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Re: L.A.Man post# 950

Friday, 11/16/2001 7:30:29 PM

Friday, November 16, 2001 7:30:29 PM

Post# of 960
Social contract, terrorism, oil prices and economy.
I agree with you and the world economy certainly runs on oil. If we continue to see the dramatic fall in oil prices, nothing will help the world economy more than the reduction in price. As I have highlighted before, the world economy is assisted by the interest rate cuts but falling oil prices is by far the best thing happening in the world economy today.

If you look back to my post on the 13/14 Sept, you will find that I have made the need of falling oil prices as important as a Fed interest rate cut. The reduction in oil prices has put a lot of extra consumable cash in the hands of the consumers. That is indeed very helpful in the current situation.

Lower interest rates are helping people buy more cars and making more mortgage applications as you may have noticed today. It is a sharp historical rise in mortgage applications and this naturally depicts that the housing industry will come out all right. If you associate the events of 11th September that have hit consumer sensitivities and confidence with what we are seeing right now, the reassertion of American strength and the ability of America to exert its will on bandits like Osama, Omar and Atef have played a very positive role. The ability of America to exert is a very pleasant break from 8-years of Clinton era dilly-dallying where Khobar was hit, Kenya was hit, Tanzania was hit and Cole was hit and the guys in the jungle used to have the last laugh. Few tomahawks worth 100 million dollars to strike a thousand dollar worth of shacks were the typical response.

Now in my opinion, the economic recovery of the US, post 11th Sept, is dependent on this new found resolve by the US that “enough is enough” and Americans cannot be kicked anymore. President Bush and his colleagues have made all of US proud that today American blood is not a cheap commodity. No one can get away from such a foul act and the sick minds of the world are watching the events in Kabul and Kandahar with great keenness and taking due note of the American resolve. Having said that, it does not mean that there will not be any untoward incidents but once resolve is established and the consequences of the price paid is known to the underworld the propensity to act is greatly diminished. Of course, on the other hand the new wake America policy is a great thing to check suspicious events is in itself very helpful and would help restore that critical missing link that sorely went missing post 11th Sept.

The special services group following leads and creating roadblocks in the hinterlands of Afghanistan trying to catch the culprits is a new kind of extended defence of US interests. This kind of strategic out-stretch will have positive repercussions on the US population. 11th September was a dark day for mankind but there is a silver lining to the dark clouds. It was the day that the US has announced to the underworld of the globe that it shall be no more and never again. America is going to use its muscle and use it blatantly and I would consider this announcement of military courts must have sent tremors down the spines of many in the underworld.

I will give you an example in the form of Ghaddafi. He was a great sponsor of terrorism and when President Reagan took the war to his desert camps and his family, the world has seen the Libyan appetite for terrorism to practically disappear. The situation was bleak for the American populace but all of a sudden, things have changed. Last Saturday when the plane came down as a result of an accident, things looked ominous but like it is always darkest before the dawn and that was the hour when we say things starting to change rapidly. First Mazar-I-Sharif fell, then Herat, then Kabul and Kandahar is dusted and done with.

Here we see right in the heart of Afghanistan, US Special Forces are following the criminals like they would be in Texas. That would raise confidence in the American public to new highs. I allow that there are a lot of apprehensions and when I made that call that it would be all over by the 17th and made my quantifiable Dow and Nasdaq points, it was not seriously taken but like that Sunday call when the US Supreme court would stop the Florida Supreme court decision on recounts, there were again some sceptics. I look back in this thread that the underlining reason of our arguments are very cogent and if anyone else or recognised publication had made such kind of pronouncements, they would have been giving due credit. The reason that they are made in an obscure corner of SI and no due credit is paid is the very reason we continue to make such groundbreaking new outlooks, which are outlandish on first ground, but a lot of history and geography goes into it.

Today when we make this assumption that economic interrelatedness to terrorism, some people thought it was a sheer waste of Ike’s time but as I come back to the market and find my bearings, I take it as my moral responsibility to highlight my intellectual reasoning for my pre-occupation with war. Here I am trying to deal with issues of our analysis towards future economic cycles and the events of the present; the eradication of Osama and the addressing of the poverty-stricken world, quality of life of women in Afghanistan. All these issues in my “confused mind” are going to determine the PEG of MSFT. This is the kind of foolish inter relations I develop and I enjoy them.

