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A R K investments http://arkinvestments.org Sat, 16 Apr 2016 22:06:24 +0000 en-US hourly 1 https://wordpress.org/?v=4.7.2 The new game (The Economist, Oct 17th 2015) http://arkinvestments.org/2015/10/31/the-new-game-the-economist-oct-17th-2015/ http://arkinvestments.org/2015/10/31/the-new-game-the-economist-oct-17th-2015/#respond Sat, 31 Oct 2015 23:07:46 +0000 http://arkinvestments.org/?p=588 American dominance is being challenged
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The Superpower Chessboard (geopolitical significance of oil prices and the Syrian conflict) http://arkinvestments.org/2015/10/19/the-superpower-chessboard-the-geopolitical-significance-of-oil-prices/ http://arkinvestments.org/2015/10/19/the-superpower-chessboard-the-geopolitical-significance-of-oil-prices/#respond Mon, 19 Oct 2015 06:40:34 +0000 http://arkinvestments.org/?p=563 Just came across the below article. No matter what happens (i.e. whether or not the predictions play out as stated), the below is an insightful read.

When super powers paint red lines and fail to act when they are crossed, you can be sure inaction would be considered weakness. Someone else will fill the power vacuum.

Russia has done that and has an edge at the moment. To most players in the region Russia seems to be a stronger ally which delivers on what it promises. We will have to see what U.S. next move will be if any.

At the end, what is unfortunate is that the ultimate losers in this power-play would be the civilian population of the region, no matter who wins this battle.

Oil prices and the Syrian civil war

Europe is divided regarding its course of action against this flood of migrant resulting in inaction; meanwhile the flow intensifies: at the beginning of October 2015 the flow has increased to over 10,000 new migrants daily in Germany. Today we will explain how an armed conflict over a gas pipeline triggered this mass migration and considering the geopolitical consequences, forecast where oil prices will go from here.

The Heir to the Throne

In 1994, an unassuming eye doctor in London got a call to tell him that his brother had died unexpectedly in a car crash and that he had to move back in with his parents. Why? His father was Hafez al-Assad, the internationally reviled dictator of Syria, and our humble eye doctor was now commanded to prepare for his new inheritance – the Presidency of Syria.

Bashar al-Assad became president upon his father’s death in 2000. He married the charming British-born Asma Akhras in December. Hafez al-Assad’s foreign policy had been against the Western powers, which he resented for the colonial occupation of his country, and pro-Soviet Russia, which had sent military assistance and arms to Syria. The Western-leaning young couple worked to thaw relations with the developed world.

The Assads were invited to the capitals of Europe and forged friendly contacts with world leaders. By 2010, with the ruins of Saddam Hussein’s regime smoldering in Iraq and a peace deal signed in Palestine, suddenly the path was clear from oil and gas producers in the Middle East, all the way to Europe. There remained just one last country to bring onside in order to get oil and gas piped through to a high demand region. That country was Syria.

Once Upon a Pipeline

As oil-price.net reported back in 2012, Qatar needed to get its Qatar-Turkey” pipeline through Syria, and Europe looked forward to linking up with the world’s largest gas producer because it was over-dependent on Russian supplies. Russia’s unstable president Vladimir Putin had previously cut off gas supplies to Europe in the dead of winter 2009 after a dispute with Ukraine over gas royalties. The Russian military has since invaded Ukraine and given Putin’s aggressive stance, Europe now urgently needs to find an alternate gas supply not controlled by Russia. This makes a middle-eastern pipeline coming through Syria a very attractive proposition.

