Self-reflection

Dear all,

Unfortunatlely our time at ebs ended (finally for some), hence it is primordial to do a self-reflection or a self-critique of my developement this course.

If truth be told, I started blogging over 6 years ago at a very low point in my life (blogs were a  trend in France).  All of the roads in my life were blurred and I was distressed over issues that I did not have the power to change.  So I began to blog, which in turn meant that I began to write, take pictures, and document everyday life.  Every step, was written and documented almost daily. Although I did not elaborate completely while blogging about those difficult, yet necessary steps that I took each day, I can now go back to those blog posts whenever I want, and see how I learned from my experience and help myself move forward. But writting a critical blog about finance, economic or a business subject raises the bar and is obviously more challenging. As I am someone who likes to be challenges (it gives me this adrenaline, this cutting edge that let's me surpass myself), I accepted the challenge.

During our lectures we learned theories about different styles newspapers write in, and how some journals can be really bias. Additionally we observed that journalists mostly add their own opinion to the stories, which they are covering, to address the regular readers, who are purchasing this particular newspaper to read the opinions. Before the course, I was only reading news from 2 or 3 newspapers (FT, thesun and Le Monde) but during this course I developed a wider knowledge about newspapers and consequently started to read daily different news sources. In fact, at the end of the course I was reading the FT, the sun , le Monde, the Economist, Newsweek, Businessweek ...

Furthermore, something that I really enjoyed in our lectures is how could easily compare 2 newspapers, that despite covering the same news, have a different style of writing and different opinion. To be honest, I was really naive in the beginning to think that politics or other external factors do not affect the view of the newspaper. As the weeks passed, I grew with this course and could easily understand why there are such differences. Overall, I really enjoyed writing this blog and  in my opinion it was a good opportunity for us to improve our writing skills but always to read the news continiously without being lazy. 

I hope that I created an interesting blog, which brought the readers my opinion about the financial markets a little closer and created some value for them. Personally, I learned that  using the internet to spread your opinion by using blogs as a form of communication can be a powerful tool for spreading your opinion and point of views. .

Finally, I would to express my gratitudes to all my class mates (I would lie if I say that I got a long with everybody though) and Ms. Linda lewis who made this class extremely enjoyable.

Yacine Dessouki

Bloomberg LP guided tour

Dear readers,

On the 24th of November, my class mates, lecturer Mrs. Linda lewis and I had the opportunity to visit Bloomberg's offices situated in Finsbury Square. Like an enchanting lullaby, I woke up to bloomberg's channel and slept on its mesmerizing financial news, and to be honest, I couldnt contain my excitment anymore. 

Source: Flickr

The first thing that really caught my attention is how well the different departments are layed out. Each deparment has a different flashy colour : blue, orange, green, yellow. This interesting approach is supposed to bring inspiration or calmness depending on the colours, which in my opinion is really important because the employees are a valuable asset for the company and their well being shouldnt be neglected. Well being, calmness, relaxation, positive thinking are all connected and this brings us to a second thing that fascinated me about Bloomberg's offices. On each floor, there is an enormous fish tank that holds more than 600 different species from goldfishes to tiger sharks. It is scientifically prooven that if every employee stares at the aquarium for 15 minutes, positive thinking and calmness will result. Also, something that I found unsually ''green'' is the recycled tables and chairs thus promoting a sustainable environment. Furthermore, we were lucky enough to watch a LIVE tv presenter Judith Bogner (picture bellow) which I immediatly recognized due to my timeless times watching Bloomberg on the sky television. I was really impressed by the high tech cameras and the big touch screen that they had on the set (something from a science fiction or a movie, minority report).

Source: Businessinsider

We also got an insight about Bloomberg's terminal which is the main core product, something that I always found imcomprehensible and really hard to use. To be honest, I really dislike the discomfort you have whenyou use the terminals keyboard, something that in my opinion Bloomberg should redesign.
Then, we gathered in a room and met one of the HR managers who gave us an insight about working at Bloomberg. She clearly said that there are no minimum requirments for some positions, something that I found hard to believe. She mentionned that the company's structure is flat, meaning that each employees are equal and they dont have a ''job title'' hence the seemless transparency and lack of walls in the structure of the bulding. Finally, we ended this interesting tour with a quick meal and snack at the cafeteria which provide food for free for its employees.

