All the tables and graphs Sourced from: ING - Global
Perspectives March 2010
I feel this is the place where one should bet his Dollar. Why so?? Because the Emerging Nations (EN) weathered the financial crises better than the developed economies. Most of the EN's continued to grow or faced shallow recession, during the turbulence.
Lets rewind back the time!! If you remember 2009 was a sort of exciting year. The START was the END (markets kept falling) and the END was JOYOUS (recovery). In the midst of the darkness (in 2009) it was difficult to imagine that the situation will be dramatically different even in 2010, but with the help of the government stimulus, recession was averted and (please come back to the present) this is were we are today, in the recovery phase.
The economic situation in the world is improving. The numbers coming out are better, than expected in 2009. The Emerging economies which came under the (slight) grip of the slowdown have experienced true recoVery (with the "V" capital - "V" shaped), except (may be) the Eastern Europe with a mixed picture.
Overall the picture is looking more sort of clear and the dust (after the financial storm) looks like settling down.
The above picture will leave one with confused state of mind? The confusion might be that, as i have mentioned that the world is recovering all the economies will perform well, hence the markets will rise, isn't it? So why should one bet on EN's. For this please refer to the charts and table above and observe the change yourself.
And this is amongst the many reason i recommended CBEH (Chinese Co. - on 16th May 2010) and will be recommending more, from the Emerging Markets.
Happy Investing!!!
WHAT ???!!!!
ReplyDeleteDear Mr. Saif,
ReplyDeletePlease let me have your personal email id, so that i can explain you the picture in a better way, in case if you are in need of an explanation for my article.
Dear br. Abrar,
ReplyDeleteI agree with your analysis, its pretty much true in my opinion. I say this from my knowledge of what went wrong and what were its root causes, from my Masters Research here in UK.
** Warning: Some content might be shocking and highly against banking norms. Readers are recommended to have an open-minded reading**
On closely analyzing, it will be clear that this recession was a case of over/imprudent/greedy lending to generate profits mainly from interest.
Plain and simple!
Due to shortage of words I have commented thrice on your post. Part I is general. Part II and III relates to “My views” on the written article and the technical details on the failure of the “So Called” Capitalist system.
---End of Part I---
---Part II---
ReplyDeleteNow for the technical bit, of how this was possible, was that after the dot com bubble burst (in 2000) the US Central Bank (Or Federal Reserve) had to cut down interest rates to historical lows to avoid going into a recession at the time. So by mid-2003 the interest rates stood at around 1% and while this was happening, the market was loaded with excess money supply due to the speculation on dot com companies. This excess money supply and the low interest rates gave the banking system a chance to 'make hay while the sun was still shining'.
The best place to dump this money was obviously the real-estate market as it was known for its steady growth and tangible collateral in the form of houses in case of defaults. Unfortunately however, the US was a mature/saturated market with most consumers being home-owners or already on mortgages. The remaining few were far from a sound position to borrow (or sub-prime i.e. more likely to default). This did not stop the banking system as the amount lent was to be repackaged as instruments and sold in secondary/derivates market.
Things went well till the interest rates remained low and payments were forthcoming. However, as the economies recovered, central banks did what they were supposed to and adjusted interest rates to higher levels. The borrowers on adjustable-rate mortgages (or mortgages with interest rates not fixed or adjustable at the prevalent rates) started to default and so did the corresponding returns on the credit derivatives. These derivatives were not confined to the US and were sold across the world!
The market at this point in time realized how dangerous/toxic these instruments were and started to dump them all (BDW, this is a good example of why 'I THINK' the efficient market hypothesis is not a solid claim, but that's completely another story which will I will not get into now). But it was too late till they realized this by year 2007.
---End of Part II---
---Part III---
ReplyDeleteTo make the long story short, the banking system will do all that it can to make profits by putting as many companies/individuals/businesses into debt. The banking system has the power to create money 'out of nothing' and then add interest to it (BDW this includes the Central Banks). The fractional reserve system is just another myth. Check it out for yourself on the Federal Reserves website! Yes, the banks do not need to have any reserves to back the lending with few exceptions like time deposits and so on. I doubt many of us know of this fact. It's time to wake up!
So what is happening essentially is that when someone is in need to money, the banking system issues them the money by adding interest and for that money to be repaid, more money supply needs creation for the extra (i.e. interest charge) to be repayable. "IF NEW LOANS ARE NOT FORTHCOMING, OLD LOANS BECOME UN-REPAYABLE". It's a never ending debt spiral this economic system. The reason the banking system is doing so is simply because we are allowing it to do so. Think for yourself, who should have the ultimate right to create money: The Banking Systems or The Society?
Many have realized this lately thanks to the recession, but most still don't see the root cause. They are arguing over what could be the next steps to avoid such a crisis by way of strict regulation and stimulas packages. What needs a look at is the very basic foundation of the economic system. The practice of charging interest and is it helping serve the purpose of any economy? I doubt it will ever in any country at any given time in future.
The way of this system is interest-free money. BUT BUT BUT, before you think its inflationary and destructive, let me make it clear to you what interest-free money is. It is money issued by central banks to governments at no interest and is completely repayable and directed towards capital projects like building roads, schools, hospitals and so on. On repayment, this money is destroyed and there is no inflationary impact. In fact, in the long run it is counter-inflationary and economy developing. Projects will costs at least as much as half of what they would under the current system. So you must be wondering what then is that money which is inflationary and destructive? It is the debt-free money and it has been confused with the above explained interest-free money by many misguided individuals. There is a huge difference. The debt-free money (or printed-money) is issued by central banks to government and does not require repayment and is considered as gift and obviously has no interest since there is no repayment required. This is destructive and inflationary. There are many examples of countries that have used Interest-free money in the past for development of their economies but these were just few examples. If used on a large-scale this can be seen as the way out of the evils of the current economic system, out of income inequalities and promotes wide ownership. For further details of why interest if not necessary and destructive have a look at Tarek El-Diwany (2003): The Problem with Interest and the interest-free money as solution in a book by Rodney Shakespeare (2007): The Modern Universal Paradigm.
On why I agree EN's are the better bet for investment is simply because they not been dependent of capital markets and unreal investments of the notional/speculative values of secondary markets. They are more real production and manufacturing driven economies, at least in the immediate future. Cannot say for certain if after say 40 to 50 years from now they will go through the same curve as the western/industrialized nations. Even after going through the predicted demographics graph, I will still say nothing is certain as the forecast assumes there will be no migration between countries and that workforce will remain in the countries they are at present 40 to 50 years from now.
Great article 10/10.
Sincerely,
Amer Nazimuddin
---End of Part III---
Dear Amer,
ReplyDeleteReally appreciate your time and effort in posting your views and enlightening us.
All the very best for your Masters!!!