In this post-xmas Ultraletter:

• Licence Fees: The wrath of JQ befalls another national institution, one common to both the UK and Pakistan
• Rebounding markets: Meanwhile TK has jotted down a few concise cat-notes about current market sentiment.

First up……go on JQ…..Let ‘em have it….!

After spending a great deal of time in both Pakistan and the UK I often find interesting parallels in many facets of life between the two countries. In a previous Ultraletter I mentioned how the scourge of speeding cameras, which are rife in the UK, had also spread to Pakistan in recent years. In this article I shall be focusing on another unwelcome stealth tax which is common to both countries – the Television Licence Fee.

The national broadcasting corporations of both countries, the BBC & PTV, resort to demanding a television fee from almost everyone who has a television. Pakistan does it through adding a nominal supplement of Rs.25 to the electricty bill of each one of its 13.9 million electricity consumer base. Pakistan Television [PTV] started to earn a hefty amount of Rs 4.1 billion annually from 2004 onwards through this method. Prior to this arrangement people had to pay their television fee as a separate tax. This addition to the electricity bill was a hundred per cent jump from what the corporation was earning previously (Rs 2.1 billion from approximately seven million television licence holders in the country.) In the UK the annual licence fee is £139.50 which is paid by more than 25.3 million UK households equating to £3.4 billion of monopoly money for the BBC.

The latest audit report submitted to Dr Shahid Masood, PTV’s Chairman/Managing Director, found some serious irregularities and inefficiencies in the channel’s operations. One serious oversight and missed opportunity was that prime time advertising rates had not been raised since 1999! The comprehensive audit report also pointed out that PTV’s operating cost per employee is Rs 420,000 per annum while revenue per employee is Rs 418,000! Dr Shahid Masood is now being offered other BIG responsibilities elsewhere – perhaps some Pakistani bureaucrat or politician was displeased by his efforts to streamline PTV’s affairs?

As for the UK TV Licence Fee, a recent Ipsos Mori survey asked people whether the licence fee, which raises a total of £3.4 billion a year, was good value for money. A significant 47% thought it was not. Sir Antony Jay the co-creator of classic BBC sitcoms Yes Minister and Yes Prime Minister has asked “what was the point in the BBC spending £200m just to get Formula One away from ITV? How does that benefit the licence fee payer who could watch it on either channel?”.
Is it just me or can you also see the similarities between the BBC & PTV’s affairs, like governmental control, national broadcasters being used as a money making machine and a propaganda tool, heavy involvement of red tape/bureaucracy, inherent inefficiencies etc? The list goes on. Since we are based in the UK I am more dented by the BBC fee so it’s no wonder that the BBC takes most of my attention today.

I strongly believe that paying £6 million per annum for the talents of the likes of Jonathon Ross out of tax payers money just cannot be justified especially during the credit crunch. For those of us immune to his cheeky chappy charms and mundane film reviews £6m p.a. is too much to pay for Jonathan Ross. The fact that a chunk of that fee goes to pay Ross’ sidekicks to laugh at his terrible fortune cookie jokes explains the real reason for those laughs! How can the BBC justify extorting £140 each year from me and 25.3 million others to pay for it?

The BBC is a public service broadcaster funded by a compulsory ransom. In these troubled times why doesn’t the BBC take a 50% pay cut? In the case of Jonathan Ross let’s make a special exception of a 100% cut and release him from his contract to find out if he is as valuable as deemed by the BBC bosses and whether the market holds him in such high regard to be head hunted by another channel for the £6 million salary. The recent Jonathan Ross and Russell Brand affair has tarnished the already tainted BBC reputation by bringing into public focus the ridiculous sums paid to its so called star celebrities. On top of that they could sack a few people keeping in line with all the banks and major UK companies in these tough times and cut out a few obscure channels. Then they would surely be able to halve the license fee or better still get rid of it.

According to figures obtained under the freedom of information request by the Lib Dems last year £10.4m was spent by the BBC on flights, out of which £3.1m went on business or first class tickets. The BBC’s own guidelines say that flying business class should only happen in ‘exceptional circumstances’. Party transport spokesman Norman Baker said the costs were “staggering” and money should not be “splashed around”. Mr Baker also said “It is hard to believe that there can be £3m worth of exceptional circumstances in a single year”. The BBC spent just under £5m on train tickets last year, about £520,000 of which went on first class travel. This total for 2006/07 was £4.8m. So why is it so important sending a bunch of reporters to foreign countries for reporting the same news from multiple locations in the same country? Surely one person would be enough! It just seems like the BBC enjoys squandering our money.

This just in… surprise surprise! Yet another example of the constantly falling standards at the British Broadcasting Corporation. The below findings conclude Ofcom’s investigations of audience participation in the BBC programmes broadcast up to and including 2007:

[Thu, 18 Dec 2008 10:36] Ofcom has today fined the BBC a total of £95,000 for breaches of Ofcom’s Broadcasting Code (“the Code”) in respect of its services Radio 2 and BBC London 94.9FM. The fines have been imposed for the unfair conduct of competitions. Ofcom has found the BBC in breach of Rule 2.11 of the Code (“Competitions should be conducted fairly…”) for inviting listeners to enter competitions in pre-recorded programmes that were broadcast ‘as live’.

Ofcom considered that these breaches of the Code were serious. The investigation found that BBC had repeatedly taken pre-meditated and deliberate decisions to include audience competitions in pre-recorded programmes. The BBC invited listeners to enter these competitions at the time of the broadcasts, in the full knowledge that the audience stood no chance of either entering or winning.

The full adjudications are available on the Ofcom website here

Perhaps if you didn’t actually think it was okay to force an entire country to subsidise the viewing habits of a decreasing BBC fan club this would not be happening. Next is the issue of compulsion of payment. People are given no choice about whether or not to pay for the BBC. If they have a TV they must purchase a licence. That to me and all of the people who signed this petition at www.petitions.number10.gov.uk/FairpayTV/ is unacceptable. This petition which was submitted by David Cormack at the Number 10 Downing Street website asking the Prime Minister to “Abolish the UK TV licence and permit advertising and other means of finance generation to the BBC” had this response from the government:

“During the latest review of the BBC’s Royal Charter (completed in 2006), the Government considered whether the television licence was still the best way to fund the Corporation. We also sought the views of members of the public on this and other BBC issues as part of the Charter Review consultations. When compared with the alternatives, the television licence fee was widely considered to be the best way to pay for the BBC for the period of the new Charter that is to say until 2016. None of the alternative funding options would enable the BBC to continue to provide its full range of public services while safeguarding the Corporation’s independence. It was therefore agreed that no changes would be made. We intend to review the scope for alternative funding mechanisms once we have the conclusions of Ofcom’s review of public service broadcasting (due to be completed in 2009). This will take in account the final costs of switchover and the outcome of the wider review of Public Service Broadcasting (PSB) funding to which the Government committed in the Charter Review White Paper”.

John Lloyd writes in the Financial Times in his article The Shadow of Prison Bars on TV Screens :
This ad which was put out by consortium of companies contracted by the BBC TV Licensing is a disaster. You may have seen the posters of a huge memory chip which, vastly magnified, looks like a cityscape. Beneath it are written the words: ‘Every unlicensed address is in our database. Evasion is not an option’ (look on my database, ye viewers, and obey!). What are they thinking of those who collect our TV licence money? It reminds us that if we have a television we must support the corporation on pain of criminalisation (licence fee evasion accounts for more than half the criminal convictions among women.) It does so by giving substance to a “surveillance society” as mentioned in the George Orwell novel Nineteen Eighty Four where Big Brother spies on the population through telescreens.

TV Licence Evaders Beware - Big Brother is watching

A spokesman for TV Licensing said: “If you only watch the iPlayer and watch or record no live programmes, you don’t need a television licence, although very few people are likely to do that.” What that spokesman forgot to mention is that more than 700,000 viewers are downloading BBC programmes every day through the iPlayer service. Launched at the beginning of this year it is expected to have one million daily users by Christmas and can be watched without a licence fee!

Mark Thompson, the Director-General of the BBC, spelt out the limits of the current system when he told MPs on the Culture Select Committee that “if you watch live television through a mains powered device, you have to pay a licence fee” and that “live content is the key point in the current definition”. Most content on the iPlayer has been transmitted previously so the service is not classified as live. Don Foster, the Liberal Democrats’ culture spokesman said: “It does look like the BBC have shot themselves in the foot a little by creating this licence fee loophole with the iPlayer.”

The BBC is funded by TV License fees paid by anyone in the UK who watches television. They don’t have to watch the BBC but have to pay this license fee in any case. Although it is called a “fee”, since you have to pay it regardless of whether you receive the service it is actually a tax and was recently officially acknowledged as a tax. So by calling it a “fee” are they not misrepresenting something that is a tax?

Looking at this TV tax deeply with the help of ultranomics spectacles you will find that it’s not just that it’s a nuisance for TV viewers of all denominations, whether BBC watchers or not, it also has far reaching implications like forcing poor families, especially women, into criminality as mentioned above. According to the Daily Express of 24th November 2008, last year the BBC prosecuted more than 150,000 people for licence evasion. It is claimed women are much more likely to be caught because they are more often at home during office hours when the TV inspectors usually call. In the The Howard Journal of Criminal Justice Christina Pantazis & David Gordon have stated that “The purpose of this paper is to identify and address important gaps in criminology regarding the extent and nature of female criminality. A neglected area of academic interest is investigated namely offences relating to television licence evasion”.