The Assads soon realized that they were in a position of power. They decided to up the ante by creating an alternative source of fuel for a trans-Syrian pipeline. Most of the countries in the Middle East, including Syria are majority Sunni Muslim. The post-Hussein regime in Iraq was dominated by Shia Muslims, The Assads are Alawite Muslims – a Shia creed that the Sunnis from Qatar and Saudi Arabia would like to see wiped off the earth. So instead of the Qatar-Turkey pipeline, Assad stitched together a deal with the Shia administration in Iraq, together with Iraq’s other neighbor, Iran – the largest Shia nation in the world. The Iran-Iraq-Syria pipeline project was born.
Syria’s economy was underdeveloped and the Assads needed oil money to keep their people placated. Their alternative pipeline plan would carry Iran and Iraq’s gas to Europe, instead of gas from Qatar, and that option pleased Russia’s Putin, because he already had long standing agreements in place with Iran, who were more amenable to gas price coordination with Russia. Moreover, as a long-term supporter of Syria, Russia had built up influence within the administration and the armed forces. Also Russia’s only military base in the Mediterranean is located on the coast of Syria which would strategically allow Putin to control a second gas pipeline to Europe. Naturally this Iranian pipeline to Syria quickly became a top priority for Moscow. Assad and the Russians worked their contacts to dissuade the Qatar deal and promote the Iranian plan. Bashar and Asma thought they had forced Europe and the Gulf States to up their offer. Instead, they had made some very dangerous enemies.

Saudis need Assad overthrown

Saudi diplomatic efforts and generous contracts to US and UK arms manufacturers gave the Kingdom an unwritten call on the military of Western powers to fight its war for it. And so the Saudi king merely needed to lift a finger for President Obama and Britain’s Prime Minister Cameron to schedule air strikes against Syria in an effort to overthrow Assad. At the end of August 2013, however, the British parliament voted against the action. That put pressure on the US president who calculated that Congress would follow suit and block any attack on Syria as well. Russia raised the stakes by moving warships into the Mediterranean, ready to defend Syria. Saudi Arabia’s friends backed down, and the Saudi king resolved to solve the problem of Syria himself.

As Iran is liberated from US-imposed embargo, two power blocks have emerged in the Middle East – Iran, Iraq and Syria, which are all Shia-led, and the rest of the Arab world, which is Sunni and stands against the Shia. While America holds the alliance of the Sunni world, Russia is siding with the Shia-controlled nations.

Saudi Arabia and Qatar’s first move was to fund the Muslim Brotherhood, which intended to impose Sunni control on all Middle Eastern countries. The Saudis persuaded the United States to endorse this policy and western media put a marketing spin on the rebellions of these Muslim fundamentalists, by dubbing their power grab “the Arab Spring”. Once the Brotherhood’s intolerance started to emerge in power, the US backed out and the Saudis tried a different tack.

The Saudis had another trick up their sleeve. Not only did the US refuse to overthrow Assad, but they then opened negotiations to loosen the oil embargo on Iran. The prospects of Iran coming back to the international oil market would heighten the growing over-supply of crude oil. Usually in these situations, OPEC was expected to cut its production to reduce oversupply in the oil market and make oil production profitable for all the other countries in the world. Saudi production quotas so exceed those of all the other OPEC nations that no production cut would be meaningful if the Saudis refused to cooperate.

The Saudis came up with a new strategy that would punish Russia for their intervention in Syria, stall Iran from retooling its oil industry and cripple America’s fracking production. They increased oil production and aggressively offered low oil prices to grab market share. The oil price fall conveniently stymied all the parties involved in keeping Assad in power.

Proxy War in Syria

Qatar and Saudi Arabia have been heavily involved with fostering and funding Sunni Muslim insurgent groups in Iraq and Syria, including the much-publicized ISIS. Disaffected and experienced Sunni administrators and soldiers in Iraq poured into ISIS, who offered them wages and self-respect.

ISIS are funded by Saudi Arabia and Qatar donors, but not controlled by them. Their leaders found it easy to quickly grab the Sunni dominated areas of Iraq and Syria, aided by the downtrodden locals. However, they have shown an ambivalent attitude in their administration. The leaders of national branches of ISIS seek income opportunities to enable them to advance ahead of rival branch leaders and gain policy independence from Saudi Arabia. In northern Iraq, they run the oil refineries they take over to make a profit. In Libya, they destroy them as offenses to God. The Libyan branch of ISIS prefers the easy money of people smuggling. Established smuggling routes also serve the long-term strategic ambition to project fighters worldwide.

ISIS-lead upheavals in Syria create a crisis that refugees are fleeing from, the ISIS-lead smuggling operations in Libya offer those refugees a route into Europe.

