Abudhabi - Dubai episode and the Credit Crisis

It was the biggest news for the promoters of Dubai World when Prince Khalifa finally agreed to loan $12bn to rescue them from bankruptcy 


The image below is what Abu-Dhabi looks like. It has very high number of industries and many more are coming in their way. Abu Dhabi also holds around 9% of the world’s proven oil reserves and almost 5% of the world’s natural gas. Abu Dhabi has built it's sustainence on manufacturing industry and hydrocarbon trading.

This image below shows the famed Palm beach, World Beach amongst other attractions.

It also has the world's tallest building and the world's only 7 star hotel - Burj Khalifa. 


Initially the hotel was named Burj Dubai, but then the owners Dubai World didn't knew the economic crisis of US and the real estate crisis of Dubai will come in. The king of Dubai then to sell of his jewel holdings to Abu-Dhabi king so as to not default on the payments. Amongst jewels sold completely or partially were the Dubai Metro, Burj Dubai

Though united in names but divided by work, The United Arab Emirates showcases the coming together of kings for not so related purpose. They fight amongst each other for being the richest, famous and powerful. They do not work for the betterment of the country on the whole, but for their own emirate. Each emirate has its owned petroleum company with strict demarcation of boundaries of operations, each emirate works as an independent country within country. This presents a huge conflict of interests for the smooth working. The Dubai government was borrowing recklessly for its expansion of business in the hay days. 

Chi-Merican seesaw

This is a tussle for power worth mentioning. It is a seesaw which requires players on either side, America and China, such that neither player can evolve into a world power single handed. China had recently disclosed its decision to acquire nearly a 3 trillion dollar worth of natural resources majorly in crude oil, gold, natural gas, copper, iron ore, etc. On the face of it, there seems to be working on in securing the nation’s supply of raw materials for the nation’s growth.Due to China’s huge demand the copper prices are pushed up. Also the natural resources too are not left alone in the Bull Run. But when the purchase is viewed from the point of view that these are the resources most fought for and with limited supply, the issue becomes severe. It becomes more severe when the acquirer is the biggest holder of dollars outside USA.

It is the making of the perfect battle of supremacy. The Chinese are looking forward to two things by this purchase. Firstly they wish to reduce their US dollar dependency as a reserve currency. Keeping these reserves with very high dependency will be detrimental to their growth of international power because of the volatile world political environment. It is a double edged sword with China. While it gives China a good leverage and a say on the American policy decisions, but a prejudicial step taken by any nation to reduce the utility power of USD will reduce the value of Chinese foreign reserves. America on the other hand needs the utility value of USD to decrease to pay off its mounting debts and also help its exports to be more competitive. And here is the making of the first centre for power struggle between the two nations.

But China wishes to use the devaluation for its own benefit. If the USD is devalued it will also force the Chinese to shell out bigger sums to acquire the natural resources reducing the USD reserves. To counter this they are buying in resources which contain real value with them like gold, silver, metals, etc. Another aspect to the devaluation row is that US wishes to reduce its dependency on imports from China. This requires the Chinese goods to cost more in that case Chinese yuan should be valued more. With Chinese not willing to do so, US got an (probably) unintentional opportunity because of the financial system failure. It has taken lot many steps to devalue its dollars including the quantitative easing.

Secondly China wishes to promote its currency to be used in the international settlements. To be able to do this they will require the gold backing for its money and also decontrol its currency. Taking a step forward into this move China is said to have planned purchase of gold worth 1 trillion dollars. And as can be seen in the current market scenario where the price of gold is touching new highs every month, the purchase of gold is helping China to get rid of the dollar and showcase that its currency has more real worth backing. But the irony is gold is still valued in dollars.

New York Stock Exchange & Deutsche Boerse Merger

The following article was written by me for my magazine "FOCUS" by club ECOBIZZ of IBS, Hyderabad (ICFAI Business School, Hyderabad)

New York Stock Exchange Euronext (NYSE-E) and Deutsch Börse (DB) are amongst the biggest stock exchange companies in the world. They have recently gone into the decision to merge creating the world’s biggest stock exchange firm having presence in more than 7 countries. Indeed a super power like situation.

