Blogs @ Relative Progress

While participating in a discussion on Google Buzz tonight about the growing Chinese financial influence on the world economic stage, I came across a wordy dissertation from a Nigerian website that stated a simple, but powerful premise. Nigeria, an India or China in the making?   My answer. Not at first glance, but as I dug deeper into the word salad I took away from it a call to the Diaspora and expatriates out there to come “home” and take what they have learned in self-imposed exile to build a new homeland. This has started to happen to a certain extent. In my travels around Nigeria I experienced a land ripe with opportunity and confident in its own future destiny. Many there (who can afford it) go abroad to acquire skills in University then, when the opportunity presents itself, return home to become business and political leaders. Even in Silicon Valley’s  large Indian expatriate community, some have begun to question staying after college or start-up blue sky exits. Sentiment has disturbingly begun to turn against foreigners in places from the U.S. to Europe. The H1B visa crisis here in the U.S. risks alienating future Indian (or any foreign)  born tech workers and entrepreneurs. This has a tendency to happen when economic times get rough as disenfranchised natives grow wary of those whom they conceive as alien interlopers. But this time when things get back to our new normal and advanced economies begin their growth and recovery those dependable (and increasingly necessary guest workers) may not be there. They might just decide to take their talents and go back to their homeland. That ain’t all a bad thing. For the world to recover from this latest economic mess we will need a broad based recovery from all corners of the globe. As the author of the post that inspired me Basil Jide Fadipe stated:

“Today, ‘all’ or nearly all are coming home to roost; the physical, intellectual and economic powers are now heading back home, jump starting, and in many instances re-oxygenating the corporeal and corporate India/China.”

In future posts I will explore this growing trend especially in Nigeria where I now have a renewed ancestral connection. As Africa’s most populous nation, Nigeria (and most of West Africa) is poised for growth because of its location and natural resources; particularly their people the most valuable resource of all. Africa is the final frontier for growth in the next century. The race between the BRIC nations (Brazil, Russia, India and China) for the natural resources to grow their economies will take place on the continent.

The impoverished but vibrant streets of Lagos, Nigeria



With many companies and financial institutions holding on to $Trillions of dollars in cash reserves, how can you get them to lend and spend? Simple. Make it costly for them to do so by debasing that value of those dollars forcing institutions to put that money to work in the economy. Sounds logical right? If the Federal Reserve goes through with its plan for quantitative easing round 2 (creating money out of thin air) then those huge cash reserves will buy a lot less. This intervention is necessary but sinister at the same time and may be fraught with unintended consequences. There has to be some kind of catalyse that forces companies and institutions to invest and spend because to put it bluntly consumers simply aren’t doing so right now and they can’t. I have personal experience with this myself. I am a little over-leveraged right now and in the process of saving and investing. Why?  Because that’s what you do when you spend more than you make (cough, cough, Washington). The term is called delerverging or debt reduction. There numerous reason why businesses aren’t spending, banks aren’t lending and normal folks aren’t shopping. Fear of the future. Regulations from TARP, Financial regulatory reform, Health care legislation costs, Mal-investment from the $800 billion dollars stimulus and the prospect of higher taxes next year have paralyzed the capitalist system. Not to mention the fact that they (the private sector) themselves have some deleveraging to do.  No amount of money being pumped into the system is going to make anyone part with their money as long as these uncertainties exist. And even if it does that money won’t be invested in the U.S.  Not until these uncertainties resolve themselves will money be parted with.  That may continue to force the Fed to print even more thus further devaluing the dollars these companies hold in reserve. It’s a dangerous game of chicken that may end in hyper-inflation. Who will blink first?   The Fed can only print so much before they reach their inflation target of above 2%. The private sector can only hold on to their reserves for so long before the devalued dollars they hold are worth less and hence lack the purchasing power necessary to do anything constructive with. It’s a good old fashion face-off with the future value of money at stake.

Lately I’ve been looking at financial markets trying to see how deep the rabbit hole goes when it comes to where the current crisis began. All roads seem to point back to the Derivatives markets and the quants that ruined them. These markets are filled with all types of financial wizardry and chainarey that would make the Mortgage Back Security crisis seem ethical. Derivative derive (sorry) their notional value from an underlying entity, usually a stock, bond or commodity. But the current market can include such exotic methods as shorting, Hedging, swapping fixed for floating interest rates, bets on defaults of companies and even institutions. The market for these have grown so much over the last 25 years that the BIS (Bank for International Settlements) estimates notional values of OTC (Over-the-Counter) and exchange traded derivatives at some where between $684 to $1,028 Trillion dollars. Thats $1,028,000,000,000,000.01!!!!  Keep in mind that World GDP is only $61.1 Trillion dollars. Where the hell is the rest of that $967 Trillion in notional value come from? Well the key word is ‘notional value‘ where on any financial instrument there is the nominal or face amount used to calculate payments made on that instrument. This ‘notional value’ will never trade hands nor can it.  So in essence it’s NOTHING, but these instruments can cause great harm as most of the Globe can currently attest to.  Now you may be thinking I will go into the typical rant about evil bankers, financiers and rampant deregulation are the cause and that these ‘weapons of mass financial destruction‘ must be outlawed.  You should know me better than that.  First, while these instruments did get out of hand and should be more regulated (and they are with requirements for trading on regulated exchanges) they are necessary evils like wars, taxes and abortions.  Finally, there must be an arbitrage opportunity in this now that most of these things will be trading on regulated exchanges. I mean how do you dip your toes into a $1,028,000,000,000,000.01 ocean of wealth that is literally worth nothing?  Just .00001% of that market is more money than I’ll ever need.  Who with me? I am starting a algorithmic trading platform to take advantage of this. Any takers? Most importantly, any programmers? jk.

First thing first, the proposed Islamic Center in Lower-Manhattan is not at Ground-Zero, its several blocks away. That still doesn’t quell the anger that some see as a provocation on the part of Islamic radicals. This is over heated rhetoric at best and I feel is a big distraction from the true problems we face domestically. Where the hell did this controversy come from anyway? I assume this has been on the drawing board for years where it could have been halted. The real anger at the proposed Islamic Center in Lower-Manhattan (Mosque if you want to be inflammatory) is the fact that nearly a decade later this structure will go up and be open for business before the World Trade Center and subsequent memorial is ever decided on. Like it or not Islam is blamed (at least in this country) for the murder perpetrated on that date so it’s a little insensitive and down right confrontational to build the Islamic Center in Lower-Manhattan there of all places. There I said it so flame me. It’s rubbing salt in a raw wound to put it there (of all places) while the nearly 7-story holes remain from where the original WTC stood. But we have become too sensitive culture as is and that stands as one of the reasons nothing has been build there to date. Look at the things that have been built around the world this pass decade since 9/11 (see below). The Burj Khalifa in Dubai; the International Commerce Center in Hong Kong and Palm Jumeirah off the coast of Dubai(a freaking man-made island shaped like a desert palm). The sad fact is we (USA) used to build stuff like this. What happen? This is just a guess, but if we had at least started construction on the edifice of the WTC this ‘Mosque at Ground-Zero’ issue would not be one. Time to stop morbidly honoring the dead while feeling sorry for ourselves and build the goddamn towers.

Stuff Built Since 9/11

1. Burj Khalifa, Dubai United Arab Emirates
Began in 2004
Completed in 2010

2. International Commerce Center, Hong Kong HK China
Began in 2002
Completed in 2010

3. Palm Jumeirah, Dubai
Began in 2001
Partially completed 2008 (28 Hotels and resorts already occupy the island)