Dec 29 2011

Year of the Euro

Category: Economy,Politics — Admin @ 00:56

2011 is dedicated to the eurozone’s fortitude. Despite the surmounting pessimism surrounding the fate of the 17-nation area and a prediction from Credit Suisse’s Fixed Income Research team last month that “we seem to have entered the last days of the euro”, the eurozone is showing signs of a long term makeover more so than signs of impending failure.

Avi Tiomkin of Forbes Magazine quoted in a 2008 article, “It is only a matter of time, probably less than three years, until the euro experiment meets its end…Tensions between inflation-obsessed Germany and growth-hungry Latin countries will spell its end.” As rising inflation continued to plague the eurozone in 2008, comparable to today’s eurozone environment, Avi Tiomkin’s argument was that the “Latin” countries’ (France, Italy, and Spain) thirst for growth ran counter to their more inflation-wary counterparts in the German bloc (Austria, Luxembourg, the Netherlands). Although he makes a valid point for the demise of the euro, he ignores the fact that the much stronger German bloc has both the most to gain if the Euro survives and lose if the Euro fails. For example, Germany’s competitiveness and balance of payments have far outpaced those of its eurozone counterparts since the introduction of the Euro than if it were to have a stand-alone currency.

Talks of a eurozone bailout from other countries and the ECB, earlier this year, have since dissipated significantly due to the potential moral hazard and increased inflation risk they pose, respectively. Unlike the 1997 Asian “capital account” Crisis, global financial contagion, in the event of a eurozone member default, is more of a threat in the current European Debt Crisis due to the highly intertwined and indebted Western financial system. Raising capital via the debt markets has been and continues to be a challenge for eurozone members due to the likely exploitation of the Crisis by bond speculators. 2012 is no doubt crucial for the future of the eurozone, and as the ECB continues to lend cheaply to eurozone banks, risk exposure will only increase; however, default by a member state is no longer a viable option.

At the end of the crisis, many expect the complete dismantling of the monetary union, but I think a slimmer eurozone is more realistic with Portugal and Greece being the first victims. However, before this process can begin, borrowing costs must decrease as recently experienced during Italian bond auctions.

Jun 01 2011

Summer Hurt in Short

Category: Economy,Politics — Admin @ 19:17

An unnamed person in favor of one-party political systems once pointed out that opposition parties only do one thing: oppose. With the recent rejection of a preliminary House bill, intended to increase America’s debt limit, by its very proponents, the GOP, that point rings true. The combination of the current European sovereign debt crisis and an uncertain U.S. debt landscape will only encourage a highly volatile environment for the financial markets, in particularly bonds. The Capitol Hill political sideshow should continue  through the summer to eventually end in a Faustian-esque ‘midnight’ deal from both parties prior to the August deadline set by Treasury head, Tim Geithner.

Furthermore, the Fed’s QE2 stimulant program is scheduled to end by the end of June amid rising food and gas prices and high unemployment.

Mar 19 2011

United Nations Security Council Resolution 1973 (S/RES/1973)

Category: My Web Log,Politics — Admin @ 14:31

My critique of S/RES/1973 isn’t particularly on its goals, which includes “authorising all necessary means to protect civilians and civilian-populated area”, but rather on its sheer hypocrisy. Bosnia-Hercegovina, Colombia, Gabon, Lebanon, Nigeria, Portugal, South Africa, and permanent Security Council members France, the United Kingdom, and the United States should very well have come outright to supporting anarchy and declaring war on Libya rather than hiding S/RES/1973 under the code name “no fly zone”. As a side note, it’s no surprise that the strongest proponents of the measure, France and the United Kingdom, were once Libya’s former colonial rulers.

Disapproval of the measure, in the form of abstention, came from Brazil, China, Germany, India, and Russia; its not that these five countries are not interested in the welfare of civilians but rather that they simply disagree with a “trigger happy” military action against a sovereign country. Oil-rich Libya may very well be in a civil war, putting the lives of civilians at risk, but the Libyan crisis is one of a handful of ongoing civil wars. The Somali Civil War, ongoing since 1991, and the most recent Ivory Coast crisis are two more that come to mind. The Security Council’s resolutions/international community’s actions that have been geared to both conflicts had more of an emphasis on peackeeping and humanitarian aid as supposed to the outright declaration of military support for one group/political ideology. Furthermore, the UN Security Council’s actions on the Ivory Coast crisis have been nothing more than “condemnation”.