What are these companies? And what is it about companies running the stock exchanges? Well NYSE is the most renowned stock market in the world, tracked by millions of traders for speculating the world sentiments. Many exchanges feel the effects of the movements on this exchange. It’s the biggest market for equity trading. Listing on this bourse signifies an Indian company as a blue chip for the Indian investors. This is the might of the greatest stock exchange in the world. It has its presence in pan Europe too along with dominance in American markets. DB on the other hand is the biggest player in the derivatives market having its presence in many countries in Europe. NYSE had in 2006 beaten DB in a bid to purchase Euronext the pan European stock exchange (covering many European countries) creating a behemoth of stock exchange company. Now with the news of NYSE-E & DB merger creating the world’s biggest, largest stock exchange entity.

The $10 Billion merger controlling a $20 Trillion has all the eyes of the world markets. This merger for exchanges means a convergence of technologies and processes, improving the performance of the exchanges and reduction in costs to investors. It shall also increase the investment choices for an individual investor after the consolidation of the investment avenues. The acquisition will broaden the trading avenues by increasing access to companies listed on foreign exchanges, access to foreign markets to tap money.

Exchanges, the world over, earn money by charging a small margin on trade volume and earn profits by

Privatization Of Currency

I stumbled upon this concept a few weeks back and was totally intrigued at the number of possibilities any concept can possibly have. It was a breakthrough concept and implemented in 2009. Privatizing the currency used by the people. Allowing the people be sole owners of the currency being circulated throughout the world. Allow the people to use this currency instead of a nation’s currency for all the financial transactions. This idea shifts the center of control from the Governments and transfers it to the People. Citizens become the sole owner and authority of the currency. The concept is of creating something different. It is an online currency but it is different than the online credit points which you get in Facebook. But it is also an attempt to create a real world currency which is totally decentralized and no government or bankers can rule it. It is like a Euro currency for the whole world with currency conversion in hands of the people.

The idea is called Bitcoins. It is a virtual peer-to-peer currency that can be sent and received directly over various exchanges and mediums. It provides the benefits that your money can’t be frozen, tracked or taxed, and transaction costs are very low. This idea was then implemented using the works of “Satoshi Nakamoto” - pseudo name used by the creator of the idea. He is based in Japan and has created a concept which brought power into the hands of the people using the currency and not in the hands of few (which is the current economic scenario). With his concept paper “Bitcoin: A Peer-to-Peer Electronic Cash System” he proposed the mechanism of working of the private currency – Bitcoin. The idea of Bitcoin is it that is a currency that can be traded peer to peer without any government interference. This idea being highly sensitive to all the governments

The Japanese Recovery – Strategic view

The March 11 Japan earthquake, the 5th largest in world, has affected the world economy in more ways than just economics. So while looking at this major natural disaster the two criteria discussed in the article are Economics & Politics.

The Economics: A classic case of “supply side disruption” fueled by the unpredictable and dangerous cocktail of natural disasters - the Japan earthquake tsunami and nuclear disaster. Japan is amongst the major producers of capital goods and creates 10% of the world economic output. The good exported by Japan, consisting mostly of machinery and transport equipment was in 2010 worth about $470bn. This natural disaster wrecked havoc on the factories producing the goods heavily demanded by the whole world. This was visible in major reduction in production & sales figures of auto majors sourcing from Japan. Their May 2011 sales figures declined nearly 23%. Japan provides nearly 60% of the world’s computer chips and the calamity resulted in closure of 2 companies for repairs reducing the output by 25%. The nations round the world hence need an early recovery for the smoothening of the supply chain and depreciation of Yen.

The fund flowed into the nation for the reconstruction and there was a high appreciation of Yen. The bond market in Japan was also gathering pace. This proved one major point – Investor confidence in Japan’s recovery and repayment capability. The Japanese showed this capability and capacity. They have restored the infrastructure destroyed with great speed. An example of this would be the case of the Tohoku Shinkansen, a high-speed rail line connecting Tokyo and northeastern Japan. It recommenced operations 49 days after the earthquake.