Labor Shortages

It is no coincidence that Germany suddenly decided to offer very generous welfare rewards to any illegal immigrant who can make it over the Mediterranean from the Libyan coast to Italian islands. Germany needs guest worker labor from poorer countries in order to keep its manufacturers competitive.

Germany’s ability to continue exporting in the face of a high wage economy is hailed by their government as a tribute to the German education system. In truth, behind the scenes, the German government knows very well that their low wage, high output economy is a tribute to the Turkish education system. Despite objections from the general public, the German government has allowed unrestricted migration from Turkey since the 1980s. The low wage ambitions of migrant Turkish factory workers undercut the negotiating powers of German trade unions. German workers had to keep their wage demands low to keep their jobs from being handed over to Turkish unskilled labor.
But the economic emergence of Turkey in recent years caused the flow of cheap labor to Germany to dry up. Now the German government finds itself scrambling for more migrant labor to stave off inflationary pressures.

Divided Europe

The new German policy of serving its own interests, in hindsight can be seen as a long-term movement from the country’s hope for European harmony, to its hegemony of the continent. The Schengen Agreement removed all border controls between EU member states. This was a step towards Germany’s original goal of merging itself into a wider country. However, the downside of borderless Europe is that any illegal migrant who can make it into Italy, Greece or Spain then has the whole of the EU to roam across unhindered. Germany turned that weakness to its advantage in its endeavor to source cheap labor. Their siren call to the downtrodden of the Muslim world has seen the countries of southern and eastern Europe overrun by ambitious economic migrants. Germany received twice as many asylum applications in 2014 than Turkey did.

Towards the end of August 2015, Germany made matters worse by declaring that they would accept all refugees arriving from Syria. Unsurprisingly, the number of asylum seekers crowding into dinghies on the Libyan coast surged. The number that claimed to be Syrian went through the roof. By September, German officials estimated that 20 per cent of migrants arriving in that country are from Syria. The large majority is from other countries such as Sudan, Somalia and Afghanistan.

The German call for cheap labor worked well – too well. In 2014, 173,000 migrants applied for asylum. German officials estimate that this year, that number will be between 800,000 and 1 million. Their success has convinced many to follow suit – an estimated 20 to 30 millions are now considering migrating from the middle east to benefit from Europe’s welfare system.

Although the German government wants a lot of migrants, its neighbors plagued with double-digit unemployment don’t and European countries started re-imposing border controls. The Europhile dream of a borderless continent was trampled underfoot by Germany’s grab for cheap labor.

In fact there is already ample statistical evidence that this “welfare migration” has significantly hurt European economies. In the Netherlands, 70% of Somalis live on welfare versus just 3 per cent for the native Dutch and 2 per cent for Polish migrants. According to Norway’s Central Bureau of statistics, each non-European immigrant costs $660,000 over his lifetime.

Britain’s experience echoes the continental figures. Over the last 17 years Britain has spent $180 billion on immigrants from outside the EU, namely on welfare, while foreign workers from within the EU contributed $6.6 billion to the British economy.

There is also an increased risk of terrorism – ISIS fighters are among migrants. According to Mike MCCaul, chairman of the House Homeland Security Committee, “From a national security standpoint, I take ISIS at its word when they said, in their own words, ‘We’ll use and exploit the refugee crisis to infiltrate the West.’ That concerns me.” According to Lebanese officials, 2.2 per cent of Syrians crowding refugee camps are affiliated with ISIS. In other words, of the 10,000 migrants arriving in Germany daily, 220 are war-hardened ISIS fighters – though many others have comparable affiliations.

Germany’s neighbors were not the only ones complaining about the policy of attracting unfiltered migrants – the German electorate rose up in protest in the face of this unprecedented geopolitical risk.

History repeats itself

A similar geopolitical situation unfolded in Lebanon 40 years ago. Back in the 60s and early 70s, Lebanon was a very westernized and dynamic center of regional trade. It was a former colony of France with a strong Christian presence dating back to the crusades. Beirut was often compared to Switzerland or Hong Kong and earned the nickname of “the Monaco of the Middle East”.