The BBC should find a way to place their usage taxes on the signal and not the device itself. Why can they not make it a pay as you go subscription service which is technically possible and practiced by Sky premium movie channels and many Asian channels like Geo TV, Sony ARY Digital etc. or better still abolish the fee altogether like Australia and many other countries did and make it free by resorting to advertising and by selling BBC “quality” programmes internationally. It’s just not fair to keep demanding ever increasing TV tax from people who feel the BBC does not suit their tastes and who have a lot of alternatives to watch instead. Maybe a zero tolerance approach to government bureaucracy might work as mentioned in this edition of The Daily Reckoning.

For PTV I would say it should now be privatised because gone are the days when we used to have quality comedy programmes like fifty fifty or dramas like waaris which had a cross border fan following and had the actual effect of bringing traffic to a standstill whilst live on-air. School children bought each episode in small pocket size story books [I was one of those kids]. With the advent of private channels and the Indian media invasion PTV now stands for Purana [old] Tele Vision rather than what it used to be i.e. Pakistan Television.

For the BBC I would like to quote an excerpt of an article written by Emily Bell of The Guardian newspaper “We are still no nearer to deciding what exactly the BBC is, given that it is now much more than a broadcaster”.

jq@ultranomics.com

False hope and bouncing cats?………..TK elaborates……..

Are you sick to death yet of the credit crunch/subprime crisis/global meltdown/worldwide recession ? Have we missed any of the Armageddon terminology being used these days? Probably – so please, email us with your suggestions and we will publish a full list in the next Ultraletter.

The thing is, the current situation unfolding across the world is the worst of its kind for a generation. This one is the big one – a recessionary storm of tsunami-scale proportions. Yet tell us, dear dedicated readers, does it feel that way to you? Deep within are you feeling the fear and the panic? Do you lie awake at night and feel sick through the day?

For those currently threatened with repossession or job loss, the answer to this question will undoubtedly be yes. Yet for the vast majority of us, we suspect that it still feels like just another scary news story, albeit one that has been going on for longer than most now. We know something bad has happened and we can see that prices of houses in our street have fallen a bit. But nausea and panic? …..Not really.

Take for example the stock market. After spending the first half of 2008 well above the 12000 mark, the Dow Jones Index fell to a low point of 7552 on Nov 20th. Yet since then there has been somewhat of a retracing and the Dow Jones ended the last week at just over 8400. Overall this was a positive week for the stock market, despite President Bush (fresh from dicing with the deadly dinner shoes) agreeing a multi-billion bailout for the obviously terminally-ill american car industry, and in spite of the desperate rate cutting by the Fed to a record low of 0.25% with the promise to print as much money as needed to bailout the nation, prosaically called ‘Quantitative Easing’.

a misleading stock market indicator

There is no doubt that if my pet cat was thrown from the top of the Empire State Building and then observed to spring back up off the pavement (sidewalk) – there would be a truly heartfelt impulse to believe that the pet had survived the fall. Yet one’s intellect would still be the best judge and we would realise, if we were sane people, that more than likely the moggy is indeed dead.

Unfortunately, the share traders and financial pundits out there are still listening to their hearts right now. They are hoping against the odds that tiddles the cat is still alive and has merely sprained a cat-ankle which is already on its way to getting better after a few shakes of the leg.

We on the other hand, remain with yellow pages in hand, looking for the number of the nearest pet cemetery.

You too should be very wary of this bounce. This is danger territory friends – a classic post bubble bounce. Much of it is down to technical traders trying for some short term gains. There are also short sellers in there, covering their trades. But also, average people still have hope left in them. They still remember the good times. Something in them thinks that the good days have just taken a breather and no doubt will be back again some moment soon. There are those who are counting on Obama doing a magic trick in early 2009 and lifting the economy with his bailout initiatives. The recent decline has not been internalised. People still view it all as some phenomenon that is in major part affecting those other than themselves. They look pitifully at their poorer neighbours who are obviously feeling the pinch. So the fall becomes a ‘buying opportunity’. The financial pundits are complicit – they tell us that stocks always go up in the long run. While this is no doubt true, it still doesn’t mean this is the time to pile in nor does it inform us as to how long the long term might be. The element of ‘risk’ is perhaps still being misunderstood at this juncture.

These ’sucker rallies’ happen in bear markets, we all know that. We are still too hopeful and curiously watching the show, chatting about it, considering whether or not to make a ‘play’ or sit it out some more. We see the daily doom, the companies in strife, the unemployment levels rising and the repossession levels growing. But still the worldwide indices are holding their nerve. We would humbly suggest that weighing things up in total, it is not worth taking upwards bets at this point, even though there may be some sorely tempting rallies in the next 6 months.

If you really believe in buying and holding, and do not mind the long term being more than a decade then we are sure that buying into high quality best-of-breed companies will work out well over that time frame. However if you are aiming for an investment span of 5 to 10 years, then be exceedingly careful with your selections.

When your neighbours look like this, time to buy shares again!

tk@ultranomics.com

What the…….!

No really, these are two funky new terms that we have come across this week whilst surfing the web and of course, we like keeping our readers up to trend with the latest fashions.

So – who fancies joining the new Frugalistas?

It’s the latest fashion of the thrifty chic. Living to excess is so last year. Expensive restaurants, SUVs, luxury holidays and overseas homes? – how passe! Definitely no longer cool. ‘Frugalista’ is the new black. Yes folks – you too can be poor and stylish !

Find some hot tips at sites such as Tips From The Frugalista Moms and The Frugalista Files

On the other hand, if you believe Barack Obama, we must all spend, spend, spend – if not at the consumer level then certainly at the governmental level. Its the only way to lift our economy out of the black pit of recession. Apparently! Nick Robinson of the BBC calls this philosophy Obamanomics, which reminds us of a website we quite approve of

In essence what we are alluding to here is something called The Paradox of Thrift – a term coined by the economist John Maynard Keynes in the 1930s, during the Great Depression. He stated that although being frugal and thrifty seems to be the best policy for individuals, as far as the overall economy goes it can be damaging. So the paradox is that the more we save, the more we reduce demand for goods and therefore the worse the economy gets. It can be quite a vicious circle. The slumping economy means businesses invest less, hire less and increase redundancies. Ultimately the effect cascades through the system and overall income for everybody declines, leading to less money for people to be able to put aside and save. Simply put, as a society overall, the more we save the less we earn. In this way the decline self perpetuates. Bear in mind this is all a theory.

In fact it is part of the Keynesian economic theory that is currently in fashion with Gordon Brown, Barack Obama and their global counterparts.

John Keynes’ suggested solution to the Paradox of Thrift conundrum was that to offset the thrift of consumers in times of recession, the government must step in and take their place. Keynes argued that the state should increase public spending – on hospitals, roads, infrastructure projects etc. in order to inject cash into the economy and try to keep businesses humming and people in jobs. This is even more vital when interest rates are also dropping and deflation (falling prices) is happening. Falling prices can reinforce the thrift instinct in individuals when it comes to big-ticket items because no-one wants to buy a new house or new car if they can see that in 6 months time these items will be even cheaper. Hence they stash the cash and kill the till.

Across the ocean, Obama has a Lightbulb moment………….

The Keynes effect is in full force over in the USofA. In fact it seems there is no end to the amount of money congress is willing to hand out to the ailing US economy. A fortnight ago another half trillion tax payer dollars were earmarked to ‘fight the crunch’. This time Bush (remember him?) wanted to address credit and housing, which experts say must recover to pull out of recession. That’s on top of the previous $470 billion bailout of the Wall St financial institutions (Fannie Mae, Freddie Mac and the rest).

Remember this is in the light of the steepest slump in US consumer spending for 30 years. Not only that but this weekend we heard that US employers axed 533,000 jobs in November, the biggest job cut since 1974. The unemployment rate is now 6.7% which is the highest in 15 years. Yet more record breaking statistics, the likes of which we are kind of getting fatigued of hearing now.

When Obama steps in in January he wants to hand out a further $500 billion +. This will be a ‘jobs rescue package’ with a definite ‘Green’ tint. He says that an “Immediate Infusion of money is needed to jumpstart the system” – looks like Obama has some surgeons and motor mechanics on the fiscal team! Amongst his many green-tinted Keynesian initiatives will be to make government buildings energy efficient by changing all the lightbulbs. Also new alternative energy projects will be an important theme. All these projects will create employment. Strangely though, his other initiatives such as increased road building and bridge construction as well as bailing out the big-3 car manufacturers, although meant to create jobs, are hardly going to help the environment. But right now the mantra is, that the price of doing nothing far outweighs that of the Obamanomics megaspend.

Rest-assured, like any theory, the Obamanomics-Keynesian theory also has its detractors. These critics feel that the infrastructure schemes will simply take too long to get off the ground and out of the planning stages to have any meaningful effect. By the time these projects get on line, the economy might already be past the rock-bottom stage anyway. Furthermore the effect known as ‘Rational Expectations’ may kick in. The general population may come to realise that all this hyper government spending will one day in the future have to be recouped through higher taxes. This expectation may make people spend even less than before and save even more, thus somewhat negating the effect of the increased public spending. Tricky isn’t it? But intriguing!

