego you meet.
As the sheer brilliance of last week's commentary is probably seared onto your minds, you will of course remember that one of the factors of production in an economy is Capital. Within the larger factor of capital is the field of finance, which is the name given to the movement of some kinds of capital between various actors in an economy. For example, if you have ever played Monopoly, you know that there is a lot of Property / Railways / Hotels / Houses available in that economy. These are the solid assets that we can call capital. There is also a 'bank' (not a real bank in the modern sense of the word), but the entity that holds the cash and really allows players to trade money, rents, property etc. with each other. That 'bank' in Monopoly does many of the things that the financial sector does in the real economy. Building on this only somewhat oversimplified example, Capital can include things such as buildings, plants, machinery and of course, the popcorn that Spengler asked us to invest in last week. Finance on the other hand, is more limited in the sense that finance should really only include the more liquid kinds of capital that are either in the form of cash already (both electronic and actual), or is instantly or somewhat easily convertible into cash (some definitional latitude please). The world of Finance then, has two main categories that sometimes leach into each other a bit with hybrid products, but which will be treated as distinct for our purposes here because they carry different legal rights and are easier to understand that way. The two categories then, are Debt Finance and Equity Finance.
Debt Finance is the movement of capital (or money) between Savers (people who have saved money) and Borrowers (people who are lo and behold, borrowing money in some way to finance something they cannot or do not buy with their own money). This is usually done through the medium of banks or credit unions or secondary lenders. The way this works is that I deposit $100 into a bank and then the bank turns around and loans >$1000 (not a typo) to my neighbour or my neighbour's company as some kind of debt. The account or product I use to make a deposit into the bank can include things such as cheque-ing accounts, savings accounts, GIC's and most other kinds of guaranteed deposits. For the borrower, my neighbour in this case, this includes things such as Mortgages, lines of credit, Mezzanine (the cool word of the day) Debt, Project financing and all manner of interest-bearing loans that my neighbour, may God Bless him, can use to finance something he cannot afford and is willing to pay some extra fee for as he uses and repays the funds that don't really belong to him, the bank, or even me (think about this one a bit).
Equity Finance is the movement of capital (or money) between Investors (people who are buying some portion of a commercial enterprise) and Entrepreneurs or Partners (people who are willing to give up some ownership of their enterprise in return for funds in order to run it). This is usually done through the medium of capital markets such as the TSX (now you know what an IPO is), or private markets (now you know what I do at Ittihad) that facilitate investment of private capital into companies or projects. The obvious examples of this kind of finance includes things like Stocks, Mutual Funds, Seg Funds, Principal Protected Notes (PPN's), ETF's (which are technically shares), LP units and all manner of other jargonic things that pass for financial non-solutions which people like you and me invest in because someone told us it was a good idea and we believed their expertise at the time because our 24th baby was crying and the season finale of 'Little Mosque on the Prairie' was on TV and besides - how many things is one person really supposed to know?
Just one more thing this week my friends - hang in there. You should also know that while Finance is divided into Debt and Equity, the ratio between them is quite skewed. The debt in an 'advanced' economy at any given moment in time is more than 10 times the amount floating around in equity (don't ask me how I know this). This is why when people like the Fed or Bank of Canada Governor speak, markets hang on their every word. What moves markets and the economy is the debt portion of finance and the interest rate on that debt. Think of this as an inverted pyramid, with a small amount of actual cash at the bottom, but a progressively large amount of debt as you move higher. This is one reason why the financial sector is more unstable than postal workers who have had almost enough but cannot decide decisively.
So where does this fit in with Islamic Finance? Well, you have to actually take a step further back and ask what kind of an economy would enhance our various Faiths and allow us to live sustainable and contributory lives rather than the predatory ones we perhaps have to live today - but since we are on the topic of finance, let's talk about the cash. True Islamic Finance then, would simply not have a debt component, there would be no inverted pyramid (no $1000 loans on $100 deposits) and no government would be able to borrow money in order to go to war because the population would simply not buy the bonds necessary for such an enterprise. Of course, this would also perhaps mean that there would be no shiny new Porsche in every garage even if we all try really hard because bicycles might be the way to go instead. Perhaps that is why we continue to work within a debtor thought-process that impoverishes us spiritually - because having no debt is fine and dandy, but the drive up to Northern Ontario in a Porsche my friends, is probably priceless.