At that time, nearby Jordan was housing 400,000 Palestinian refugees from the war with Israel. These refugees, embittered by their experience, turned fundamentalists. Their allegiance to the PLO was increasingly problematic so the King of Jordan evicted them. Homeless, and penniless Palestinians headed for prosperous Lebanon. Insisting on maintaining their traditional values, they created “a state within a state” under Sharia law against Lebanon’s secular democratic model. Tensions increased as native Christians were soon outnumbered by Muslims and in 1975 a fully-fledged civil war broke out where countless were killed.

Today no-one would seriously compare Lebanon to Switzerland as they once did. We should remember three key facts, though. First, it took 400,000 refugees to destabilize of a westernized country of 2.6 million, or a ratio of roughly 1 to 7. Second, is that Lebanese leftists perceived the war as a “class struggle” (the poor against the rich) so they fought alongside Muslim fundamentalists against Christians during the Lebanese civil war. Finally, demands for welfare and the draining expense of expanding an army, frittered away Lebanon’s wealth as all commerce stopped and the tax base disappeared

Domino Effect

The German government has found itself a clever formula. It has agreed to let in more than a million migrants this year, but it hasn’t agreed to let them stay. This wordplay around the status of their visitors gives Angela Merkel a sufficient glow of piety to put her in pole position for the Nobel Peace Prize this year, but doesn’t actually commit them to grant passports to anyone.

Germany has implemented a nine month selection window to keep the brightest migrants, who will plug their labor shortage. That’s right, keep the best, reject the rest, but what will happen to those who cannot assimilate to a western society and are rejected? They can’t be sent back to a war zone, and they can’t remain in Germany. The borderless Schengen area provides the solution. In fact Germany is already laying plans for where to send its rejects. They forced through an EU ruling in late September which obliges other EU countries to take a percentage of refugees off their hands.

Some European leaders have been able to spot Germany’s tactics and have already cried foul. The ensuing name calling and outright venom that flew between Berlin and Budapest, seat of the leader of the no-voting block’s leader, Viktor Orban, shows cracks appearing in European unity.

Economic need may force the refugees to move on. Cut off from the much advertised generous state benefits in Germany, they will merely up sticks and mob over the borders to Austria, Poland, France and the Netherland in search of more handouts. As they link up with leftist radicals and religious extremists of those countries, a Lebanon style rebellion could develop.

While Germany, with 81 million people may be able control 1 million migrants (albeit not easily), it would spell doom for its smaller and vulnerable European neighbors, namely Denmark, Finland, Slovakia and Norway – each with 5 million inhabitants – much like it did in Lebanon 40 years ago.

There will be a “domino-effect” among European nations re-introducing pre-EU strong border controls, as Hungary has already done. This will significantly reduce trade between EU countries. Fewer trucks on the road mean less energy consumption, less commerce and lower tax revenues, higher deficits and a weakening Euro.

When the populations of Germany’s neighboring countries get let in on Berlin’s refugee filtering trick, the anger and mistrust between European nations that has been repressed for the last 25 years will resurface and may split the EU apart. Europe’s competitive advantages will ebb away. We can expect that some strategic industries – those who can – flee Europe’s geopolitical risk. Coincidently, Airbus SA recently announced its plan to relocate production of the upcoming A320 airplane to Mobile, Alabama USA instead of France. Going forward Europe’s image will suffer irreparable loss while North America and Asia will remain stable and open for business.

Unintended Consequences

Oil-price.net has a long track record of successfully forecasting geopolitical risks tied to petroleum. In 2012 we predicted that armed militias would seize oil fields in Sudan, Libya and Nigeria and warned of the potential disaster that factions can cause in that region. The unintended consequences of the US invasion of Iraq switched the dominant religion in that country and created a Shia corridor from the heart of Afghanistan through to the Eastern Mediterranean coast; and made Saudi Arabia feel threatened.

The Saudi and Qatar plan to switch the Syrian government from Shia to Sunni promised the reward of a clear Sunni corridor from the gulf to the frontier of the European Union. However, their methods of achieving that goal drove Syria to plan a pipeline benefiting Iran and unleashed the chaos of extremist control of large areas of Iraq, Syria and Libya.