This guided tour was a nourishing experience to the extent that I already applied for an internship at Bloomberg as a junior sales analyst. I came , I saw, they conquered me.

Yacine Dessouki

The sad reality about Microfinance

Dear readers,

As the topic of my dissertation was about Microfinance, I think that it would be useful if I share my deep knowledge about this interesting topic.

MICROFINANCE is an example of something that is sadly all too rare: an anti-poverty tool that usually at least breaks even. If you make small, uncollateralised business loans to groups of poor women, they almost always repay them on time. It has grown rapidly in many countries, not least Bangladesh and India. With nearly 30m clients each, these are now the world’s biggest markets for microfinance. Yet the industry has come under attack for being too commercial. In Bangladesh the government has capped the annual interest rate that microfinance institutions (MFIs) can charge at 27%. In India a new breed of for-profit microlenders has shaken up an otherwise NGO-dominated sector—and annoyed the authorities. In Andhra Pradesh (AP), the Indian state with the most microfinance borrowers and the base for the biggest for-profit MFIs, local politicians have bullied the business to a virtual halt. An interest-rate cap is mooted. These steps are ostensibly motivated by a desire to defend the poor from getting stuck in a debt. But they are wrong-headed.

Despite charging what may seem high interest rates, MFIs typically have wafer-thin margins because of the high costs of making and collecting payments on millions of tiny loans. Pressing them to reduce rates further would jeopardise their ability to attract private capital, inhibiting their growth. Slower growth would in turn hamper their ability to harness economies of scale in order to lower transaction costs and cut rates of their own accord, as many—including the biggest for-profit MFIs—have done in the past. Forcing down rates would also deter new entrants and reduce competition.

Source : http://cdn.trak.in/wp-content/uploads/2010/08/image1.png

The rush to impose restrictions on MFIs also betrays a fundamental misunderstanding about how the poor use credit. Many politicians cite the existence of clients with loans from several MFIs at once to argue that the poor are over-indebted. This ignores the fact that most microcredit loans are tiny, so that several are needed to meet the needs of even a small business. Indeed, the poor often use microloans to pay off far more expensive loans from village moneylenders. This suggests that restricting people’s access to microcredit by capping rates could have the perverse effect of driving more poor people into the arms of village loan-sharks, who still provide the bulk of rural credit in poor countries. (In rural AP, 82% of households have such informal loans, whereas only 11% have loans from MFIs.) That would be good news for these moneylenders, but is surely not the outcome that policymakers want.

Peruse prudent

Sensible regulation need not be at odds with a thriving microfinance industry. Peru, for example, is ranked by the Economist Intelligence Unit as having the best business environment for microfinance, in part because the regulator has successfully set and enforced rules on capital buffers, leading to a more stable environment for the industry. India, in contrast, is yet to decide whether rules governing microfinance are to be set at the national level or by individual states.
An association of Indian MFIs is trying to set up a credit bureau which would allow them to track clients’ overall indebtedness and credit histories, thus guarding them against lending a person more than she is able to handle. This would be helped enormously if the government speeded up its efforts to give all Indians a universal identification number. The Indian government should also allow MFIs to take deposits, which they are currently prevented from doing: this would make them less dependent on capital markets for funding. All rather complicated things, unlikely to stir up populism. And all a lot more useful for the poor than an interest-rate cap.

Yacine Dessouki

7 Reasons Why Quantitative Easing is bad for the economy

Dear Readers,

On my previous post I explained what is Quantitative Easing and why the FED adopted the latter policy (please refer to the previous article for more details). In this article, I will give you 7 reasons about why QE2 is bad for the US economy and the World economy.

