Why Chin-dia cannot be world superpowers

In today's post-recession scenario, China is out-innovating, out-building and out-educating the world. The question Barack Obama put forth to his fellow citizens at The State of the Union - can America out-innovate, out-build, and out-educate the world (or more precisely, China)? 

Maybe, maybe not. 
But thats irrelevant to who-ends-up-being-the-next-superpower.

To go a little deeper, lets have a look at a little bit of history.

Great Britain and her navy successfully ruled the world and its seas for almost two-hundred years. Her explorers dominated land in every direction, east, west, north and south. They opened the world for British markets - and therefore created one of the most robust economies in the time. Her armed forces (mainly, naval) were most feared and quite invincible.

Then came the wars. The Great War of 1914 (better known as World War I) and the World War II. Both of these events drained her economy; during the war of 1914, Great Britain spent as much as 45% of her GDP on military. Hardly recovered by that one big economical hole created by war, She spent another, this time 50% of her entire GDP, chunk on battling out during the second world war.

This severe drain of resources allowed the USA, fresh with surpluses off all the manufacturing and entrepreneurial innovation stirred by Franklin D Roosevelt's (the then American President) economic policies (The New Deal), to take over the baton as the World's leading superpower. 

The rest has been history. We know the might of the USA up until today. Dreams envisioned by American people have changed the way the world works...... up until today.

(Here comes a deja vu moment)

Today, the United States of America is in the same position as was the United Kingdom during the Great wars of 1914 and World War 2. The difference is that the US is plagued not only by wars in the Middle East against terrorists who seem to enjoy volunteering to die, but also by deficit-laden governmental spending that doesn't seem to be tamable - despite all the political will mustered.

Meanwhile China has all the economic surpluses in its kitty, courtesy its seemingly infinite capability to manufacture for the entire world. Also, her army, air force, naval and nuclear capabilities are well-feared world over. Whats best is, She has a billion hard-working, smart folks - which also makes them desirably cheap. Something like how the US felt before, during and after World War 2. 

Deja vu? 

.......Somehow, it is indeed difficult counting the US out to China already. The USA still has the largest purchasing power in the world, largest GDP, and most private wealth - numbers dwarfing those of China. It still attracts people from all the world to come and live the American dream. 


However, for assumptions' sake, assume that America loses its power on the World in the next decade - to China. Can China really take over the mantle? With all thats going behind Her, She possibly can. But the chances are bleak. Hypothetically, even if China does become the sole superpower, She won't be able to hold on to it for more than a decade. Here's why;

The Americans had a lot of things going for them when they took power over from the British. The most important was the language - English. The British, through all their global adventures in the past centuries, have made English The World's language. A South Korean randomly bumping into a Swede will try to converse with him/her in English, more than in Russian, French or even Arabic. All international business is done in English. Which didn't make it hard for the Americans to lead the world head on, as most of it understood their language - English.

Consider Cantonese and Mandarin, the two Chinese languages. Both have ancient histories, and an entirely alien script - as opposed to the Latin script followed by most languages including Spanish, English and a list of others. The grammar is absurd to an outsider. I find it hard for a Dutchman in Amsterdam, or an Argentine in Buenos Aires, to understand that the word, 'ma', in Mandarin can alone be pronounced in five different ways to mean five different things. 

Alas, the Chinese culture is very deep and complex as opposed to the western, easy-going, likable, American way of life. 

What makes things worse for China is her following communist principles. The Chinese government (run by the Communist Party of China) actively participates in human rights violations and a high degree of censorship. It is a well known warning, when in Beijing (or any other part of China) do not utter a word about the government in public. You'll most likely land in prison. Would such blind worship of the government be appreciated in mostly democratic nations around the globe? Uh uh, unsustainable form of world leadership.

Consider also the entrepreneurial nature of the two. However smart the Chinese folks are, they aren't natural entrepreneurs. It takes entrepreneurs, who build corporations, create jobs, innovate and build societies, to build a world-leader out of a nation. You would rarely find a Chinese businessman flashing a two-feet wide comforting smile as opposed to his American counterpart. At the end of the day, these seemingly small differences make all the big difference.

Coming back to Barack Obama's State of the Union speech. He also warned that America must compete against India. Indians who are smart and hard-working. Who are doing a better job for corporations (mainly American) around the world at an average of 1/8th the cost of American labor. 