The biggest worry is that these strategies will not prevent a recession or depression, and worse still we may end up with Stagflation – the thankfully rare malady of a stagnating economy coinciding with a spike in inflation, such as that experienced in the 1960s and 70s, which took until the 80s to recover from (I promise to touch upon the how and why of what stagflation is in the next Ultraletter – so stay tuned – I don’t want to fry your brain cells and mine all at once! )

In the UK Gordon Brown and Alistair Darling are going hell-for-leather down the same route as Bush and Obama. The Germans are meanwhile hissing with scorn. Their finance minister, Peer Steinbrück, tore into Gordon Brown’s £12.5bn cut in VAT, describing the move as “crass Keynesianism” that would raise Britain’s national debt to levels that would take a generation to pay off

Whether we are about to see a new era of Stagflation, possibly on a global scale remains to be seen. Even we are intrigued to see if Keynesianism will do the trick this time around. In case it doesn’t just remember we were dubious all along.

continues below…..

There’s a reason why Dinosaurs became extinct………..

Sorry to harp on, but those car makers from Detroit – General Motors, Chrysler and Ford – are getting really irksome. They don’t have any money left to fund their inefficient production lines, boring car designs and private executive jets, so now they’re loitering around Capitol Hill, Washington trying to beg some off the taxpayers. This is why the word ‘Shooo’ was invented.

I remember learning in biology class about Darwinism and survival of the fittest. We were taught that the dinosaurs became extinct 65 million years ago due to some cataclysmic event, most likely a comet impact, from which they were unable to recover. Does this sound familiar at all, Detroit folk? No doubt that dinosaurs walked the earth for over 165 million years, but when their time was up, it was up! There was no bailout – period!

But it had to be that way – they were no longer viable in the changing climate. Their large size meant they were resource-hungry and inefficient. They’d had it easy for too long. They could not adapt, so nature allowed their era to come to a close. Were it not for that event however, it’s unlikely that the meteoric rise of the mammals could have occurred. The wondrous creation known as Homo Sapiens may never have had its time. We have been around perhaps only a couple of hundred thousand years – yet look at the astonishing things we have done.

The point is that entities, whether species or companies, should not be given life-support beyond their natural end. If we do that, we will never find out what ingenious ideas or objects may have come in their place. In any case, even if we do try, the end is usually just postponed, not averted.

T Rex was late again to the Extinction Convention

We can understand the quandary facing the politicians. The US car industry reckons it accounts for 1-in-10 US jobs, of which 250,000 are direct employees. In addition, a bankruptcy or failure of the Detroit Three would threaten billions of dollars of financial instruments, according to credit market analysts. On an international level there are also many hundreds of thousands of jobs in related industries that are likely to suffer. So there are a lot of people’s livelihoods at stake here, and we are not callous enough to not care about all of that, so we say go ahead lawmakers, give it a shot. Where you have spent billions on the bank bailouts, why not give some to the car makers too? If you like you can send a couple of cheques our way too. We are sure you wouldn’t even notice a few K’s amongst all those billions.

Ultimately though, it appears that these corporates have already squandered their advantages. Their cars are inefficient and the quality is simply not there. They had decades to get it right. They didn’t have to export since their target market, i.e. the biggest consumers of cars in the world, was at their doorstep. They could understand their customers needs since they were from amongst them. They had the ear of politicians and finance was easy. It was all downhill driving. Yet now the world has decided that they do not want Detroit cars. They want German and Japanese cars. Maybe they don’t want cars at all and they just want LCD TVs instead. So by bailing them out, congress is saying to the world “NO, you must have our cars!” – The world will answer, “Hello? We don’t want them!!”

2009 ain’t lookin’ too good for the Detroitosaurus Rex.


more divine inspiration follows….

Ultranomics and Obamanomics? Now try Godnomics – the pilgrimage to zero interest rates…

The latest round of interest rate cuts around the world have taken rates to amongst their lowest points in half a century. In the UK, USA and Japan they are approaching 0% and according to some analysts are likely to get there soon.

It hardly seems fair.

Yet there is another school of thought, which predates our modern day economists by a fairly wide margin and that could shed an alternative light on the debate. We all know (or should do) that the three major monotheistic faiths, Judaism, Christianity and Islam all have in their literature a prohibition on interest. The Torah, The Bible and The Quran all advise against dealing in interest, whether charging it or even paying it. References on these can easily be googled so I won’t elaborate here.

To my understanding of the idea behind this prohibition, it seems that just like the Paradox of Thrift mentioned above, there is another paradox when it comes to interest. Although at an individual level it may seem totally reasonable and even desirable for banks to extend loans in return for interest so that we can buy a house or start a business, on the macro-economic level it may eventually play a large part in causing the booms and busts that we experience. The theists will argue that taken as a whole, the harm caused by interest is far greater than the good that might come of it, hence it is not allowed. It is a complex subject and not one that can be covered in detail in this Ultraletter, but one worthy of a separate article which we promise to write up soon in the name of research and understanding. In the meantime here is an excellent guide from one of the UK’s leading ethical financial advisers, 1stethical.com, on the subject of Interest based lending in the modern banking system

At the crux of it though, the ‘good savers’ that put their cash away into savings accounts were after interest income without risk, or making money directly on their money without doing any economic activity, e.g. trading or renting out an asset. They were not actually contributing to the economy by spending or investing, but rather trying to earn money whilst taking no risk, i.e. capital was secure. Accordingly since no risk is being taken, to be honest they deserve no reward. It could be argued that its the people buying houses, paying stamp duty and VAT in the process, then spending thousands doing up their houses in the pursuit of happiness and profit who are the real stars of the economy. They are the ones who put their butts on the line! Those amongst them who took too great a risk, i.e. self-certified loans beyond their means or where they had a shaky cashflow, have been punished automatically by losing the asset they acquired.

The Board of 'The Bank of God' do some blue-sky thinking

Suffice to say that with falling rates across the globe, whether willingly or not, the world’s bankers are getting closer to a more divine banking system month-by-month! We wonder though if they will ever see the light. Our breaths are not being held !

See you again next time. In the meantime why not sign up to automatically get the next Ultraletter by email?

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Before we get to JQ’s main article today, I just wanted to address an interesting comment we received this week from a reader referring to our views as leftist! So I looked up a concise definition and came up with:
“One who holds a left-wing viewpoint; someone who seeks radical social and economic change in the direction of greater equality. ”

I can see how the valued reader may have come to this conclusion, after all we are all too often having digs at ‘the establishment’. But, just to clarify for the benefit of all, we are not at all anti-establishment. Neither are we particularly socialist.

Au contraire mes amis we believe that ‘free market’ capitalism, though not perfect, is the best system we currently have. We believe that human enterprise should be rewarded in direct proportion to the inspiration and perspiration applied. Most of the time it works pretty well, sometimes perhaps too well (ask the Chinese!) Hence on occasion some powers feel compelled to manipulate it (ask the Americans), for example with trade barriers, subsidies, bailouts, credit pumping and so on. Fortunately though, in its truest form, the free market is a force of nature. It is the combined sum of all human economic endeavour.

In the short term markets can be somewhat manipulated by those with vested interests, be it market makers including the banks, cartels such as OPEC, government policy makers or hedge funds. Their activities influence the herd-mentality bubble-brigade (that includes many of us) who as a group are the end ‘voters’ who bid up assets such as stocks and houses.

As they say in stock market parlance, “In the short term the market is a voting machine, but in the long term it is a weighing machine“. Speculation might work short term, but only sustained hard work or skill pays off long term. In the end the market is far too complex to remain under any one group or nation’s control. It always reverts to its optimum state, and the force of the snap-back tends to be directly proportional to the degree of manipulation (or dumbness) which preceded it.

So, fellow comrades…err….citizens….we are not fuzzy thinking leftists after all. We don’t want to change the world – heck we wouldn’t even know what to change it to. We just want to see through the haze and perhaps get a few faint glimpses of the reality that is so often hidden from us. We want to expose the world of economics ‘as it is’ with a view to steering a course through the murkiness without getting our fingers burned; without ending up penniless towards the end of our miserable existences. Furthermore, being the nice people that we are, we want to share it all with you, our readers. Ultranomics commentary is meant to inform and entertain and to make you think. There are no political agendas or aims to be found on these pages. Honest, guv……

The award for the most depressing story of the week goes to……..

First the Somali pirates, now the Mumbai terrorists. At least the former were in it just for the money. The latter have proven more blood-thirsty. In the last Ultraletter we spoke about the 23rd century utopia of Star Trek. How far we truly are from that ideal.

With just under 200 dead we have no clear idea who they are and why they’ve done it. One thing we do know, they were highly organised and well equipped. They had insiders at the hotels who smuggled in the explosives. They had boats to drop them off, off the coast of Mumbai. They specifically targeted India’s financial hub and went after Westerners in particular. They planned it so well yet left an easy peasy trail of breadcrumbs back to…..you’ve guessed it…Pakistan. Doh!

I am no conspiracy theorist by nature – I even believe that the Americans really did go to the moon, much to the disdain of JQ ! – but you have to ask yourself who would have most to gain from this crime at a time when India and Pakistan are building bridges and getting pally once more? What’s worse is that the average man in the rickshaw falls for it. As surely as A is followed by B the terrorists cause some carnage and hey presto, the steadying relations of the two neighbours are blown to smithereens together with the perpetrators themselves. At who’s behest though, that is the question.

