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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: Chuck Molinary who wrote (18867)	7/9/1998 6:20:00 PM
From: IQBAL LATIF	Respond to of 50167

Yahoo and Amazon have been downgraded by us and AOL upgraded-- the market kind of listen to us albeit a bit late-- ggg. The jury is still out too early we need Yahoo on 55. Amazon with 600 million $ earnings trade at a rev multiple of 10 at 6 bilion $ cap. This is share non sense and like Iomega the story will unwind sooner the better. However I will not short these suckers. Keep my limited put premiums expecting a return. I feel kind of privilaged that this thread despite being unabashedly bullish has always maintaned that fine discipline not to follow momentum issues. Even in day trades I give support and resistance levels instead of straight long or buy recommendation, this is the only way to save ones hard earned capital to be eaten by vultures 'whipsaw' is no strange to many a traders we try to avoid it keeping fully in mind that no one can ever control the markets and to swim with the sharks see what is market telling you. Look at ADL and you will find how are people way of the mark on market internals weakening.

To: Chuck Molinary who wrote (18867)	7/14/1998 6:09:00 AM
From: IQBAL LATIF	Respond to of 50167

Chuck --strictly off topic- Can you please post this up on our home page- Pakistan's currency and stock market crisis and delusions of economic growth- A nation ready to eat grass is now shorting its own currency with vigor of George Sorros. Iqbal Latif- `An economic meltdown-when sum total of nations strategic obligations far exceed its productive economic abilities `meltdown' is inevitable. Unfortunately time and time again nations miss this cardinal principle and look for that external hand that destroys the economic structure- it is not the external enemy it is the enemy eithin'.Ike Latif in 'Meltdown from nowhere'on definitions of a economic meltdowns. Impact of `economic sanctions' were relegated to back burner between 12th of May and 28th of May prior to the Viagra induced national hype that led to `Nuclear Match' finale with India. Issues pertaining to Pakistan `s ability to face economic sanction were considered as arguments against `national sovereign independence'. Sanctions did not matter, the national slogan was `Pakistan could eat grass'. Sadly enough in matter of days the projections of `national traitors' like me have come out true. We have become a nation of shorting our own currency, we move towards debt moratorium and a possible default on our obligations. What has hit the nation so badly, no one seems to have clue, this is an attempt to bring why sanctions the word only have an impact far bigger than actual bite. IMF/World Bank sanctions are like refusal of lender of last resort to bank- roll Pakistan's economy. You ask anyone in Pakistan why don't you pay taxes? The answer inevitably would be what has this nation given to me? Why should I pay my taxes let the leaders pay first! Convenient way of passing on the buck. It is the worst kind of catch 22 situation we are in. Collectively so far we have not been able to resolve the problem from time immemorial i.e.( 51 years of our independence) of chicken and egg, a nation still divided about which came first. No economic growth is possible without taxes. The percentage of tax collected is only 11% of the declared GDP of 55 billion $'s. If the informal sector is included the GDP is around 150 billion $, 11% of the informal and formal GDP amounts to 16 billion $. It is this amount we require every year to meet our domestic development programs and strategic objectives. Instead we collect very little in taxes and the nation small formal sector has to carry the joint demands of informal and formal economies. This is recipe of disaster either we bring changes in our approach or be ready to become a country infested with ills of hyper inflation and loads of worthless currency. It is for this that although on PPP (purchase power parity) we are reaching 2200$ / capita income our reliance on IMF has increased with each passing year. Whichever way one looks at it the fact remains that we a nation of 131 million people have failed our nation. We have only 262,000 tax payers if one takes out the government employees whose tax is deducted at source and the corporate yuppies in the private sector who happen to work for organization who have a tradition of tax payments. We collect only 52% in revenues of our total budgetary outlay, rest all of it is filled in by cosmetic kind of exotic revenues under the heading of `external resources'. Economic management and austerity is something alien to our character and attitude, it is for this country time to realize that this is pay time our sum total of strategic and domestic commitments are far in excess of our resources, we need to tighten our belts. Living within our means is the first requirement, increasing the size of our cake the second and harnessing of our domestic niche resources the third. We cannot keep throwing water in the sea and keep importing wheat for our exponentially growing population. Isn't it s shame that a nation that can grow 40 million ton of wheat and 35,000 MgW of electricity is importing both at most exorbitant prices ever paid by any country in the world. Let us look at the fundamentals and determine how can we escape from these chains of economic slavery. The task is tedious and difficult but first of all we need to know what are we presently hit with. Until we don't have realization of our problems, solutions are impossible to determine. The present crisis traces it roots to our inability to comprehend our dependency on foreign resources. The daggers are out in no time within less then a month of our nuclear explosions condemning the government of mishandling the crisis. However, the fact remains that with 1 billion $ in reserves and 11 billion $'s of short term deposits the announcement of sanctions alone destroyed the `confidence' based on which Pakistan's economy so