Wednesday, November 29, 2006

How long for Turkey? How long's a piece of string?

Turkey should be part of the EU by now; it is a very important/strategic member of NATO and is important for security.

My view of Turkey is that it continues to perform well as an economy. Its central bank has some credibility with regards to inflation targeting, and the IMF recently stated that it was happy with its pension reform, which amongst other things, provides a “good” sentiment about the country. On the flip side, public finances could be improved upon, with a fiscal deficit that leaves little to the imagination of how it might be funded. Comparative advantage in the textiles sector continues to diminish due to stiff competition, though still supports a large labour force. The economy is not bad, and could do better – a statement that holds true for many “performing” countries, and indeed, some EU members.

“Those who live in glass houses should not throw stones”

The EU - as a unit – is ill placed to hurl accusations of unacceptable standards at anybody. Famous for protectionist policies (citing France and Italy) that directly harm poor countries and a raft of do-as-I-say-not-as-I-do policies that I don’t have the energy to cite at length, it would suffice to say that the EU does not epitomise a halo.

There are quite a few EU members that want Turkey in, against a minority of powerful dissenters, who have made a meal out of antagonising the process. The elephant in the room is the failure to openly recognise the imminent benefits of having an Arab country as an EU member. Perhaps this lies behind a view that traditional European countries are Caucasian countries, rendering non-Caucasoids as immigrants of some order, which would make Turkey a non-Caucasoid EU state. Perhaps!!!! I wonder quite loudly whether the EU might be tacitly entertaining such backward stances. This is just a thought, though not difficult to imagine however.

The West needs to understand Arabs so that it can have better, inclusive policies, which are formed out of genuine need, rather than hasty xenophobia. Turkey will bring more diversity into Europe. Yes, there will be more labourers, but that should be offset by willingness for companies to set-up low cost units in Turkey, a willingness by western companies to engage the Turkish economy. If we in Europe just want to seal the walls around us, then, let’s just do so without the ceremonious nonsense. Better still, why don’t the majority quell the minority dissenters, for the benefit of the greater good? If anybody responds to this question by citing that democracy will not permit such a move, my rebuttal would be - after an expression of shock at their selective ignorance – that democracy is largely ignored in world matters too often to discount, and an apparent lack of knowledge about this warrants no further attention.

I suppose Turkey can join the EU tomorrow if it wanted – metaphorically – it’s a question of how far it’s willing to bend.

How far should any country have to bend?

The fiasco continues…

Tuesday, November 21, 2006

Coming soon......Turkey and EU accession


My views on this debate will be posted shortly.....
Image from www.europeunited.org

Saturday, October 21, 2006

Been away for a while

Hello people,
Apologies for the long period of silence. I have been incredibly busy but will be back very soon.

Keep blogging.
Curious

Friday, August 11, 2006

Development summarised (somewhat)

I saw this link this at C'est vrai. Absolutely fantastic. The World Bank and IMF should watch this (and probably NGOs).

It is a cartoon book that summarises the western development idea and the real outcomes.

Have a look at "New cartoon book that satirises 'development'"



Picture: Book cover from Survival International

Monday, August 07, 2006

The status quo principle and the Middle East

Catallaxy writes an interesting peice, illuminating various schools of ideas surrounding the middle east crisis.
Some excerpts are as follows:
"The west exported Marxism and nationalism to the rest of the world with truly disastrous consequences. Can we find a way to export better ideas? Do we have better ideas?"
"Just as some would now depict Israel as the embodiment of all that is wrong with the world, for these supporters it has become the foremost fighter for what is right. As a consequence they sometimes make it seem that, if you want to defend democracy and civilisation, then you have to support bombing raids on Lebanon. In similarly shrill fashion, leading supporters of Israel insist that the drunken outburst by Hollywood star and Catholic crackpot Mel Gibson, about how ‘the Jews are responsible for all the wars in the world’, is somehow proof of a rising tide of anti-Semitism in the Western world."
Read on here

Tuesday, August 01, 2006

Good people do nothing

"All that is necessary for evil to succeed is that good men do nothing." Edmund Burke

Alexcia write's a refreshing piece covering the Israel-Lebanon crisis, amongst other issues. The post starts:

"As the tiny nation of of Israel pounds all its fears and frustrations on another tiny nation and inchoate democracy in Lebanon, the "Good people" of the world do nothing, say nothing and even engage in "i told you so" self righteousness and "you brought it on yourself" crap. Last I heard, the kawa citizen of Lebanon was being asked to get rid of the Hizbollah "terriosts" by himself or be bombed and punished."