Rather than focusing on more serious conflicts involving unarmed civilians in places like Yemen or Bahrain, the United Nations Security Council has chosen to inappropriately intervene in a conflict that it simply cannot win, given that Muammar Gaddafi, a true patriot, has no plans of ever leaving his country. If genocide was a factor as it has been in countless crises then S/RES/1973 would be tolerable, but in its current form, it will simply prolong the crisis into a stalemate civil war. The irony of the situation is that Ghaddafi came to power in a bloodless coup.

Jan 15 2011

2011 & Beyond: High Stakes

Category: Economy,My Web Log,Politics — Admin @ 12:09
In matters pertaining to the future, I’m not certain as to whether the “good news” and “bad news” category is an appropriate vantage point or not; after all, both “good” and “bad” are relative terms. However, I believe the term “High Stakes” better captures my perspective on such matters, because 2011 and the upcoming decade will be pivotal in determining the future global opportunities for the post-Gen X generations and in defining a new paradigm for global affairs.

The world economy still remains fragile as key economies continue to maintain near-zero interest rates amid record food and commodity prices, increasing natural disasters, and global political instability. To elaborate on the political instability issue, the International Crisis Group (ICG), a non-governmental organization, estimates that there are about thirty three ongoing conflicts in the world today, ranging from Afghanistan to the drug war in Mexico. The organization expects these conflicts to only exacerbate and new ones to begin in 2011. Of their predictions for 2011, three that are of concern involve the Ivory Coast, Sudan, and Guatemala.

  • The Ivory Coast(Cote d’Ivoire )—> The ICG expects President Laurent Gbagbo to either step down and concede defeat or stay and risk civil war; but, I think that that the former, which would be the best case scenario, is unlikely to happen after the failed diplomatic talks. A power-sharing agreement such as Zimbabwe’s may be the next best scenario for both parties.
  • Sudan—> With Southern Sudan leaning closer towards becoming the world’s newest country, the ICG believes that there isn’t much cause for celebration yet. “The border remains undecided — no small matter since the contested middle ground happens to sit on a large oil field. Meanwhile in Juba, the nascent capital, institutions and services would urgently need to be built from scratch.”
  • Guatemala—> As Mexican cartels continue to expand the drug war into South American countries such as Guatemala, the ICG sees the potential for increased corruption during Guatemala’s upcoming Presidential elections in August, which currently has no clear frontrunners from its ~20 candidates.

Despite the ongoing conflicts, there is still a lot to look forward to in the upcoming decade such as space tourism, the advancement of existing and new technology, and an ever more cooperative Taliban, to name a few. However, the most anticipated event of this decade is set to occur by the end of the decade. The consensus among the world’s top economists is that China’s economy will supersede the United States’ as the world’s largest by 2020. There is no need to reiterate China’s impressive resume or its growing importance on the global stage, but China is a country that is hard to ignore.

Although many countries readily accept China’s economic prowess, many, including Japan and the United States, are wary of its expanding military strength. This distrust of China’s current military growth is unfounded due to the fact that history has taught us that economic growth and military growth should have a perfect correlation. After all, in the early 1830′s, China was arguably the world’s largest economy but was easily defeated by the British and other foreign powers in the Opium Wars that began in 1839.

Despite what happens in the coming years, I look forward to a new decade of new insights and intriguing news.

Sep 23 2010

Hu in Shenzhen

Category: My Web Log,Politics — Admin @ 12:30

Where else in the world, other than in China, can a country’s profound affinity for its leader, provoke a bus driver to stop in the middle of his bus route, simply to get a short glance of his President giving a speech on one of the bus’ LCD monitors? This so was my experience, earlier this month, during a morning errand run. However, context is always important, and this was neither an ordinary Presidential speech nor an ordinary President.