Perhaps Kashmiri activists making a point over territory? Perhaps Pakistan-based Islamic militants making trouble for the Pak govt over their support for America? Perhaps insiders who can’t abide any Friendship with the old enemy? Perhaps it could even be some other nation (or nations) that fear the possibility of an IndoPakChinese Superpower in the sense of military (nuclear) capability or economic strength? Who’s playing the long game here…..?

…..jq takes it further……..keep reading folks

WAR is RAW

12th November 2008, JQ (co-editor)

Every crime has a motive. To actually pick up a gun or knife or whatever and then take a human being’s life usually needs a planned state of mind which caters for that motive.

I used to read stories of the Indian and Pakistani police when the British were ruling and just after the partition. In those days they knew the art of investigation. Back then they used people called “khojis” [the C.S.I. of back then] who could find the clues and track the foot steps of the criminals helping the law enforcers to the motive of that crime! Coming back to these Bombay….oops Mumbai….attacks sit down and relax and then think why don’t the police or investigators with all the modern tools of the trade not actually investigate and plainly start naming names of their arch enemies [or ex arch enemies]? Could it be procrastination or maybe some ulterior motives – but tell me one thing if you can, who has most to gain from an on going Pakistan India scuffle? Now narrow it down to one nation. I don’t have to write the name you know it already.

Imagine India & Pakistan at peace with no lingering Kashmir or river water issues then we can move on to become an economic hub of power, with China we can take on the world, but somehow this probably won’t happen – the “un-named” nation won’t let it happen.

It is all to do with the Art of War which incidentally is one of the oldest books on military strategy in the world. It has had a huge influence on Eastern as well as Western military thinking, business tactics and beyond. Its writer Sun Tzu was the first to recognize in 6th century BC the importance of positioning in strategy, and that your position is affected both by objective conditions in the physical environment and the subjective opinions of the competitive actors [there may well be an Oscar category for politicians] in that environment.

He taught that strategy was not about ‘Planning’ in the sense of working through a to-do list, but rather that it requires quick and appropriate responses to changing conditions [for example in recession create a war to get the economy moving or in case of the subprime crisis create an arch enemy or better still create an alien attack].

‘Planning’ works in a controlled environment but in a competitive environment competing plans collide [race to the moon, missiles and anti-missiles defences etc] creating unexpected situations [9/11, attacks on Pakistan, attacks on India]. So WAR is indeed RAW [incidentally RAW is also the acronym for the Indian spy agency Research And Analysis Wing!]

New World Order

Somehow this reminds me of the term New World Order which refers to a conspiracy theory in which a powerful and secretive group is plotting to eventually rule the world via an autonomous world government. This powerful group would apparently replace sovereign states and other checks and balances in world power struggles.

H.G. Wells advised in his 1940 work “The New World Order” that “when the struggle seems to be drifting definitely towards a world social democracy there may still be very great delays and disappointments before it becomes an efficient and beneficent world system. Countless people will hate the new world order and will die protesting against it”.

You may ask it can’t be. How come sovereign governments are following old bygone theories of H.G. Wells or Big Brother like controlling tactics thought of by George Orwell in 1944 but look around you. Isn’t this world full of seeds of doubt sprinkled everywhere, surveillance cameras to protect us! [normally they are not where protection is really required] speed cameras to protect lives [see my article on speed cameras] biometric passports to protect our identities [we need more protection from bureaucrats losing our identities in the first place] identity cards to protect our freedom from invaders [to be trialled on poor foreign students who have no say hence are targeted to up the statistics in the labours' favour] pay as you drive road charging system that keeps track of your movement! And best of the lot is an airport scanner that can read your mind [for George Orwell's thought police in action see Tom Cruise's action flick Minority Report]

Read the full story here of the real thought police in today’s world

Need I say more to prove that we are slowly moving towards a totalitarian police state at least in the Western world [I am humming hold me kiss me thrill me kill me as I type].

One of the more enduring myths in Western society is that wars are somehow good for the economy. Many people see a great deal of evidence to support this myth, after all World War II came directly after the Great Depression.

I believe it is a faulty belief which stems from short sighted and shallow economics thinking. Let me explain. The flawed logic of this myth is an example of something economists call “The Broken Window Fallacy” which is brilliantly illustrated in Henry Hazlitt’s 1946 book “Economics in One Lesson.”

In it Hazlitt gives the example of a vandal throwing a brick through a shopkeeper’s window. The shopkeeper will have to purchase a new window from a glass shop for a sum of money say £250. A crowd of people who see the broken window decide that the broken window may have positive benefits after all. If windows were never broken what would happen to the glass business? Then of course the train of thought is endless. The glass merchant will have £250 more to spend with other merchants and these in turn will have £250 to spend with still other merchants and so on. The smashed window will go on providing money and employment in an ongoing stream.

The logical conclusion from all this would be that the little hoodlum who threw the brick, far from being a public menace was in fact a public benefactor [Britain has quite a few of these benefactors in ASBO rich areas although they have yet to stir up some economic activity - perhaps not enough bricks - Gordon Brown may consider distributing free bricks at Tesco].

The crowd is correct in realizing that the local glass shop will benefit from this act of vandalism. What they have not considered however is that the shopkeeper would have spent those £250 on something else if he did not have to replace the window. He might have been saving that money for a new set of golf clubs, but since he has now spent the money he cannot do so and the golf shop has lost a sale.

He might have used the money to purchase new equipment for his business or to take a vacation or maybe to purchase new clothing. Instead of having a window and £250 the poor shopkeeper now merely has a window which was there anyway. Or as he was planning to buy a suit that very afternoon instead of having both a window and a suit he must now be content with the window or the suit. If we think of him as a part of a given community then that community has actually lost a new suit that might otherwise have come into being and is just that much poorer. So the glass store’s gain is another store’s loss hence there has not been a net gain in economic activity. In fact there has been a decline in the economy of that community!

No wonder I see the sun of tomorrow shining in the east and it is shining its brightest over China because the only bricks they carry are for building new projects. They don’t seem to plan on breaking neighbourhood windows or even the windows of the next town and they are certainly not trying to “SORT” the world.

jq@ultranomics.com

more ultranomics below…..

Back with TK in UK……………

Companies…….

The classic Atari videogame: Breakout

Do you remember that old Atari videogame called Breakout, where the ball would bounce around the screen smashing any brick that it touched? That reminds me of the toxic debt originating in the US subprime debacle, the effects of which are still ping-ponging around the globe smashing companies and financial institutions in their wake.

After knocking out Iceland (the country, not the UK frozen food retailer which probably is worth more) and giving the worlds largest bank, Citigroup a hefty thwack, the latest UK bricks to be smashed last week were two household names in retail – I am referring of course to Woolworths and MFI. Who would have thought that good old ‘Woolies’, founded in 1909, having survived the Great Depression, two world wars and several recessions would meet its demise in the crash of ‘08? We are wondering where that wrecking ball is on its way to next? The world it seems is smaller than we ever thought and remarkably its all interlinked through the subprime debt network. John Lewis, Marks & Spencer – batten down your hatches. Ford, General Motors, Chrysler – run for cover now!

Houses…….

Well you would hardly be surprised to know that UK house prices fell again in November, albeit by only 0.4%, a much more moderate slowdown compared to the 1.3% fall of October. This is according to the statistics from Nationwide, UK’s largest building society.

Prices are down from a year ago by an average of 13.9%. Mind you you’re still doing OK as long as you bought more than a couple of years ago. Average prices are still £25,000 higher than they were in 2003. Those who bought more recently will need to ride out the storm – but if you do need to sell try to avoid those ‘buy and rent back’ profiteers. There may be some genuine companies out there but there’s plenty of sharks roaming the waters right now.

As for where we are headed in 2009 with house prices, its anybody’s guess – including ours. We do dabble in property so we have a gut feeling you see. Mine says that falling interest rates are going to tempt professional landlords into the market in a sustained way from here on in, although that won’t be enough to revive the market. Thus there will be no recovery in 2009 although a bottom may well be reached during the middle of the year.

How we go from there will depend on other factors such as bank lending improving, recession abating, unemployment steadying etc. The other main factor will be human psyche. We will as a nation need time to forget the panic of 2008 and the fear instilled by the subprime meltdown. Once we forget we will then start dippping our toe back in. At the moment though fear and worry are still the order of the day. That’s all my gut has to say on the matter for now, apart from some gurgling.

Jobs……..
The chancellor Alistair Darling was on BBC Radio 4 last Tuesday (25th Nov) insisting that Labour had reduced unemployment so significantly since coming into power and that most of the jobs created by Labour had been in private sector. I mean “Wow” – the art of propaganda and misdirection is obviously very much alive and kicking.

It is true that between 1998 and 2006 there seems to have been around 2.2 million new jobs added. Unfortunately 1.3 million of these have been public sector, inc admin, health, teaching, social work. As for new jobs for women, a whacking 90% all job growth for women was in the public sector, i.e. funded by the taxpayer! The West midlands actually saw a drop in private sector jobs of 2% while public jobs increased 25%!!

