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Saturday, January 23, 2021

FM Qureshi's brilliant use of Chinese buyers' power



Pakistan is going to return back the last installment of Saudi 3 billion dollar loan. It will be payable tomorrow. Earlier Pakistan has already returned back two installments. Saudi Arabia has demanded to be repaid as the Kingdom wanted Pakistan to return the favour by establishing ties with Israel, but Pakistan staunchly refused to recognize the Jewish state. Moreover, The Kingdom grew weary of Pakistan’s growing shift towards Iran, Turkey and Malaysia. Though, the relationship started deteriorating from the time Pakistan refused to send its forces to Yemen, the ties between the two countries hit rock bottom when Pakistani FM Shah Mehmood Qureshi bitterly criticized Saudi Arabia on TV. He was heard saying

“Pakistanis, who are always ready to sacrifice their lives for Mecca and Madina, need Saudi to play a leading role on the Kashmir issue. If they will not play their role, then I will ask Prime Minister Imran Khan to go ahead with or without Saudi Arabia.”

After the statement Qureshi immediately visited Beijing and requested their help in dealing with Saudi pressure. Pakistan during this hard time was bailed out by China. By receiving emergency financial assistance from China Pakistan started returning the Saudi loan.

Moreover, China used its leverage over Saudi Arabia because of its being largest oil importer from the Kingdom. In order to pressurize her she reduced its oil imports from the Kingdom. China had already filled its strategic reserve tanks during the pandemic oil price fall. This caused a fall in oil revenue for the kingdom. China descended from being the largest Saudi’s oil importer to the third largest.

This was one of the best diplomatic move from Pakistani side in decades.

China as a growing economic powerhouse has become second largest oil importer after United States. This gives China a Monopsonistic power over the oil markets.

Read more about Monopsony.

After the enormous Chinese investment in China Pakistan Economic Corridor (CPEC), Pakistan has become the most important ally of China. China is looking forward to become super power and Pakistan being its strategic and most trusted ally. Chinese wanted Pakistan to take lead and make a block of Muslim countries so, that they may become Chinese block indirectly.

Read more about Saudi importance to Pakistan

Both countries are heavily invested in each other. Saudi Arabia has invested billions in more than 24000 seminaries and has millions of supporters. Similarly Saudi Arabia is dependent on Pakistan for its security. Till now Pakistani move has been a success and the Kingdom failed to bring Pakistan to its knees.





Sunday, April 26, 2020

Why should one invest in mutual funds?

Wealthy people have their wealth in form which offers them returns. The forms in which wealthy people park their money is real estate, bonds, debentures, mutual fund units, shares and stock along with others.

Take the example of shares which are in fact part ownership of corporations. If you invest in shares of a corporation you in fact own part of it thus taking part in its future profits and losses.

If you invest shares of Cement Company, you expose yourself to risks affecting the cement industry negatively. Moreover, there are some factors that can affect your company specifically like bad management, technological obsolescence and others.

In order to reduce company specific risk exposure, you need to invest in a number of companies. Likewise, if you want to reduce risk exposure to a certain industry you need to invest in different industries.

The more variety of shares you purchase the less risk exposure you will have. Reducing your exposure to risk by way of investing in multiple securities is called diversification.

Diversification when rightly implemented can reduce your risk exposure. But there are costs associated with buying number of different securities e.g. cost of ordering, accounting, etc. In order to get full benefit of diversification you need to invest a large amount in different securities. An individual has limited amount of capital and cannot diversify, which keeps him away from investing.

The problem of small capital can only be overcome by pooling of funds by different interested individuals. But how to pool funds and also the issue who would manage the funds on behalf of investors arises.

The answer to all these questions can be overcome by utilizing a vehicle called mutual fund.

Mutual funds are pool of funds managed by fund manager for the benefit of isolated investors, who don’t have expertise in the investment field.

When you invest through mutual funds, you benefit from the expert management. The analysts working for the mutual fund industry generates financial models which grows your capital as well as provides protection to your capital.

With Mutual fund investing you also get benefit from diversification, and economies of scale.