#1 Quantitative Easing Will Damage The Value Of The U.S. Dollar

Each time you add a new dollar to the system, it decreases the value of each existing dollar by just a little bit. Now the Federal Reserve is pumping 900 billion dollars into the system and that is going to have a significant impact. Bill Gross, the manager of the largest mutual fund in the entire world, said on Monday that he believes that more quantitative easing could result in a decline of the U.S. dollar of up to 20 percent....
"I think a 20 percent decline in the dollar is possible."

#2 Inflation Is Going To Hit Already Struggling U.S. Consumers Really Hard

Already, investors have been fleeing from the U.S. dollar and other paper currencies and have been flocking to commodities, precious metals and oil. That means that the price of food is going to go up. The price of gasoline is also going to go up. American families are going to find their budgets stretched even more in the months ahead.

#3 Once An Inflationary Spiral Gets Going It Is Really Hard To Stop

The Federal Reserve is playing a very dangerous game by flirting with inflation. Once an inflationary spiral gets going, it is really difficult to stop. Just ask anyone who lived through the Weimar Republic or anyone who lives in Zimbabwe today. If the Federal Reserve is now going to be dumping hundreds of billions of fresh dollars into the system whenever the economy gets into trouble it is inevitable that we will see rampant inflation at some point.

#4 The Solution To The Housing Bubble Is Not Another Housing Bubble

Today, approximately a third of all U.S. real estate is estimated to have negative equity. The Federal Reserve apparently believes that by flooding the system with gigantic sacks of cash banks will start making home loans like crazy again and home prices will rise substantially once again - thus wiping out most of that negative equity.

But the solution to the housing bubble is not another housing bubble. The kinds of crazy home loans that were made back in the middle of the decade should never be made again. Market forces should be allowed to bring the housing market to a new equilibrium where ordinary Americans can actually afford to purchase homes. But in my opinion that is not how the system works anymore. Today, everything has to be manipulated.

#5 More Quantitative Easing Threatens To Destabilise The Global Financial System

We have already entered a time of increasing global financial instability, and the Federal Reserve is not going to help things by introducing hundreds of billions of new dollars into the game. Over the past two decades, bubble after bubble has caused tremendous economic problems, and now all of this new money could give rise to new bubbles. Already, we see financial institutions and investors pumping up carry trade bubbles, engaging in currency speculation and driving up commodity prices to ridiculous levels.

#6 Quantitative Easing Is An Aggressive Move In A World Already On The Verge Of A Currency War

Quantitative easing will likely help U.S. exporters by causing the value of the U.S. dollar to sink. However, this gain by U.S. exporters will come at the expense of foreigners. It is essentially a "zero sum" game. So all of those exporting countries that are already upset with us will become even more furious as the U.S. dollar declines. Could we witness the first all-out "global currency war" in 2011?

#7 Quantitative Easing Threatens The Status Of The Dollar As The World Reserve Currency

As the Federal Reserve continues to play games with the U.S. dollar, quite a few nations around the globe will start evaluating whether or not they want to continue to trade with the U.S. dollar and use it as a reserve currency.

In fact, a recent article on The Market Oracle website explained how this is already happening....

In September, China supported a Russian proposal to start direct trading using the yuan and the ruble rather than pricing their trade or taking payment in U.S. dollars or other foreign currencies. China then negotiated a similar deal with Brazil. And on the eve of the IMF meetings in Washington on Friday, Premier Wen stopped off in Istanbul to reach agreement with Turkish Prime Minister Erdogan to use their own currencies in a planned tripling Turkish-Chinese trade to $50 billion over the next five years, effectively excluding the dollar.

Yacine Dessouki

The Enchanted Quantitative Easing

Dear Readers,

Hawks and Doves do not produce a harmonious melody if they all sing at the same time. This has been clearly demonstrated when the Federal Reserve decided to implement quantitative easing (dubbed as QE2). Since then, markets have been subjected to a cacophony of conflicting speeches by members of the FOMC – from Thomas Hoenig of the Kansas City Fed calling looser policy a “dangerous gamble”, to Charles Evans, of its Chicago counterpart, saying that “much more policy accommodation is appropriate today”. Quantitative easing is unloved and deeply unappreciated. The sky is falling you may scream: the FED is pouring forth dollars in such quantities that they will soon be worthless. And its not far from the truth. Things could start getting pretty ugly for the financial world for the coming months.