Why is this important – after all isn’t a job still a job, regardless of public or private sector? Well true at an individual level its great for those getting the job. Yet by creating all these government jobs they do not directly benefit the nation’s economy. Instead we all as taxpayers have to pay these public wages.

Of course we don’t mind the teachers, doctors, nurses – give us more. But its the pointless pen-pushing jobs in City halls up and down the country that we object to, each with attractive salaries, bonuses, generous final salary and index linked pensions. These public workers spend more days on strike and are 25% more likely to take sickies than those working for private companies. There are 818 workers in town halls earning more than £100k, paid for by me and you. Yet as a nation if we want to prosper we need industry, and people employed in industry. Thats the only way to turn a profit – by making products and offering services and exporting them to other countries. Paying each other to potter about organising this and that does not create wealth.

And…guess what? Its going to get worse! The Centre for Economic and Business Research (CEBR) reckons the state will be hiring another 50,000 workers while at the same time private jobs will continue to slide as the economy falters. The old soviet communists would be proud. What a warm feeling, being in the embrace of the all-knowing nanny state. Yes Gordon, take our taxes and spend them as you see fit. You are wiser and cleverer. Give us our daily bread, and our jobs. Since you employ us, we will of course return the favour and vote for you. After all, those nasty Tories might take away our cushy jobs. Lets not call it buying votes though – lets just call it mutual back scratching!

For another take on the Mumbai Terror attack check out pkpolitics.com here.

23rd November 2008, TK

With America in the throes of its worst slump since the 1930s and the rest of the world not far behind, Americans have been keen to latch on to any glimmer of hope they can find – Barack Obama’s recent election being a case in point. Hopes and expectations are riding high on the new president elect and a wave of optimism could be felt washing over the country during the recent elections. The public turned out in record numbers to vote, in fact it was the highest turnout since 1960, when JFK beat Richard Nixon to take over from the outgoing Dwight Eisenhower. JFK promised “to get America moving again” after claims that the Republicans had allowed America to fall behind the Soviet Union in the Cold War, militarily and economically. He managed to win the election, albeit closely, despite widespread prejudice against his Roman Catholic faith, with people fearing he would be taking orders from the Pope. A case of hope and optimism winning over prejudice and fear? We’d like to think so. In any case, some interesting parallels with Obama. No doubt in both cases, the film star personas also helped to win over the celebrity-loving US denizens.

“During the Depression, when the spirit of the people is lower than at any other time, it is a splendid thing that for just 15 cents an American can go to a movie and look at the smiling face of a baby and forget his troubles.”
-President Franklin Roosevelt

Hope and optimism also manifest in films directly during times of economic strife. The era of musicals in the 1930s, during the last Great Depression, gave rise to hits such as Gold Diggers of 1933, 42nd Street, and Footlight Parade, which all portrayed the possibility of ‘making it through’ with hard work and perseverence. The Wizard of Oz provided escapism and fascinated audiences in 1939, following Dorothy as she was whisked away from black and white Kansas to the far off and beautiful, ‘Technicolor’, Oz, yet asked that in the end the audience believe that “there’s no place like home”.

   

Film Posters: 42nd Street (1933), Footlight Parade (1933), The Wizard of Oz (1939), Star Trek (2009)

Coming up to date then, what of the next couple of years? Perhaps we should be looking forward to some spirit-lifting Hollywood movies for some years to come? The wane of the Horror slashers and Vampire Slayers then?……Perhaps.

In fact only yesterday I was watching a trailer for the new Star Trek movie, due out in May 09. As an aside, it seems there is a current fashion with film franchises of “returning to the beginning” or doing prequels, with recent examples such as the Bond and the Batman films (both superbly done in our humble opinion). And so it is with Star Trek – J.J. Abrams, the creator of LOST, is going back to the beginning and giving a new edge to Kirk and Spock (I wonder if he considered renaming it ‘Lost in Space’??) At first look it appears to be one movie worth waiting for. But I would say that, having been a bit of a Trekky in my time.

Star Trek is known for its utopian view of the future. A future where all of humanity has reconciled its differences and the entire planet is at peace. There is no hunger and no poverty. Maybe because in the Star Trek 23rd century, neither is there any longer such a thing as money! Everyone has whatever they could need, and instead we pursue higher goals such as self advancement and exploring space. So, perfect escapism from the current world, the new Great Depression of the 21st century, and the rampant warring across the globe.

A world where those pesky somali pirates are still holding on to their loot over in the Gulf of Aden, the Saudi ‘Sirius Star’ with its 25 crew and 2 million barrels of oil. They don’t want much in ransom either, only $25mill in return for the $100mill cargo. What an insane world, where pirates are still able to do roaring business. This year alone they’ve managed to attack 95 ships, hijack 39 of them and collect $50mill in ransom. Not bad work for those with serious disabilities such as one eye or a missing leg. Abu Hamza could get on to a nice earner if he got bored of the preaching.

What with the ever present Israel-Palestine issue, no end in sight in Iraq or Afghanistan and now bombings all over Pakistan, the world is about as dangerous a place as I can remember. Not that I want to do the work of the NeoCons for them, but that’s just the way it will always be while people quibble over finite commodities, whether it be land, oil, water or food.

Perhaps one day the Americans will finally colonise the moon and mars, begin asteroid mining, and manage to harness direct solar energy and beam it all around the world for free. And maybe one day the guys at CERN in Geneva will manage to capture enough antimatter and in partnership with the Russians build a stable containment system for it. And perhaps, just perhaps, some brilliant Pakistani and Indian mathematicians will do some out of the box thinking and instead of VAT fraud, they will engineer the world’s first prototype Warp Engine. Then maybe the Chinese and Japanese will do a joint venture (for a fraction of the cost and twice as fast as the Americans) to build the first Galaxy Class Space Ship, with the whole venture under the watchful eye of Richard Branson no doubt.

Will we ever really make it to that utopian 23rd Star Trek century we wonder? Well as pakistanis, indians, chinese etc. we had better be trying extra hard. As nations of the Asian subcontinent if only we could realise the futility and wastefulness of our quarrels and wars, maybe our efforts could be directed to peaceful coexistence, partnership and mutual advancement. After all, Star Trek must be proved incorrect in one way, and that is that there will indeed be a pakistani on board the Enterprise one day. You bet!

As Jamshaid steps onto the Bridge he gives his Salaam to the Crew

as jq ponders on his next car……


Speed Cameras – Big Brother’s Ever Grazing Cash Cows

23rd November 2008, JQ (co-editor)

Ever had a feeling of being watched? Well I did today as Specs3 stood still watching with his peering eyes waiting for one wrong move, my hands were stiff, my knuckles went white due to my tight steering grip, my eyes were aching due to the constant monitoring of speedometer and traffic, my right foot was trembling for fear of pushing too hard on the accelerator and getting caught by the dreaded average speed camera and I had only done about 500 meters out of a 5 mile stretch at 40mph limit! I would be over the edge any second now.

The Specs 3 gatso

Can anyone hear the climatic horror movie music when the dude is about to get it? Ching ching ching AAAAH. Well ching ching ching was the cash clocking music to the ears of the British Government and guess who gets stabbed countless times everyday? The poor British motorist that’s who!

The Association of British Drivers, which campaigns against speed cameras also made an interesting point about the Specs3 as they would make, “People put the car in cruise control and the mind in neutral. It’s so boring driving through these sections at a constant slow speed that people are going to drop off.”

Maybe I’m missing something here, but why does the UK government allow cars to be sold that are capable of achieving almost twice the 70mph speed limit which was set back in 1977 when the Ford Anglia had a stopping distance of 2 miles or so. If according to their laws no cars should ever go over 70mph why don’t they simply force the car manufacturers to install speed limiters in every new model and fit one in every existing car during the yearly MOT? The simple answer is that they don’t want to because the UK government would make less cash from the car industry & less cash from the speed fines.

Every UK driver has to go through the stringent British road test which tests the drivers to their limit. Oppressive tactics by the police like constant detection and dictation are an insult to their intelligence and road manners. The new average speed cameras known as Specs3 will appear in clusters of 50 working in a network and will monitor “every” driver’s average speed as they travel. Not only that but an ‘eye in the sky’ helicopter targeting speeding motorists in Essex at a cost of £1,000 an hour is adding misery to the once enjoyable driving.

This recent Canadian report (Review and Analysis of Posted Speed Limits and Speed Limit Setting Practices in British Columbia) has a clear view of the role of speed limits and speed enforcement.

It includes such straightforward common sense items as:
• The majority of motorists drive at a speed they consider reasonable, and safe for road, traffic, and environmental conditions. Posted limits which are set higher or lower than dictated by roadway and traffic conditions are ignored by the majority of motorists.
• The normally careful and competent actions of a reasonable person should be considered legal.
• A speed limit should be set so that the majority of motorists observe it voluntarily and enforcement can be directed to the minority of offenders.

Ready for another eye opener, this time from the Australian police! Apparently a recent survey by the Herald Sun has found that more than 70 per cent of Victorian police believe speed and red light cameras are more about revenue-raising than preserving road safety. A point every motorist [or majority of] has tried so very hard to get across.

