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The Three Trillion Dollar Question & The Answer Is….

Posted by imrananwar on February 16, 2009

The fact is that the American and the global economy are in a severe recession. The biggest problem is a crisis of confidence. Uncertainty is always known to be the enemy of confidence. I am reminded of the Heisenberg Uncertainty Principle that we were taught in our electrical engineering studies, at the University of Engineering and Technology at Lahore 25 years ago.

The problem with the uncertainty today is that no one seems to know what they are uncertain about. Almost everyone agrees that the economy will eventually recover. Most people can also see the signs, not just here in America, but also abroad. These show some economic activity has begun to take place.

Some of the positive news that has come out in the American media recently has been a decline in the number of homes going into foreclosure. This has come at the same time as higher retail sales figures for the month of January. Of course these numbers may look higher compared to the very dismal sales figures of December 2008. Regardless, it is a positive sign.

However, it seems that at every stage, and at every piece of news, the stock market reacts adversely. My personal suspicion is that most large investors, including players in the stock market, and other influential figures may also be playing an active but insidious role in ensuring volatility in the stock market.

Mind you, I have no actual proof of this. It is merely a hunch. My suspicion is that these people play the stock market not just for regular profit but for nefarious purposes.

The volatility is actually not random but manipulated by certain key investor groups. It is their way of ensuring that people in government, the media as well as the public at large remain uncertain, as well as demanding of a bigger and bigger stimulus package, that is likely to benefit fewer and fewer people.

In other words, the more volatility they show in the market, the more they can get people to panic. The more that happens, or the more things appear uncertain, the greater the likelihood of being able to force the government to spend billions of dollars more, mostly on pork barrel spending or bailouts of crooked bankers.

There are several other positive signs. The price of oil continues to remain low. President Baraka Hussein Obama, with the support of his Democratic majority in Congress, has succeeded in passing a massive stimulus package. This stimulus package as it is called is nearly $800 billion worth of mostly government spending.

This package has come on top of nearly $2 trillion being pumped into American banks. In other words almost $3 trillion is getting spent on restarting the American economy. But is it going to be enough? That is the massive historical question.

My personal feeling is still ambivalence towards these amounts being spent.

I am highly opposed to the massive money poured into banks that did not lend money to consumers. Some of these shameless perpetrators of corporate malfeasance, and gross negligence and incompetence, went on to give themselves billions of dollars in bonuses. One yearns for the days of public hanging of vile characters like that.

Similarly, the money being spent on big government projects are not the answer for short-term solutions that we need to jumpstart the economy really quickly. For example, many projects will take months, if not years, to actually get rolling. Many approval processes and similar formalities will insure other delays. That means any hiring or new jobs that come from these projects may take years to come into the economy.

As a matter of fact, if the economy recovers on its own, especially with the private sector leading the way, it is even possible that by the time these government projects come online most of the capable talent will already be in private service. That means either less experienced or less capable people will end up running those projects. That increases the likelihood of failure and wasted money.

For months I have been proposing an alternate economic recovery plan. My proposal was based not on spending $3 trillion but one trillion.

My proposal is very simple. I suggest that the government set aside $1 trillion and create a state run bank. This bank would issue a short-term limited use credit card. On average the $1 trillion would be given out as a $10,000 credit card to 100 million American households. The range of credit available on these cards would be $5000-$25,000 (hence the average of about $10,000 per household).

The credit cards would be issued with a very simple set of rules. They would only be given to people who are legal residents, or citizens, and who had paid taxes in the last three years. They would not have filed bankruptcy during that period. People would have between 30 and 90 days to use up the entire limit on their credit card. That means “use it or lose it” would be the rule.

This would ensure that one trillion American dollars would jump right back into the economy within 30-90 days. People would be allowed to buy anything legal at any American merchant who accepts these credit cards. These credit cards could even be used to buy an American automobile, if people wanted to. That way American consumers money would be going to American automakers to help them recover – but without it being a no strings attached bailout, as was previously being asked for.

