Friday, 4 December 2015

Turkey, The Rising Economic Power 2015

The Middle East is sometimes viewed as an economic failure story. But at the Western fringe of that region, a new global economic powerhouse is rising - Turkey, the transcontinental country positioned strategically between Asia and Europe. With a Gross Domestic Product (GDP) of USD786 billion for 2014, the nation opens its doors to investment across multiple sectors. Will Turkey continue to be a safe haven for investment and can it be a springboard into Europe and the Middle East?

Turkey's steady progression

The 1980's marked a turning point in Turkey's history. The liberalizing reforms by visionary Prime Minister, Turgut Ozal opened up the economy. Even though the latter years were marred by economic disruption, the Kurdish conflict and a banking crisis, Turkey's economy consolidated its gains after 2002 when the Justice and Development Party (AKP) came into government. The AKP have since made concerted efforts to institute structural reforms, new fiscal policies and macroeconomic strategies to attract foreign investment.

Turkey's steady GDP growth - an average of 13 per cent (year-on-year) from 2002 to 2012 - is proof of its progress. As of June 2014, Turkey is the 17th largest economy in the world and the sixth largest compared to the countries in the European Union (EU), which Turkey still does not belong to, but which it would like to join.

Growth potential

Global investors have every reason to explore this burgeoning economy for business opportunities. Some pull factors that make Turkey an attractive destination for diversified Foreign Direct Investment FDI include:

Strategic location

Turkey's strategic location - at the intersection of Europe, Central Asia and the Levant - provides access to major markets and 1.5 billion customers across Europe, Eurasia, Middle East, and North Africa. This makes Turkey a springboard for accessing a market worth approximately USD25 trillion. The country also plans to further develop three key hub ports to position itself as a leading regional shipping logistics center. The largest port project underway - the Candarli Port - is estimated to provide 11.4 million twenty-foot equivalent units upon full completion, at a cost of €910 million.

Turks: a young and skilled labor force

Turkey has a population of 77.7 million (for 2014), with 50 per cent of the population under the age of 31 - which makes it home to the largest youth population among all European nations. 610,000 students graduate from its universities and around 700,000 students graduate from its high schools every year. Around 50 per cent of these students are from vocational and technical high schools, positioning Turkey well for high-tech and R&D investment.

Robust infrastructure

Turkey's infrastructure plays a key role in maintaining strong growth. It continues to upkeep new and highly developed infrastructure in transportation, telecommunications and energy.

North of Istanbul, a new airport is under construction at an estimated cost of €22 billion. A bridge is under construction at a cost of €2.6 billion across the Bosphorus strait that separates Europe from Asia. Moreover, Turkey's extensive transportation system facilitates sea and land communication with other European countries.

At the same time, Turkey plays an important role as an energy transit partner. Geographically, the nation is located in close proximity to more than 70 per cent of the world's proven oil and gas reserves. Some projects undertaken to increase connectivity include the Baku-Tbilisi-Ceyhan (BTC) pipeline (2006) and Baku-Tbilisi-Erzurum (BTE) Natural Gas Pipeline (2007) projects - aimed to ease transit for energy imports across European nations. Turkey is located close to more than 70 per cent of the world's proven oil and gas reserves.

Renewable energy as a resource for Turkey

Turkey does not own any significant energy resources but its strategic location gives it access to more than 70 per cent of the world's energy reserves. Although 60 per cent of the country's energy consumption depends on imported energy, Turkey has the capability to reduce its dependency by using renewable resources to target 30 per cent of its total energy needs. In 2013, the World Bank Group provided USD1 billion to advance renewable energy and energy efficiency projects in Turkey.

Progressive investment climate

Turkey's reformist and pro-growth political culture keeps investors coming to Turkey. The country promises equal treatment for all investors. As of 2014, it took only six days to set up a company while it takes more than 11 days, on average, to do the same in the countries of the Organization for Economic Cooperation and Development (OECD).

Tax benefits along with incentives for strategic and large-scale investments have succeeded in pulling in FDI. For instance, the Corporate Income Tax was reduced from 33 per cent in 2000 to 20 per cent in 2006.

EU Customs Union

Turkey is a member of the Customs Union with the EU since 31st December, 1995 which covers all industrial goods (except agriculture, public or services procurement). Turkey also has Free Trade Agreements with 20 countries. More Free Trade Agreements are in the pipeline. Most exciting of all, the country is pursuing accession negotiations with the EU. Turkish entry into the EU would create ample business opportunities for local and foreign enterprises within the nation.

Sizable domestic market

With a population of 77.7 million in 2014 and the GDP per capita of a middle-income country (USD 10,500 in 2010-2014), Turkey's domestic market is not to be sniffed at. The country is becoming more and more middle-class. Sectors such as telecommunications and banking have registered strong growth in both user base and revenues.

