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 we 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 it’s own economic autumn.
It is interesting how the weather in North Eastern United States 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.
It’s still okay to invest
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.
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.
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.
Globalization brings leverage
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.
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.
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.
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.
Impact in China, India and Pakistan
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.
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, 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.
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!•
Impact
What do you think is going to be the impact of the US elections on the Pakistani economy? Just as an important to consider is what the impact of the November 2008 elections will be on the Pakistani IT sector. With the North American economy in the situation it is in, will organizations continue to offshore their operations to countries outside their borders? What will happen to the business of outsourcing?
Discussions amongst many technology analysts foresee the global outsourcing market taking an eventual hit, while there may not be any immediate cause for concern. The number of years it may have taken the West to realize how convenient and cost-effective BPO is, it will perhaps take a few lesser years for them to get their jobs back on their turf. The other side of the argument is also that if companies begin to cut down on the amount of BPO that is ongoing currently, what impact will that decision have on cost competitiveness? Will economies of scale still be applicable for large organizations?