far has been bailed out time and time again. Those who say that sanctions have so far not bitten fail to realize that IMF and World bank has been our lenders of last resort. G-8 decision to refuse aid and support in the executive board led to this run on the bank. Pakistan faces a situation where $ depositors are selling the currency short and transferring the proceeds to foreign accounts. Nation faces a thousands of mini `George Sorros' who are eagerly wanting to get their savings out of the country. Nation's `creme de la creme' that promised to face the crunch is now searching for policy blunders that led to the melt down. Although policy turn around have aggravated the crisis the fact remains that the government is in acute short supply of `visionary financial wizards' who can stem the rot. This speculative cyber age problems need cyber age vision. These problems cannot be resolved by run of the mill kind piece mill solutions. Pakistan needs to go for the jugular, kill the supply of the Rs. which leads to speculative excesses. Pakistan is hit by a dual crisis, this is worst nightmare of any nation. We are all trying to find the causes of this problem without realizing that we live in an integrated world, the events in Pakistan are interlinked with global trends. The money flowing out of ASEA is a result of crisis which started nearly year ago. We in Pakistan according to Fortune were amongst two countries in ASEA which ended 1997 with best returns on stock market. What happened since then. Pakistan is beset with too many problems first is its inability to control its reliance on external resources, Pakistanis never realized how much their economy was dependent on goodwill of IMF, the nation collects in revenues only Rs. 305 billion but has expenditure of Rs. 632 billion, no on has ever seemed to notice that where is Pakistan finding its deficit from. Pakistan is shocked by the intensity of the crisis which has hit them and now are actively looking for policy blunders and trying to find 'scape goats'. It is not about the `bad handling of crisis' although one is not impressed with the number of notifications from State bank. The fact remains that Pakistan economy has been severely hit by vote of no confidence stemming from unrelated matters concerning `strategic issues' from its lender of last resort i.e. IMF. It is true that sanctions so far have not made any monetary affect but just the suggestions of it has eroded the confidence. Global economies work on mutual trust and confidence once confidence is eroded the inevitable decline of currencies follow. Anyone who think that Pakistan could have it cake and eat it too is naive. FCA accounts could not have been handled another way, the short term depositors liabilities of US $ 11 billion were unfunded and did not suffer any run until 28th May as lenders of last resort were ready to bail out Pakistan with their deep pockets. However, once Pakistan defied their strategic demands of accepting no quid pro quo the natural outcome was that short term swap funds which formed 56% of reserves on 28th May were ready to leave. Pakistan with its 1 billion odd reserves was not in a position to pay even 5% of its depositors let alone demands which could have been as high as 50% once first few depositors would have been returned unpaid. It was like run on the bank and the bank had no money to pay, one can now with benefit of hindsight look at as many definitions as they want but the fact remains that US $ 1 billion reserves could not withstand the pressure of heavy withdrawals not from the domestic depositors but the swap funds alone would have wiped the slate clean within days. Taking on IPP's is another issue, it is very simple bring back the exorbitant returns and market comes back right unto 1500 level, anyway 70% volume was dominated by just two stocks the PTCL and Hubco, it was projected profits in excess of 30% for next 30 years based on which market was trading where it was. Once the sanctity of this income stream was questioned and it dawned on these smart investors that a nation like Pakistan would be unable to pay these kind of obligation until perpetuity all hell broke loose. Any international investor when decides to invest in excess of 30% returns he also is well aware of the possibility of default. In case of Hubco the returns has been above 70% in $ terms with this kind of returns comes the possibility of default. Higher returns means higher risk in case of Pakistan why it should be an exception! If Pakistan is unable to pay we need to see if WAPDA or other agencies can be put in chapter 11 but nations have in past defaulted on debts and especially junk offerings like this anyway were high risk. Why should investors cry with pain now if US long Bond with AAA rating is yielding only 5.6%, and corporate junk bonds at 14% maximum anyone who wants a return of 30% should also accept the possibility of default. Pakistan inability to pay Hubco lies at the center of this stock market crisis, those who speak of respecting contracts should also know that exorbitant returns on utilities even in UK are regulated. A nation with per capita of $ 485 cannot be expected to pay dividends of Rs 11 billion on just one utility plant. Much as I sympathize with the investors. I still believe that instead of crying foul they should look at their counter party financial stability. If they made a judgement that this is a nation which can pay they should realize that ability to pay is a important a credit consideration. Is Pakistan reneging on its contracts, may be but anyone who banked on a sinking ship like WAPDA back in 1994 backed a wrong horse. It was this backing of wrong horse which attracted huge risk premiums, but risk premiums are two edged sword National Power own stocks only yield 4% in UK whereas here Hubco yields 30%. Is this 26% yield differential was not suppose to be the risk premium. Pakistan crisis should not be looked in isolation but rather ASEAN crisis `boom and bust' cycle is a classic model which fits Pakistan too. Nations face these swings when they