Broadband internet subscribers have increased from 0.1 million in 2002 to 39.9 million in 2014 and mobile phone subscribers increased from 23 million in 2002 to 71.9 million in 2014. Moreover, there were 57 million credit card users in 2014 when compared to 16 million in 2002.

Istanbul catches the eye of global investors

The city of Istanbul is particularly favored by investors due to its strategic location, well-established infrastructure and educated workforce. Istanbul received more than half of the total FDI projects directed to the country between 2007 and 2012.

As costs in Istanbul reflect the influx of FDI, investors have started exploring other cities such as Izmir, Ankara, and Bursa.

Borsa Istanbul (the Istanbul Stock Exchange) has ascended 30 places on the index of global financial centers since 2012. This improvement highlights Istanbul's potential to become one of the top 10 financial centers in the world.

As costs in Istanbul reflect the influx of FDI, investors have started exploring other cities such as Izmir, Ankara, and Bursa.

Measuring investment Risk

To some degree, Turkey still struggles with corruption allegations and occasional political turmoil, which raises investment risk. What factors should investors watch for?

Low domestic saving rate

In 2014, Turkey had the lowest savings rate among 14 large developing countries - currently equivalent to 12.6 per cent of its GDP. The reason is its huge current account deficit (CAD) which stood at USD70 billion in 2013. Turkey needs to ease overdependence on imports of investment goods to improve this.

Furthermore, the nation is highly dependent on international borrowing - any increase in borrowing rates is likely to have adverse effects on the country's economy. For instance, Turkish bank lenders suffered a substantial loss in May 2015 due to new reforms introduced by the government.

Inadequate Research and Development resources

Investors seeking to buy into innovation will have to look elsewhere, as Research and Development (R&D) capacity in Turkey is not very strong. The government has limited policies in place for research and development capacity building.

Political unrest

The political situation in Turkey has improved tremendously since the moderately Islamic AKP party came to power in 2002. The AKP government introduced several reforms such as the abolition of civilian-military courts, changes to the anti-terrorism law and greater empowerment of labor unions. However, the political instability in Turkey's direct neighbors still poses a threat to the stability of the economy. Turkey is right next door to civil-war-wracked Syria and Iraq. Within Turkey, tensions periodically flare up between the more religious supporters of the current Turkish government and secular Turks who are skeptical of the AKP.

Future outlook

Turkey's GDP growth rate is projected to remain steady at 3.6 per cent through 2016 - a far cry from the heady growth in its heyday, but still respectable for a middle-income country. Its liberal and attractive investment climate will continue to help Turkey to invest in sectors such as infrastructure, telecommunications and energy.

The government has set a goal of generating over USD250 billion in GDP by 2023 through investments in energy, transportation and information technology. Such projects are intended to attract big players to invest in the Turkish economy.

There is no doubt that Turkey is a large and important country that holds a great deal of promise as a market as well as an investment location. Its geographic location and skills base make it an excellent hub to export to the Middle East and Europe - and one that is deeply under-appreciated among the international business community. Turkey is an oasis of stability and development in a turbulent region of the world.

Friday, 20 November 2015

China's trade surplus - The Economist

Despite the continuing global demand for Chinese products, there is one more element that has been playing a crucial role in ensuring China's trade surplus in the recent years. It's the renminbi - the Chinese currency.

Being an export-heavy nation, China knew that it had to keep its currency lucrative enough for its trading partners. This incentivized China to keep the value of renminbi low and a managed float seemed to be a feasible way. Besides, this also eliminated the level of payment uncertainty from the minds of Chinese exporters and importers.

Benefits of the Managed Float System vis-à-vis the Fixed Exchange Rate Regime

· Ability to ease out the strict capital controls that were in-built into the system to facilitate a fixed exchange rate regime

· Accumulation of low-yielding foreign reserves (compared to other forms of domestic investments within China) due to more demand for renminbi was a major cause of concern under the fixed regime. Along with this, inflationary pressures were always prevalent. With a flexible system the impact of such issues can be reduced as circulation of renminbi within China can be controlled in a better manner.

· Huge exposure to USD (around 50% of GDP) as the primary foreign reserve means that even a marginal drop in the value of USD can be detrimental to the Chinese economy. With flexible regime, this risk can be eliminated to a certain extent as depending on situation, China can take up exposure in other non-US foreign reserves in a better manner.