--------------
Upcoming Events:
N/A
__________
Finance News:
1. RBC entering the Islamic Finance space! - How exciting, now we will finally get to see if Canadian Muslims are actually as smart as they seem and whether they will defeat this (major hat-tip to Hisham Rahman) ... read more here
2. CDN bank to declare more losses? It seems that the end is nowhere in sight as far as the credit crunch is concerned ... read more here
3. Ottawa tightens up the mortgage rules they just loosened in 2006. Can you say - 'No Foresight'? ... read more here
Economic News:
1. Some more evidence about how Oil prices and Inflation are affecting small farmers in some rural areas (example of India) ... read more here
2. The domino effect in currencies after the fall of the US$. This has the potential to be a huge depressor of living standards across much of the world ... read more here
3. Does Free Trade help poor people? (or do more poor people help Free Trade?) ... read more here
4. How securitization often results in situations of 'moral hazard' ... read more here
5. How the UK has managed to take on more debt than its GDP ... read more here
Islamic / Middle East / Emerging Markets:
1. N / A
Interesting but not all Finance:
1. How the backdoor to Peace in difficult situations is sometimes held open by Faith ... read more here
2. 'Goodbye from the World's Biggest Polluter' ... read more here
3. For Muslims in the audience who think the media is unfair ... must read
'In Bradford all nurseries have been ordered to convert their dolls' houses into miniature mosques so that Muslim teddies have somewhere to pray'. - Mark Steel in a column about being Muslim in Britain.
Commentary of the week:
What is 'Finance'? (Part II - contd. from last week):
Now that all of you budding Islamic Financiers know how an Economy works, we should start drilling down a bit into how Finance works as well. Most people think you need to wear an over-priced suit and drive a Porsche to prove that you know anything about financial matters (who am I to argue with that?), but sometimes, just sometimes this knowledge seeps out and finds its way into the hands of bicyclists, paddlers and slow & short walkers like me who refuse to pay more for a suit than they would for a bad hair-cut - and who in turn, pass the protected word on to discerning readers like you in order to give you the tools you need to deflate the next overblown financial ego you meet.
As the sheer brilliance of last week's commentary is probably seared onto your minds, you will of course remember that one of the factors of production in an economy is Capital. Within the larger factor of capital is the field of finance, which is the name given to the movement of some kinds of capital between various actors in an economy. For example, if you have ever played Monopoly, you know that there is a lot of Property / Railways / Hotels / Houses available in that economy. These are the solid assets that we can call capital. There is also a 'bank' (not a real bank in the modern sense of the word), but the entity that holds the cash and really allows players to trade money, rents, property etc. with each other. That 'bank' in Monopoly does many of the things that the financial sector does in the real economy. Building on this only somewhat oversimplified example, Capital can include things such as buildings, plants, machinery and of course, the popcorn that Spengler asked us to invest in last week. Finance on the other hand, is more limited in the sense that finance should really only include the more liquid kinds of capital that are either in the form of cash already (both electronic and actual), or is instantly or somewhat easily convertible into cash (some definitional latitude please). The world of Finance then, has two main categories that sometimes leach into each other a bit with hybrid products, but which will be treated as distinct for our purposes here because they carry different legal rights and are easier to understand that way. The two categories then, are Debt Finance and Equity Finance.
