Monday, July 13, 2009

Microcredit Loans: Savior of the Unemployed?

By: Sherry Rashad

Ever since Dr. Muhammad Yunus’ Banking for the Poor microcredit scheme gained kudos from the “conservative” world of global corporate finance as an economically viable way to alleviate global poverty a few years ago. Many have now wondered if our current economic downturn could set back this “altruistic” financial program. Especially considering that most of our current financial woes is due to lending money to people – i.e. providing credit - without first verifying their ability of paying them back. Even though the worst of our on-going global credit crisis seems to be over – if you believe the financial experts – unemployment seems to have established itself as the new long-term problem that could hinder the full recovery of our ailing global financial system.

The specter of long-term unemployment will probably plague the global economy long after a full recovery is achieved because corporate downsizing – especially in the wake of the Far Eastern construction sector decline – usually means job layoffs. That is firing employees to you and me in our current post credit crisis world. As an altruistic financial stimulus that gained a foothold long before the sub prime credit crisis became a full-blown global issue, microfinance / microcredit loans had always provided the “unemployable” third-world poor access to a well-paying trade. Especially in developing countries where access to jobs in the local jobs market is next to impossible without first paying exorbitant bribes to the human resources gatekeeper. Not to mention the lack of safety nets – like unemployment compensation – during times of corporate fiscal austerity.

In my own experience, I’ve never encountered a microfinance / microcredit funded business that went bust – so far at least in my neighborhood. But if you believe the latest assessments of financial experts that the global unemployment problem due to the post credit crunch corporate downsizing will continue to linger long after the global economy starts to recover. Then microcredit and microfinance schemes are a good and economically sensible way of providing a safety net for laid-off workers.

Even though the recovery of our global economy could be hastened through capital investment, our corporate social responsibility-aware venture capitalist still lack the investment confidence to reinvest their money once initial public offerings are available. Because the corporate irresponsibility of firms that laid-off their employees during times of corporate fiscal austerity will become a politically hot-button topic. Thus making the investment in microfinance and microcredit programs not just ethical, but also very sensible – from a financial perspective – as well.

Tuesday, November 25, 2008

Investing in Gold Jewelry

By: Sherry Rashad

Anyone well versed in economic theory can profess that gold can be an ideal long-term investment vehicle, not just as safe-haven investments. This is so because unlike fiat money, gold is not backed by credit, gold has value as is. But in terms of bulkiness and portability, gold in the form of bullion, leaves much to be desired as a “popular” investment medium. Gold jewelry or other objet d’art not only has an inherent sexiness factor which make it as a great conversation piece, but they also serve also as an excellent investment vehicle that is as good as gold bullion, bricks, or what have you.

I probably started my own peer-to-peer gold jewelry retail business back in 1999, when gold prices were at an all-time low. Gold was only worth 200 US dollars or so an ounce back then. Plus jewelry stores were selling gold items at almost fire sale prices at a rate like they are going out of fashion. Given that I still had the good fortune of having wads of dosh burning a hole in my pocket, I chose to invest it wisely by purchasing discounted gold jewelry and slowly selling it when gold prices go up. In which gold prices as always often tend to go up.

Even if the gold jewelry I bought at a discounted price be resold at their pre-discount levels, a profit margin of 8 to 10 percent is not uncommon. While an 18 to 25 percent profit margin can be possible if you manage to find a jewelry store desperate to sell. Remember that back in 1999, there’s a mini-recession that’s spreading across Asia that despite of 10 US dollar a barrel crude oil prices and gold at an all-time low of 200 US dollars an ounce. Almost all people are extremely weary of making extravagant retail purchases because of the then localized SE Asian mini-recession.

But my decision to invest in gold – even in jewelry form – was born out of my concerns over the long-term profitability of the “dot com” boom. Plus, the antitrust lawsuit of Microsoft CEO Bill Gates - which seems to be getting 24/7 coverage - could push almost anyone to seek for safe-haven investment tools. Even though I didn’t ride my “dot com” stocks to their absolute peak back then, at least I got off before their value became irretrievably lost. Using the money I earned selling them as a sort of start-up capital for my peer-to-peer jewelry business. Which even till now still has inventory that dates back to 1999 even though I made a killing in profits. Gold is indeed an ideal investment vehicle.

Thursday, November 6, 2008

Smells Like An Economic Bubble

By: Sherry Rashad

Probably you have a whiff of it before because it is known by it’s other names. Such as the speculative bubble, the price bubble, and the market bubble just to name a few. Leading financial academics usually point the blame at trading certain items in high volumes at prices that are considerably at odds from the item’s intrinsic value. Some economists still clung to the belief that financial bubbles never occur. But for those who experienced it first hand rather painfully, the cause of economic bubbles still in most part remains a mystery. Especially those who are convinced that the prices of assets – from time to time – deviate strongly from their intrinsic values. Like what the crude oil trading prices did during the first half of 2008.

To me at least, I do tend to gravitate towards the belief that economic bubbles are primarily caused by uncontrolled speculation. Proven by my first-hand experience in speculative trading and by what has historically gone before. I’ve been relying too often to my psychic-like luck for far too long in avoiding getting burnt on the speculative market. But in this business, history tends to have a very ugly habit of repeating itself.

A case in point is the thoroughly documented Hunt brother’s attempt at cornering the silver market for much of the 1970’s. This resulted in the price of silver briefly rising to 50 US dollars an ounce between September 1979 and January 1980. The Hunt brothers audacious attempt at speculation by hoarding billions of dollars worth of silver to artificially increase it’s trading price became known as the Hunt Silver Debacle. The Commodity Futures Trading Commission – though criticized for being slow to act in the months before Silver Thursday - began putting together new rules aimed at preventing a repeat performance.

Back in the middle of 1997, the lessons learned from the Hunt Silver Debacle wasn’t lost on me. I did develop an uncanny knack of sniffing it out. The shenanigans on the London Metal Exchange and Sumitomo’s attempt at cornering the copper marked could have sent me to the poorhouse – both figuratively and literally – if I haven’t stuck to what I’ve learned before. My financial adviser and then still new mutual fund manager also manage to evade from the poorhouse from heeding my somewhat “speculative” advice.

So does the “Dot Com Bubble” of 2000. Given that economic models that formed the basis of our current sponsored links and on-line advertising were virtually nonexistent back then. The Internet commerce in those days were in effect virtually relying on assigned values of non-existent constructs which would make adherents of trading in concrete assets balk.

The question now is; how does one avert the tragedy of experiencing first hand the damage financial bubbles can inflict on your investment portfolio? What works most of all, in my opinion, is avoiding investment and trading instruments that you don’t understand. Like credit derivatives and mortgaged backed securities whose values are pegged on non-material constructs, which to me at least resemble a legalized pyramid scheme. Mortgaged backed securities for all intents and purposes is speculative money and speculative money is notoriously known for their lack of concrete equivalent in goods and services.

Although investing only in concrete assets is by no means infallible. Even real estate, which is for all intents and purposes a concrete asset, are not immune from the effects of speculative bubbles or from becoming economic bubbles unto itself. Like the US Housing Bubble, which began in the wake of investors trying to recoup their Dot Com Bubble losses that turned a few years later into a financial disaster of gigantic proportions.

It should be also worth noting though that our global economy is primarily a greed driven system were the primary goal of the participants is to enrich themselves and enrich their client base if the exigencies of the markets allow. Government-based regulators are there to make sure that the “players” only enrich themselves by fair means even though regulations – as a stabilizing force in the economy – can’t often be counted on. Because prices in an economic bubble can fluctuate chaotically thus making it impossible to predict from the laws of supply and demand alone.