Mixing Osama eradication with the PEG of MSFT is in itself a groundbreaking assumption like my quantifying of the Al Qaeda elimination in Dow and Nasdaq terms, 1500 and 300 points. Who else would do that on the street? That brings a lot of conflicting arguments and thoughts who may disagree with but the ability to think independently helps me make this thread an interesting place albeit some consider it to be a maverick approach to the markets which I understand. Keep in the same vein, the US population are seeing the results of their proportionate response and this will show up that the lingering Consumer Confidence Index will find its bottom around 92 and increase from here. Economics is a science that has become so impractical that most of the time the political, social and strategic aspects of the economy are totally ignored.

If I am ever asked to speak to Economic students and lecture them on global economics, mine would be a tour de force that would include the ‘political and strategic’ underpinnings of our global economy more than micro and macro factors. Global economy does not operate in a vacuum, rather within a context of a social contract. That contract is a contract that demands respect of norms and civility of actions between nations. Take this contract out and you destroy the very fabric of this ‘social contract’ that insists on the civility of relationships and consequently we enter into an ice age of a depression.

Subsequent to 11th Sept, when people fear flying and flying becomes an effort, it is not just flying; it is the whole service industry that goes into a tailspin. 60-70 million visit France every year. Cut this interactivity and integration of global economy and you’re left with a French nation that would result in a severe depression. The last 2 months, analysts like myself, on the minimal fringe of the mainstream focussed too much on these events because for people coming from my background of ‘global integration’ the events of 11th Sept have been an antithesis of what I stood for. My bearings were just not there. I could not relate to the markets for the simple reason that I could see that if this attack on the basic human attributes were not confronted with the relevant response, we would not have any global economy. The 1930 depression would be perceived as a growth period if 11th September attacks had gone unpunished.

This was the reason I was preoccupied with this economic relationship to peace. Some considered that as a propaganda others Ike gone tangent. The fact in my head was that ‘there is no economy without global tranquillity.’ The ultimate result of the 11th Sept attacks is the undeniable fact that damage has been done but equally nicely sited is the ray of hope emerging due to the firm actions from the US.

I would have thought that the slowdown in the world economy may be restricted to a light recession, which has been built in into the market, and even the IMF has stated the world might not enter a recessionary period. I expect that the grim economic news will continue and that some airlines might go bust, more job losses, some truly dreadful earnings BUT I’m confident that with the way the present events are unravelling, the most important element that was sorely missing from our equations, that of consumer confidence has returned. All economies are about confidence and sentiment like President Johnson said “ All politics is local”. In a similar vein, the economy is made up of consumer sentiments and confidence.

The reason Japan could not come out of its Ice Age recession and all us economists have gone into a rip van winkle sleep waiting for that revival is that every Japanese knows that tomorrow things might be cheaper hence no interest in spending today. Here in the western economies, we are seeing low interest rates, falling oil prices and lower tax rates. In Japan we have lower interest rates, falling oil prices but higher tax rates and larger budgetary deficits. The US economy after such a severe examination of its strength has survived its test of spending otherwise car sales and mortgage applications should have shown a lowering trend. In Japan the reduction in rates, in the last 5 years, has not been able to show that strength in the housing sector and non-durable goods and spending habits. Japanese are still net-savers believing that next year will be cheaper. The key tests of any recessionary economy of lower consumer spending on non-durable goods are a hallmark of today’s Japanese economies. Even after the horrific incidents, the US economy has come out well ahead.

Imagine if Japan had suffered such a blow. I don’t think their economy or their consumer outlook would have been able to sustain such events in their economic cycle. The ability of the US to sustain these body blows at the lows of its economic cycle augments my argument that I have been at the forefront of the beginning of this so-called recession that yes from a red hot state of 7% growth, we did come down to 2% growth but even in the present state of the US economy shows me green offshoots clearly visible. My hats off to an economy that can sustain such a blow and still be so optimistic to go and buy a car or house and to just spend.

Economy is a science of living and if we disassociate living and hinder the learning of this science with some out of the world graphs we complicate issues. On global events and every issue, I have a philosophy to keep it simple silly. I try to make my markets or my economic outlook to how an ordinary bloke on the street would like to understand it. I would reiterate that lower taxes, lower prices, lower interest rates, lower oil prices and a 2-2.5% growth rate would be an ideal mix and I think we would achieve that in the first quarter of 2002. Best regards Ike



Iqbal Latif

Iqbal Latif

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