The context: Shenzhen’s 30th anniversary as China’s first Special Economic Zone (SEZ) since its founding in 1980 by the late President Deng Xiaoping; and the Communist Party of China’s (CPC) high approval ratings by the Chinese and expat community in China. The China Development Research Foundation (CDRF) and Horizon Research Consultancy Group reported in the first quarter of 2010 that 97% of Chinese and 81.8% of expats are optimistic of China’s future, which is more so than most world leaders can say for their administrations, especially in the West. But lest I digress, back to the topic at hand.

The General Secretary of the CPC and President of the People’s Republic of China (PRC), Hu Jintao, was in Shenzhen, China’s third busiest port, to celebrate Shenzhen’s economic progress. According to excerpts obtained from the Agence France-Presse (AFP), President Hu labeled Shenzhen as a “miracle” city that has “contributed significantly to China’s opening up and reform.” China’s state-run Xinhua News Agency also quoted President Hu saying, “The central government will, as always, support the brave exploration of the special economic zone as well as its role of testing and carrying out reforms ahead of others.”

President Hu Jintao made key stops in Shenzhen including the Statue of Deng Xiaoping, University Town in Xili, several firms, including Tencent’s headquarters, as well as with local residents. According to both the Shenzhen Post and the Chutian Metropolis Daily, President Hu Jintao’s visit to Tencent concluded with its CEO, Ma Huateng, presenting the President with a personalized QQ ID number. For those not familiar with QQ.com, it is one of China’s largest web portals and is comparable to America Online’s AIM during its popularity peak.

After President Hu’s three-day tour of Shenzhen ended on September 6, it wasn’t just back to business as usual for southern China. Once overshadowed by Hong Kong, the southern part of China, including Shenzhen, is set to remain under the spotlight in the next couple years as it prepares to host the 2010 Asian Games in Guangzhou this November and the 2011 World University Games (Universiade) in Shenzhen next August.

Jul 21 2010

Too Big to…

Category: Economy,My Web Log,Politics — Admin @ 00:40

The timing is impeccable. Not only is the U.S. Government ready to fully give up on its Goldman Sachs criminal fraud investigation, but it is also preparing to implement the imminent Dodd-Frank Act in order to mitigate systemic risk and prevent another financial crisis. Although there are multiple points that I can pursue for both events, however, I will only focus on two key points, one from each event.

The Securities and Exchange Commission and Goldman Sachs recently agreed on a half a billion dollar fine in order to settle the ongoing fraud investigation against Goldman. Not only did the U.S. Government prove that some firms are too big to fail, but also that some firms are too big to be fully prosecuted. For one, the fraud charge against Goldman Sachs was for about $1 billion dollars, but Goldman Sachs was only fined for about half of that in an attempt to “sweep the case under the rug” as the media switches its attention to the new bill. This action only proves of Goldman Sachs influence on the U.S. Government and the impunity of certain firms and their indifference to Main Street.

The Dodd-Frank Act, named after the two leading proponents of the bill, is the intended moniker for the recently passed financial overhaul bill after it is signed by President Obama. The bill expands the U.S. Government’s oversight on the financial industry but it fails in its attempt to lessen systemic risk. The bill is not clearly defined at times and loopholes are prevalent. For example, the bill states that proprietary trading will be curtailed at large bank holding firms and that banks are able to invest a certain percentage of their tangible common equity in institutions such as hedge funds but it doesn’t clearly define its interpretation of proprietary trading nor does it call for a proportionate increase in capital requirements. The bill also creates several new institutions such as a consumer protection agency to “improve financial literacy” among American consumers and an oversight council that will “monitors systemic risk” and reports to the Federal Reserve. Both of these new institutions are examples of a more bureaucratic and ever expanding government that will continue to be one step behind the Bernie Madoffs of this world. This bill, once signed, will put American financial firms at a slight disadvantage against international competitors and its simply bad for business.

Jun 14 2010

More Resources, More Problems

Category: Economy,Politics — Admin @ 19:07

If you thought the ongoing Afghanistan War was complicated, well the situation is about to be exacerbated after vast deposits of minerals in the country were discovered by U.S. officials in the region. The New York Times reported that the reserves could be valued at close to $1 trillion and the composition included iron, lithium, copper, gold, among others. The good: Afghanistan could potentially become a mining powerhouse giving the Afghan people access to more economic opportunities than the drug trade and/or the Taliban. The bad: New war fronts could be opened up in conflicts over land rights and ownership. The ugly: Imperialist countries such as China or the United States could profit more from mining ventures than the Afghan people, which could potentially taint the already corrupted Afghan government.