This credit card would not be a giveaway. The entire money borrowed by the consumers would have to be repaid in full, with interest, to the government. However, instead of 15-25% interest rates that most banks charge on credit cards, if they were even issuing new credit, people would be able to pay in this credit card loan back to the government at a nominal interest rate of about 5%.

Even at this 5% rate consumers would be saving a ton of money in interest payments. At the same time even the government would be making a lot more money in interest income than it has been getting from literally giving away taxpayer money to banks at nearly 0%.

Instead of the government trying to set up the infrastructure for doing this, I would have MasterCard, Visa and American Express compete for the business of merchant processing. The condition would be that they would not charge the typical 3-5% transaction fee to merchants but 0.5%
In exchange merchants would have to pass that in savings to consumers. It would still be a win-win-win for everybody.

The credit card companies would still get to process hundreds of millions of new transactions – without having to do any marketing. Merchants would be ensured of immediate new cash coming in through these transactions – without additional cost. Consumers would benefit from the lower costs being passed on to them – without having to wait for expensive credit lines from sleazy banks.

People would have the choice of paying this credit card in monthly statement payments, just like any other credit card. In addition they could also make payments to this credit card loan by adding some of the amount due to the annual taxes that they pay.

Within five years most of the money will be recovered in full, with interest. $1 trillion will immediately go into the US economy to jumpstart it. Many consumers will be able to buy things that they are unable to afford for lack of credit right now. Thousands of merchants will be able to stay in business with the influx of cash. States will benefit from sales tax revenues starting up again. Manufacturers will be able to keep factories running and people employed. Above all, the solution benefits every American, at every level of education and economic strata, not just a few.

I believe my $1 trillion answer is the solution to the $3 trillion question. What do you think?

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Profit From The Meltdown: Part 2: Huge Profit Opportunities In The Coming Recovery

Posted by imrananwar on October 22, 2008

Profit From The Meltdown:

Part 2: Huge Profit Opportunities In The Coming Recovery

By Imran Anwar

In the previous column we discussed why the current economic crisis appears far worse than it actually is. Yes, grave dangers exist if the world’s economies are mismanaged. But, so far, it appears that all major governments understand the global implications and are working together to stave off global ruin.

It is for this reason that I argue this may be the best time in the world to start investing, to take advantage of the huge opportunities and bargains that surround us, before everyone else does. This is especially true of younger generations, young families, and dynamic people who can afford to take a long term view more than someone close to retirement or already retired (unless they have significant amounts available to invest).

I believe the recession, though painful, will be short lived and will end soon into the Presidency of the new American President. This is especially true if history is any indicator. A Bush in the White House always leads this country into war and economic ruin, and his exit always leads to a historic economic recovery and the opportunity to create great wealth. I can hardly wait for Inauguration Day, 2009!

I also believe we will not have a global Great Depression version 2 between now and then.

There are several reasons for this. One is that most of the world governments and nations had learned several lessons from that historic crash of 1929 – which is referred to as The Great Depression. (I am not sure what was so "great" about it). In that particular crash, the then American administration had made many bad moves. That included not responding, not responding in time, then responding in a parochial, inward looking, protectionist way and doing too little too late.

You are not hearing me say that George W. Bush or his team of incompetent henchmen have done anything right. However, because we live in the Internet age, and most of world economies are so tightly intertwined, in general most of the developed world’s governments are working in unison to avoid a global meltdown, even while they recognize a recession is already underway.

How to minimize its damage, and to prevent it from turning into a domino effect – that brings the planet to its knees – is what they are fighting for. Bush and his team, and even Presidential candidate Senator John McCain, showed their cluelessness on the economy. At 9 AM one day McCain was saying the economy was strong. Two hours later he was saying the country (America) was in a grave crisis, as if a sudden earthquake had just taken place.

Then Bush’s Treasury Secretary Paulson said there were specific steps that would be just plain wrong – like the government taking equity stakes in American banks in exchange for large sums of capital. But, when the British, Europeans and Japanese governments did exactly that and saved their economies, literally a day later he was doing the same thing. So much for having any competent person in the White House team! (Maybe Bush can now say, "You’re doing a heckuva job Pauly"?)