The one thing anyone interested in investing through mutual funds should keep in mind that the return from mutual fund is dependent not only on the financial markets performance but also the overall economic performance.

So start investing with good mutual fund manager and select the mutual fund after due diligence.

Disclosure: any thing/ content isn’t substitute of professional advice and the blogging team isn’t responsible for any loss/ damage resulting from acting on information from this blog.

Tuesday, April 21, 2020

What is common among countries with effective Covid-19 response?

Countries with best respons to covid19 have women leaders in common. Countries with female heads performed well in containing the spread of covid-19 as well as containing the casualties. Female leaders have again and again showed the world that they have different focus and they have different way to wield the power. They proved that equal power on the political front can not only benefit the women, themselves but also the wider community.

The notable countries, who responded well to the pandemic, are Singapore, New Zealand, Finland, Germany, Denmark, Iceland and Taiwan.

Let us see the response of female leaders across the world.

Germany

Germany under the leadership of Chancellor Angela Merkel, is conducting the largest corona virus testing in Europe. Testing aggressively like the one Germany did can enhance the ability of country to detect the virus early and isolate and treat patients effectively.

Singapore

A country headed by, President Halima Yacob, immediately responded to the crises. The immediate response was praised by many international observers. The President in Singapore is a nominal head of state. Executive powers rest with the Prime Minister of Singapore.

New Zealand

The Prime Minister Jacinda Ardern of New Zealand took early action of shutting down the tourism and imposing a month long lock-down. Shutting down the tourism was a difficult decision for New Zealand as it relies heavily on tourism.

The Nordic countries
4 of the 5 Nordic countries are led by women.

Finland
The young Prime Minister of Finland Sanna Marin blocked all the roads leading up to Helsinki, area most affected by the virus. Some other measures were reducing the cross border traffic, banning public meeting of more than 10 people and closing down the schools.

Iceland
Iceland under Prime Minister Katrín Jakobsdóttir has put measures like randomized testing, aggressive contact tracing and quarantining the suspected covid-19 cases.

Sint Maarten
Prime Minister Silveria Jacobs of Sint Maarten governs a tiny Caribbean island imposed travel restrictions to contain the spread of coronavirus.

Taiwan
Taiwan President Tsai Ing, as soon as she heard of the novel virus affecting the Wuhan residents immediately ordered to inspect all planes arriving from Wuhan. She also set up the epidemic command centre to monitor the situation.

Michigan, US State
Not only the nation, but jurisdictions governed by women performed well.
The response by Michigan governor Gretchen Whitmer is also appreciated by residents In comparison to Trump’s response.

Why female leaders performed well?
It seems that female leaders care more for health and education for example Benazir Bhutto in her first Govt. implemented the most successful antipolio vaccination drive across the country.
The evolution and the traditional gender role made women, more alert to health risks affecting their nations.

Moreover, the reluctance of male leaders to give in to the pressures for lock-down can be explained by evolution. The men have historically been the one responsible for bread-winning, and they use to think of lock-downs, in terms of lost wages, profits and the accompanied unemployment. Sweden the only Nordic country led by male leader, hasn’t announced the lock-down, thereby facing more deaths than other neighboring countries.

The response to pandemic taught us that man and woman are different with complementary roles to play.

Saturday, June 1, 2019

Making sense of buyer's power

In economic theory monopsony is a market structure in which one large buyer controls big portion of the market and thus exercises bargaining power.

After 2017, China has overtaken United States to become the largest oil importer. China in last year imported 239.2 billion $ worth of crude oil from 15 different countries.

India is third largest oil importer after US and China and roughly imports 125 billion US dollars worth of crude oil every year.

The rising purchasing power of private buyers in China and India has positioned both countries close to having monopsonic power in the oil world.

In last week of April a high level delegation from Chinese National Energy Administration visited India, to discuss forming a block of energy importing nations.

This block will also be beneficial to other Asian importers as this will reduce the Asian premium.

Asian premium
Owing to the dependence of Asian nations on Middle Eastern countries to supply oil, these oil exporting nations charge a premium on their exports to Asian countries. West in contrast need not to pay such extra amount.

