Wall Street Bonuses, AIG under fire

So apparently all of America and it’s “Tax-paying Citizens” are hopping mad about top performers (and others, who were given retention plans etc.) being given bonuses with their pay. Isn’t it being blown a wee bit out of proportion though? For the below reasons possibly:

a) The bailout need would not change whether they got the bonuses or not. I understand the morality and the issues involved, but then, when the plans/contracts were signed, this was not the environment. Moreover, if you want to come out of a bad position, you need the best people working for you and making money for you. If you’re not planning to reward people who do well in their parts of the business, then how will AIG ever start making money. Last I checked, motivation was needed, wasn’t it?

b) One of these senators on bloomberg was questioning why some of the thousands of people laid off by citibank cannot be hired by AIG. Well, because a) There are contracts and contractual issues, b) You would be filling a seat with a fired lower preference guy from citibank by firing one of your top performers cause you had to pay them a bonus!

c) It’s really simple. I, as an employee, have the ability to make some money (or do anything else positive) for the firm that I work for. I want to be compensated for it. Especially in such a bad environment, if you do not hold on to the good people in your organisation who are actually making some money for you, then my guess is that the company (say AIG) would be in a worse off position and the losses would only be wider and the tax-payer would only be madder. Let them do their jobs now. Yes, most of them screwed up, but we all know that and they know that. Now let them work and let them be compensated if they can work well. The time to stop the flow of money was probably “then” and not “now”

d) It’s really EVERYONE who screwed up. Stop beating the banks up about it. Every person invested wrongly. Oh, and because they are poor citizens and dumb cows, its not their fault but because the bankers BANK, and they make a lot of money, they were supposed to be magicians or know-it-alls!!

Seriously, now these executives might be working for the tax-payer by proxy, as the government owns most of these firms, but that is not going to change that these are high stakes games and the best people in the business need to be paid the best amount of money. Stop being government-al in your thinking, or what you will get will be services and businesses that are as efficient as the government.

Crying, whining investors in India

Mathematically if,

DD – domestic demand; FD – foreign demand; SP – stock price

then SP is in equilibrium with DD + FD.

SP = FD + DD (simplistically put)

When FD goes down, SP also has to go down unless DD makes up for it. But of course, we Indians are masters of “follow the leader” and when FD goes down, DD goes down by 1.5 times of FD. So what do we expect? Chidambaram should take care of the SP!!!! Crazy fools I say.

There are tons and tons of articles in the print media and on the TV about how families in Gujarat have been wiped out and how angry protestors outside the BSE were shouting slogans against the finance minister of India. I have a few points to raise to this:

a) When the Indian markets have been going through the roof for the past n number of months, how many of these protestors sent flowers or roses to the finance minister. Of course, none of these jokers was making money in the markets during all these days!! Most of the people I know closely are all still holding positive positions in their portfolios. So I would really like to meet the people who had a bad enough investment strategy to “wipe out their family” due to a correction which takes you back to levels seen just a few months ago.

b) Most sane investors would still have positive positions in the market if they have been investing regularly and not only in the last 6 months. The only real losers in the market today would be people who thought there was a quick and easy way to make money in the equity markets. These people were either leveraged (using money that was not theirs to risk) or foolhardy (jumping in just to make a killing). If these people do not understand that the markets follow a simple risk-reward philosophy then there is no one to be blamed.

c) Most of the stock prices will come back close to their earlier levels sooner or later. Investors who even invested at the lows of 22nd of January have also MADE a lot of money within this correction. The only stocks that will not come back to erstwhile levels are the ones where the most foolish people were treading. You cannot fault the SEBI or the finance ministry for that.

d) There is a lot of comment about how the FIIs come in to India, make money and leave! How crazy is that. If we used our own brains, and instead of selling stocks at moments like these, bought them and then sold them when the FIIs are back, then who would be the one making profit. We don’t lose money cos of the government or the FIIs, we lose it because we are following the FIIs in buying and selling instead of leading them.