The politicians will keep on preaching that speed cameras are there to promote safety and the high fines associated with them are just to slow people down, well this is a baseless argument because the truth about this hypocrisy is coming out. The UK Department for Transport first funded and then suppressed a study that shows a 55 percent increase in injury accidents when speed cameras are used on highway work zones and a 31 percent increase when used on freeways [or non freeways as I would like to think] without construction projects. According to the Transport Research Laboratory, the “non-works [personal injury accident] rate is significantly higher for the sites with speed cameras than the rate for sites without.” You can see the full report here.

Sher Shah Suri turns in his grave wondering why he didn't think of Speeding fines

So what should the regular Joe think about BBC Topgear now when he sees the likes of Jeremy Clarkson, Richard Hammond and James May blast their gravity busting 500bhp+ monster machines? Is this entertainment or fact based “drama”? Where are those roads where they drive at a million miles an hour without the fear of any Specs3, gatso or speed camera ever passing them by? Why is it that the average Joe is now under the £1000 an hour surveillance eye in the sky?

With modern technology there are better ways of keeping drivers to the speed limit. Unfortunately none puts money in the government’s, council’s or police authorities’ pockets. It would be perfectly possible to install a GPS based device, not dissimilar to a SatNav, in every car, telling the driver what the speed limit is for that stretch of road. The signal would automatically change when the car entered the next speed zone. Should the car be speeding (easily assessed from either a gps signal or directly from the speedometer) an alarm in the vehicle would sound, alerting the driver to the fact he is going too fast similar to the ones installed in BMW cars. The only way of silencing the alarm being to get the speed back under the speed limit. This ensures the driver’s attention is fixed on the road and it’s hazards, not constantly watching the speedometer. Attention to the actual driving is increased and therefore the roads made safer. No need for [you should have gone to] Specsavers Speksy3 and other gizmos – but I don’t see that happening because how then would the UK government milk its cash cows?

But there is still hope for the joy of driving as long as good Samaritans like Swindon councillor Peter Greenhalgh are taking the common sense approach. It is after he objected to the central Government receiving all the cash from fines while Swindon council paid £320,000 a year for the cameras’ upkeep that the Swindon Borough Council became the first to ditch the yellow boxes. Now towns all over the country are joining the rush to get rid of fixed speed cameras. Portsmouth, Walsall and Birmingham may copy Swindon in ripping out the hated cameras, and others are expected to follow suit.

jq@ultranomics.com

…..continues below……

lastly, some more down-to-earth economic dishes, served cold by tk…….

Here in the UK on Friday, the Council of Mortgage Lenders revealed that the number of properties repossessed rose by 12% to 11,300 in the third quarter of 2008. The number of borrowers in arrears went up by 8% compared with the previous quarter, to 168,000. Watch out readers, those of you with cash in your pockets and iron-clad hearts will have ever increasing casualties of the crunch to pick over in the coming months. We expect a yet larger wave of repos in the next few months, as the earliest defaulters (those who went backrupt a year ago) come to the end of their 12 month grace period which they were given if they had a wife or kids (or both). A Charles Dickens christmas is forecast across much of the country.

In the US on Thursday, Detroit car makers went up Capitol Hill to fetch a pail of money. Unfortunately they came tumbling down without a crown! Boo hoo. The silly sods went with begging cap in hand, yet when asked by congressional leaders how much they wanted and what for, they sat there scratching their heads like Stan Laurel (you remember Laurel & Hardy don’t you??). The Californian Democrat, Nancy Pelosi, who is the Speaker of the House of Representatives, said that the 3 Amigos, the bosses of General Motors, Ford Motor and Chrysler LLC have 12 days in which to come back with a viable plan of what they need and how they’re gonna spend it. Can you imagine going to see your bank manager and asking for a loan, then telling him he can give you as much as possible although you’re not sure what you want to spend it on yet. What a hoot!

As well as record levels of idiocy and farce, it seems the US is setting records daily across the board. The share price of General Motors hit $1.27, the lowest since 1938 ( a year before The Wizard of Oz). The US unemployment claims have hit 4 million – the highest since 1982 and factory output is now the lowest since 1990. Oil closed at $49.62 (the first time its been below $50 since 2003). Furthermore it seems that the cost of living in the US is falling at its fastest rate since records began in 1947. That might be much worse than it sounds. The same thing happened in Japan in the 1990s where the domino effect of dropping prices meant consumers wouldn’t buy large items since they’d be able to get them cheaper if they waited, leading to catastrophic demand slump and hence further price falls. Already in the US, retailers have begun to go out of business literally overnight. The double-edged sword of deflation might appear great for the consumer, but is in fact a guillotine to the neck of the economy. More detailed commentary on the deflation issue is promised for a future Ultraletter…..

Have a great week readers and we promise to catch up with you again soon.

tk@ultranomics.com

17th November 2008, TK (co-editor)


One thing is for sure, always expect the unexpected. For the past decade the buoyant global economy has been lulling us into a false sense of security. We started to actually believe that this time it was different. Forget the dotcom crash, real estate really could always go up in value. Heck you know what they say, “buy land, they’re not making any more of it” (personally we don’t consider Dubai’s new islands to be an exception! – see jq’s reference to Atlantis below) so with increasing populations, increasing economic migration, low unemployment etc etc how could the property market possibly crash. No, no, no – this time it really is different. That’s what most of the experts were saying.

But you know what we say, don’t you readers? Nature in the end gives you what you deserve – the Indians call it karma. Here’s the rub though – for all our technology, all our analytics, all our models, most of us never see that sucker punch coming! Or if we do see it its usually far too late. The American Subprime meltdown is of course the elephant that caught our great world leaders completely by surprise.

Now those same great leaders were found to be having a jolly back-patting get-together at our expense this weekend in Washington, where they convened the G20 summit. Did you see the pics? Mr Bush looked the most jolly of all – like the kid who made a mess in the nursery but was about to leave without having to tidy the toys back into the box.

George W. Bush at the G20 summit

Bush and the others, from both developed and developing nations promised to take “whatever further actions are necessary to stabilise the financial system” and vowed to “use fiscal measures to stimulate domestic demand to rapid effect, as appropriate to each particular country”. Whenever we hear the words, “Whatever necessary” and “use measures as appropriate” we get that feeling of being in a boat without a map. These are the guys who never noticed that elephant going berserk, who allowed our crops to be devoured and our shacks trampled in plain view of incompetent herders (the banks), who put all their trust in the zoo’s gatekeepers (the central banks) and who never bothered to understand what dangerous tricks the elephant trainers (the hedge funds and derivative dealers) were teaching to the elephant. Now these same world leaders expect us to believe that they know what they are doing and can handle the crisis that they let occur.

We will wait and see what their efforts will achieve. Yet we fear that for all the promises of co-operation and anti-protectionism policy objectives, for all the cash injections and new regulatory “colleges of supervisors”, the way this new Great Depression will play out will have precious little to do with what governments decide to implement. It will simply take its own course. The greedy will be cut down. The non competitive enterprises will be decimated. Jobs will be lost. The weak will perish. Those who didn’t save for the future will find that the future won’t save them. Those who thought that something for nothing was possible, will find their somethings have become nothing. Sure, a lot of innocents will be hurt along the way. The Great Depression will not care. Finally though, our economies and the world in general will emerge a healthier, more grounded place. New enterprises will take the place of the obsolete, and bring with them new jobs and new prosperity. Of course, our politicians will take credit for it all. Until the next Depression which probably won’t be in our lifetimes. That unfortunately means that as individuals our lessons learned may not be needed by us again, although those lessons may make us into boring penny pinching old folk. Perhaps our kids will listen to our advice – somehow though I don’t think so.

Meanwhile in TK’s living room………

I was just watching the U.K.’s PM Gordon Brown and his shadow counterpart David Cameron at each others throats on the BBC as they duelled over the current standoff about tax. After the G20 meeting at the weekend, Gordon is keen to spend his way out of recession next year by giving us in the UK lots of marvelous tax breaks.

Cameron though was having none of it, throwing back in Gordon’s face his old promises of prudence and pointing out that £15bn in cuts was tantamount to ‘fiscal incontinence’ (what a great turn of phrase). He points out that such out of control public spending risks plunging sterling even further down in the world markets. This would put off potential investors bringing their money into the UK. Also the massive increase in borrowing necessary to fund these tax cuts would inevitably lead to tax rises for future generations.

Gordon however is as keen as ever to pull the wool over our eyes. He’s been a silly boy pretending he was the maestro of finance all those years. Now its come back to bite him he won’t even answer a question straight. That’s the bit about politicians that is hardest to tolerate, we’re sure you will agree.

jq has dubai on his mind……

The Dubai Factor – Atlantis, the sequel

17th November 2008, JQ (co-editor)

I have worked for four years in the Emirates in various managerial roles from 1997 to 2001 and have had such a rich experience which in itself calls for writing a book. I was probably subconsciously impressed by a very famous 70’s comedy from Pakistan television [PTV] called Dubai Chalo; it reflected the Dubai fever throughout the Pakistani nation at the time, and in which most of them were literally taken for a ride in a boat and dropped at Karachi’s Hawks Bay after two days perilous sea voyage. [To set the record straight I flew and did reach Dubai first time].