An unintended consequence of Europe’s support for a Qatar-Syria gas pipeline free of Russian influence was the migrant crisis currently flooding Europe. The German government’s idea to exploit the overwhelming tide of asylum seekers to gain cheap labor backfired into the de-unification of Europe.

The blowback caused by Saudi policy over the past few years extends beyond the Middle East, and it still hasn’t played itself out.

The King of Oil and the Emperor of Gas

The Saudis intended to cripple Russia, Iran and US frackers through lower oil prices. However, all of those countries have joined the Saudis in increasing production since the price of oil started to fall in 2014.

If anyone is going to blink first, it won’t be the USA, where some frackers have reduced their production costs from $70 per barrel to $20 per barrel.

Vladimir Putin based his entire political strategy on the exploitation of oil and gas, both as an income generator, and as a weapon against his perceived enemies. Russia’s long term answer to the Saudi punch of lower oil prices had been in the making since Putin scared off the USA and the UK from bombing Syria. He didn’t move his battleship to the Syrian coast as a gesture. He set himself up as the military overlord of Syria and took control of the one access point common to both the Iranian and Qatari pipelines.

The sudden revelation of the extent of Russia’s involvement in Syria hit newsstands in early October 2015 when the Russian air force started bombing rebels in Syria. With international law on its side, Russia is defending the legitimate Syrian government against Saudi-backed terrorists.

Putin needs the income that his oil industry brings his government. The oil price drop and the Western sanctions against Russia hurt. His favorite industry, however, is gas. Russia controls 70 per cent of gas supplies to Europe and that brings him political advantages, as well as the ability to set falsely high gas prices. Europe’s resolve to block trade with Russia will soon weaken during the freezing winter. With no hope of a pipeline bringing Middle Eastern gas through Syria, German-lead Europe will be easier to deal with. Russia is well placed to become Iran’s new best friend. Putin is sitting pretty.

The Saudi Endgame

Saudi Arabia itself has a belligerent population and its government keeps the lid on dissent by being very generous with sweeteners for its people. Those subsidies are expensive and now that they are selling oil near cost price, the Saudi government is drawing down its saving.

The Saudis are running out of money and Western governments are starting to realize that they would rather Assad survived in office to help them fight the Saudi-funded ISIS. The comfortable relationship between the governments of Saudi Arabia and the USA seems to have broken down. A growing awareness among the populations of the West that Saudi Arabia funds terrorist organizations makes it harder for those democratic governments to make moves to support the Saudi King. So, Saudi Arabia is losing its big military ally, while Iran, Iraq and Syria become more closely involved with Russia.

Low oil prices have become the new normal. The only way they will ever change is if a large amount of world oil output gets knocked out. It turns out this may be in the cards.

In booting ISIS out of Syria, Russian military planners most certainly will use a strategy called “funneling”. Quite simply, with the assistance of allied Iran to the east, Russia will attack ISIS troops anywhere but south, forcing a retreat in that direction, thus “funneling” ISIS fighter south into rival Saudi Arabia. ISIS may find grassroot support within the kingdom and their natural target will first be -as always- oil fields. The resulting shortfall in oil and gas production will enable Russia and Iran to incease military spending and extend their strategical influence on the region, much like the US did.

An unintended consequence of the Saudi attempts to overthrow the government of Syria, may be the overthrow of the government of Saudi Arabia with its own medicine. Should ISIS be pushed into Saudi Arabia, expect oil prices to surge.

Copyright (c) 2009 oil-price.net

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Fannie Mae and Freddie Mac http://arkinvestments.org/2015/10/16/fannie-mae-and-freddie-mac/ http://arkinvestments.org/2015/10/16/fannie-mae-and-freddie-mac/#respond Fri, 16 Oct 2015 23:23:09 +0000 http://arkinvestments.org/?p=548 Fannie Mae and Freddie Mac were at the epicenter of the 2008 Financial Crisis. The two entities were taken over by the U.S. Government on September 6, 2008. Below is an interesting conversation on the status of the two entities today, the risks they pose, and suggestions on how to mitigate the risks.