...Read on here

Monday, July 24, 2006

WTO chit chat - ad nauseam!!!

Why, oh why do we still have trade rounds??????
>
This is one issue in which the outcome is known by even the most illiterate in the remotest part of the world. Today's Financial Times provides an appropriate summary:
"Three things are absolutely certain about the outcome of farm subsidy talks in Doha. First, the EU will say the US is not doing enough. Second, the US will say it is doing more than enough.....[the third is knowledge specific]"
and another....
"Kamal Nath, India's trade minister, who has millions of rice growers to protect, is fond of saying: "Indian farmers can compete with US farmers but not with the US Treasury.""
On the 24th July, the Financial Times reported that:
"Doha trade talks collapse over farm subsidies...
...The talks, launched in November 2001 in the Qatari capital, have strained from the beginning to reconcile the disparate interests of WTO members."
The WTO is not a forum for the world's citizens. Instead, it is a club for the elite, who continually decide to squeeze the hungry, and the afflicted for the gain of the already wealthy nations. I don't understand how humans can treat other humans with such dispassion, as though they don't exist. I don't understand how any nation can stand in front of an international audience and impose double standards as clear as daylight, but it happens everyday.
>
The impasse that swiftly gets into play in Doha rounds is to do with how much more the poor can be squeezed [answer: much more], and how policy can be fairer [answer: not any more than it currently is - unfair]. The WTO should be disbanded or have its mandate rewritten by the people who matter, not those in power.

Friday, July 21, 2006

Dollar safe haven? I don't think so!!

Yes ! the dollar has gained some strength on the back of more risk aversion.
Yes ! interest rate arbitrage continues to be a big determinant in which currency will underlie investments.
My view is that there is more downside than upside risk for the dollar. This is because of:
  • The growth-inflation trade-off issue that is bothering Bernanke, with sources of inflation being partly exogenous. The US gasoline market is hugely exposed to oil price movements, which openly and directly exposes US consumers to [almost] the full effect of changes in oil prices.
  • Core inflation will continue to be under upward pressure from rising imported goods prices.
  • As the Fed struggles with the inflation-fighting mandate, the economy has long shifted from the goldilocks position into possible stagflation.

and possibly most importantly:

  • Anything that is going to be a challenge for America is bearish for the dollar. What are the current challenges: 1) the ever worsening Iraq situation, 2) American-Iranian relations, 3)American-Russian relations, 4) American-North Korean relations and 5) The effect and subsequent costs (in money terms) of taking Isreal's side in the current 'situation' between Israel and Lebanon.

Over the medium to long-term, challenges such as those posed above will weigh down on the dollar's image as a safe haven currency. They will have a net negative effect and that will translate into poor confidence in the country.

Over the immediate term, some may cite that moneys from oil and commodity producing countries are being loaned to America in exchange for bonds. However, all that will achieve is another bond market bubble, with an inverted yield curve (because the long end is falling, relative to the short end).

Does the above constitute a good investment strategy? I think not.

Let me point some focus on two things :
>
1. Between the end of 2002 and June 2006, a long real/short dollar carry, and a long lira/short dollar carry strategy would have yielded between 26%-30% average annual returns (sharpe ratio approx 1.95), outperforming most (if not all) major FX trading strategies.
>
2. Due to the flight of investor capital away from emerging markets, assets within these locales are relatively cheap, with even more potential for big gains upfront.