Under QE2 the Fed buys long-term bonds with newly created money. This lowers long-term yields and chases investors into riskier, alternative investments. The real yield on ten-year, inflation-indexed Treasury bonds has fallen from 1.05% to 0.5%, a result of relatively flat nominal yields and a rise in expected inflation. The yield on their five-year cousins is negative. Share prices are up by 14% in the same period. Lower yields make the dollar less appealing: it has duly fallen by 5% against the Japanese yen, by 9% against the euro and by 5% on a trade-weighted basis “.

The truth is that many economists fear that an out of control Federal Reserve is "crossing the Rubicon" by announcing another wave of quantitative easing. Have we now reached a point where the Federal Reserve is simply going to fire up the printing presses and shower massive wads of cash into the financial system whenever the U.S. economy is not growing fast enough.

If so, what does the mean for inflation, the stability of the world financial system and the future of the U.S. dollar? The Fed says that the plan is to purchase $600 billion of U.S. Treasury securities by the middle of 2011. In addition, the Federal Reserve has announced that it will be "reinvesting" an additional $250 billion to $300 billion from the proceeds of its mortgage portfolio in U.S. Treasury securities over the same time period. So that is a total injection of about $900 billion. Perhaps the Fed thought that number would sound a little less ominous than $1 trillion. In any event, the Federal Reserve seems convinced that quantitative easing is going to work this time. So should we believe the Federal Reserve?

Federal Reserve has tried this before. In November 2008, the Federal Reserve announced a $600 billion quantitative easing program. Four months later the Fed felt that even more cash was necessary, so they upped the total to $1.8 trillion.

So did quantitative easing work then?

No, not really. It may have helped stabilize the economy in the short-term, but unemployment is still staggeringly high. Monthly U.S. home sales continue to come in at close to record low levels. Businesses are borrowing less money. Individuals are borrowing less money. Stores are closing left and right.

T

he Fed is desperate to crank the debt spiral that our economic system is now based upon back up again. The Fed thinks that somehow if it can just pump enough nearly free liquidity into the banking system, the banks will turn around and lend it out at a markup and that this will get the debt spiral cranking again.

The sad truth is that the Federal Reserve is not trying to build an economic recovery on solid financial principles. Rather, what the Federal Reserve envisions is an "economic recovery" based on new debt creation.

So will $900 billion be enough to get the debt spiral cranked up again?

Not really

I

f 1.8 trillion dollars didn't work before, why does the Federal Reserve think that 900 billion dollars is going to work now? This new round of quantitative easing will create more inflation and will cause speculative asset bubbles, but it is not going to fix what is wrong with the economy. The damage is just too vast as Charles Hugh Smith recently explained....

Anyone who believes a meager one or two trillion dollars in pump-priming can overcome $15-$20 trillion in overpriced assets and $10 trillion in uncollectible debt may well be disappointed.

In fact, economists over at Goldman Sachs estimate that it would take a staggering $4 trillion in quantitative easing to get the economy rolling again.
Of course that may eventually be what happens. The Fed may be starting at $900 billion just to get the door open. 

To be continued .... 

Yacine Dessouki

Potential bubbles

Dear Readers, 


One of the oldest sayings of Wall Street, that happens to be true, is that "there is always a bull market somewhere." In other words no matter how bad one segment of the market may be performing, there is almost always some unrelated asset that is doing well at the same time. Taking that to its logical extreme, if there is always a bull market somewhere, there are almost always a few potential bubbles emerging. This week's posting will unveil some could-be bubbles waiting to burst; which markets look like they have heated up to the melting point?

Rare Earth Elements : 


If there is a bubble in rare earth metals, China is likely to blame. Not only does China have the blessing of favourable and ample resources, but the country actively supported its rare earth mining operations at a time when Western miners were closing up shop. Now, though these elements are critical components of many electronics, China overwhelmingly controls the supply, and the government is cutting on exports and driving up prices. That, in turn, has created a boom time for would-be rare earth miners like Lynas Corp. Ltd. and Avalon Rare Metals Inc.(AVL-T4.620.368.45%).