The Ultimate Goal

From the above discussion it can be seen that China made a smart move to switch from the fixed exchange rate regime of the late nineties to the managed float system in 2006. In the process, renminbi appreciated 21% against the dollar before it was again repegged to the USD in August 2008 in a move to protect Chinese exporters who felt the heat of diminished consumer appetite amidst the global sub-prime crisis ignited in the US. As demand conditions started improving, renminbi was again moved to the managed float system. This move was also seen as a precursor to the People's Bank of China (PBOC) inching towards making renminbi a global reserve currency. Although this is far from reality, China has made progress in inking trade agreements with selected countries and launched a series of currency swap agreements with more than 20 central banks around the world.

Sunday, 15 November 2015

Abu Dhabi Best Residential Locations 2016

Al Reem Island continues to be essentially the most searched location in Abu Dhabi for property buys and leases, following the most recent statistics. Beside from confirming Reem Island's constant rating, the fourth quarterly report launched by UAE primarily based property portal PropertyFinder additionally states that Reem Island has been gaining on reputation as well.

After reviewing roughly two million investors, the portal concluded 18.67% of individuals have been looking out to purchase properties in Reem Island whereas 18.41% of individuals had been trying to lease in the identical location. The group that topped the record for many searches associated to property purchases or leases occurred to be western expatriates who've just lately moved to the UAE.

Based on the report, the waterfront promenades, sea view properties and small-city attraction are a number of the components that make Reem Island such an exotic location for residential living. It presents a holiday-like escape to residents with easy accessibility to business infrastructure and social interactivity.

Whereas the best 5 areas, most searched, to lease property remained the identical in all four quartiles of the year, there have been some adjustments within the different spots on the checklist. As an illustration, Al Reef discovered itself rating approach good on the fourth quarterly listing after shifting up 5 locations from the earlier quarters, and Al Raha Beach discovered itself rating good on the listing regardless of not being on it in the past. Al Ghadeer nevertheless, lost interest by some followers over the months and declined in reputation. It ranked decreased within the fourth quarter after rating sixth and eight within the second and third quarters respectively.

Khalid Suleiman, Sales Director of Nationwide Middle East Properties, believes that there is a rise in the sale and rent prices throughout the UAE as a result of the broad restoration within the residential market over the previous few years. He has added some mid-market communities like Al Reef, Raha Beach and Golf Gardens in his checklist of examples.

As of now, properties in Abu Dhabi market appear to have rebounded with costs of properties going up by greater than 20%. New property projects are being launched every next week because the demand for actual property appears to be at its peak.

Khalid Suleiman listed number of locations which he considers to be among the best places to have a property rented or to actually buy one whether it is a home or an business office.

Top Eight Most Searched Locations in Abu Dhabi

Al Reem island

Al Reef Downtown

Raha Beach

Saadiyat Island

Gold Gardens

Al Ghadeer

Hydra Village

Khalifa City

With the publishing of this report, interested people thinking about purchasing or renting property in Abu Dhabi will now discover it simpler to make their selections. Other than these locations in Abu Dhabi, property costs throughout Dubai are believed to have gone down so those looking for houses within the UAE may make a research within the Dubai state as well.

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Friday, 23 October 2015

The Dying Dollar and the Rise of a New Currency Order

The dollar has been the World's Reserve Currency since the 1970s when the Gold Standard was abandoned by President Nixon. Since then, the US dollar is widely accepted across the world making it the world's leading currency. Today 43% of all cross border transactions use the US dollar. Furthermore, central bank reserves indicate that the value of the dollar is strong with 61% of these reserves being in dollars.

However, speculation has been rife over the past few years that this currency may die even as its percentage of the world's currency supply diminishes. This is backed by a report by the International monetary fund that shows how the dollar has drifted marginally to a 15 year low. What this means is that countries that have been willing to use the dollar are ready to adopt other currencies to do business.

There are a number of circumstances that set the ground for the collapse of the dollar among them an underlying weakness, the presence of another viable currency alternative for all and a trigger towards the collapse. Presently, the first condition exists as the US dollar has recorded a 54.7% decline against the Euro in as span of 10 years. During this time the US debt almost tripled. Analysts claim that this is a sign that the U.S. will allow the value of the dollar to decline so as to pay its debt with cheaper currency.

China is consolidating its share of gold with the hope that it will become the international currency in the near future. Gold is considered a better replacement to the US dollar because of its worth. As such, China is buying into the world's gold reserves in a bid to create a new currency.

Economists argue that should China succeed in increasing its market share in the world currency market, then there are high chances that the US dollar will be a loser. Even then, pessimists hold the belief that this can only work for the Chinese and not the Americans.

To understand this better, it is worth noting that the reason why the death is the dollar is inevitable is that an asset backed currency needs to replace it. According to financial experts, the biggest shock will be in the currency reset that will be followed by the Gold Trade Standard. Hence the return of the gold standard is near although it will be through trade vehicles as opposed to SWIFT bank platforms and Forex currency. Consequently, Gold Trade Notes will be used in the place of a letter of credit.