 The findings were recently announced and confirmed by the U.S. Geological Survey, which started its exploration over the country in 2006. The discovery forces me to raise the following question about the United States’ presence in the country: If Iraq is to oil, is Afghanistan to minerals? The Afghanistan War has been going on for well over 8 years now and it is currently America’s longest war. Whether or not the United States “wins” the war against the Taliban, the victory will always be viewed as a Pyrrhic one, due to the length and cost of the war amidst America’s growing debt. America has an opportunity to leverage its war costs by gaining some access to Afghanistan’s mineral deposits especially since it has the largest foreign military presence in the country.

Apr 28 2010

“Do you know what a stated income loan is?”

Category: Economy,My Web Log,Politics — Admin @ 02:56

“It’s pretty self-explanatory, sir”–a Goldman executive to Senator Ted Kaufman.

(After spending well over three hours on Tuesday listening to the proceedings of the Senate hearing on Goldman Sach’s role in the financial crisis, I could not help but be overcome by the atmosphere of redundancy that was brought upon by the increasing tension between both parties)–My overall impression

The Securities and Exchange Commission (SEC), once labeled as incompetent, due to its lack of oversight on the financial industry and especially, on Bernie Madoff’s enterprise, is now on an upward climb towards redemption. The agency’s bold agenda to create accountability for the ongoing financial crisis, by implicating Goldman Sachs and one of its executives, is not only positive news to all the affected victims of the mortgage crisis, but also, it is the impetus that Democrats are seeking to progress with a financial reform bill by the end of the year, despite Republican opposition.

I was mostly impressed with the questions posed by Senators Ted Kaufman and Carl Levin, in relation to Goldman’s market making and market manipulating roles. Previous allegations of Goldman’s and other banks’ ability to manipulate spreads and engage in self-interest deals are now resurfacing and after hearing the testimonies of several Goldman executives, it became more apparent to me why Goldman Sachs would want to further distance itself from Fabrice Tourre, the only named executive in the lawsuit. It is a known fact that Goldman Sachs was involved in securitizing stated income loans (borrowers simply stated their unverified income to qualify for loans). It is also a known fact that Goldman engaged in the practice of “bar-belling” (packaging low-rated debt with high-rated debt in a high-rated security package). With these factors and others I did not mention, it can be inferred that Goldman Sachs engaged in the business of advising some of its clients towards vast potential losses for its benefit and that of John Paulson’s hedge fund, specifically with the Abacus CDO.

Not to focus on one firm ex post facto, however, I do believe now is the time for a financial reform bill. The two areas that reform should be focused on are:

1) Ratings agencies
2) Glass-Steagall Act

Firstly, a model in which firms pay ratings agencies to rate their securities is an easy case of moral hazard and a potential conflict of interest, especially when ratings agencies compete with each other to win a firm’s business. Lastly, during the Great Depression, the Glass-Steagall Act of 1933 was established to regulate the financial markets and financial institutions, and it specifically separated the functions of an investment bank from that of a bank, to name a few of its features. After the Act was repealed in 1999, M&A activity increased in the financial sector and financial firms became further intertwined and shared almost the same risks, which is why some large firms are sometimes called “too big to fail”. For the benefit of the financial system and to prevent a near system failure such as that of 2008 from ever occurring again, the Glass-Steagall Act should be reinstated, at least for the large money-center banks.

Mar 24 2010

Try “Googling” Healthcare…

Category: My Web Log,Politics — Admin @ 19:06

Try “Googling” health care and you would have unintentionally, not to mention figuratively, tackled, “with one stone”, two of the most circulated stories in America today: Google’s row with China and the Obama Administration’s newly signed health care legislation. Initially, I intended to write two separate blog articles on each topic but I realized that I do not have much to say about each topic and that my opinion on each was clear cut. Hence, I will attempt to tackle both issues “with one article”.