Ironically, rare earth elements are actually not all that rare for the most part - they are just difficult to find in concentrated quantities on their own, and are typically the byproduct of other types of mining. At prevailing prices, miners are searching throughout Australia, the United States and Canada to bring old mines back into production and begin mining new resources. Simultaneously, those companies that depend upon rare earth elements are doing what companies always do when a key component gets expensive and/or scarce - they are engineering around the problem. 

Although rare earth prices could stay high for a while (mines do not open overnight), new digging and new alternatives are likely to put an expiration date on this bull market.

Cotton

Amidst all hype generated about the performance of grains, base metals, precious metals and even cocoa, the record prices in cotton have gone almost relatively unnoticed. Nevertheless, cotton recently broke an all-time price record and prices have jumped about two-thirds from mid-summer.

Unfortunately for investors, the odds are that this cotton bull market has short legs. There is little that can be done to boost supply in the short-term, but high prices for cotton will do what they always do - stimulate more planting in cotton-growing regions. Although it is always possible that growing conditions (poor weather, etc.) could damage the next crop, I think that journalists will be talking about a bumper crop and low prices this time next year.

U.S. Bonds

There are a lot of dynamics at work in the bond market. For starters, banks can make a solid "carry trade" on government bonds - banks take their ultra-low cost deposits and invest them in higher-yielding government securities.

Second, many pension funds were badly wounded in the mortgage-backed bond crunch of 2008 and 2009. Not only have many funds rewritten their mandates to take on less risk, but the supply of bonds has changed. In many cases, pension funds are buying government bonds because they need fixed income instruments and the near-collapse of the mortgage-backed securities market has eliminated that supply.

In other words, this is not so much a bubble (at least not a bubble fueled by unreasonable expectations of gain) as a supply squeeze. That is not to suggest that it could not still end badly.

Gold

The ultimate "is it or is it not" bubble argument has to be over gold. September and October have been full of reports talking about record high prices for this precious metal, and the overall trend has been up for roughly eight years now. Despite this momentum, plenty of gold-bugs will step up to remind the market that gold has yet to reach an inflation-adjusted record of about $2,200 (U.S.) per ounce. 

Although gold is often hailed as an inflation hedge, the data supporting that is less than fully compelling. What gold really seems to hedge is uncertainty; when people get nervous, they like to hold gold. 

There is, however, an inconvenient truth - hardly anybody outside of coin dealers has ever made lasting wealth out of trading in gold. As gold skeptics love to point out, gold produces no income, is inconvenient to use as is, and could very well be seized by governments during the very conditions that gold-bugs point to as an argument in the metal's favour. While fear in the market seems to justify a lot of the enthusiasm for gold, it is hard to see how prices are not overheated - to say nothing of the fact that if economies fail and governments collapse, people will have more to worry about than their retirement savings.

The bottom line ... 

In my opinion the term " bubble " 

has become overused in the last few years, as many investors and commentators now slap that label on any market segment that has enjoyed strong appreciation and high valuations. True bubbles are supposed to involve a certain element of self-delusion and mania. For an overheated market to really be a "bubble", there needs to be a collective notion that "it's different this time" and that the only prudent move for savvy investors is to put nearly all of their money in that asset.  

Call it whatever you want to call it, there is no question that there are some overheated segments of the market today. While momentum investors may be tempted to play their luck and see if they can squeeze more profits from, more conservative investors may want to give them a pass altogether.

What would YOU do?

Regards,

Yacine Dessouki

Potential bubbles

Dear Readers, 


One of the oldest sayings of Wall Street, that happens to be true, is that "there is always a bull market somewhere." In other words no matter how bad one segment of the market may be performing, there is almost always some unrelated asset that is doing well at the same time. Taking that to its logical extreme, if there is always a bull market somewhere, there are almost always a few potential bubbles emerging. This week's posting will unveil some could-be bubbles waiting to burst; which markets look like they have heated up to the melting point?