But I find it hard for India to be a global leader. Credits to us for coming up so quick and rich. However, our politics is rotten and the civil situation gets worse at home by the day; for example in Kashmir, for example about Telangana, for example through the Maharashtra Navnirman Sena, for example by the Gorkhas in the North East. Meanwhile our smart and efficient middle-class prefers staying out of politics, content with well-paying jobs and a great sense of (mostly Western) lifestyle. All this presents a sadly grim story that our politicians are decently incompetent to lead the world... at least for another two decades.

That being said, if there is a fall in the world power wielded by Washington D.C., it is assured that it won't go solely to one place - Beijing, Brasília or even New Delhi. The polarity of world power, most probably, will be evened out between the developed and the currently developing.

Bureaucracy... - Bring change Man(mohan!)

"Come at 5pm. At 5 pm, Go to counter no. 3, after that, Go to counter no. 6, and then, Go to the head office five-hundred miles away. Or come in the morning, Madame is not here, Sir has not come today, come day after tomorrow. Come on monday, Sorry we can't do it, zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz!" In short, the lovely experience in any government-run office.

Literally all government employees (except those in the top commanding positions) have this very lax air about themselves. They don't seem to be bothered if there were people in need of urgent (rightful) help. The common man, suffering by their disrespectful procrastination and 'sit-back-and-relax' attitude, is the joker of the game at the end of the day. He pays all his tax, this tax goes into these employees' (are they even fit to be given that term?) bank balances and, yet, they provide service as if they are doing the country a big favor. Be it the BSNL guys, Air India hostesses, airport staff, govt. college peons, sports authorities, traffic mamas, food distributors, etc etc etc etc etc (phew)

They trouble, irritate the human mind to such an extent, where you are either forced to abuse them, or resort to unfairly stuffing their pockets. So, if you don't believe in bribing, or don't have any influence, then God help you. Cause you are going to be tormented severely.

So, moving away from what is the current story, to what is the cause of this story? I mean, why the hell are these 'babus' such snoozes? I believe, the job security factor is at fault here. These lackadaisical tarts  have no reason to compete for excellence nor do they have any pressures of performing under pressure. They're simply chilled out folks who come to attend a more mature version of kindergarten. Isn't that it? You don't do your job competitively, you don't perform, you don't respect clients, you sip your tea as if you were chilling out at a lounge when there are a hundred sweaty people waiting in queue desperate to get their work done, you openly take bribes, and yet, you do not lose your job. You have a retirement pension plan. You have insurance, rail tickets, and so many other incentives. Isn't this a faulty policy? Well, Home Ministry -Mr. Chidambaram- time you re-worked your policies and strategies. Cause the common man is simply getting suffocated! I can imagine.

At the bigger picture, this has held back the country's progress in many ways. Our governmental infrastructure and service is so pathetically poor! There needs to be serious revision of such frameworks and emphasis needs to be put on professionalism. For even if the bills, acts and provisions passed in the parliament are visionary, poor unprofessional implementing bodies just nullify the vision our politicians very miraculously show!

Stock Picks - October 2009

Alright then. Seems like the bulls are back on the Index. No more of the Doji Patterns. Although I feel a little skeptical, am bullish on mid-term growth.

Here are my picks for the month of October.

First of the pack:

Banking Stocks:

• Allahabad bank - Is trading in the 110-120 levels. Decent P/E ratio @6. Strong earning data. 
• Canara bank - Trading at 315 odd. As good a P/E ratio as Allahabad bank. But much stronger earning data @Rs 50/sh. 
• Corporation bank -  Again, as good a P/E ratio as both Allahabad and Canara banks. Yet, the strongest earning data @Rs 60/sh. Best buy. 
• Stocks like SBI, HDFC Bank, ICICI bank, have unreasonable P/E ratios which range in the 20's and the 30's. Remember- lower the P/E ratio, better the buy. Yes Bank, well.. I feel its had its run. Modest P/E ratio @19.. but earnings per share aren't really exceptional.
• However, also take note.. The banking sector is a little risky at the moment - especially with the credit and bad-loans problems still hovering, its best stay away from banks with high risk portfolios.

