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 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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