It’s been a strange week and a half- quite apart from the no-show of party hopping MPs and getting portfolio hopping / swapping instead – the threat of the
Bubbles are created when the value markets put on underlying assets are inflated, possible through the use of ‘sophisticated / exotic’ financial instruments under the guise of financial engineering such as hedging, leveraging, arbitraging etc ie closing a transaction with a money that you don’t have in order to make profits of large magnitudes in the shortest space of time. It started with the dot com bubble, where the IPOs are subscribed like mad, creating companies that IPO like mad with the flimsiest of business plans – tailing onto the potential of a clicks and the possibilities of the Internet economy. When the companies started to announce losses upon losses and failures of their business model, the people who took out their money left those who didn’t with their fingers, hands and shirts burned. Then that shifted to other sectors as well.
The unlikeliest of candidates would have been property and housing, appreciating assets if ever there was one (hey, I should know, I bought a house from Talam) due to inflation on land and generally scarcity of physical networks and others. But the bubble struck again, this time hitting the securitization of mortgage. This in turn hit the biggest mortgage houses and as this normally is related to the bigger national financial agencies, the worry was always that it wasn’t just the houseowners but also the gamut of the
Where this leads to is anyone’s guess. The speed at which Fed mitigated the bailouts, and then revoking the IB license for GS and Morgan Stanley, although they used the word converting IBs to bank-holding license, suggests that its far worse than anticipated. All the same in this crazy world, it’s a zero sum game in the US- a country whose laws are formulated to create an environment of lawlessness- so in all these tragic events, the thing is someone has just made tons, heaps, gazillions, and untold amount of profits, at everyone else’s expense.
Care to guess who makes all these money? Remember crude oil prices going up so steeply, and the expectations that it’ll hit USD200 per barrel on expectations of increased demand and constrained supply when the physical trade of oil remains pretty much BAU? The steps of these seemingly uncontrollable events are pretty much similar for us to say that there are some pretty stupid, greedy people out there unable to learn their lessons, but would you believe this is the work of an invisible hand, where the independent actions of individuals on aggregate create these steps, or do you believe, there is a small group of either very stupid or very clever people manipulating the markets to work to their benefit?
One sad thing about this is that Islamic finance, after starting off on a steady, slow step as an alternative to the global financial system, instead of merely an alternative to Muslims, now seem to want to replicate all the excesses of the conventional finances incorporating all the gharar (uncertainties), maysir (gambling) and riba’, utilising hilah (legal device) and forgetting the ‘illah of its existence.
The Dinar is an option, but without the political push for it to be considered as a currency, and there is a concern that in the worst case, the dollar will weaken, and the US economy stagnates, China’s, and Malaysia’s exports dry up, our revenues even more so, inflation goes up as the oil price recovers its upward mobility, and without adequate savings on a personal level, lifestyle change will be enforced on most of us. Politicians, including our new MK1, are too keen now to say our fundamentals are strong – is it? Can we anticipate the extent of the
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