Power Stocks:

• Suzlon, Suzlon & Suzlon! Currently tradin in the 90's, this is one of the most lucrative buys. At the moment, its P/E ratio looms in the negative. Not a bad sign. Has undergone a rough phase with losses due to faulty turbine systems. But now that that issue is resolved, its got nowhere but to move up. Already 3times its 52-week low of Rs30/sh, this is my favorite pick. Why? The Copenhagen Climate Summit coming up in December is going to be one where the global political community will unite to save the Earth from the menaces of Global Warming. We could be looking at heavy investment in renewable resources of energy as key points of the climate change agenda. Which is why, a wind-energy co. like Suzlon would be the first ones to benefit. 
• Lanco Infratech - Lets keep figures and valuations aside for this script. Lanco can't fail its investors, atleast until the next Lok Sabha general elections. Its chairman is a Congress MP. And statistics tell us that between 2004-2009, the wealth of politicians on an average grew by almost 600%. Anything else to say?

Telecommunications: 

• RelianceComm. - With a P/E ratio of 10, compared to competitors with P/E ratios in the 20s this stock simply is the best bet in an ever-growing sector. 10 - 15 million subscribers are added every month. Doesn't look like this sector will lose any steam in the near future.

Group B stocks/etc:

• Redington India - With major mutual funds such as SBI and India Man MF picking up sizable stakes in the company, one can simply coattail. However, with decent earning per share valuations and P/E ratios, this isn't just a coattail pick.
• VST Tillers & Tractors - With a strong leadership and management, and the diwali season coming, VST seems a great buy. This one has had a great management for over 17 years. Which is credible in itself.
• I haven't really fallen in love with any realty stocks yet. But with Diwali coming up, we could see a boom in sales. You could consider realty stocks in that matter.
• On paper, infrastructure stocks seem like anyone's delight. However with the delays that come along with any infra. project in India.. we could see a lot of volatility. Which sort of ruins the margin of safety. Again your pick here.

Lastly, Reliance Industries.. with the largest market cap at 3Lac Crores and the able leadership of Mukesh Ambani, is one of the safest buys. No matter the dispute with RNRL over the KG basin, this script won't fail. Pick up at levels between Rs2000 and Rs2100/sh.

With this, I wrap up stock-picks for the month of October. Will post results at the end of the month comparing the performances to the market index itself. 

Please be advised that any purchases done by you on the basis of the above recommendations will be solely at your discretion. The author shall not bear any consequences to losses/profits incurred. 


Sources: P/E ratios - Business Standard Section II. Rediff money. Bloomberg news.

Peace.

In the shoes of a novice observer... A covered-up recovery!

Why I feel the economic "recovery" - based on recent economic data - should be cautiously considered..

To begin with. The jump in stock markets cannot be considered a confirmatory recovery signal. Stock markets are speculative indices and are based on the whims of most people more than hard-facts.

The hard-fact is that a 260Trillion dollar asset bubble burst in this recession. Most of this 260 trillion dollars is frozen shadowy assets. And all stimulus packages combined - about $2 odd trillion - account for a meager percent of the actual damage. All these apparent "positive" signals are nothing but effects of the stimulus packages that were let out to lubricate financial clogs. And giving policy-makers their due credit, the clogs are opening up.. thanks to these tax-payer buoyed stimulus packages. Which is why we have the good positive data flowing in. But, at the end of the day, there is nothing huge to celebrate. Cause inevitably, we're to plunge back into the abyss.

As far as the real estate markets are concerned. Yes, they are showing healthy signs of recovery. But, with the many billions of dollars going back into the rusted banking systems and in turn being used to unlock most of the troubled real-estate assets - answers for the price-rise & demand for land. Once these billions of dollars stop pouring in... the demand will slip back... Cause, real estate too is a speculative market. Huge investments (again, indirectly through stimulus packages) came in, and investor sentiments soared along. Accounting for the spike in prices so far.

Commodities. Well they aren't rising due to any economic upheaval. Poor monsoons have created the deficit between the demand & supply chains. Which answers for food price rise.

Ben Bernanke of the Fed. Reserve says that the US is out of recession. But he also says that job stability and economic equilibrium will take time to return to normalcy. Hmm. ??
All the economic data released so far... has been released by governmental agencies.
Whenever there is any kind of calamity, the government deflates the actual number of casualties. So why not, in times of apparent recovery, the government be inflating its figures? I mean it may sound insane to suggest, but think about it.. it is a logical possibility!

So thats that. We need to exercise a little more caution celebrating over good times - which will eventually come - but not so fast. Two years and $2 trillion dollars don't seem enough to weather decades and hundreds of trillion dollars of mess!

The BIG-Economic bubble!

One-hundred people own the same One-hundred rupees. Confused? Read along. This, however, isn't supported by immaculate data but simple amateurish observations.