Emerging markets are now sources of cheap assets, relative to the period before the recent resumption of risk aversion. At some stage (very soon) investors will begin to purchase these assets and hold for the band wagon effect, at which stage they'll have made big returns and may be slightly indifferent about closing their positions or continuing to hold the assets. Why will they be indifferent? Because a simple cross-over trading rule can be implemented to limit losses.

Soon, money will rush back into emerging markets. Watch and see!

Tuesday, July 11, 2006

Validated - flow of investor funds into poor countries

Well, the ink is barely dry (metaphorically) on the recent piece that I wrote titled Political uncertainty - a money machine, where I highlighted that poor countries will very soon find themselves overrun with cash due to investor greed for high returns, as opposed [obviously] to acts of philanthropy.

The Investors Chronicle magazine (owned by the FT) has published an article in its latest issue* titled Emerging markets funds: Undiscovered Africa, in which the author starts:
"If you want to find genuinely emerging markets that are not simply geared plays
on the US, then you need to look to Africa"
The author also rightfully states that Africa is not for the faint hearted, I agree and add that emerging markets in general are not for the faint hearted. Only the risk loving, high yield seeking investors will be found in these markets. Why? Because there are no other alternatives. Yes, really !

For now, the US is offering near comparable returns on its 10 year bonds with far less risk compared to emerging markets. But let's not forget that the US is going to have to stop its contractionary monetary policy because such a policy will soon push the US consumer too far into financial constraints. If this happens, the Fed will then start lowering interest rates dramatically so that it can assist in delivering reasonable economic growth (which is part of its remit, coupled with inflation fighting). So, comparatively high returns on US bonds will be short lived, hardly a proper strategy for a consistent high yielding portfolio. Already, global investors are indifferent between US 3 month currency futures and 10 year bonds (3month money and 10 year money), which leaves them still searching for higher yields (more likely outside the US than in other asset classes within the US).

Money did start to [noticeably] exit the emerging market scene (a bit of capital flight), but that - as always these days - was a market overreaction, where everyone feared another repeat of the Asian Crisis kind. But, risk aversion is a luxury (I am convinced), because if you are risk averse, you may as well keep your money in your mattress because depositing it into a high-street bank is equally unimaginative (though you may not think so). I personally endorse the concept of making my money work hard for me, getting as much leverage and gearing as possible, otherwise, I sacrifice a rather large opportunity cost by just depositing cash into a bank account.

I now expect many market commentaries talking-up emerging markets, and going further to highlight a wider range of poor countries as potential for new money investment. I said it first :-)


*(dated 7th-13th July 2006, page 7 of the feature articles)

Friday, July 07, 2006

Pic of the week - wimbledon?

Click to enlarge
From the Econimist magazine
These lot aren't seeded, but it's just a matter of time....

Thursday, July 06, 2006

Political uncertainty - a money machine

The first priority for developed countries was to maximise their own growth, achieve high levels of prosperity, enviable living standards, high standards of education, etc. Heavy protectionism is typical at this level.

The second priority for the developed world was to trade more openly with others of the same ilk, so that there could be a mutual gain. National champions, tariffs and subsidies became less important, as inclusivity became more important. The EU is one such unit.

What else can the developed countries do to continue growing?

If these were the colonial days, colonial empires would overrun many poor countries. However, those days are long gone, and many of us in the west try to imagine that it didn't happen (through absolving ourselves of the consequences of interference).
>
Developing countries have been the object of attention from the West for financial gains for a long time. From the old-school mining industry, to the new-school financial markets (sovereign risk). The wealth of political uncertainty that developing countries present is the chowder that feeds volatility in financial markets. Without volatility, markets are boring, traders make very small margins from closing one position and re-hedging another, moving horizontally, etc. The market cannot thrive without volatility and developing countries have it in abundance. Volatility separates the risk loving from the risk averse. It is the sieve that sorts the wheat from the chaff.

I do believe that, within the developed countries alone, avenues for money making (new instruments/derivative products, etc) have almost been exhausted, and due to good macro-economic management, the economies are sound (sound economies do not thrive with volatility). Heavy business regulatory burdens from the respective developed country governments are the only thing that creates some "noise" in that it causes firms to merge or relocate, in an effort to reduce the amount of tax burden, or to take advantage of a loophole in regulation. This is by no means the future for developed countries.