I could go on and on, but the moot point is that the India story really is intact. Indian companies really are growing and no consumers income has gone down due to a stock market correction. Since all this demand is continuing to grow, Indian markets will keep growing. I would request our whining friends to stop making a political issue out of a worldwide correction and instead focus their attention on which are the right investment strategies for the future.

Edit:

US and Europe fell again after trading hours in India – Does this mean we’re in for another fall investing opportunity tomorrow?

Decoupling and all that!

Over the past few months, there has been a lot of talk about decoupling in the worlds economic markets and how Europe or China or India are not going to be affected as much when the US goes down.  And now, as the whole world catches a cold, there are more comments of how that is not true. To me, both of these versions are flawed. It is obvious that it is neither black nor white. Anyone in the world can not claim to be not affected when the US economy goes down, but, what we can definitely say is that businesses are on the whole far more “insured” today as compared to 10 years ago. On the one hand, every market in the world will swing wildly when the biggest FIIs start pulling money out of investments, but on the other hand companies (especially in India) will still march onwards to stellar growth and results. It is the panic of the domestic investor that is causing them to lose money. I’ll write more on that in another post, but basically my point is:

a) Decoupling is true, and more so for India than most others, in the sense that we are not so export-dependent as China. The biggest companies in the sensex will go on doing amazing business and keep growing in spite of what happens in the US. Of course there are some export oriented segments or US oriented companies which might suffer in the process. The fact that stock prices have gone down does not mean that the companies have just become unprofitable, or not-so-profitable or anything else. Its just a case of demand and supply of the shares – it’ll change again soon enough.

b) Decoupling is NOT true in the financial or equity markets. Today money flows almost freely from one country to another. But of course we are going to see a fall in Indian equities if the institutional investors are all pulling out money. Moreover, this decoupling will never happen and more in my next post.

Price of property is too high…. NOO..OOT

The price of property is just never high enough. In my short adult life, I have always thought that the price of property is just too high whenever you find something that you actually want. The first (out of 1.5) apartment I have ever bought was bought at a price of INR 1750 psft. This was to change to 1900 psft the next day itself. Whew, so thankfully I went ahead and booked it and closed that transaction. WOW, I look back at that transaction and wonder why I did not buy 5 of them then. It is another matter that I could not sleep that night and wondered if I had made the right decision. Today, from that price of 1750 in April 2004, the price is roughly 5000 psft. Thats a return of 185% profit in 4 years. And trust me, its not too good if compared to the peak performers.

Looking for property in Dubai, it is impossible to believe that there is nothing to buy that you think is wirth living in for less than INR 20000000, or about AED 2M. And that would be a 1 bedroom. Not so long ago, this was maybe 1M and people thought it was a bubble then!!!

Old age wisdom says – Property seldom lets you down. Of course there can be bubbles, and of course there can be wars or bomb blasts… but in the long run, or on an average – if you can qualify for a loan – then buy a property.

At the same time, unwise and purely speculative positions are something that I would now stay away from. As noted in my post earlier, TDI Kingsbury at Kundli seems right now to be quite an unwise move, especially considering they DID charge quite an amount for the vision they showed. Now god only knows where they will take us, or more importantly – WHEN!!

The falling dollar etc.

Originally uploaded by abyjain

The falling dollar seems to be doing a lot of good to a number of people. The most obvious are the students or tourists from India who have incomes in Rupees and need to spend in Dollars. Of course, the effect is more because of the falling dollar than the rising rupee. It is mighty interesting and convoluted the way the currency changes impact everything and it all keeps going round and round. From incoming Foreign investment to the competitiveness of Exports (Imports) and on to the long term impacts on all our living standards, these are definitely interesting times.