Debt Finance is the movement of capital (or money) between Savers (people who have saved money) and Borrowers (people who are lo and behold, borrowing money in some way to finance something they cannot or do not buy with their own money). This is usually done through the medium of banks or credit unions or secondary lenders. The way this works is that I deposit $100 into a bank and then the bank turns around and loans >$1000 (not a typo) to my neighbour or my neighbour's company as some kind of debt. The account or product I use to make a deposit into the bank can include things such as cheque-ing accounts, savings accounts, GIC's and most other kinds of guaranteed deposits. For the borrower, my neighbour in this case, this includes things such as Mortgages, lines of credit, Mezzanine (the cool word of the day) Debt, Project financing and all manner of interest-bearing loans that my neighbour, may God Bless him, can use to finance something he cannot afford and is willing to pay some extra fee for as he uses and repays the funds that don't really belong to him, the bank, or even me (think about this one a bit).
Equity Finance is the movement of capital (or money) between Investors (people who are buying some portion of a commercial enterprise) and Entrepreneurs or Partners (people who are willing to give up some ownership of their enterprise in return for funds in order to run it). This is usually done through the medium of capital markets such as the TSX (now you know what an IPO is), or private markets (now you know what I do at Ittihad) that facilitate investment of private capital into companies or projects. The obvious examples of this kind of finance includes things like Stocks, Mutual Funds, Seg Funds, Principal Protected Notes (PPN's), ETF's (which are technically shares), LP units and all manner of other jargonic things that pass for financial non-solutions which people like you and me invest in because someone told us it was a good idea and we believed their expertise at the time because our 24th baby was crying and the season finale of 'Little Mosque on the Prairie' was on TV and besides - how many things is one person really supposed to know?
Just one more thing this week my friends - hang in there. You should also know that while Finance is divided into Debt and Equity, the ratio between them is quite skewed. The debt in an 'advanced' economy at any given moment in time is more than 10 times the amount floating around in equity (don't ask me how I know this). This is why when people like the Fed or Bank of Canada Governor speak, markets hang on their every word. What moves markets and the economy is the debt portion of finance and the interest rate on that debt. Think of this as an inverted pyramid, with a small amount of actual cash at the bottom, but a progressively large amount of debt as you move higher. This is one reason why the financial sector is more unstable than postal workers who have had almost enough but cannot decide decisively.
So where does this fit in with Islamic Finance? Well, you have to actually take a step further back and ask what kind of an economy would enhance our various Faiths and allow us to live sustainable and contributory lives rather than the predatory ones we perhaps have to live today - but since we are on the topic of finance, let's talk about the cash. True Islamic Finance then, would simply not have a debt component, there would be no inverted pyramid (no $1000 loans on $100 deposits) and no government would be able to borrow money in order to go to war because the population would simply not buy the bonds necessary for such an enterprise. Of course, this would also perhaps mean that there would be no shiny new Porsche in every garage even if we all try really hard because bicycles might be the way to go instead. Perhaps that is why we continue to work within a debtor thought-process that impoverishes us spiritually - because having no debt is fine and dandy, but the drive up to Northern Ontario in a Porsche my friends, is probably priceless.
--------------
Upcoming Events:
N/A
__________
Finance News:
1. RBC entering the Islamic Finance space! - How exciting, now we will finally get to see if Canadian Muslims are actually as smart as they seem and whether they will defeat this (major hat-tip to Hisham Rahman) ... read more here
2. CDN bank to declare more losses? It seems that the end is nowhere in sight as far as the credit crunch is concerned ... read more here
3. Ottawa tightens up the mortgage rules they just loosened in 2006. Can you say - 'No Foresight'? ... read more here
Economic News:
1. Some more evidence about how Oil prices and Inflation are affecting small farmers in some rural areas (example of India) ... read more here
2. The domino effect in currencies after the fall of the US$. This has the potential to be a huge depressor of living standards across much of the world ... read more here
3. Does Free Trade help poor people? (or do more poor people help Free Trade?) ... read more here
4. How securitization often results in situations of 'moral hazard' ... read more here
5. How the UK has managed to take on more debt than its GDP ... read more here
Islamic / Middle East / Emerging Markets:
1. N / A
Interesting but not all Finance:
1. How the backdoor to Peace in difficult situations is sometimes held open by Faith ... read more here
2. 'Goodbye from the World's Biggest Polluter' ... read more here
3. For Muslims in the audience who think the media is unfair ... must read
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