China's recent slowing of economic growth as well as potential credit problems has worked for the dollar that has gained strength over the Yuan.

China's recent slowing of economic growth as well as potential credit problems has worked for the dollar that has gained strength over the Yuan. In summary, the future of the US dollar is worth looking out for in light of the possible return of the gold standards. Ultimately, there is no need to panic and sell assets as economists will be available to offer advice on the best way forward for investors as well as speculators.

Saturday, 10 October 2015

Samsung Galaxy S6 Flagship Line Rebooted

The latest flagship smartphone from the Korean electronics giant is a polarising proposition. On one hand, the latest Galaxy S6 eschews many features that Samsung fans have loved. These features have been touted by Android fanboys and girls to their iOS loving friends, for many years, as definitive advantages of using a Google powered smartphone. The features are: removable and expandable storage in the form of an SD, SDHC or SDXC card and a removable battery. In fact, with previous generations of Galaxy phones, Samsung even highlighted the ability to easily swap batteries on their phones, in advertisements that poked fun of iPhones.

Thus, it comes as a great loss to diehard Samsung fans who also liked the idea of being able to swap out a dying battery with a fully charged one in less than a minute. Also gone is the ability to buy replacement Samsung Galaxy S6 covers and swap them with the ugly covers that Galaxy phones shipped with. In the past, this was the only way to cover up the hideous, fake leather effect backs on Galaxy phones such as the Note. On some models, Samsung truly got carried away and even added fake stitching that was just moulded plastic.

But all that is gone with the new S6. You can still buy Samsung Galaxy S6 Cases if you want to add a little style and protection to your phone but you no longer have to do it just to hide the ugly plastic back or the tacky metallic accents on your phone. This is because every shiny metal accent on the latest S is actually metal and not just plastic with a thin layer of silvery paint on top of it. While the Galaxy has lost a removal battery and expandable memory, what it has gained is a sexy metal chassis that makes it stronger and thinner on the inside and much better looking on the outside.

The metal chassis also means that with wear and tear, there is no paint that will fade off the S6 like it did with previous generation Galaxy phones, so the latest version should keep looking as good as new for much longer. Samsung may have roused the ire of many of its long time fans but most other smartphone makers are also moving in the same direction. The trend now is towards manufacturers making thinner phones that lose the removal memory card slots and the removable batteries in the interest of making thinner, sturdier phones. Apple has had huge success with its iPhone line despite the fact that it has never ever had either of these two features and now Android phone makers are realising that they can get away with it as well, as long as the phones make up for the loss of features, with other advantages.

Friday, 2 October 2015

US, Iran and ISIS

With respect to the continuing diplomatic and economic battlefield between the west and Iran comes another unspoken issue and possibly never discussed: with the possibility of the lifting of sanctions, how will this new relationship impact the battle against ISIS? Iran has invested considerable resources supporting the Shiite militia while the US has supported the Iraqi government forces with few, if any, direct coordinated military efforts.

What happens on the economic front won't necessarily translate on the same level of cooperation and coordination on the battle front. Nonetheless it will be more difficult for ISIS to play one side against the other. In fact ISIS has more to worry about Iran than the US.

Overseas military adventures are an exceptionally expensive endeavor for any country, Iran is no exception. Which begs the question as to how Iran managed to project their military efforts under tough sanctions?

With the lifting of sanctions, Iran will have access to critical international financing which will be enhanced through the sale of oil and natural gas. Iran can then increase their military efforts in the region by providing the Shiite militias more sophisticated weaponry with greater firepower. Ironically in this role Iran may reluctantly become the US' proxy. For the US this is a rather inconvenient arrangement yet more politically acceptable than sending in US ground troops.

It's a similar approach and concept to how the Allies and Soviet Union battled Nazi Germany. Neither side was fond of the other, yet the war required a certain level of coordination to defeat an implacable enemy. The US provided Uncle Joe Stalin substantial amounts of materiel when the Soviets factories were in ruins.

In the never ending Iraq campaign, the US might provide more satellite intelligence and coordinated air strikes supporting ground based Iranian-led Shiite assaults to retake ISIS-occupied provinces, cities and towns. With respect to military operational performance, the Shiite militias are highly motivated and are superb ground fighters who lack air support. The Iraqi government forces have poor ground fighters who require extensive air support.

