June 30, 2005


The Silver Lining in Iran (ABBAS MILANI, 6/30/05, NY Times)

[C]ontrary to the common perception, this election is not so much a sign of the Iranian system's strength as of its weakness. Last week's presidential election is only the most recent example of the tactical wisdom and strategic foolishness of Iran's ruling mullahs. All the reformist candidates, particularly Ali Akbar Hashemi Rafsanjani, as well as the approximately 70 percent of the electorate who voted for reformists or boycotted the election, sought above all to limit Ayatollah Khamenei's increasing despotism. Rather than accepting this possible outcome, Ayatollah Khamenei and his allies made a grab for absolute power. In the process they may have unwittingly opened the door for democracy - because their hardball tactics have created the most serious rift in the ranks of ruling mullahs since the inception of the Islamic Republic. The experience of emerging democracies elsewhere has shown that dissension within ruling circles has often presaged the fall of authoritarianism.

Mr. Ahmadinejad's presidency will force a crisis not only in Iran's political establishment but also, and even more important, in its economy. Only a huge infusion of capital and expertise, along with open markets, can even begin to address the country's economic problems, which include high unemployment, a rapidly increasing labor force, cronyism and endemic corruption.

Such an infusion requires, more than anything, security and the rule of law. It requires a fairly elected president who inspires the confidence of investors and governments around the world. Instead, through a dubious election, Iran's kingmakers propelled a man into the presidency who has publicly opined that the stock market is a form of gambling with no place in a genuine Islamic society.

Not surprisingly, Mr. Ahmadinejad's election brought about the single greatest plunge in the Iranian stock market's history. The day is already known as Black Saturday, and the president-elect has been scrambling to undo the damage since.

There is no Islamicist way to create a healthy economy.

Posted by Orrin Judd at June 30, 2005 11:12 AM

But they won't take the lesson learned from India.

Posted by: Sandy P at June 30, 2005 11:55 AM

Heard on the radio that former hostages from the 1979 Theran embassy seizure have fingered Ahmadinejad as one of the ringleaders and a bad guy.

Posted by: Robert Schwartz at June 30, 2005 12:10 PM

What I find surprising is that anyone considers Ahmadinejad to be in charge of anything. It's hard to imagine someone being more transparently a figure head.

Posted by: Annoying Old Guy at June 30, 2005 12:21 PM

Stock markets ARE a form of gambling.

If one buys stock from the issuing company, and gains in whole or in part through receiving dividends, then one is an investor.

If one buys stock from a previous owner, and gains only through an increase in the price of the stock, then one is a speculator.

Posted by: Michael Herdegen at June 30, 2005 12:46 PM

Six former hostages (including one who is still apparently in the foreign service) have fingered Ahmadinejad. It was painfully amusing to hear the State Dept. weenie on NRP today say that the issue will be 'investigated'. Condi needs to find spokesmen with mature voices - on the radio, this guy sounded like Barbara Boxer couild beat him up.

Posted by: jim hamlen at June 30, 2005 7:33 PM

Michael: The stock market is not a form of gambling because the expected return is positive. However, buying an individual stock is gambling, because the market does not compensate for diversifiable risk. In an efficient market, any particular stock is, at any time, as likely to go down as up, but the market as a whole is more likely to go up than down.

Posted by: David Cohen at June 30, 2005 8:46 PM

Michael: if a company is turning a profit, how that profit gets apportioned between stock price and dividend, if any, depends on management philosophy and tax policy. More U.S. companies have started paying a dividend in the past two years now that the tax rate on (some) dividends is closer to the capital gains rate.

Posted by: joe shropshire at June 30, 2005 9:09 PM

David Cohen:

The stock market is not a form of gambling because the expected return is positive.

You may want to try that again.
Vegas and Nevada have grown swollen with wealth due to the monies left there by people who had expectations of positive returns.

Especially in the case of sports books, there is no practical way to differentiate between gamblers there and momentum players on Wall Street.

However, it's true that writing that stock markets are a form of gambling was hyperbole, since markets aren't intended to be casinos.

As you point out, one can choose to invest, or to gamble, in the markets.

joe shropshire:

[I]f a company is turning a profit, how that profit gets apportioned between stock price and dividend, if any, depends on management philosophy and tax policy.

Only somewhat, and that's the rub.
Management can set the dividend, but they cannot set the stock price. Regardless of how much accumulated profit that they pile up, or how many shares that they buy back, (short of taking the company private), they're merely influencing the stock price.
One can point to any number of examples of companies which have huge amounts of cash on hand, or who have re-purchased significant numbers of shares, but have failed to impress the Street by so doing, and their share price stays flat.

Studies have shown that companies which pay dividends have produced a much better long term return for investors than so-called growth stocks, even including the tech bubble.

Posted by: Michael Herdegen at July 1, 2005 2:40 AM


You can't lose money in the market in the long term so long as you invest in the market as a whole. You can't win in a casino in the long term.

Posted by: oj at July 1, 2005 8:02 AM