pakistan – Pertinent Observations

Pakistan, Swiss Franc and the costs of suppressing volatility

Back in 2008, during the CDO/MBS/Lehman/… induced financial crisis (and also a time of domestic political crisis in Pakistan since Musharraf had just resigned), Pakistan set a funny rule – they ruled that stock prices could not fall below a particular limit. So there was no trading, since the crisis meant that no one wanted to buy shares at prevailing prices. And then after a long time the ban got lifted. And shares promptly fell. Check out the graph of the MSCI Index for Pakistan from that time here (from FT):

Check out the late 2008 period when shares were virtually flat. And then the fall after that

Sometime back, Switzerland decided that its Franc was appreciating too much and put a ceiling on its price by pegging it to the Euro. The Franc can be worth no more than five-sixth of a Euro, they decreed. And the Franc stayed flat, close to the limit. And then in a sudden move yesterday, following instability in the Eurozone which meant the Euro has been getting considerably weaker, the Swiss National Bank decided that continuing to maintain the peg was costly. And they pulled the plug on the peg (couldn’t resist the alliteration). The graph is here, snapped off Yahoo Finance (took screenshot since I couldn’t figure out how to embed it):

This graph shows the number of Euros per Swiss Franc. There was a floor of 1.2 till 14/1/15 which was suddenly removed on 15/1/15

I chose the 5-day chart since on any longer horizon yesterday’s drop was hardly visible. With time, once we have a longer time scale available, we will see that this graph will again start looking like the Pakistan graph.

Thanks to the sudden appreciation in the CHF, there has been bloodbath in the markets. Some FX traders have gone down. Alpari has declared itself insolvent. Global Brokers NZ is closing down. US-based FX trader FXCM is in trouble. And there could be lots of trouble in Poland where people took home loans denominated in CHF (this might sound heartless but such utter stupidity – like taking a home loan in a foreign currency – deserves to be punished).

The broader point I’m trying to make here is a paraphrasing of the old adage “still waters run deep”. When something seems unusually quiet, either held in place unnaturally or even if there is no apparent force holding it in place unnaturally, it is usually a sign that when the floodgates open much will get washed away (apologies for the surfeit of metaphor in this paragraph). When you suppress “local volatility”, the suppressed entropy builds, and when there comes a time that it can be suppressed no more, it acts with such force that there will be much damage.

As Nassim Nicholas Taleb argues in the black swan (link to my paraphrasing of his argument), countries with short-term political instability such as Italy or India or Japan are much less likely to face any major political instability. On the other hand, countries like China, he argues, where small instability has been artificially held down, when instability hits, it will hit in a way that it will hurt real bad.

I’ll end this post with a page from Taleb’s first book Dynamic Hedging, which he tweeted earlier today (I haven’t read it but want to read it but haven’t been able to procure it). Read and enjoy:

Punjabi Muslims

So earlier today I was reading this profile of a Harvard professor that Chan had shared on Google Reader, and I came across this name called Iqbal Dhaliwal. The name immediately rang a bell, and I realized I’d come across this name long long ago in the Competition Success Review (yes, I admit I used to read that ) when he topped the civil services exam.

So one of my hobbies is to try find out about a person’s origins and ethnicity given his/her name. Like I once figured that this colleague is of Danish descent because his surname ends with -sen while the more common spelling of that name is -son. And so I was trying to figure out where Iqbal Dhaliwal came from. It was clear from the first name that he’s Muslim. And the last name, I thought, sounded Punjabi.

And then my thought process went something like this:

First name Muslim, last name Punjabi-sounding… So is he a Punjabi Muslim? But then, I don’t know any Punjabi Muslims. Do there exist any Punjabi Muslims at all? Hey, wait a minute, I remember reading somewhere that the majority of people in Pakistan speak Punjabi. So there must exist Punjabi Muslims. But I don’t know any.. I don’t know any Punjabi Muslims but there are lots of them in Pakistan. Yeah, I don’t know any because all of them are in Pakistan. Yes, all of them are in Pakistan, most of them at least!

I know Kannadiga Muslims, Bengali Muslims, Gujarati Muslims, Kashmiri Muslims and Muslims from UP. But I don’t know any Punjabi Muslims. Because there are no Punjabi Muslims in India. Because ALL of them went to Pakistan. Tells you how much of an impact partition had in the Punjab, compared to anywhere else in India.