Particularly with any major historical agreement there are always embedded secret agreements and understandings with respect to topics outside the scope of the signed documentation. Iran's presence in the Middle East has been a vexing issue not only for the US but many Arab countries especially Saudi Arabia. The key to whether such agreements were made is to be vigilant of any change in Iran's movement in the region, regardless how subtle. Despite all the hard-liner posturing, it's always the specific acts after such agreements are made that confirm whether unwritten mutual understandings are being carried out.

Sunday, 27 September 2015

Indian Economy Crisis

Let's understand the concept of global economic crisis first. It is important before proceeding to analyze its impact on Indian economy. Global economic crisis refers to the financial crisis owing to the great depression of 1930. It is an upshot of profound economic recession, which commonly refers to business cycle contraction and decelerated activity over a long period of time. It is a situation where macro indicators like gross domestic product, employment, capital utilization, household incomes and business profit fall and bankruptcies as well as unemployment rates rise. This global financial crisis is among the greatest financial challenges of the world economy, which originated in the United States. It began in July 2007, when the credit crisis started with the loss of confidence by US investors in the assessment of sub-prime mortgages, which caused a liquidity crunch. With globalization, the entire world is affected by the crisis and its impact can be very well witnessed all over.

It is often predicted that India will be one of the largest markets in the future. This is primarily because India is considered to be one of the largest developing countries in the world. With the assimilation of the Indian economy and its financial markets with the rest of the world, the country experienced its worst slowdown on the back of global headwind, domestic macroeconomic inconsistency and policy reversals on the financial front. The risks arose mainly from the impending hitch of capital flows on an unremitting medium term basis from the anticipated slowdown of the global economy, particularly in advanced economies and from some elements of prospective financial alterations. In India, the adverse effects have been chiefly in the equity markets due to the setback of portfolio equity flows and the affiliated effects on the domestic Forex market as well as on liquidity conditions.

Impact of economic crisis on different sectors in India

Impact on the IT sector

With the global economic crisis, the IT sector of the country is facing uncertainty, especially the software industry. About 30,000 jobs in this sector have been affected because of the financial crisis in the United States as the industry has been largely dependent on it. Approximately 58% of the revenue was generated from US-based clients, owing to which, the industry had faced and perhaps till sometime will be facing hard days on the economic front.

Impact on the Indian banking system

One of the prime aspects of the current financial mayhem has been the lack of an apparent contagion of global economic crisis being felt by banking systems in budding economies, particularly in the continent of Asia. The Indian banking system as well has not been affected by it similar to other banks in the rest of the continent since it is not directly exposed to the sub-prime mortgage assets. Both in the public sector and in the private sector, Indian banks are financially sound, properly regulated and well capitalized.

Impact on stock and Forex market

The crisis had a great impact on the Indian stock and Forex market. The stock prices in the country have been harshly affected by foreign institutional investors (FII). The most prominent decrease in the manual contract category is in the Automobiles and Transport sectors where employment has declined by 12.45% and 10.18%, respectively.

Apart from these, the global economic crisis has affected some other sectors of the country as well. However, if these areas are properly handled, it will help in overcoming the financial crisis with ease and also help them survive through the tough times.

Tuesday, 22 September 2015

Oil Price 2015

The price of oil can affect the entire world economy. It is devastating to developing countries and monetarily straining for developed ones. A price increase or decrease has effects on the supply and demand side of an economy and terms of trade. When a price shock in oil occurs it affects domestic home owners, central banks, governments, inflation rates, exchange rates, and even the stock market. When demand for oil becomes high, significant decreases in purchasing power of domestic homeowners occurs. This can be attributed to an increase in precautionary savings and the increase cost of operating anything that runs off energy. On the other hand the supply side of the economy is affected because of the increase in oil production costs. Lastly, terms of trade become strenuous between nations because of the increase in import costs, especially for net-oil importing countries. Countries like Iran, Kenya, and Venezuela that depend on importing oil for their economic growth. They become exposed to other nations and basically taken advantage of. Countries must decrease oil prices to match the lower world price. While the production costs increase and cause a negative return for the country. This is usually when The Federal Reserve begins to intervene and manage economies. Intentions are to restructure the economy to suit the sudden change in oil price which has affected the entire world. However, many economists have argued that manipulating monetary policies increases the problem. Bodnar writes, "The Fed's efforts to direct the economy may be, as I said in my column, a classic case of hubris. In fact, the Fed's zero-interest-rate policy may actually have backfired, perversely contributing to oil's sudden price drop. As economist Ed Yardeni observes, investors desperately seeking better returns piled into high-yield bonds issued by energy companies and energy-producing countries." (Bodnar pg.6) Investors were shocked soon after to see a large decrease in oil prices. Any sort of stock or bond issued by an energy company was devalued to almost nothing. The affects were not just felt on stocks and bonds. From Bodnar's article you find out that interest and exchange rates were also adjusted prior to the drop and after. The Fed thought if they adjusted rates that it would ease the economic decline. However, the exact opposite happened. Economies began to spiral into an even deeper recession.