India and China have repeatedly raised their voice against this so called Asian premium but to no avail.


Efforts are underway to make Japan and South Korea-world’s fourth and fifth largest oil importers- part of this block. The emergence of this energy hungry block could tilt the power away from OPEC.

Sunday, May 12, 2019

Secret to buying happiness

Conventional wisdom has always taken the position that money can’t buy you the happiness but a scientific study reveals that there are ways out there which you can use to buy happiness. 

Elizabeth Dunn & Michael Norton during their study for the book ‘Happy money: The science of happier spending’ learnt that you can buy happiness by becoming a little poor. Following are the ways in which you can spend your money to buy happiness.

Buying experience

Though buying goods seems to be a good option as they are there the next day but experience though ends up after a while but remains there in form of happiness. Visiting Northern areas, going for fishing, experiencing gliding and cross country skiing are the options available to spend money on. They would give you stories to tell your friend. 

Buying time
Spending on buying services is another way to well spend your money. Similarly think long and hard before buying a living house so vast that you’ll spend more time cleaning then enjoying. The research suggest that asking a question “ How will this purchase show up on my time budget?” will help you make choices that will produce more serotonin than analyzing your purchases in material term could do.  

Another way to buy happiness is to spend money to buy the service you feel most dreaded to perform yourself. Taking a cab, buying the lawn moving service, paying for doing the laundry etc. are some of the ways in which you can outsource your most dreaded chores.

Pay now, Use later
You often hear the cliché “use now; buy later” but to be happy you should try to pay before actually consuming your purchases. The delayed consumption would trick your brain into thinking that the benefits are for free. Moreover, sometimes you get as much happiness from the anticipation than from the purchase itself. So, buying movie ticket a month before actually watching the movie can make your month.

Giving yourself treat
Appreciation is another way to have an elevated mood. You will be able to appreciate the goodness in your life only if they happen to you less often.

After dry fasting, in Ramdan, when you take first morsel of food or sip of water; you feel happy because you made your everyday meal a treat for yourself. Same is true for many other things in your life. Dine out sparingly, or think this way- will it matter how delicious your favorite restaurant might taste if you starts going there daily.

Giving others
Make other people happy is a way you can add to your own happiness. In the words of Bangladeshi Nobel prize winner Muhammad Yunus.

“Making money is a happiness; making other people happy is a superhappiness”

But trying to make others happy by spending more than you can afford can add to guilt and you may feel unhappy. One way to avoid guilt trips is to find specific causes, research them, think over them and then spend for them. 

According to Harvard scientist Michael Norton, “Giving to a cause that specifies what they’re going to do with your money leads to more happiness than giving to an umbrella cause where you’re not so sure where your money is going.” 

The key is to spend within your means, spend proactively and for causes most closely related to your own core values. Or in the words of Adam Grant, author of Give & Take, it is important to be ‘otherish’ which he defines as givers who are able to sustain their giving by looking for ways that giving can hurt them less or benefit them more.

Tuesday, February 26, 2019

Why Saudi Arabia matters to Pakistan

As the crown prince Muhammad bin Salman completed his two day Pakistan visit, the debate about Pakistan joining the Riyadh’s camp, against Tehran, for financial largesse dominated the public discussion. Pakistanis are vying cost and benefits of Saudi financial assistance. Both countries are linked by financial assistance, religious ties, energy markets, and defence agreement. Pakistan needs Saudis for various reasons.

Enhancing CPEC image
During the visit the crown prince announced a 10 billion$ refinery and an oil city in Gawadar, Baluchistan under CPEC. The city will have facilities for storing oil for its onward transport to China.

In fact, the prospect of Saudi investment has already helped divert global attention from the controversy regarding Chinese debts incurred by Pakistan, its economic crisis, and the possible connection with ongoing CPEC projects. Saudi investment can project Gwadar as an investment destination, encouraging Arab African and Asian nations to become part of CPEC.

The investment is an effort by crown prince to diversify Saudi economy and reduce its dependence on oil under vision 2030. Saudi Arabia is still largest oil exporter and rules the oil markets with its ability to drill oil at lowest cost in the world i.e. 4 $ per barrel.