You earn a hundred rupees after a hard day's/hour's/minute's/whatever's labor.. (Hundred bucks since we don't want to complicate an already seemingly complicated topic) So... You're happy you made a century with money... and you go jovially to the bank and deposit your hard-earned bucks expecting interest off them. Now. The bank promises you an 8-10 odd percent of interest. But ever wondered where the hell do they (the banks) manage to make a 15% cut (I mean, they too need to earn right?) off your and thousands of others' similar hundred bucks? Right? So, they loan your hundred bucks off to another party at 15% interest. Now, if this party is paying a 15% interest on the loaned principle, they too need to make their buck right? They too need to make profit! Which means they need to earn at least a 20% on that hundred bucks (which is yours, mind you) so as to run their enterprises! Now if they need to do that, they need to pass it off to another further party at a higher rate of return. So you get the picture. This chain is endless. And, notice! At the same time. You own that 100 rupees. The bank owns that 100 rupees. The party owns that 100 rupees. The further-party owns that 100 rupees. And so on, till wherever the chain runs to! Woah! Hard to digest? Well, here comes more!


The government taxes you on your hundred bucks. Ok. The government taxes the bank on the bank's net asset value (which includes your hundred bucks and those of several thousands of people). The government taxes the people who take money on loan from the banks. The government taxes everybody in the friggin chain! So where the government should have earned a modest 30% (max) or 30 bucks on a 100 rupees. It is making thousands of bucks on the same, your hundred rupees. In reality, there is only a hundred rupees. But due to such woven complicated chains, we have inflated the country's wealth. Which is why, perhaps, we're looking forward to plunging in abysmally high rates of inflation in the future. Which is why, perhaps, we’re sitting on such high fiscal deficits. Which is why, perhaps, the rich are getting richer, and the poor are getting poorer. And so on.


To sum it all up. In reality, there is only a hundred rupees existing. But due to this network of unending economic on-paper chains, the same hundred rupees is owned by a hundred people which makes it an astounding ten-thousand bucks! You understand the deficit, right?


This might seem highly opinionated and unnecessarily blasphemous. Comments are welcome.

Funny thing, the Tax system!

The piece below has been written by:


David R. Kamerschen, Ph.D.,
Professor of Economics,
University of Georgia


Suppose that every day, ten men go out for beer and the bill for all ten comes to Rs100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay Re1.
The sixth would pay Rs3.
The seventh would pay Rs7.
The eighth would pay Rs12.
The ninth would pay Rs18.
The tenth man (the richest) would pay Rs59.

So, that’s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the
arrangement, until one day, the owner threw them a curve. ’Since you are all such good customers, he said, ‘I’m going to reduce the cost of your daily beer by Rs20.

Drinks for the ten now cost just Rs80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the Rs20 windfall so that everyone would get his ‘fair share?’ They realized that Rs20 divided by six is Rs3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid Rs2 instead of Rs3 (33% savings).
The seventh now pay Rs5 instead of Rs7 (28% savings).
The eighth now paid Rs9 instead of Rs12 (25% savings).
The ninth now paid Rs14 instead of Rs18 (22% savings).
The tenth now paid Rs49 instead of Rs59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

‘I only got a rupee out of the Rs20,’declared the sixth man. He pointed to the tenth man,’ but he got Rs10!’
‘Yeah, that’s right,’ exclaimed the fifth man. ‘I only saved a rupee, too. It’s unfair that he got ten times more than I!’
‘That’s true!!’ shouted the seventh man. ‘Why should he get Rs10 back when I got only two? The wealthy get all the breaks!’
‘Wait a minute,’ yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!’

The nine men surrounded the tenth and beat him up. The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore.

In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

How Anil Ambani makes 21 crores in 20 days!

Well, to begin with.. this ain't a spoof-spoof. But its definitely awe-inspiring and hilarious (What a combo!)


What Anil Ambani's Reliance Capital did is.. purchased a block of 14 lakh odd shares of J&K bank at Rs450/share from US-based Smallcap World Fund Inc, a part of the gigantic Capital Group of Companies of the US. This block was sold by one of Smallcap's New York fund managers to Reliance Capital. The deal was made on August 12th. 
On August 31st, however, the same ADAG led Reliance Capital sold the shares back to Smallcap at Rs600/share. This block was purchased by one of Smallcap's Singapore fund managers!


Now whether the New York and Singapore fund managers were in contact or not, is not known!
Guess ADAG firms have no complaints after making Rs 21 crore in 20 days!
Haha!