The article's main strength is that it's a credible source that is knowledgeable on the relationship between commodity prices and monetary rates and policies. They bring up key statistics that help illustrate the impact oil prices have on monetary policies and vice versa. They also discuss the long term affects that oil has on economies and not just the immediate. The only weakness I could find with the article is a lack of visuals. I would have liked to see a graph showing the price changes in oil over the past 20-30 years. They could have compared that side by side to a graph showing the inflation and exchange rates and how they changed during those crisis moments where oil prices changed significantly.

When interest rates are decreased it causes an increase in consumer spending which creates a high demand for commodities. With this growth of investment it puts pressure on oil prices. Countries that depend heavily on importing oil become vulnerable. Yoshino and Hesary write, "The relationship between discount rates and commodity prices, stating that lower discount rates would lead to credit augmentation, which would increase commodity prices under the condition that money velocity is constant." (Yoshino & Hesary pg.6) Increased spending for an economy looks great on "paper." However, countries overlook the underlying problem which is connected to oil prices. With increased spending that means less saving. So when people are blindsided by a sudden increase in gas prices it causes them to save more and cut back on spending. This cripples producers of oil because that means less oil is being consumed and they are losing profit. This causes them to produce less which increases production costs. It is a continuous cycle of monetary decline. Inflation rates are also affected by oil prices. Yoshino and Hesary write, "This means that a depreciation of the US dollar would make oil imports cheaper in non-dollar-denominated currencies, raising oil imports and oil demand. Another exchange rate channel is as follows: a depreciation of the US dollar would cause an appreciation of non-dollar-dominated financial assets and would, in turn, arouse world oil demand because of the wealth effect." (Yoshino & Hesary pg.6) Inflation of the US dollar leads to oil imports being cheaper in foreign oil-importing countries. This raises oil demand and the price for it. It also makes foreign financial assets cheaper which attracts countries all over the world because of the huge profit that can be made while the assets are cheaper because of the decline in oil prices.

The strengths in this article are the visual graphs. It really helps you make a visual connection to the differences that a change in price of oil can have on an economy. I also like how they show you formulas that economists use to actually calculate some of the changes. I thought the author connected the inflation and interest rates to the price change in oil very well. They used real world examples that actually happened and fully explained them and created visual graphs for each scenario. The only weakness I had with the article was the referencing. The authors referenced a lot of economists or other scholars.

However I didn't have the necessary background knowledge on them. It difficult to determine if it's a credible reference.

The biggest concern for economists when oil prices change are the long term affects. If a country is heavily dependent on importing oil we want to know the long-term effect that will be felt from a decrease in oil price. When oil prices fall there tends to be less war and conflict. Most heavily importing countries favor the oil price when it is high. However, there is a violent long-term affect from this. Countries have armed conflicts over drilling sites and territories. The value of oil is so high and rewarding that lives are being taken over it. Small militia groups are formed in lesser developed nations like Kenya. These small armies burn and destroy small villages that are built near oil drilling sites. They have no morals or sense of democracy when it comes to earning a large profit. This leads into economist's next concern which is political leaders. When economies begin to spiral out of control with no reason, political leaders are the first suspects. Oil production is a very shady and unsavory business to be involved. Political leaders of countries have been imprisoned over issues concerning oil prices. For example some political leaders will take "kickbacks" from companies to allow drilling in certain areas of the country. Also, they will lower or raise import taxes so that it becomes inexpensive/expensive for producers. Lastly, high ranking Federal Reserve officials become bribed. They are persuaded by monetary benefits to lower or raise interest rates. This will cause an increase or decrease in consumer spending on oil. This allows companies to save money by cutting production if interest rates are high and consumer spending is low. It's almost like an insider trading tip.

However, these concerns are not always present or true. Manso writes, "3rd that there are no clear association or correlation between the oil price cycle and the political leaders of the main industrial and developed countries (USA, UK, F, G, Russia), because some of these leaders are contemporaneous of several expansions and contraction phases of the oil price cycles." (Manso pg.55) This is stating how hard it is to find a direct correlation between political leaders and the change in oil prices because they are so frequently changed. A political leader may implement a strategy that was secretly benefiting him and raising oil prices. However, he may not be in power or office to see the remainder of that political strategy played out. Then the next guy taking his position looks like the suspect. There are some political leaders who are corrupt and receive these kickbacks, however there are leaders who are honest and don't. In conclusion economist's long-term concerns should be more focused on the violent aspect and not political when it comes to oil price changes.