want to develop too fast. No one event is ever responsible for the onset of a massive fall in currencies and stocks it is the gradual build up. Unfortunately the political leaders are naturally inclined towards pork barrel projects without any respect of the returns. The crisis ensues when funds i.e. hot money leaves without warning. Hot money is the `Mother of all coward monies' it is afraid of its shadow (rightly so) and undependable. This herds mentality encourages them to come in a crowd and leave in a pack after properly devouring the economic stability of the country. If any attempt was ever made to insulate this incoming hot money and the application should have been in projects where the mis-match was minimal we could have saved from these Latin American type of extreme gyrations. Unfortunately it is strange that all plans are made on presumption that money would keep coming in and would never leave hence it is assumed that like a `ponzi scheme' new money will pay for old money. However, it is not so simple the factor of leverage breaks the resolve of even the deepest of pockets. Rarely has a nation is able to escape the onslaught of speculators once window of opportunity is available. Prime Minister Mahatir should have looked into contemporary economic history of so-called speculative vandalism to find that the great cavaliers like UK Treasury Secretary Lamont lost his battle to same bunch of speculators. Sterling Pound black September of 1992 is not a very distant memory. The root of all this is artificial pegging of a currency with weak economic fundaments to a currency with strong fundamentals at a much higher level. In case of UK it was German Mark in ASEAN's case it happened to be $'s. To restore competitive advantage between nations with weak economic fundamentals and strong economic fundamentals massive devaluation deals the final `coup de grace'. Currency is an IOU of any nation, devaluation in other words is marking down of weaker nations IOU's to where they belong. Higher risks eats up the buying power of nations IOU's. The most of the funds following `emerging markets' for quick phenomenal returns are basically risk capital rather very appropriately called as hedge funds. They take advantage of booming markets as well as dropping markets, both ways they skim the nations with best of their ability. The question is what is the cost of opening up for a developing nation, should nations accept this known menu of IMF to open up, devalue their currency and look at exports to take off. The economies of ASEA need to look at their internals they need to devise ways and means so as to avoid this callous round of leveraged selling. Welcome money that invested in long term projects. To accept `hot money' in $'s or any convertible currency and to finance non-performing long term cosmetic projects leads to crisis like we have seen in last 12 months. The problem with `hot money' is that once it starts leaving in $'s the nation is served a double whammy, it has to dip into its meager reserve resources. The dwindling reserves in turn increase further pressure from the speculators who knowing the situation well have been building positions to short the currency. Worst of all is that most of the `hot money' is used up to finance the rising current account deficit of governments as result of realizing dream of fast growth or in pursuit of who has longest bridge or the highest building. Little do the politician understand that about new phenomenon of cyber money. The counter values of these funds once converted into local currency find their way to stock market. It is inevitable that stratospheric heights are made and new legends are written by world media and great strides made by a nation but underlying all this `House of cards' is the bubble economy and exaggerated hype. Like Pakistan's suffered a `death blow investment' from a single utility company made unprecedented profits in single year, a cool 80% $ returns. Now nations subjected to this kind of excessive profiteering under nostalgic slogans of `foreign investments' are bound to end up as nations who shall keep working for decades to pay for their mistakes made by some senior bureaucrats or politicians who were out witted under disguise of `foreign investments' by much smarter vandals. Quick fast pace development and mis-match of short term hot money and long term cosmetic projects where these funds are invested in gestation periods far in excess of short term monies aggravate the crisis. One needs to take few lesson from this crisis. Nations should stay within their means. They should avoid depending too much on `new money' to bail them out when crisis hits them. This whole idea of buying growth off the shelf is turning out be accident prone. May be it is not a very bad idea not to allow open convertibility of currencies on capital account. China has so far escaped unscathed because of little vandals can do to short the Yuan. To cure domestic economies through IMF prescribed export led growth menus is another problem, in case of Japan it fails to realize that export only constitutes 15% of the GDP without igniting domestic demand the other 85% of economy cannot rest on the laurels earned by export oriented companies. Moreover, if competitive devaluation's become a norm Yen would need to go to 200 to survive new round of devaluation's starting from Chin that would envelop Hong Kong and the entire ASEAN countries. We need a bit of cooling down period to ensure consistent development. The politicians need to attend a course of 'leverage affects' so as not to find new escape goats when contagion spreads uncontrollably. It is not the enemy within it is the unabated `consumption within' which is the culprit. Even crony capitalism comes second to this unabated streak to consume `other people's money' on hi-rises, ring roads and state of art defense. If nations cannot afford they should avoid buying `growth' off the shelf the ensuing crisis is hard to bear. It results in excessive devaluation's, negative growth, deep recessions and mass unemployment.