Ram aur Laxman...

The Indian history has been forever demonstrating specimens of brotherly love... Right from the unity in the Pandava brothers, to the love between Ram and Laxman, and  to the so on and so forths. 


However, we see things at the the other end of the spectrum today. Where two brothers, Senior and Junior, undisputed czars of the corporate arena, indulge in scarring each others reputation. For what? For oil! They're desperately trying to dilapidate each other - either silently or brashly. Not realizing that the outcome will result in nothing but mutual weakening. And that it will lead to paths for others to take over their untouched B-Crowns.


Anyway, who the hell is/are gaining; The lawyers, politicians, the et ceteras of our system who're pocketed by these warring brothers and the stock traders who're making money out of the predictable volatility in these stocks, and the so ons? 
But, what difference does this war make to India? Clearly - as opposed to what Junior suggests - none.


And is it the money that Junior is fighting for? With a wealth way more than what will be earned at this oil-field in over 17 years.... what has Junior got to cry so much about? Or is it the inflated ego that moguls generally roam around with? At then end of the day, why our we giving so much importance to sensationalism created by this Senior-Junior duo? Why the hell should we waste our time over whose ego prevails?


So today's contemporary Ram aur Laxman are a class apart from their ancient namesakes.  Instead of Laxman carving a deity of Ram and worshiping it with all his heart and soul, we have an inflamed Laxman who is doing all in his might to strip Ram apart... The subdued Ram is patiently waiting for Laxman to run out of steam, while Laxman strives to weather that patience... 


What my point is that we all get something to learn from this saga of brothers eagerly wanting to rape each other's reputation. Never let outsiders' into one's own personal family matters. No matter how intense things get. The public is devoid of hearty things to talk about, and getting into family issues of another - especially another this rich - gives them just about some intriguing gossip to pass their time...
I'm sure families of the likes of the Birlas and the Tatas have indulged in infighting over personal-business conflicts... but they kept it to INfighting... which is why they've held the  mantle of respect-worthy families for generations...


So what should have been an ideal Ram-Laxman jodi, has turned out to be the bitterer Kaurav-Pandav war.. here the only difference being that instead of a marathon spat between two cousins, real brothers blood-bathe in the same...

The Suisse fallacy

Little can be tracked about the estimated $1,500,000,000,000  (1.5 trilllion) of Indian black money stashed away in Swiss banks. Political parties - especially the ones sitting in the opposition - use this as keypoints in their election rally agendas. And keeping the hypocritic nature of politicians in mind.. I'm sure most of the opposition leaders have all their lives' - black, of course - savings stocked in Switzerland cause they're pretty sure that the Swiss won't bulge from their laws.. so the task of retrieving black money will be left to nothing but an infinitely long game of Ping-Pong. 


1.5 trillion dollars is a lot of money, which is an understatement. Which is why perhaps, Switzerland has one of the highest GDP rates in Europe and one the most stable currencies in the world. Little do we, or rather our very ingenious politicians and businessmen, realize that the money we store there results in their economic progress, not ours! They benefit from our "namak-halali". All these thousands of billions of dollars are utilized in the development of Switzerland and Europe. Ever wondered how the Swiss have been able to advance so dramatically? Despite meager natural resources? Well, it is this stashed money that they utilize for their growth! So what is happening is- The blood-suckers of our country are sucking away its wealth and at the end of it all are helping another continent progress. But... keeping the history of this rich yet cursed land, where people have done nothing but stolen and raped her wealth... well, we couldn't expect much patriotism anyway.


It is a known fact that all the world's black-money combined in Switzerland is one-third the amount of the Indian black-money stored there. 


This is the kind of a legalized scam where everyone - the opposition and the government - is involved. The opposition makes noise. The governement follows into the noise-making. At the end of the day we all know that these are nothing but empty vessels making noise. But ironically we're fooled - or atleast we pretend to be - by such fallacies.
Democracies never existed; they only did as a formality on paper. Some say that the war against black-money isn't over yet.. Little do such people know that their supposed righteous fighters are the ones who're the most heavily invested in off-shore black markets!


I don't know how to conclude this one here... whether optimistically , in ideal words, or in blunt pessimism. But I surely would like to put forward this rhetoric... Why would/should the Swiss reveal bank-account data when their laws do not bind them to? Neither is Switzerland obligated to India... And lets face it - it is this 1.5 trillion dollars of question-mark money that in fact runs the Swiss economy!