The strength of this article is in its formulas, graphs, and conclusion. The formulas and graphs help illustrate periods of expansion in an economy when oil prices are high and contraction when oil prices are low. The conclusion was also a big strength. The author went into detail and explains the reasoning behind economist's long-term concerns. Whether they are violent or nonviolent (political corruption) economists are still worried about the effects price change can cause. This helps tie together the importance of oil price changes to heavily importing oil countries and the long-term effects it can possibly have.

To summarize, oil price effects all economies worldwide. It's the most common and valuable commodity in the world. Oil price effects and is affected by interest and inflation rates. When rates are low it causes an increase in consumer spending which increases the demand for commodities. This puts pressure on producers and oil prices. These effects have caused economists to raise concern for economies in the long run.

Their concerns began with small armed conflicts in countries that are heavily dependent on oil exportation. Innocent people were being killed over territories that were used for oil drilling. If these drilling sites weren't taken by force than they were taken politically. Leaders began to impose legislation that made it very difficult or easy for countries to drill. Bribery and extortion in the political arena began to rise. Which will always be a concern for economists. Mainly because that means it is not a free-market economy. It is being manipulated by high ranking political leaders.

Wednesday, 2 September 2015

British Muslims and ISIS

British Muslims through the lens of Majid Nawaaz of the Quilliam Foundation are supposedly inarticulate who depend on leftist ideological dogma to perpetuate a state of incompatible culture and "ghettoization" propounding the assimilationist policies. However, the UK is a universalist society based on British values that were most notably championed by Amnesty International in securing his release from an Egypt prison when he was incarcerated for terrorist related activities. Perhaps the hypocrisy is that Nawaaz is embracing totalitarism under the pretext of his version of reformism.

The fallacy of the argument that British values of democracy, the rule of law, individual liberty, and mutual respect and tolerance of those with different faiths and beliefs are somehow regressive leftist sedatives perpetuating a state of victimhood to score petty ideological points against "the West" is based on weak presumptions and limited understanding of British Muslims or values. In fact, British values have been around since the Magna Carta in one form or another and Convention Rights have been around since the last great war to protect against state oppression or persecution. It is also worthy of note that the true interpretation of Islam is totally compatible with the Magna Carta and Convention Rights.

However, the idea propounded by Nawaaz (a self proclaimed intonation of a libertarian Muslim) that there is some conspiracy to impose a version of Islam on the indigenous population of UK is barren rhetoric designed to feed the rapacious appetite of the far right movements like UKIP and EDL in Britain. Nawaaz presupposes that there is homogeneity and it somehow displaces loyalties because of political or religious conflicts in lands far away. But this simplistic view painfully ignores the socio-economic disquiet in British politics. It ignores the disempowerment of youth and women as a consequence of patronage politics amongst British Muslims. It disregards the sensationalist media portraying this community as a suspect community.

Whilst we acknowledge there is a small misguided minority in Britain that do hold religious ultra-literalist views of "them against us" or "Islam is under attack from the west", these people must be won over by reigning them in from the wilderness and winning their heart and minds through political engagement. The alternative is alienation and irresponsible derision designed to feed Nawaaz's or the political far rights insatiable covet for attention. It is asinine to fabricate a nexus between events abroad and criminality of a minority on our shores along religious apparition to provide a platform for Nawaaz's or the far rights benighted views of this community.

The jittery inflections that he posits in support of his assertion that 1000 British Muslims have joined ISIS is more to do with dog-whistling to the far right agenda rather than acknowledging the criminality of ultra-literalist religious grooming by unscrupulous internet predators that is the ISIS cyber-machinery. However, Nawaaz is reminded of our pride and confidence in our judicial system to stand the tests of time whether its wars or ideologies to deal with the challenges facing our great nation. Nawaaz may remain fixated with the notion that British Muslims live in a vacuum of impregnable religiosity but in reality it is he who lives in a vacuum of impregnable ignorance and ought to stick his nose out into the real world of British Muslims once in a while and smell the coffee.

Saturday, 22 August 2015

China Economic 2015

When their economies ran off the rails in the aftermath of the financial crisis, eurozone countries like Greece, Spain, Portugal and Ireland found themselves trapped in a currency that refused to decline in keeping with their prospects.

China is not caught in that same trap. Ultimately, that's a good thing for everyone.

From the way stock and commodity markets reacted after China's surprise devaluation of the yuan, you might have thought the country's sudden change of heart about its exchange-rate policy was the first step on the road to disaster. But it is also a step that we have wished eurozone nations could take in order to let their downtrodden and less-productive economies begin to revive themselves.

Both of these reactions can't be correct at the same time. In all likelihood, it was the initial reaction to China's action that was wrongheaded.