Some interesting articles on the fall of the dollar and the Chinese connection as well as some impact on India can be found on these links below…

From Oct 2007:
http://www.npr.org/templates/story/story.php?storyId=4186041

From Aug 2003:
http://www.globalpolicy.org/socecon/crisis/2003/07gpfdollar.htm

From Jan 2007:
http://news.bbc.co.uk/1/hi/business/6195198.stm

From Oct 2007:
http://seattlepi.nwsource.com/business/334575_dollaroutsource08.html

Citizen Journalism & the auto-wallahs of Delhi

There is a new site up, called Purdafash, started by someone from IIMC. Of course, we all agree that citizen Journalism is a good thing and helps to weed out a lot of protected and hidden flaws of society, but does it really help if these are issues that we all know about. I went to the site, and read a couple of articles there. One was about the fare charging policies of the Delhi auto-wallahs and the other about a traffic cop taking a bribe. Forget knowing about it, I’m sure, just about anyone in Delhi has undergone both of these experiences themselves. So we’re not really uncovering something new here. What is required for these issues is “execution” and “punishment”, not exposure. They’re exposed enough. Though, I definitely might be striking a wrong chord. I appreciate these efforts, and sincerely hope that as more and more people take to these media, the quality as well as the effects of these sites and operations would start coming into view. Why can’t we just have one head of government who is, for just this once, obsessive about rooting out corruption. Just one such person, and I’m sure so much of a difference can flow from the top.

And, on the point of the auto-wallahs, one recipe did come to mind. What if the passengers always approach the auto with a mobile-camera or any other camera in recording mode, with the number plate scanned and then ask the auto-wallah on video to go wherever they want to go. If the auto-wallah plays smart, he could be shown the evidence and threatened with some action, whatever be it. Possibly some of them might melt. And possibly some others may have to face some legal sanction… what think?

India next hot spot for Billionaires after America

We’ve all read about how the wealthiest in India are setting higher and higher standards everyday. To put it in perspective, as per this report as well in the economic times, there are 36 billionaires in India as per Forbes, and India has the second highest number of billionaires in the world after the United States. The feat is brilliant, considering how huge an economy Japan is. Some doomsayers will say that this exactly is the irony and pain of India, that the rich are super rich… and even a mammoth economy like Japan is better spread, but I’m not one of those. I try to look at the positive side of the story. India has 3 members in the 20 richest in the world as well. Higher than any other country except the US once again. Wow! At least we could call India the land of opportunity now. The big thing about Americans, if you notice in the smallest nuances of their dialogues etc. is that they think everything is so great and so exceptional about their country. Most other citizens are so busy criticizing what is wrong in our systems.

Through all this, one thing that does make me sad is the slow demise of the Birla clan (relatively speaking). I studied in Birla institutes for my schooling as well as my Engineering, and it always made me sad, even in my childhood, as I saw other groups grow and become bigger than the Birlas. The article above in the ET also states that when Forbes actually started the rankings, the Birla’s were the only one on the list with a net worth of almost$2 billion (imagine that in 1987) … but I have to say they did precious little in the wonder years that India has seen since then. What were they thinking? Perhaps that all the hue and cry was for nothing, and that India would continue the way it had in the last 40 years before then?

The thing that confuses me a little – As far as I remember, Slim should be on top of the list!

Indians can deposit $100,000 in banks abroad-Indians Abroad-The Times of India

Indians can deposit $100,000 in banks abroad-Indians Abroad-The Times of India

There is a story here, which commented on how the RBI hd no answer to the rising rupee… well, some people in government definitely do have brains. As per the story in the link above and here, the RBI does have some aces up its sleeve.

As usual… the post of relevance is above…. but this is very big news. Especially for people living in foreign lands who sometimes need money to invest which was till date not allowed under Indian laws. I don’t know if my interpretation is correct, but this measure could do a lot in controlling the value of the rupee cos there are a number of people who would want to invest rupees into dollars into investments outside of the country. Wow! Also, in one stroke it also takes care of a lot of hawala etc. kind of transactions and hence bring more money into the open…. nice move RBI. This is what a strong economy permits us to do…. we can get out of the vicious circles of stifling, killing controls and grey and black-market dealings into a strong and permissive system.