Unfortunately Dubai is no laughing matter now, especially not for the property investors from all over the world who now stand to lose a great deal. A friend currently working in Dubai sent his woes in an email. This one line sums it up “sh*t has started to hit the fan over here in Dubai”. News is that one major Dubai property developer has begun laying off staff, and another is reviewing its recruiting needs as the available global finance becomes thin. The case in point is Emaar who is considering job cuts in the wake of the tumbling market. To keep you in perspective Emmar is the Gulf region’s largest property developer by market value, 32% owned by the Dubai government and is the developer behind the world’s tallest tower, the Burj Dubai.

Emaar shares are down nearly 80% this year to 3.19 AED a share. Realtors have now begun to identify worrying trends of rapidly declining house prices, a stagnant resale market, the inability of off-plan property investors to keep up with their payment schedules, a marked decline in hotel occupancy rates and wage and hiring freezes in property companies. To make matters worse, they have highlighted the government’s indebtedness [Yes Dubai is not as rich as you thought - it's Abu Dhabi which still has oil]. Dubai has borrowed heavily in recent years to finance all of the physical infrastructure needed to support its construction trend. So much is the fear of a Dubai Doom that the UAE President, His Highness Shaikh Khalifa Bin Zayed Al Nahyan had to reassure the people of the UAE that their economy is supported by a healthy and robust national banking system [do you believe in a healthy bank these days?! Lol and chuckle]. A royal effort indeed to save the Dubai Dream.

The Palm Jumeirah in Dubai

Still phenomenal projects are being announced in the Dubai heartland similar to existing ones such as Burj Al Arab and the Indoor Skiing Resort in the Emirates Shopping Mall, but I don’t see anyone buying these new projects. Local Urdu and Hindi channels in the UK are saturated with Dubai Exhibitions and to be honest they sound somewhat desperate. I know someone who bought property two years back in Dubailand and though on paper the value has gone up he has no buyers interested in taking it off his hands. There is virtually no resale market at all for these new apartments. Once you buy one, you are stuck with it.

There has to be a clear difference between bravery and sheer stupidity because if you jump from a skyscraper it better be a suicide attempt or you should be Lois Lane sure to be saved by Superman. The only hope for Dubai is in its cash rich Capital Abu Dhabi which can save the day (Abu Dhabi’s Sheikh Mansour recently played Clark Kent with the UK’s Barclays Bank taking the role of Lois Lane) – but the question is will they? If you ask me my money is not on Dubai, at least not for now. I don’t plan to go down with the new Atlantis.

Welcome back everyone! You made it to our second edition.

Here in autumnal UK, it seems we are certainly living through one of those accursed ‘interesting’ times as per the clichéd old chinese proverb.

On the face of it last week’s 1.5% base rate cut (down to a 53 year low of 3%) by the Bank of England should put a smile on the face of every mortgaged person in the country. Lets for a moment put aside the poor pensioners who were relying on a reasonable savings rate to get them through the winter (do I detect a reversal in the declining trend of extended asian families living together?)

Thankfully for us struggling ‘homeowners’ and small business owners (who should have saved for a rainy day anyway) most of the high street banks have agreed to pass the cut on. The Nationwide, Lloyds TSB, Abbey, Scottish Widows, RBS and NatWest said they would be passing on the full 1.5 per cent rate cut. They were followed – eventually – by Bradford and Bingley and the nationalised Northern Rock. A monthly mortgage of £150,000 should reduce by £138 to £887. Bargain.

But by dropping rates are Central banks merely making the same mistake as Alan Greenspan during his time as the US Federal Reserve chief? They are trying to use a drop in real interest rates (nominal rates minus inflation rate) to convince consumers to spend their money instead of saving it. In other words they are attempting to keep the credit bubble inflated, or at least to stop it from deflating any further. This isn’t good monetary policy in the long run as ultimately encouraging people to save, e.g. by giving reasonable rates of return from savings vehicles is the only way to wealth accumulation. The road the bankers would have us take is the road to poverty via debt-servitude; i.e. take out a car loan, get another credit card, remortgage the house. The life of the average Javed and Jameela is thus burdened with paying back interest for trinkets, e.g. lcd tvs, overseas holidays, luxuries, that they could ill-afford in the first place. This is wealth transference from the many to the few.

Sure there is ‘the economy’ at large to worry about and if we as consumers aren’t motivated to spend our money instead of keeping it in our accounts (or safer still, under the mattress) then companies left, right and center will be on the decline and jobs will be lost. Unfortunately though dear readers that is nature’s way. Bloated companies and unlikely ventures should not be saved by artificial means. If a company is competitive and well run it will get through and be stronger in the end. Those that are not must meet their demise and make way for fresh enterprises with new ideas and new jobs. The easy credit of the last 10 years allowed unhealthy risk taking to flourish in business, and Javed, with his imagined new wealth from credit cards and rising house prices bought into the myth of unlimited prosperity disconnected from true wealth-building activities, otherwise known as “hard work” (I apologise to all the hard working Javeds out there – I don’t mean you!)

Our hope here at the Ultranomics desk is that Javed and Jameela, as well as the rest of us with mortgages and loans, will take this opportunity given to us by the fall in rates to use the monthly drop in our payments wisely. Now would be the time to use that extra cash to pay off more of the loan capital where possible. The trinkets can wait! For those with no mortgage to pay but some money in savings accounts, sorry. But hey, cheer up and treat yourself to some new shoes for being such clever people.

continues below…..

jq ponders on Pakistan’s money flows

Ab Tera Kiya Hoga Kalia!

12th November 2008, JQ (co-editor)

Our brand spanking new democratic PPP government has finally managed to find the sacrificial goat or ‘patli gardun’ responsible for all of Pakistan’s current economic evils. The news is that the State Bank has suspended the licence of Pakistan’s top money changer company Khanani and Kalia International [they used to sponsor news and current affairs on some major Pakistani channels] for 30 days after allegations that it was involved in smuggling $10 billion in foreign currency outside Pakistan.

This smuggling of foreign currency has apparently resulted in a massive downward slide in the country’s forex reserves, which have depleted from over $16 billion in Oct 2007 to now at below $7 billion. What no one mentions is that Khanani & Kalia were only the brokers so who actually owned those $10 billion dollars?

A private TV channel reported that Khanani and Kalia had offered to return the foreign exchange transferred outside Pakistan if the government released them and they have also promised to bring the dollar back to 72Pak Rupees from 78 at the current rate. I mean WOW they surely are the George Soros of Pakistan! But wait a minute, if just 2 Pakistani businessmen have the ability to bring the dollar price down by 6 rupees then what about the masses of wealth of Pakistan’s ruling class [and opposition alike] stacked in European banks and offshore accounts?

I heard the Prime Minister’s Adviser on Interior, Rehman Malik in a press conference saying hundi and hawala are illegal. Really? Since when? There are at least a 100 money changers in Rawalpindi alone right at the door step of the Pakistan Army’s General Head Quarters.

Pakistan has been turned away by all western powers and even China [who we tout about as our bestest buddy] and for what – a measly $5billion to save the country’s economy? Our very own Kalia saab could have done that alone with his special friends!

What I want to say is that instead of looking at the IMF and to beg rich nations all we have to do is have some sharam and sort our tax network and get rid of the double taxation [general sales tax]. So all businesses pay a low amount of tax as compared to a few paying high taxes which in turn gives rise to bribery and corrupt tactics as they try and change the tax rate incidence.

more ultranomics below…..

more views from TK

now the Chinese are feeling the burn…….

The great success story of the new millenium, Pakistan’s friendly-giant neighbour, China is finally beginning to feel the effects of the global slowdown. The great hulking machine that was the powerhouse of world ‘trinket’ production is beginning to run out of steam. (We like the word trinket here at Ultranomics – by it we refer to objects bought by us consumers that often we could do without but we like to acquire to be fashionable or to keep up with our friends, like big TVs, ipods, new sofas, latest shoes).

Anxiety in Beijing is mounting that China’s economy is cooling much more quickly than was initially expected in the face of weaker international demand and a slowdown in the local property market.

Two recent surveys of manufacturers showed a slump in activity in October, confirming anecdotal evidence that the slowdown has accelerated in recent weeks. Some economists believe that growth, which was nearly 12 per cent last year, could fall to as low as 6 per cent next year without a substantial fiscal stimulus.

So, on Sunday China came out with a big bailout program for its ailing economy – a plan called a “Social Stabilization” program, in which the government will spend more than half a trillion dollars (actually £586bn if you prefer your cash in billions rather than trillions) to try to avoid a revolution. With demand from western countries for the trinkets made in Chinese factories dwindling, workers are finding that they haven’t been paid in months and there are reports of bosses just not turning up on a Monday morning and disappearing. Masses of these workers are returning back to the countryside from where they came, often with heads hung in shame, but more often with anger in their eyes. We’re just guessing that this is what is disturbing policymakers in the Mighty Kingdom – the horror of hundreds of millions of desperate, jobless Chinese.

Asian equity markets rallied on Monday – boosted by hope about the Chinese bailout plan. But then, the bad news kept coming…and by market open in New York, hopes were already falling. By the closing bell, stocks ended mixed in Asia and the Dow Jones had fallen 73 points. Gold was trading at about $745 yesterday – after rising on Monday. Oil was slipping again too.

We’ve already seen things begin to go wrong. Unless the next 44 days bring a remarkable bounce, this year will be the worst year for the stock market since 1937. Trillions of dollars has been lost…which has already caused a major change in the way people think. In a matter of weeks, the dominant emotion has shifted from greed to fear.