Sovereign wealth fundThe public investment fund of Saudi Arabia has planned to increase its size to 2 trillion dollars till 2030. The country is hungry for investment opportunities especially in the field of science and technology, petrochemical and refining, mining, and entertainment.

Overseas Pakistanis
Saudi Arabia hosts 2.6 million workers from Pakistan, who send remittance worth 4.5 billion dollars every year. These remittances prove to be a valuable support for cash starved Pakistani economy.

Balance of payment (BoP) crisis
Pakistan frequently faces balance of payment crisis and therefore needs foreign support. Saudi Arabia has frequently helped Pakistan in dealing with its foreign payment difficulties. Though, critics claim this easy to get support held Pakistan away from taking hard measures to rectify its recurring BoP crisis.

Help deal with international powers
Saudi Arabia with its deep pockets, massive oil reserves, and considerable investment clout has say at international fronts and can help Pakistan sway international opinion in its favour e.g. In the midst of Kargil saga, at the time when New Delhi was blowing hot and cold, Pakistan asked Bandar bin Sultan for arranging US pressure on India. Bandar bin Sultan, erstwhile Saudi Ambassador to USA, was most powerful foreigner in US at that time.

Middle East influence
Millions of Pakistani labourers work in Middle Eastern countries. Saudi Arabia through tribal connection and religious ties hold considerable influence in Middle East and help Pakistan deal with these countries.

Religious clout
Saudi Arabia wields enormous influence on people among religious class through its huge investment religious institutions, mosques and madrassas related to Wahabism doctrine. Moreover, Hajj visas also offer an opportunity to Saudi Arabia to develop a rapport with Pakistani religious class.

Sunday, December 2, 2018

Is bitcoin energy consumption overblown?



Researchers from Oak Ridge Institute for Science and Education has found out that mining a dollar worth of bitcoin consumes more energy than digging up a dollar worth of gold.

"We now have an entirely new industry that is consuming more energy per year than many countries," said Max Krause, lead author of the study. "In 2018, Bitcoin is on track to consume more energy than Denmark."

Denmark during the year 2015 used 31.4 billion kilowatt-hours in electricity. Bitcoin mining, as of July 1 this year, consumed 30.1 billion kilowatt-hours of electricity roughly the same as Denmark has used.

The massive amount of energy used by bitcoin miner causes green house emission as the bulk of energy consumed comes from China- the largest bitcoin miner. Most of the electricity produced in China comes from burning coal causing green house gases emission.

Although the situation is not as bleak as it seems from the media analyses. The industry’s energy consumption can flatten in future.

Why bitcoin uses so much energy?

Bitcoin depends upon a blockchain-a decentralized ledger recording all the transactions of bitcoins. Blockchain solved the problem of double spending of digital currencies. Double spending is spending the same digital token multiple times.

Bitcoin used confirmation process built into its blockchain to avoid the double spending.

Suppose you try to spend one bitcoin twice by spending it on two different addresses. The first transaction will be confirmed from both sides- the spending and receiving side as well -whereas the second transaction will go to the unconfirmed pool. This will eliminate the problem of double spending.

But before spending the coin you need to mine it. The cryptocurrency miners seek result of some sort of algorithmic puzzle. The bitcion network is designed to produce only one block per ten minutes. The miner who succeeded in solving the puzzle first would get the coin.

In order to solve the puzzle first miners puts in more and more computational power in the act of mining- i.e. solving the puzzle.

More computational power needs more energy, thereby increasing energy demand by the network.

Can the bitcoin energy consumption reduced?

As the network only produces one block per ten minutes, thereby increased computational power and energy consumption doesn’t increase the amount of bitcoin production. The network is designed to reduce the reward of solving the puzzle to half every four years.

Miners will only put in additional energy in the mining process to the point where money is to be made. If the price of bitcoin stabilizes, the mining profitability would reduce to the level where additional power usage doesn’t generate enough bitcoins to offset the electricity cost. The reduction in profits would prove to be a disincentive for miners and would lead to reduced electricity consumption.

So, Bitcoin industry can potentially reduce its energy consumption in future in order to remain profitable.