Very soon, investors will be queuing up to invest even in the most unthinkable countries (which I will not mention. I don't want any embassies writing to me). If you are reading this from a poor country, wondering what the future holds for the nation, wondering whether the west will ever help poor nations like it should, take heart in the knowledge that the west will be falling over itself to throw money into developing countries. Why? Not because of benevolence, but because of greed. The desire to make money will take western conglomerates to the doorsteps of the most impoverished in the poor world.
Needless to add, political uncertainty fuels the arms trade, which in itself is big business that involves developing countries.
>
Ironically, someone else's greed will put food on your table - finally !

"Man has almost constant occasion for the help of his brethren, and it is in
vain for him to expect it from their benevolence only......It is not from the
benevolence of the butcher that we expect our dinner, but from his regard for
his own interests"

- Adam Smith

Monday, July 03, 2006

Inflation oversight goes a long way

So the global economy has had broad money supply (M3) growth outstripping money GDP growth since the year 2000. The outcome is not rocket science.
>
What happens when there is excess liquidity in the global economy? It is used to purchase all manner of assets, from property, to equities, to bonds, to paintings, to anything and everything. Global aggregate demand for goods and services increases, which creates stiff competition for the limited goods and services available in the economy, resulting in rising prices = inflation.
>
The world economy - and certainly the G-10 - has had a liquidity overhang for some time now. Central bankers have been talking about the possibility of this excess money rushing into specific assets, causing outright bubbles (like the dot.com bubble). What has happened instead is that the money has rushed into a broader basket of assets, from the UK to Iceland, US to S.Africa, etc. Following the US Fed reserve's interest rake hikes, global investors are re-pricing risk and rushing their money into the US, to take advantage of similarly high yields but in a low risk environment (arguably risk-free). The consequence of investors quickly closing their investment positions and pulling funds out of one region/asset class, and into another region/asset class overnight is a lot of market volatility. Financial crises can occur in weaker economies and contagion would soon follow.
>
Right now we have a lot of market volatility, uncertainty and risk averseness because we have caused it. This does not necessarily imply that we have a danger of recessionary times ahead, it simply implies that the market is (as always) being driven by sentiment, mainly greed, then swiftly followed by fear.
>
The inflationary pressure (upward) that is now "terrorising" the minds of many a central banker has been caused by energy prices, commodity prices and too much money running around.
>
Solution:
Let it [current inflation] pass through [the economy] because most of its stimulus is exogenous. Be warned about the risks of monetary policy over-zealousness. Central banks cannot remedy externally driven inflation, they can only remedy domestically generated inflation. Right now there is a big push for central banks to be seen taking stances and talking tough about inflation, but if the current inflationary pressure proves to be transitory, big economic troubles will be brought about by central bank over-excitement.

Monday, May 22, 2006

The cost of the Iraq war, in context

By Martin Wolf of the Financial Times.
>
Definitely worth a read, but if you haven't got a subscription, listen to his free podcast here instead.
"Before the Iraq war began, Lawrence Lindsey, then president George W. Bush’s economic adviser, suggested that the costs might reach $200bn. The White House promptly fired him. Mr Lindsey was indeed wrong. But his error lay in grossly underestimating the costs. The administration’s estimates of a cost of some $50-$60bn were a fantasy, as were Saddam Hussein’s weapons of mass destruction, and much else."
>
Listen here

Hands off the internet

Click here to watch a very short flash presentation about how regulation is attempting to change the internet. If you blog, etc, it affects you because it may eventually affect your [civil] rights (and in some cases - where required for persecution reasons - anonymity).
Have a look: Hands of the internet.

Teleshopping - guns for sale !!

This is a poignant illustration by Oxfam. If it comes across as ridiculous (the concept of it), then the sad truth is that for those that deal in arms trade, it is as simple/ridiculous as what you see in the Oxfam video.
>
Watch it here: Guns for sale
See the following link as well: The problem with arms is...