Lazy post: Search Phrases: March 2009

I think I’ll make this a monthly feature: collecting the whackiest search terms that people use to land up on my blog, and posting them here. I had published one such list for February. Here goes the list for March:

describe my job
apprentics for carpenter in gurgaon
can north indians survive in the south
carnatic music pakistan
dry fish market in orisa & madrass contact numbers
examples of bastardization in a sentence
how can death be postponed by chanting mantras?
kodhi is a cheap guy
savitabhabhi.com competition
verb phrases of the behavior of atticus
what are some other versions of dashavatar -film -songs -jobs -dvd -movie

Search Phrases – February 2009

I don’t plan to make this a monthly feature, but will write this whenever I find enough funny search phrases to make a post on them worth it. Googlers and google seem to have had a field day this month,

The top search phrase that has led to my blog is of course “noenthuda“. In second place is the fairly boring “blog.noenthuda.com” . Third place is extremely interesting – top reasons marriage engagements break in pakistan. And I’ve got over 50 people who have searched for this phrase in the last month and then landed up at my blog! Now it makes me wonder what the top reasons are for marriage engagements breaking in pakistan.

Here are a few other gems from the month gone by.

gay in iimb (17 hits)
3-letter word for pertinent
aunties in chickballapur (chickballapur is my father’s native place, for the record; it is famous for its extremely spicy chillies)
best english speaking course in north india
can we put the shoes and chappals near the entrance of the house
cricketers animal names
funny message for my cousin who wants to move back to bangalore
i am working in singapore what do i need to do to buy a car in delhi
i don’t know how to speak english but i know hindi can i work in delhi
iimb course to be on your own
job interview edition on savitabhabhi.com
karwar muslims
matha amritha, things she does
number of north indians settled in south india
societal influence on a bastard child
the true story of a man who learnt fluent spoken english
which indian breakfast item can be made with bread?

Ok that has been a very long list indeed. Much longer than I intended it to be. But it only reflects the brilliance of googlers and google in the last one month.

Thank God for the economic crisis

This post is based on my discussion with Baada yesterday. I hereby acknowledge his contribution to this post.

One of the hundred thousand random headlines that The HIndustan Times put on their front page during the last couple of weeks was a statement that China won’t hesitate to help out Pakistan in case India were to declare a full-scale war against Pakistan.

Given both historical precedents, as well as China’s perceived military might, it would be difficult, indeed, for India to attack Pakistan, unless of course there is some other external power supporting it. However, it would’ve been unlikely that the US would’ve supported India in such a war against Pakistan and China. Think current account deficit. Think external debt. Think Chinese foreign exchange reserves. The Chinese threat of economic terror on the US would’ve meant that the US would’ve left India alone to handle its two northern neighbours.

The current economic crisis has changed all that. No doubt it has fucked the US. The point is that it has fucked China even more. China, having been extremely dependent upon US imports in order to expand itself, seems to be in serious trouble now.

If China decides to sell its USD reserves now (the most obvious method of economic terror), the RMB is going to rise rapidly against the USD. And fuck China further in the exports department. RMB will also rise against the Euro and other major currencies. And China will get further fucked.

Effectively, the only way in which China can unleash economic terror on the US is by means of a suicide bomb. Thanks to the current downturn and all that, if China were to destabilize the US economy, it would also have to go down itself. This implies that the chances of China unleashing economic terror on the US in the current scenario are minimal.

Which means that if China decides to support Pakistan in case of a full-blown war, the US, as part of both its anti-terrorism strategy as well as its strategy to find a large Asian counterbalance to China, can support India. The threat of the US entering the war on India’s side will deter China from entering the war. Which means that Pakistan can’t count on Chinese support anymore. Which means that in case Pakistan does some mischief, India can consider the option of going to war. Which means that Pakistan is unlikely to do much mischief now.

So bless the flying spaghetti monster for the timing. Thank goodness this escalation in terror didn’t happen last year, when the Chinese economy was soaring, Acshully, rather than thanking the FSM, we can say that it has been bad timing by the terrorists.

Madman theory redux?

Madman Theory refers to the policy employed by the US in the 1970s during Nixon’s reign. They convinced the Russians that Nixon was mad, and that he was liable to act irrationally if provoked. And this led to the US getttig an upper hand in the Cold War.

It seems like Pakistan is unwittingly doing the same nowadays. Given the general chaotic nature of the political “leadership” in that country, and also the fact that they have access to nuclear weapons, India dare not launch a full-scale offensive against Pakistan, irrespective of what the terrorists do.

So what this means is that Pakistani terrorists can come here and continue to have fun, and even if we know that they have been backed by Pakistan, we can’t do a thing because we are afraid that some madcap in Pakistan has control over the nuclear button and might end up nuking us.

And given that the democrats are in power in the US (irrespective of Biden’s pro-India leanings) you never know how relations between India and Pakistan shape out in the next few years.

If you have a bright idea as to how one can combat this Madman technique (I’m not sure if Pakistan is playing this deliberately), let me know. Actually, letting me know is of no use. I can’t do a thing. So do what you think is the best, but also let me know.