Google:

China is Google’s loss and not the other way around. Most people are aware of Google’s generous market share in China, but not many people know much about its major competitor and search engine giant, Baidu. Google’s decision to exit mainland China not only surrendered its current market share to Baidu but it was a futile action in the name of a faulted subjective moral reasoning. In my semester in Beijing last year, it was very difficult to find a Chinese individual or student who used the Google search engine. Almost all of the Chinese students that I came across with used Baidu’s search engine for research papers and etc, which is contrary to the claim by some that Google’s exit from China would hurt China’s students and professors the most. Objectivity must be applied to a culture before one can decide on the best course of moral action. Laws exist to suppress freedom and laws must vary across different cultures. Find me a truly free governed body and you will have provided me an example of lawlessness. Google’s exit was not  based on the lack of Internet freedom in China, otherwise, it would have also exited from other countries it still operates in that demand censorship, including monarchies and theocratic states. Google is simply frustrated with its lack of defense against China’s growing hacking community.

Health care:

The issue is not whether universal health care (or the path towards it) belongs to a socialist agenda or is too expensive of  a venture to be pursued, but rather the issue belongs to the old debate of States’ rights. I think universal health care is important for the future growth and prosperity of a nation, especially one as wealthy as America, but should States’ rights be ignored in the pursuit of this? No. Over 14 States are currently preparing to proceed with legal action against both the Federal Government and the Obama Administration. Its easy to make the argument that the bill is too expensive but economists have already argued the long term benefits, including an over a trillion dollar reduction in the U.S. deficit over the next 2 decades as well as the potential decrease in premiums due to a larger pool of the insured. So, back to the States’ rights issue. The health-care bill is unconstitutional, not to mention, a burden on States with already struggling budgets. In my state of Massachusetts, universal health care was already a reality before this current bill, and that’s the best way to solve the issue. Health insurance is not an interstate enterprise so it should remain a “State” issue. Health care reform should come in the form of tort reform and relieving  health care professionals, such as physicians, from their malpractice insurance burdens. The federal government should tackle these first before complicating an already complex health care system.

Feb 11 2010

UNwavering

Category: My Web Log,Politics — Admin @ 01:10

Unwavering is the adjective that best describes Iran’s nuclear ambitions; it also describes the United Nation’s attitude towards nuclear non-proliferation; Lastly, it describes China’s indifference to the entire situation.

After reports of Iran seeking to further enrich its uranium stockpile from about 3% to 20%, allegedly for civilian energy benefits, the United States and other Western powers, along with Russia, called for tighter trade sanctions. The US-led sanction against Iran has halted to a standstill with China putting its economic ties with Iran ahead of its political duties to the UN. However, lest we are quick to blame China for Iran’s continued ambitions, context is key to better understand the “nuclear” situation.

  • Uranium is widely available on the commodity markets for trading “under UN supervision”uranium
  • 90%+ enriched uranium is weapons grade (nuclear bomb)
  • Russia has the world’s largest stockpile of nuclear arsenal, many of which are poorly secured
  • Corporations that trade in uranium contracts hold the physical assets of uranium
  • Politically volatile countries such as India, Israel, and Pakistan refused to sign the Nuclear Non-Proliferation Treaty without imposed sanctions by the UN

There is clearly Western paranoia at play here and I must agree with China that the sanctions are ineffective and unfair to a country like Iran who’s true intentions are not fully known. Nuclear Non-Proliferation is unrealistic, especially with the  known energy benefits from nuclear technology and the fact that political power is closely aligned with military power. The United States and the UN must first focus on fully securing Russia’s nuclear stockpiles, which are more of a threat to global security than Iran’s pursuit of advanced nuclear technology; secondly, uranium can not continue to be a profitably-traded commodity, with which investors and traders have physical access to. For example, after Lehman Brothers became insolvent, a majority of their uranium assets remained unsold as prices continued to decline. If Lehman Brothers were to be a smaller and less regulated company located in a different country with such assets, corruption would be inevitable as profits would easily be accessible to via black markets. As long as uranium continues to remain a for-profit commodity, a country, like Iran, will always have access to it.

The hypocrisy and favoritism that exists within the UN and among allied countries in regards to nuclear non-proliferation is perverted. Unless the US and Russia get serious about completely eliminating (not reducing) their nuclear stockpiles (which is highly unlikely), Iran has the right to further pursue its nuclear ambitions.

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