You’ll remember, the Bush administration worked hard to make people fearful. They came up with those preposterous “threat levels,” trying to convince the masses that they were in constant danger from Islamic terrorists.

Now, the masses actually feel in danger – in danger of losing their jobs and houses. Fear imposed by the government has given way to real fear of the type the Government did not want. They’re never happy are they? Be sacred/don’t be scared. We wish they’d make up their minds. So, when Obama declares that its time for ‘Change’ perhaps he’s thinking about his first job when he gets into office – that of changing the mood of fear into one of joyful confidence. The new Emperor has his work cut out we think!

TIME magazine calls it the “End of the National Nightmare.” No more Guantanamo. Troops out of Iraq. No more ‘threat levels.’ No more suspected terrorists working behind the counter at Burger King. Terrorists? Who cares about them? The danger is now real…and right out in the open. Everyone is living in fear.

Let the history books note that 2008 was the year when in the great USofA the first black president entered the White House and when one hoodwinking scam took the place of the previous one. What americans feared before was a worldwide terrorist assault on their freedom. Yet now, they would gladly give up that same freedom, just to stop losing any more money. The masses need Obama’s administration to give them financing for their homes, to bail out General Motors, to save their jobs and the economy. If they promise to keep us all safe heck the government can do what it wants. We won’t mind.

Thats enough musings for today. More to come soon from the ultranomics desk. Make sure you dont miss the next edition by signing up to the no-obligation regular ultraletter email. It takes just a few clicks!

Welcome dearest readers to Ultranomics

This will be the first edition – hopefully the first of many – of your newest and shrewdest viewsletter covering the economic situation both here in the U.K. as well as back in the Homeland of Pakistan.

Why Pakistan of all the places in the world and what the heck does Ultranomics mean you might enquire?

The answer to the first question is that we, your two co-editors that is, happen to be Brit-Paks (or EuroPaks if you’re pro-European Union and into milk cartons) and thought that it was about time we stopped our idle armchair commentating and actually put our points of view out there.

As for the name Ultranomics – well we made it up, so it never existed before – a bit like this website. But you could say its a concatenation of ‘Ultra’ and ‘Economics’ and in that there may be something to ponder for minds that like to ponder on such things. We don’t mind admitting to being somewhat impressed by the renowned American economist Steven Levitt who wrote the ground-breaking book Freakonomics. Its possible that subconsciously we picked up some inspiration from his work (but we’re not admitting to it)!

So folks, we’re going to don our thinking caps, dust off our wrist-rests and pretend for a while to know how and why the world ticks for us as it does. At least we’ll do our best in any case……bearing in mind that we’re not so pompous as to believe that the true workings of the gears of humanity versus Mother Nature are fathomable. Heck even the bankers, the ’stewards’ of our wealth never saw Mother Nature coming! But you’d better believe that she can’t be scammed for too long a time. In the long term Nature, for example in the guise of the markets, rewards us not with what we think we need or desire, but ultimately with what we deserve. We can only get away with risky speculation for so long. In the end the chickens always come home to roost.

Take those central banker’s, i.e. the Alan Greenspans of the world, who must truly have believed that they could simply print as much paper money as they liked to keep their ‘borrow,borrow,borrow’ and ’spend,spend,spend’ economies (B.S.economies!) afloat.

But dear readers this was literally money made out of thin air, not backed by a country’s hard assets or economic output. It was easy money and, whenever you pump easy money into a monetary system in simple terms you tend to get inflationary bubbles, such as the dotcom bubble of 2000 and of course the house price bubble that just went pop in the western world this year (2008). When the bubbles go pop the assets lose their inflated values. In the case of US housing they’re talking about a loss of housing ‘wealth’ in the order of $6-8 trillion – or thereabouts, give a trillion or two (who’s really counting and what does a trillion actually look like anyway???). That could amount to an average of $120,000 per US householder. But of course what everyone’s losing never existed in the first place. Those phoney paper notes printed by the US Federal Reserve have gone back to where they came from, thin air!

Anyway, you get our gist don’t you? There’s a lot under the surface that we’d like to talk about and if you bear with us, we hope to tell it to you in an entertaining a way as possible. It might take a week or two to get into our groove, but check back often and see how we’re progressing. Better still, go ahead and subscribe to our RSS feed or sign up to our regular ultraletter email. We value privacy so it goes without saying that your email address will never get past our website and of course you can unsubscribe at any time. We thank you in advance for your time and brains and hope we can imprint some interesting ideas into them.

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Hey readers, your humble co-editor jq has some pet hates to rant about too….

Pakistan – Some Core Issues

9th November 2008, JQ (co-editor)

I had always promised myself to be the beacon of righteousness in the face of all of the worlds’ wrongs but “home economics” always got the upper hand and until today did not not let me sort the socio-political world of real economics as Adam Smith would like to define. Well the good news [or bad depending upon which side of the scale you are on] is that the genie is now finally let loose by the thought police to play havoc on all of you alternative readers who took time out to find us. I say alternative because like TK mentioned we are different and want to present unique out of the box and possibly witty debate about the ultra problems at hand. So welcome to the ultranomics way of thinking.

I would start with some moans and groans to set the temperament! Then in the coming days we will look at possible resolutions to the ongoing painful points of Asian Economics (particularly in Pakistan) through the “common sense” approach. They say that common sense is very uncommon and honestly speaking not many brain cells seem to have been used so far otherwise Pakistan would not be in the current mess and would not still be banded among the third world countries, even though it is an atomic power.

The basic needs of a human being in today’s world can be summarised under the headings of food, shelter, power, health, safety, communication and transportation. Now if you live in Pakistan please look around and honestly answer as to how many of the population has access to all of these let alone a single one! Pakistan was created “60” long years ago and so far we don’t even have a proper international airport for the capital Islamabad and still are using the old Pakistan Airforce site.

It is shameful that being an agricultural country we are struggling to feed our own people, who in some cases are now forced to sell their own children in order just to get by and pay the bills. What happened to the Muslim Caliphates’ philosophy of being responsible for feeding even the single stray dog? George Orwell wrote: “All men are equal, but some are more equal than others.” I guess this stands true for the people in the driving seats of our poor country Pakistan’s throne who travel in expensive, third-world -country-budget-busting, lush bullet proof cars and eat lavish meals in comparison to a common Pakistani man who is struggling to pay his bills and only striving for daily grub so tell me how can we send a mission to the moon like India did, can anyone answer? Anyone from Suparco!

The Planning Commission of Pakistan believes that around 35 per cent of the Pakistani population are falling below the poverty line while the Pakistan Finance Ministry estimates only 22.3 per cent in accordance with the latest official survey [really have you ever seen a surveyor outside your door?]. This controversy if not resolved immediately, could potentially block the World Bank loan worth $500 million for Pakistan [I thought we had broken the so called kashkol] under the Poverty Reduction Strategy Credit (PRSC), which is desperately required to improve the depleting foreign currency reserves of Pakistan. Under the World Bank conditions Pakistan will have to prepare the PRSP setting targets to reduce the prevalence of poverty and establishing social safety nets in order to obtain a credit line of $500 million from the PRSC. The Finance Ministry is preparing the PRSP document for presenting to a visiting mission of the World Bank but is clueless about which figure is the official line. This really is mind boggling because if we cannot even get our statistics right then how are we supposed to plan our future. What happened to the professional norms and attitudes of the civil servants?

Why do all of the Pakistani roads have to be rebuilt every year? [I have to say the Pakistan motorway is an exception - credit where credit's due]. This is fuelled only by the kickback culture. Call it potato, call it potaato – the word though is “bribe” and will lead to hell fire. We will never know the real reasons why the Karachi bypass fell within days of its opening killing dozens of innocent civilians, so who will pay for their blood and the misery of near and dear ones? Can you put a price tag on anyone’s life? Can you price your own life’s worth?

We were taught in school that the essence of democracy is that it is for the people, by the people and of the people, it is the separation of powers between the executive, legislative, and the judiciary with all of them being independent of each other. In Pakistan no such arrangement exists so far. The Chief Justice of Pakistan Iftikhar Mohammad Chaudhary is a case in point who has yet to get any justice, so does a common Pakistani stand any chance of fairness in his trials?

Though it is true that states such as Pakistan with a weak economy and weaker political structure cannot hope to safeguard their sovereignty from arrogant superpowers such as the US, most Pakistanis still expect their rulers and armies to make a real effort toward this end instead of making hollow claims and raising false hopes [once is enough in 1971 war]. With such low credibility the ruling elite cannot hoodwink the people who now, thanks to the communication revolution and open access to the world media, are much more informed and enlightened and should not be taken for granted because they are able to fully grasp any given situation and arrive at intelligent decisions. We really need to take heed from the strong reaction of Syria’s President Bashar al-Assad’s government, which described the killing of eight Syrians in the attack as a “cold-blooded war crime”, demanded an apology and warned of consequences. With week knees if Pakistan cannot even stop its so called “allies” from attacking its borders then how are the Pakistanis going to get some favourable decision on the good old Kashmir issue?

Questions, questions and more questions! I will end this first journal perhaps for you to ponder and will touch all of the above and more Pakistan and Asian core issues, however my aim is to discuss a way forward and eventually suggest some solutions, yes solutions because we all know the problems by now and its time to get rid of them for good.

jq@ultranomics.com

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