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The Night Sky http://arkinvestments.org/2015/10/13/the-night-sky/ http://arkinvestments.org/2015/10/13/the-night-sky/#respond Wed, 14 Oct 2015 05:04:32 +0000 http://arkinvestments.org/?p=543 In a dark spot on earth there is pretty much nothing that compares in beauty to that of the clear night sky powdered with stars. You can look at it with a scientific or a religious lens. It tells you a lot… It reminds me of my insignificance – keeps me in check… keeps me humble.

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The Economist’s Timely China Warning. http://arkinvestments.org/2015/08/30/the-economists-timely-china-warning/ http://arkinvestments.org/2015/08/30/the-economists-timely-china-warning/#respond Sun, 30 Aug 2015 07:43:05 +0000 http://arkinvestments.org/?p=533 As a regular reader, I love the insight The Economist offers. This article was on May 30th 2015 issue. I actually did not read it at the time. I came across it browsing through last night. It gave timely insight into everything wrong with China’s stock market valuations. Ones invested in China should have read it before all hell broke loose.

China’s stockmarket bubble – A goring concern – The economic dangers of China’s manic bull market – May 30th 2015 | SHANGHAI

Shanghai Stock Exchange Composite Index (ending Aug 28, 2015)Shanghai Stock Exchange Composite Index ending August 28 2015

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Inside Amazon: Wrestling Big Ideas in a Bruising Workplace AUG. 15, 2015 – The New York Times http://arkinvestments.org/2015/08/15/inside-amazon-wrestling-big-ideas-in-a-bruising-workplace-by-jodi-kantor-and-david-streitfeld-aug-15-2015-the-new-york-times/ http://arkinvestments.org/2015/08/15/inside-amazon-wrestling-big-ideas-in-a-bruising-workplace-by-jodi-kantor-and-david-streitfeld-aug-15-2015-the-new-york-times/#respond Sat, 15 Aug 2015 21:31:13 +0000 http://arkinvestments.org/?p=519 Will management practices as stated in the article work for Amazon to establish a brand that will stand the test of time? Time will tell…amazon-logo

AMZN - 14th August Close

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KSE – The best is yet to come. http://arkinvestments.org/2015/07/11/kse-the-best-is-yet-to-come/ http://arkinvestments.org/2015/07/11/kse-the-best-is-yet-to-come/#respond Sat, 11 Jul 2015 09:28:28 +0000 http://arkinvestments.org/?p=495
  • In the ‘Best Hidden’ Frontier Market, a Boom Signals a Pakistan Revival
  • KSE — rewarding patience and confidence
  • One marvels at the feats of the Karachi Stock Exchange (Pakistan’s main stock market) over the past five years. Pakistan’s main benchmark index KSE 100 has risen from 10,000 to 35,000 points (an absolute return of 250%).

    KSE 100 as of July 07, 2015

    Let us rewind 5 years to 2010 – the country’s worst performing government in living memory was in power which broke all records of corruption and bad governance, terrorism had taken roots within the country like never before, this was the year when Pakistan saw its worst flooding (this will happen again as Pakistan never learns) and so on — overall things were at an absolute low. A rational investor would be crazy to invest in any asset linked to Pakistan in 2010 let alone Pakistani stocks.

    So, what has changed since 2010?

    ELECTIONS 2013 – Ending 2010 – political activity in preparation for the elections intensified. A key moment of glory was the shocker that Pakistan Tehreek-e-Insaf (PTI) delivered on October 30, 2011. Remember that one? Today PTI is on a path of self-destruction by actively recruiting well-known old goons of Pakistani politics (a different subject altogether). What that rally represented was hunger… hunger for change… hunger for progress… hunger for justice at every level and of every dimension (no time to explain). Rest is history, Pakistan saw an extremely mismanaged election in 2013 which at least dislodged the most corrupt government of all times at the center and replaced it with… well less corrupt, but still corrupt… I don’t know what to call them. In the provincial setup, PTI took hold of KPK (governance of that province will be a key determinant of the next election result for PTI), Punjab, Baluchistan, Kashmir, and Tribal Areas went to the usual suspects. People of Sindh were stuck with the previous government of PPP and MQM (oh the luck of Sindh). People of Pakistan got something slightly better (only slightly) than the previous setup.