The thing is, for a lot of people, it seemed illogical not to be able to bring money from India when you’re living abroad and need money here. I obviously don’t know the details as of now… but it looks like a good move that regular people like you and me will be able to send a significant amount of money abroad every year and do whatever we see fit with it. Of course, it also takes care of the rupee rise whammy that we were talking about earlier. Hmmm…. things are looking up. I just hope the stock markets also stay up….

Update: I noticed 2 things later …. a) It is for resident Indians (which again means manipulating the system) and b) It has been notified originally since 2004… so why is it in the news now? Some changes?

Gulfnews: The common man continues to suffer

–> Gulfnews: The common man continues to suffer <– the root cause of this post

There’s a decently written article on the link above on how the “common man” continues to suffer in India after 60 years of independence. Sentences from the said editorial goes like this – “But why should all the sacrifice and suffering be the fate of the common man? He gave his all during the independence movement. What about those who wallow in luxuries in every regime and in every clime?”

My polite submission to the writer is… why are we assuming that the “common man” fought for independence? I’d believe that it was the uncommon and gritful man who fought… and for every other achievement of India/Indians or over the world… it is the uncommon man who does something. The plight of some many in India is such only because they choose to be “common” and carry it on their shoulders like a weapon. It is the common doctor in Indian hospitals who goes on strike because he is not paid enough for (not) working, it is the common hawaldar who asks for a bribe when you have already been robbed… and it is the common minister who makes sure the development of the masses just does not happen.

Of course I agree with a lot of stuff that is written in the article, but the author forgets that the privatisation and other recent evils that he talks about were absent till a decade or two ago. I’m sure India was doing much worse with the so-called Hindu rate of growth then. At least now I see myself moving forward economically and with my standard of living. And of course this is not a one-off statement. Who can deny that there is a sense of well-being and optimism all over the (urban side at least that I know of) country. A lot of things are wrong in the country, and a lot of us, including myself, have done precious little to make it better… but let’s just stop using the “common” platform as a weapon to get everything for free. If education will remain a low priority of the people, and if archaic belief systems that put whole families in debt will not be shed then the farmers that our high commissioner talks about will continue to die.

The “Common man” in India can not do well… he can not be prosperous, and hence can not be happy… at least not in the near future. The reason for that is simple… there are too many common men & women in our country. With the productivity levels that we have, especially on the agriculture side… prosperity is not possible for 1 billion+ common men. If one does not have the courage to be uncommon, then one should not complain… I think. After all… you’re doing as well as the average! And our population pyramid does not permit us to distribute freebies to such numbers. It is NOT, and I would repeat –NOT a crime for an Azim Premji or Sunil Mittal or anyone else to earn as much as they do… we perhaps forget the amount of jobs and careers that they have helped create. These gentlemen are perhaps far more helpful in building the lives of some of the common Indians than any politician who served s@%ewed India… or the ones who established the huge monoliths of public enterprise that not only suck in taxpayer money but also provide electricity or phone services or civic amenities at pathetic levels of competence.

Those who wallow in luxury in every regime and every clime (from the linked article) are precious few, if they exist at all. Everyone, I am sure, has had to fight for what they have sooner or later, whether it was Dhirubhai Ambani or the Birlas or Tatas. Let us not sell them so short and assume that just connections or simple bribery or some magic wand from Diagon Alley made them billionaires and they wallowed in the lap of luxury ever after.

Jinnah must be rolling in his grave

Jinnah must be rolling in his grave

I found a very interesting fact today while reading something totally disconnected with the issue – That Nusli Wadia is the grandson of Jinnah – the founder of Pakistan. Jinnah had only one daughter and she had stayed back during partition and married a Parsi, who later converted to christianity. Nusli Wadia though turned back to being a Parsi… and has had a pretty complicated life with the family, religion, politics and business. The article linked above on a Pakistani newspaper and more pages at Wikipedia and here at The Times of India speak about this affair. At heart is also the Jinnah property in Mumbai worth thousands of crores that Nusli Wadia’s mother is fighting for. This property was not declared “evacuee” property after the partition as the daughter did not go to Pakistan and as a goodwill gesture from Nehru.

History is so interesting.