I returned yesterday from a two-week trip to Iran, and one of the things that struck me was how similar some of the current economic problems there are to those in Western countries – despite the mile-wide political differences between the Islamic Republic and the US.
Take, for example, this article from Reuters, published only seven months ago: a house price surge fuelled by easy lending; government-sponsored expansion of the money supply; the lower and middle classes priced out of the property market; disbelief that prices could ever drop … haven’t we seen this somewhere before, and not so long ago?
Well, according to a couple of Tehran-based observers that I spoke to the other day, the flats that were selling like hot cakes for $1.2 million a piece in the spring now have no takers at $800k. Meanwhile, rumours of trouble in the nearby Dubai property market abound – many Iranian investors extended their real estate speculations to the Emirates too, and I was told of one who had bought 300 units in a new development two years ago, only to see the speculative bubble burst this year with the oil price collapse. Now he faces bankruptcy.
The local banking sector is predictably under severe strain. A businessman in Tehran told me he was able to renegotiate a loan that was due for repayment, extending the term from one to three years and getting the bank to waive interest payments (yes, don’t believe all you read about Islamic finance), in exchange for repaying 30% of the principal now. His bank was short of cash and desperate to get some money back in through its doors.
And Tehran’s appalling traffic jams, the result of three million cars operating on roads designed at best for one-sixth that number, made me reflect on the decades-long overexpansion of the global motor industry, and its consequences.
As one blogger put it recently, in response to Toyota’s recent announcement of its first-ever annual loss, and its Chief Executive’s comments that “this is an unprecedented emergency. Unfortunately, I cannot see now where the bottom will be”: if they (Toyota) are in trouble, God help the rest of the automakers.
So the synchronicity of the global economic downturn presents major challenges to us as investors. Whole industries may sink into decline and many companies will disappear altogether. Capital will be scarce and only the best of projects will obtain funding. Yet, somewhere, new industries are being born that will thrive in the changed economic environment. And, just perhaps, the global scale of the boom and bust will get countries and their leaders to work together to find solutions.
How to manage the fallout, and how to identify the post-credit-crunch winners will present an intriguing challenge to all of us next year. In the meantime, I wish everyone a peaceful Christmas!