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Generational Dynamics Web Log for 20-Sep-2014
20-Sep-14 World View -- Yemen violence may be proxy between Iran and Muslim Brotherhood

Web Log - September, 2014

20-Sep-14 World View -- Yemen violence may be proxy between Iran and Muslim Brotherhood

China's Alibaba IPO causes lightheaded investors to pop champagne corks

This morning's key headlines from

Sierra Leone starts 3-day lockdown to battle Ebola

Empty street in Freetown during lockdown on Friday (Reuters)
Empty street in Freetown during lockdown on Friday (Reuters)

Streets in Freetown, the capital city of Sierra Leone, were deserted on Friday, the first day of a 3-day lockdown of the entire country. People were told in advance to stock up on food, so that they wouldn't have to leave their homes for 3 days. Muslims were told to pray on Friday, and Christians were told to pray on Sunday.

The plans are that nearly 30,000 health workers, volunteers and teachers aim to visit every household in the country to educate people about the disease and isolate the sick. There are 6 million people in the country, so that's 200 people per volunteer. Each volunteer is given a kit containing soap, stickers and flyers before leaving.

Sierra Leone is one of the poorest countries in the world, and the economy gets worse every day because of the Ebola crisis. Many families could not stock up on three days of food, and some people will starve. Investors are concerned that the lockdown will affect Sierra Leone's iron ore production.

Médecins Sans Frontières (MSF - Doctors without Borders) is condemning the plan, saying that it will no effect on the spread of Ebola.

Earlier this week, one 8-person team educating people on Ebola risks in a remote part of southeastern Guinea were killed and their bodies dumped in a village latrine. CNN and Reuters

Yemen violence may be proxy between Iran and Muslim Brotherhood

Violence agreed on Friday in Sanaa, the capital city of Yemen, between Houthi militias from north of Sanaa versus Yemen's army backed by pro-government ethnic groups. Houthis have been camped out in Sanaa since mid-August, paralyzing government offices and businesses. The Houthis have been demanding a restoration of fuel subsidies that were cut in July, increasing gasoline prices by 60% or more. Violence has been increasing, and by Friday the airport was shut down, phone lines and internet services were down, and residents were forced to stay indoors.

Although the Yemen conflict is largely fought between ethnic groups, each side has powerful political supporters.

The Houthis are in the Zaidi branch of the Shia Muslim religion, and are in control of large swathes of territory in northern Yemen, along the border with Saudi Arabia. It's widely believed that Iran has been training and supplying arms to the Houthis, with a view to destabilizing both Yemen and Saudi Arabia.

The most important militias opposed to the Houthis are those who are in the Sunni political group al-Islah, which is Yemen's branch of the Muslim Brotherhood. Much of the fighting in and around Sanaa involves al-Islah-allied militias, rather than Yemen's military.

However, more intriguing are the reports that the Houthis are being supported by the former president Ali Abdullah Saleh, who was ousted by his vice president, and now the current president, Abdrabuh Mansur Hadi. Saleh is also a member of the Zaidi sect, while Hadi is a Sunni Muslim. Saleh was in power from 1992 until his ouster in 2012, and he and Hadi had a good relationship. But Saleh is extremely bitter about being overthrown and it's suspected that he wants to destabilize Hadi's government, and have him replaced by his son, Ahmed Ali Saleh. VOA and Middle East Eye and Daily Star (Beirut)

China's Alibaba IPO causes lightheaded investors to pop champagne corks

Here's how one news story began:

"Alibaba debuted as a publicly traded company Friday and swiftly climbed more than 40 percent in a mammoth IPO that offered eager investors seemingly unlimited potential for growth and a way to tap into the burgeoning Chinese middle class.

The sharp demand for shares sent the market value of the e-commerce giant soaring well beyond that of Amazon, eBay and even Facebook. The initial public offering was on track to be the world's largest, with the possibility of raising as much as $25 billion.

Jubilant CEO Jack Ma stood on the floor of the New York Stock Exchange as eight Alibaba customers, including an American cherry farmer and a Chinese Olympian, rang the opening bell."

We've now completely returned to the euphoric hysteria that preceded the 2007-2008 financial crisis. At that time, investors were going nuts over one IPO after another, one leveraged buyout after another. Each one was a sure thing, just like Alibaba, and I'm told that there are a lot more IPOs coming in the next few months.

There aren't any "real people" investing in Alibaba. The investors are almost all hedge funds and financial institutions. A hedge fund can borrow $10 million and use it to buy Alibaba stock, since it's "sure" to go up. That's how a combination debt bubble and stock market bubble are created. Different hedge funds borrow money and use it to buy stocks, pushing up the prices of the stocks, and in essence creating money backed by a chain of debt. The problem arises when one hedge fund loses money and can't repay its debts, causing a chain reaction that results in a financial crisis.

Stock market valuations are going farther and farther into the ozone bubble layers. The last time I mentioned the S&P 500 Price/Earnings ratio, just a couple of weeks ago, it was at 18.97, which is already astronomically high by historical standards. But now, according to Friday's Wall Street Journal, the S&P 500 Price/Earnings index (stock valuations) on Friday (September 19) has shot up to 19.36.

Do I have to remind you, Dear Reader, that it wasn't very long ago, in 1982, when the S&P 500 P/E ratio was below 6. It falls to that level every 30 years or so, and it's overdue to do so again. This would push the Dow Jones Industrial Average down to the 3000 level.

By the way, those hedge funds didn't really invest in the Alibaba company on Friday. Alibaba is described as "China's e-commerce powerhouse," bigger than eBay and Facebook combined. But the Chinese do not permit foreigners to own Chinese internet stocks. So they set up some kind of holding company in the Cayman Islands, with some kind of relationship to Alibaba. Investors who bought stock on Friday actually bought shares in that holding company. Even large investors have absolutely no say in how Alibaba is run, and China's regulators can pull the plug at any time. But apparently today's investors are so imbued with sheer stupidity that they bought the stock anyway, and pushed its opening price of $60 per share all the way up to $93 per share, within just a few hours. AP and Washington Post

(Comments: For reader comments, questions and discussion, see the 20-Sep-14 World View -- Yemen violence may be proxy between Iran and Muslim Brotherhood thread of the Generational Dynamics forum. Comments may be posted anonymously.) (20-Sep-2014) Permanent Link
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