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Out of adversity comes opportunity

March 31st 2011 02:09
Cyclone Yasi
Cyclone Yasi

Graeme Newton is a busy man.

He heads the Queensland Reconstruction Authority, the body in charge of getting the Australian state back on its feet after twin muggings by nature earlier this year - widespread flooding in January was followed two weeks later by Cyclone Yasi, a storm so big we may never see another like it.


Graeme Newton and his team are in charge of cleaning up. The bill is expected to be about A$5.8 billion.

So he had plenty of other things to worry about recently when he was asked to take a phone call from the World Bank, a body involved in the permanent disaster area of global poverty.

"Could we," the World Bank asked Graeme Newton, "send a few people to watch what you're doing?"

"Why?" Newton replied, or words to that effect.

"Because," said the World Bank, "we think that what you are doing is cutting edge."

The World Bank may not have used the term "cutting-edge", but media reports today do use the term to describe how the World Bank saw the way Newton and Queensland were going about reconstruction.

Out of adversity comes opportunity. The observers are on their way and, hopefully, the World Bank will learn something which will be of use in its future roles in disaster management.

When it comes to disasters, every little bit helps.



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Risk and reward

October 28th 2010 10:44
Dr Greg Chapman, director of Empower Business Solutions and writer of The Australian Small Business Blog, makes a telling business point with an anecdote about his university years.

The story concerns his three lecturers during one year of his MBA course. Two of the lecturers worked full-time for the university while one lectured part-time and ran a property development business as well.

Each year the MBA course participants took part in a business game where they were placed in teams and acted as company directors, competing with the other teams.

Each year the three lecturers would have a dry run of the game beforehand, competing against each other. And every year the part-time lecturer won.

So one year the two full-timers decided to conspire, connive and collude to break the humiliating dominance of their colleague. They lost anyway.

The difference in their strategies, and the lesson of the story, is that the part-time lecturer was prepared to take risks, backing his knowledge, instinct and confidence.

The same knowledge and instinct was used to cut losses and exit quickly when a venture or strategy did not work as planned, as will inevitably happen.

But when it does work, says Dr Chapman in his business blog, the rewards can be considerable, and will always beat a conservative, no-risk approach.

Greg Chapman's small business blog can be found here.


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Burj Khalifa

You can't go wrong buying property, if you're investing for the long term, which is why property - in the form of the family home - is the single largest investment the great majority of us make in our lives.

Property is safe because, basically, there is no property market in the world which has not risen steadily over time.

That "time", of course has to be a long time. Shorter-term, property is a market like any other, and subject to market influences and sentiment which can drive it up or down. But most of us don't need to worry about that - one mortgage is burden enough.

Buying property purely for investment, therefore, is best left to the professionals. They understand the market and the risks.

Most of the time, anyway.

One of the fundamental truths of investing in any market is to buy when that market is low and sell when it is high. And never has any property market, arguably, been as high as that in Dubai when they started forward-selling commercial and residential space in the Burj Dubai.

The Burj is the world's tallest building and Dubai - at least until the global financial crisis - was the world's hottest property market. Prices were on the rise and rise, but investors were queuing to buy apartments, condos and office space in every brilliant new architectural wonder opening there simply because there was no end to the boom in sight.

It was like a re-run of the internet and technology stock boom of the 1990s. The markets were pushing up technology stock prices so precipitously that Bill Gates' personal net worth rose about US$36 billion during the northern summer of 1998-99. Gates himself was moved to warn against buying internet stocks, repeating conventional wisdom that all bubble markets must burst.

Forget conventional wisdom, they yelled back at him. Forget the tulip craze of the 17th century. Forget the junk bond craziness of the 1980s. This bubble can't burst because the internet is new and unique. This market run can't fail because it is not convemtional. This bubble has barely begun.

The late 1990s currency crisis which began in Thailand put an end to all that.

The global financial crisis was still a nightmare yet to disturb anyone's dreams of profit when they started selling Burj Khalifa floor space off the plan, but it was a full-blown demonic reality by the time the Burj Khalifa opened in January 2010

That's when those who had bought property in it started trying to rent it out.

They haven't had a lot of luck. A Bloomberg report this week offered the following status report:

# About 825 of the tower’s 900 apartments remain unoccupied

# Rents for luxury apartments in Burj Khalifa have been slashed by up to 40 per cent; rents for other apartments by up to 50 per cent

# During the five years it took to build the Burj Khalifa, Dubai went from the world’s best-performing property market to the worst, with values crashing more than 50 per cent and nearly half of all planned real-estate projects being scrapped

Bloomberg finished its report by suggesting it could have offered more information, but the tower's developer, Emaar Properties, had ignored emailed questions.

So just remember the hoary old advice: buy when a market is depressed and sell when it's up. Which means, of course, that Burj Khalifa apartments look good value right now.
bloomberg.com


Burj Khalifa pool
Some people will go a long way (up) for a pool party.


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Fertile economics

October 24th 2010 06:38
Harold Ickes
Harold Ickes, US Secretary of the Interior from 1933 to 1946.
In another time and another downturn, President Franklin Delano Roosevelt fought the Great Depression with all the weapons he could muster, boosting public spending, lowering interest rates to encourage lending etc.

In 1933 the US Secretary of the Interior, Harold Ickes, was asked why the president was so bent on shaking things up


[ Click here to read more ]
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Eat meat and save the planet?

October 2nd 2010 07:19
The cause of global environmental action has not had a great year in 2010. After the Copenhagen Climate Conference in December 2009, when the leaders of the world gathered and demonstrated the profound commitment of politicians to achieving nothing, you'd think things could not have grown worse.

They did, with the release of a report in Britain in the new year which showed that vegetarianism is bad for the planet


[ Click here to read more ]
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Putting some spice into economics

September 26th 2010 11:26
dabbawala, tiffin walla

The word economics comes from the ancient Greek word oikonomia, which means "management and administration of a household", and economics today is often defined as the social science that studies the production, distribution and consumption of goods and services.

[ Click here to read more ]
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The Washington Consensus

September 19th 2010 04:56
winston churchill
Winston Churchill: "Democracy is the best platform for economic development, except for whatever the hell it is they are doing in China at the moment.''

In 1989, America did a huge favour to the Third World by creating, and making available gratis to anyone in need of it, a blueprint for economic progress for underdeveloped nations. They called it the Washington Consensus.

[ Click here to read more ]
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Never argue with an economist

July 1st 2010 03:14
John Key
John Key
Wages in New Zealand are about a third lower than wages across the puddle in Australia, and the country's much-respected Reserve Bank Governor, Sir Alan Bollard, was recently quoted as saying that wasn't about to change. New Zealand, he said, did not have the same advantages, such as mineral deposits, and was unable to compete.

New Zealand Prime Minister John Key sniffed a political opportunity and made a public pronouncement that Bollard's comments were negative. His government, he said, was pursuing policies to raise New Zealand income levels to match those of Australia within 15 years


[ Click here to read more ]
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