In fairness, it wasn't so much that the yuan was abruptly reduced by 2 percent against the dollar, or that it continued to slide in the days that followed (though braked by repeated interventions by the Chinese central bank), that spooked the markets. The markets mainly reacted instead to the Beijing authorities' apparent concession that their economy, which they have hitherto bragged is essentially recession-proof, is struggling more than they are willing to let on. But we already knew that.

In fact, China is no more immune to the business cycle than any other country. It is entirely possible, if not likely, that the nation's political and economic rigidity will make the eventual adjustment much more extreme, perhaps on the order of what Japan endured after its property bubble burst at the start of the 1990s.

Economists outside China have debated what served as the immediate catalyst of Beijing's decision to devaluate its currency. There are a variety of potential causes. For instance, China has pursued a bid to get the International Monetary Fund to recognize the yuan as a reserve currency; letting the markets steer the yuan more directly indeed drew cautious praise from the IMF. The devaluation also followed news of decreasing exports and shrinking currency reserves, both of which this move might help.

Nobody will benefit if the wheels fall off the Chinese economic locomotive entirely. So any hint of true flexibility, such as the government's decision to allow the yuan to move toward a more appropriate level, is a good thing. The moaning that immediately arose from some quarters here in the United States about "currency manipulation" and unfair policy is largely bogus. It was the yuan's artificial tie to the dollar, which has appreciated sharply against other European and Asian currencies in countries where China sells most of its goods, that was the true manipulation - and the Chinese were essentially manipulating it to their own detriment. Of course they will stop doing that as soon as it hurts them. At the very least, they will try to mitigate the manipulation's effects.

China almost certainly does not plan to allow big swings in the yuan's value, even now. The yuan's daily trading value is restricted to 2 percent above or below a rate set by the People's Bank of China, and that restriction seems unlikely to change. But by moving that band significantly, Beijing has tacitly admitted a need for a slightly closer correlation between their currency's value and their economy's reality. It's a start.

There is a lot wrong with the Chinese economic and political system. The idea that its economy can only move in one direction is false, and always was. China isn't recession-proof. It's just that anyone in China who has the nerve to declare a recession is in progress, if and when one comes - in fact, that day might already have arrived - is apt to be fired at best, or even jailed. So nobody says it. But that doesn't mean it won't happen anyway.

The Chinese currency adjustment is not exactly what we'd call market-friendly, but at least it is a nod to reality and a constructive step that we would have urged on almost any other nation in similar conditions. If you want to worry about China, there are much better targets for that worry than the overdue and thus-far modest drop in the value of its currency.

Friday, 17 July 2015

Modern Global Economy 2015

Globalism is here to stay and in an overtly simplistic view I shall attempt to illustrate how markets today have become so inter-linked.

Firstly, at the heart of the modern global economy are the equities markets. The modern corporation is the engine of all economic activity. it combine resources, employs capital and labor and utilizes entrepreneurship to make markets happen and deliver goods and services to consumers. The Dow Jones Industrial Average is the chief barometer of global corporate activity. People in Tokyo love to eat a Mcdo's or KFC just as much as people in Mumbai wish to pay for goods with their Citibank credit card, or drive their new Ford in London or even buy a nice new G.E refrigerator in Amsterdam. When people in Milano stop ordering their Starbucks and people in Paris stop buying Apple items, then global corporate cash-flows become affected and equities values plunge on drop in earnings. Similarly, companies on the European exchanges best summed up through Euro Stoxx 50 for the top European companies have cash-flows in USA, China and everywhere else which can be jeopardized by consumer sentiment.

Secondly, global interest rates provide credit lines to companies to grow. Key interest rates are the US Dollar rates determined by the Federal Reserve. When Interest rates in the USA go up as they have been preparing for over the last 3 months, then equities investors get nervous because companies will have to face higher borrowing costs. Bond investors also will not be happy to see US interest rates go up because of the inverse relationship between interest rates and prices; when interest rates goes up prices of bonds go down.

Thirdly, the value of the dollar is very important to the global economy because most commodities and raw resources like crude oil are quoted in terms of US Dollars as is gold bullion. when the US Dollar is cheap in value relative to the Aussie Dollar or Swiss Franc or Euro currency, then more of the US Dollar currency unit can be purchased and demand for commodities increases. When the value of the US dollar increases it then becomes more expensive to acquire a barrel of crude oil and an ounce of gold bullion. Also when the US Dollar is expensive it becomes more expensive to purchase US stocks and bonds.

Thus in this simple explique we can truly understand the nature of the global economy where events in one region can affect the other. This is because today large corporations around the world have been driven to internationalize in the search for increased sales and higher market value.