    Appointment of General Raheel Sharif on 29 November 2013 as Chief of Army Staff of Pakistan Army – In Pakistan, the only close to functioning institution left is probably the Pakistani Army. Give that institution a competent Chief and wonders happen. It is widely understood that the focused campaign against terrorism of all kinds, be it economic, political, or religious is coming from the desk of the Army Chief. The army which was losing popularity till the appointment of Raheel Sharif has once again proved that it is probably the only functioning institution this country has. Pakistanis are an emotional people and given the army’s recent performance many want the whole country handed over to the Army. READ: Pakistan’s Kemalist moment

    Peshawar School Massacre 16 December 2014 – The tragedy of this incident was simply indescribable. This was a wake-up call and (thankfully) a turning point in Pakistan’s security situation. It is only after this tragedy that Pakistan united in one-voice against all forms of terrorism. That unity remains strong and support for Operation Zarb-e-Azb is ironclad.

    Sindh Rangers Operation – Karachi, which is also the economic hub of Pakistan, has always been a victim of intense violence and corruption. Two parties, namely MQM and PPP, have covertly and overtly backed illegal activities. The Sindh Rangers have initiated a campaign to separate the criminal elements within the ranks of the two parties. Today is July 07, 2015 and this is an ongoing situation. Sindh Government has reluctantly extended Rangers mandate for 30 days (and confined them to Karachi). This is a negative development and it remains to be seen what comes next. A popular view is for the center to impose Governor’s rule in the province and ensure the Rangers operation meets its logical end.

    China–Pakistan Economic Corridor (CPEC) – This is a $46 billion investment in Pakistan’s road network and power sector by China. It is expected to link China and Central-Asia to the warm waters of the Arabian Sea. If executed as planned the project will bring huge dividends to both China and Pakistan.

    Let us now come back to the KSE. One thing amazing about Pakistani Stocks is that they are always cheap from a fundamental numbers standpoint. If one went with earnings (growth), then the market has been screaming BUY BUY BUY. That is still the case today, even after such a sustained rally in the past five years. The issue is that Pakistan is an extremely volatile country and security prices tend to remain below their fundamental value. This was true in 2010 and remains true in 2015.

    What is different in 2015 is that the macro-economic, political, and security indicators have never been so good. Given that prices are yet to achieve fundamental value – and that the macro indicators if not positive, they are certainly heading that way, the market should be set to create ever more wealth. If one observes carefully, the rally of the past five years is just a start. If the country remains politically stable, corruption is kept under check and the security situation keeps improving, expect KSE to reach unimaginable highs in the next five years.

    A rational investor was right to stay away from the market 5 years back owing to the macro-economic outlook and political situation. However, in 2015, rationale is to invest. Macro-economic and political situation is constantly improving and even after the sustained rally of the past five years stocks remain cheap.


    Note: Stock Market performance is no indicator of socioeconomic well-being. Pakistan remains one of the most corrupt countries in the world, where most of the population is unable to read or write, has no access to clean drinking water, sanitation, and most of all JUSTICE. “Pakistan can survive, but not without fundamental and sustained structural change.” If this does not happen KSE will be an amazing story of hope and faith which never materialized.  READ: Quo vadis, Pakistan?

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    Pakistan – A land of contradictions… http://arkinvestments.org/2015/06/04/pakistan-a-land-of-contradictions/ http://arkinvestments.org/2015/06/04/pakistan-a-land-of-contradictions/#comments Thu, 04 Jun 2015 12:13:49 +0000 http://arkinvestments.org/?p=483 So after almost 3 years I am back in Pakistan. A friend in U.S. asked me how is Pakistan different? Sigh… What to say… How to explain… The country itself and then my place within it… How to explain it to an American mind… (she is Korean – but you get the point).