But, regardless of how incompetent these people are, fortunately they are not the only ones who have a stake in saving the American economy from imploding.

There are countries with huge amounts of United States dollars stashed away in their banks. This includes countries like China. Even the Chinese Communist government, regardless of how disdainfully it may think of the United States, is smart enough to know that the greatest source of its wealth in recent years has been from manufacturing cheap goods that the American market just cannot get enough of buying.

Also, as few people realize, an American meltdown, of its economy or its currency, will also mean financial ruin for China in several ways. China’s growing working middle class depends on feeding the American consumption beast for it to survive and grow itself.

On top of that, over the least few years, despite participating in a world economy, and benefiting from capitalism and open markets, China has always manipulated its own currency to ensure its goods do not become too expensive to export. As a result, for several years, America has had a huge trade deficit with China, leading, effectively, to America owing China a lot of money.

Now its policy of protecting its own currency is coming back to bite China. That is because China is possibly the biggest non-American holder of huge reserves of Dollars. A crash of the Dollar can effectively wipe out China’s current economic wealth.

America, just like Pakistan right now, is hardly in a position to turn down economic support from any quarter. Sure, it’ll be a shameful and sad day for the United States to go begging to China. The one remaining superpower in both military and economic terms, before George W. Bush came into office, would actually now be dependent on a communist country like China to help save it’s capitalist society!

China, previously the source of cheap socks and itty-bitty cheap plastic toys could be and, I would say also for its own self-interest, has to be America’s economic savior.I also see this as a huge opportunity for Middle Eastern countries, also slush in Dollars and Petro-Dollars, to offer their help but leverage it to increase opportunities for their businesses. But, sadly, I have not seen much strategic exploitation of that of any significance. Sure, we have the occasional deal worth Billions (e.g. when a financially suffering chip-maker AMD has sold off a majority stake to ATIC of Abu Dhabi, an investment arm wholly-owned by the government of Abu Dhabi.

But, I do not see a concerted, strategic and financial effort on the part of Middle-Eastern, or Muslim, investors and entrepreneurs to exploit opportunities as I see Indian and Israeli companies doing. I can imagine us crying in 20 years about how not only do the Jews control Hollywood and the media but then how Indians and Israelis control Silicon Valley.

Yes, I do see that Arabs have started buying up real estate, the one business they understand well here in America (being among the biggest buyers of casinos and other entertainment properties also). But, can they leverage this to help establish a foothold for Arabs and Muslims in things like Venture Capital and other next-generation financial industries? Sadly, it does not appear that is even a goal for them. It seems real estate is already, correctly, being targeted for massive investments but not much else.

It is for this reason that I am quite confident that huge opportunities exist for Pakistani, Middle-Eastern and Muslim investors to benefit, not just from real estate, but also from many other opportunities to buy financial, corporate and technology company assets at bargain prices.

Even though, like everyone else, I took significant hits in the stock market during the last several months, I have actually increased my holdings, especially in stocks of Citibank, as well as Apple. I have also bought stocks of others, like Amazon, Pepsi-Cola, etc. that also got hammered a few days ago. But, the greatest upside I still see in the stock market is in companies like Apple, as well as other battered financial stocks.

Last but not least expensive desirable real estate is going to become even more expensive and more desirable as the market turns around, which is sure to do in the coming days. This will be true especially in the United States when my fellow Americans are smart enough to change the direction this country is headed in. It will happen even sooner if they elect a candidate who is not simply going to continue George W. Bush’s policies of economic disaster. We will find out on November 4.

But, don’t lose sight of the huge opportunity for real estate that exists in other markets too.

Major American institutions have created funds of several Billion Dollars to start buying real estate in countries including India. Thanks to the self-destructive tendencies of my fellow Pakistanis, people hardly consider Pakistan as a safe haven for their money (much less their bodies!), but as real estate investment takes off, there will also be a trickle-down or trickle-sideways (osmosis?) effect on Pakistani real estate prices.