Rare Earth Elements : 


If there is a bubble in rare earth metals, China is likely to blame. Not only does China have the blessing of favourable and ample resources, but the country actively supported its rare earth mining operations at a time when Western miners were closing up shop. Now, though these elements are critical components of many electronics, China overwhelmingly controls the supply, and the government is cutting on exports and driving up prices. That, in turn, has created a boom time for would-be rare earth miners like Lynas Corp. Ltd. and Avalon Rare Metals Inc.(AVL-T4.620.368.45%).

Ironically, rare earth elements are actually not all that rare for the most part - they are just difficult to find in concentrated quantities on their own, and are typically the byproduct of other types of mining. At prevailing prices, miners are searching throughout Australia, the United States and Canada to bring old mines back into production and begin mining new resources. Simultaneously, those companies that depend upon rare earth elements are doing what companies always do when a key component gets expensive and/or scarce - they are engineering around the problem. 

Although rare earth prices could stay high for a while (mines do not open overnight), new digging and new alternatives are likely to put an expiration date on this bull market.

Cotton

Amidst all hype generated about the performance of grains, base metals, precious metals and even cocoa, the record prices in cotton have gone almost relatively unnoticed. Nevertheless, cotton recently broke an all-time price record and prices have jumped about two-thirds from mid-summer.

Unfortunately for investors, the odds are that this cotton bull market has short legs. There is little that can be done to boost supply in the short-term, but high prices for cotton will do what they always do - stimulate more planting in cotton-growing regions. Although it is always possible that growing conditions (poor weather, etc.) could damage the next crop, I think that journalists will be talking about a bumper crop and low prices this time next year.

U.S. Bonds

There are a lot of dynamics at work in the bond market. For starters, banks can make a solid "carry trade" on government bonds - banks take their ultra-low cost deposits and invest them in higher-yielding government securities.

Second, many pension funds were badly wounded in the mortgage-backed bond crunch of 2008 and 2009. Not only have many funds rewritten their mandates to take on less risk, but the supply of bonds has changed. In many cases, pension funds are buying government bonds because they need fixed income instruments and the near-collapse of the mortgage-backed securities market has eliminated that supply.

In other words, this is not so much a bubble (at least not a bubble fueled by unreasonable expectations of gain) as a supply squeeze. That is not to suggest that it could not still end badly.

Gold

The ultimate "is it or is it not" bubble argument has to be over gold. September and October have been full of reports talking about record high prices for this precious metal, and the overall trend has been up for roughly eight years now. Despite this momentum, plenty of gold-bugs will step up to remind the market that gold has yet to reach an inflation-adjusted record of about $2,200 (U.S.) per ounce. 

Although gold is often hailed as an inflation hedge, the data supporting that is less than fully compelling. What gold really seems to hedge is uncertainty; when people get nervous, they like to hold gold. 

There is, however, an inconvenient truth - hardly anybody outside of coin dealers has ever made lasting wealth out of trading in gold. As gold skeptics love to point out, gold produces no income, is inconvenient to use as is, and could very well be seized by governments during the very conditions that gold-bugs point to as an argument in the metal's favour. While fear in the market seems to justify a lot of the enthusiasm for gold, it is hard to see how prices are not overheated - to say nothing of the fact that if economies fail and governments collapse, people will have more to worry about than their retirement savings.

The bottom line ... 

In my opinion the term " bubble "

 has become overused in the last few years, as many investors and commentators now slap that label on any market segment that has enjoyed strong appreciation and high valuations. True bubbles are supposed to involve a certain element of self-delusion and mania. For an overheated market to really be a "bubble", there needs to be a collective notion that "it's different this time" and that the only prudent move for savvy investors is to put nearly all of their money in that asset.

Call whatever you want to call it, there is no question that there are some overheated segments of the market today. While momentum investors may be tempted to play their luck and see if they can squeeze more profits from, more conservative investors may want to give them a pass altogether.

What would YOU do?

Regards,

Yacine Dessouki