    My father worked a nominal job in Pakistan International Airlines (PIA) – so when I was younger I got to travel the world standby for free. That perk has ended and rightly so… I bought my ticket this time around and chose the so called national carrier. I wanted the money to end up in national coffers. That was a mistake. PIA’s story is much like the country itself. What used to be one of the finest airlines in the world looted and plundered for decades. It is still going… and so is the country. The flight staff was shockingly unprofessional, flight entertainment system did not work (even if it did I think it was archaic enough to be useless), seat cushions were like cardboard – adding further to the pain, PIA cancelled the flight from Lahore to Karachi and all Karachi bound passengers had to spend the night in Lahore. PIA had planned to send me to a hotel where (the word goes) its better to spend the night at the airport rather than going there. Anyhow, through the intervention of my father and his colleague, my stay was arranged in PC Lahore. At first, it was not a hotel – more like a military fortress. My ride had to pass four security checkpoints (no exaggeration) to get inside. I think the Zimbabwe cricket team was staying there and therefore the added security (This is the first time a foreign cricket team has come to play in Pakistan since the attempted terrorist attack on the Srilankan cricket team). The contradictions in Pakistani society were immediately clear inside the gates of PC Lahore. Lined up were high class vehicles – nothing less than BMWs, Mercs, Audis… Men/Women elegantly dressed filled the walkways – it seemed several weddings were taking place – In a matter of seconds my mind isolated these people and removed them – and my heart just sank with what I saw… the chauffeurs waiting on their bosses sweating profusely (it was extremely hot), the driver who brought me from the Airport was old… could barely walk properly or handle weight. I had to ensure he did not carry any of the heavy luggage I had with me… then there were the handlers/waiters/security staff at the hotel looking on at the marvel that our society in Pakistan is. I could not help noticing the footwear these people were wearing… all torn and worn out. Visitors at the hotel moved past all this absolutely ignorant, rejoicing in their privileged status. Hats off to what this country has achieved. I am a huge supporter of capitalism supported by equal application of law and equal access to opportunity. But in Pakistan, capitalism is corrupted (just like everything else). It is feudalistic in nature, based on power and special access. Same applies to the so called democracy practiced in this country. I feel a deep sense of injustice in the way things are done. I don’t know – maybe its just me. A friend did actually tell me that you are too good to people, you need to be harsher.

    Anyhow, I spent the night there and was off to the airport at 5:30 am. I do regret missing breakfast. I have no doubt it would have been mighty good. The breakfast at Marcopolo dining hall was to begin at 6. Surprisingly, morning PIA flight took off on time from Lahore. I reached home in Karachi, in one piece, all thanks to God.

    So, what is there to love in this country besides the common people? It is clearly the cuisine. I never liked food in the U.S.  One – Everything is too expensive. Two – My options are very limited as I only eat halal, especially in Salt Lake City. But my God… If anyone knows food… It has got to be Pakistanis. Truly world class. From the halwa poori on the road side, to the nahari, to the various international cuisines available… Even KFC is so finger licking good. The Karachi burger machine is on the rise too – it is bound to put burgers in America to shame. Food is just too good which gives me all the reason to be here 🙂

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    Declan Walsh at The New York Times exposes Axact http://arkinvestments.org/2015/05/17/declan-walsh-at-the-new-york-times-exposes-axact/ http://arkinvestments.org/2015/05/17/declan-walsh-at-the-new-york-times-exposes-axact/#respond Mon, 18 May 2015 04:48:47 +0000 http://arkinvestments.org/?p=479 Read the story – It is simply shocking.

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    Congratulations to Mr. Khalid Siraj Subhani http://arkinvestments.org/2015/05/13/congratulations-to-mr-khalid-siraj-subhani/ http://arkinvestments.org/2015/05/13/congratulations-to-mr-khalid-siraj-subhani/#respond Wed, 13 May 2015 18:38:58 +0000 http://arkinvestments.org/?p=469 Khalid Siraj Subhani Engro CorporationMr. Khalid Siraj Subhani has been appointed CEO Engro Corporation. He has previously served as CEO Engro Fertilizers and is taking over from his recent role as CEO Engro Polymer and Chemicals.

    On May 12th Engro Corp’s stock closed at PKR 282.75 ($2.78) – with company market capitalization resting at around PKR 160 billion ($1.63 billion).

    Latest Engro Stock Information


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