I have been making my best efforts to interest American investors in also including Pakistan in the list of places that they invest in – but so far it has been a losing battle. I am hopeful in the new Administration in America (and some improvement in Pakistan’s war on terrorists) that the USA will feel a greater need to invest in Pakistan. But, similar huge opportunities exist for Pakistanis of means to invest in real estate in the United States and I am seeing that a lot more from clients that I advise on doing business in the USA.

All in all, I am not just hopeful, but certain, that the current recession will be a short one, though not without short-term pain. I am positive that savvy investors are going to start putting their money, and their instincts, to work before everyone else jumps back on the bandwagon. I am working to do that, and hope you will too!


Conclusion.

Posted in Amazon, Apple, Bush, Business, China, Citibank, Economy, Elections, Globalization, Imran, India, Investment, McCain, Opportunity, Pakistan, Pepsi, Politics, President | Leave a Comment »

Profit From The Meltdown: Part 1 – As The World Averts Financial Disaster

Posted by imrananwar on October 17, 2008

Profit From The Meltdown:

Part 1 – As The World Averts Financial Disaster

By Imran Anwar

As I sit writing these lines in New York, on this October day, fall weather is upon us. The view outside my window is a curious mixture of an early (native) "Indian Summer", as well as autumn. Much of the shrubbery in my backyard nature preserve has already turned red, with some shades of green and orange adding a magical glow in the reflected light of the setting sun. A few trees have changed color to shades of golden and red, though most have simply taken the dreary shortcut to demise and desolation – from bright, shiny, green to dull, dry and dead – their leaves falling off at the slightest breeze. A chill is in the air at night, and careless people, or countries, can catch cold.
At this stage in history, as America is sneezing, the rest of the world is catching flu this time. Pakistan is facing an economic pneumonia on top of that. Once again “mareez ko dawa kay saath saath dua kee bhee zaroorat hai”. (“The patient needs medicine alongside lots of prayers”). In this case, whether Pakistanis get “ilm” (knowledge) from China or not, we are desperately seeking economic medicine (read Cash) from China. Ironically, in this Pakistan is not alone. Facing the winter of (voter) discontent, and an economy shedding more jobs than a tree in New England, America is facing its own economic autumn, and looking for a Chinese ((Spring) Roll?) dough! {Sorry for the triple bad pun!}.

It is interesting how the weather in the Northeast (of America) right now is symbolic of the state of the United States of America – as a nation, as a global superpower, and as a nation whose economy is still facing serious meltdown. Of course, the United States is not alone, as the rest of the world is also in the midst of the potential total economic meltdown.

On the one hand, the roller coaster moves of the New York Stock Exchange in particular, and others around the world in general, could easily give a run for the money to any adventure ride that Disney or Six Flags can offer. On the other hand, just like the falling leaves and desolation of winter are always followed by the spring of new opportunities, this is absolutely the most incredible buying opportunity for anyone with a bit of money to invest.

Sure, I have no guarantee that the market has hit bottom yet. But there is no way that I can believe that we are not already touching the lower extremes of the fluctuations of 2008. I am no economic adviser or investment guru, but I strongly feel that a strong recovery will start in 2009.

Thus, a historic buying opportunity actually exists in almost every segment of the market, especially in America. For example, if I had $1 million to spare, I would most definitely start buying up stocks in financial institutions like Citibank, Bank of America and others. America and other world governments just cannot afford to let such big banks go under. The US government is already an equity investor in them, and will continue to be as needed. The opportunity for others to step in is huge.

I also consider technology stocks to be the forerunners of the next economic upturn in America. This includes lots of new companies that are being created by entrepreneurs as well as existing innovative companies.

So, I would invest a large sum of money in the stocks of Apple, which appears to be firing on all cylinders. This includes a huge sales opportunity in the Christmas buying season for its latest and greatest models of the iPod music player, which commands almost 75% of the MP3 music player market here. Then they have the hottest gadget of the year, the iPhone 3G (which has already sold Ten Million units). Add to that the rapidly growing market share of the Apple laptop and desktop computers, which was raising revenues, profits, market share and respect for the company – even before the launch of the sexy and truly exciting new line of laptops, this week.

But, these are not the only companies or stocks that are desirable. I dare say almost anything (which has sound fundamentals, and a strong market presence) that is off more than 35 to 40% off its highs from last year is a huge buying opportunity.

If I had $1-5 million to invest, or if I were an institutional investor (or a large organization with a large bank account earning next to nothing in the bank), I would be targeting the huge opportunity that now exists in real estate.

Yes, there had been a bubble. Yes, we may have not seen the bottom. Yes, things will go down a bit at least until through part of next year. But, very few of us can be sure we can perfectly time the market and only buy at the lowest possible point.

Even with some downside potential, some significant short term volatility, there are significant long term opportunities to buy excellent pieces of property now, while they are depressed, and sell them at a profit when the market turns around in the next year and more.

Of course, I would not encourage anybody to invest in real estate indiscriminately or without significant research. I would not suggest betting your last Dollar or Rupee on it, if you don’t have financial cushion for one year.

My opinion, and it’s only an opinion, not financial advice, is that there are special or particular kinds of real estate that are always going to be the first ones to recover. What I am talking about going after initially are the types of land and properties always in high demand, regardless of the kind of market we are in.

In particular, having spent a significant part of my life living on or facing the water, I have always been partial to waterfront property, especially if it happens to be bay front or oceanfront. In that sense, possibly the state of Florida offers the best opportunity to invest in waterfront or oceanfront real estate, including condos, that can be purchased at great bargains. Other places to look include Las Vegas and even California, where the next technology boom will again take place in 2 years.

The reason I would personally not jump into the condo market right now is because there is still a possible great risk of a builder or a building going into foreclosure, because many of its homeowners go into foreclosure.

On the other hand houses, standalone, or single-family homes as they are called, especially if they are on the water, or facing the ocean or come with any kind of lifestyle element are great investment opportunities. They are very desirable to those with disposable income, or those who will have disposable income more than others or before the rest of the market, so they would be great investments when the market is down about one third from its peak.

The way the market and many current investors, including small investors, in the stock market are responding is as if the Great Depression of 1929 is upon us again. Nothing could be farther from the truth.

Yes, there is a risk that the United States, and the rest of the world, could go into a painful recession, which could last a long time. But, even at its worst, it’s not going to be anything like the Great Depression of 1929.

This is not some Version 2.0 of that great depression, when it took the stock market in America nearly 25 years to recover to pre-crash levels because no one knew what to do.

We are living in a very interdependent and very communicative world. We are now citizens of the World far more than any time in history. The speed of communications and the rapid response of citizens to their governments’ actions and inactions ensure that even incompetent leaders in any capital, Washington or Islamabad, Delhi or London, are quickly questioned and challenged.

That makes it far more likely that by design or by accident, coordinated problem solving approaches come from around the globe, all meant to save the world from falling into total financial ruin. That has started happening. Even Communist countries are following Capitalist policies, while hubs of Capitalism like America are literally “nationalizing” banks (actually a “recapitalizing” in exchange for equity stakes, with a potential upside), and injecting liquidity into the markets at a shocking but needed rate.

Just like the end of George H. W. Bush’s lame Presidency and Bill Clinton’s ascendance to power saw a bad recession turn into the biggest economic opportunity for everyone, nearly 16 years ago, I foresee the end of the George W. Bush’s absolutely disastrous and embarrassing Presidency as the start of a massive recovery in 2009.

Are you going to be ready to take advantage of it when it happens soon? Let me know.


To Be Continued

Imran Anwar is a New York and Miami based Pakistani-American entrepreneur, Internet pioneer, investor, writer and TV personality. He is not a financial adviser and doesn’t even play one on TV. He can be reached through his web site http://imran.com and imran@imran.com

Posted in Apple, Bush, Economy, Florida, Imran, Investment, iPod, Lifestyle, Miami, Ocean, Pakistan, Real Estate, Stocks, USA, Waterfront, Wealth | Leave a Comment »

 
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