Mutual Funds; hmmmmm

We work really hard to earn money, and then invest it with hopes of better returns. People who do not actively track stock markets prefer to invest in mutual funds. These are considered safer than equity.

The key to succeed in the stock market is to buy low and sell high. Easier said than done.
More than 70% of mutual funds do not out perform their benchmark indices. Fund managers are highly educated, intelligent and trained people. Yet most do not need beat the index. The above graph is an indication of how badly the fund managers timed the market in 2009. They had the highest cash holding in their portfolio when the market was at the lowest point.

This leads to me ponder if its worth my while to bother investing in mutual funds when I can easily invest in an Index ETF (exchange traded fund).
 

Not Healed

The wounds are still not covered, the tears have not yet dried. One year to the aftermath of the Mumbai attacks, the people are still hurting. I will refrain on harping the rhetoric (the media is doing that with great fervour). The fact is, that it still hurts.

As the months passed by, the degree of conversation related to the attacks quietened down. Why did we stop talking? I am not referring to questioning the system, accusing the politicians, shouting for accountability on T.V channels and blaming security lapses. Why did we stop talking about our individual pain? (This question is for me too, I waited a full year to write this and don't know what stopped me).
You cannot heal until you talk.

A recent newspaper report mentioned that Mumbai bounced back faster from its trauma as compared to New York and London. It just made me wonder, what choice did we have? There was limited options of venting our anger. Apart from the protest march, most of the anger and pain was internalized and made us more cynical.

I dont have any solutions, but talking might help.

I Want

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Where the market goes..

Liquidity, you crazy crazy drug that fueled the mother of rallies since March, when does thou disappear?

Since Mar09 most benchmark indices have doubled across all geographies. The main reasons attributed to this sudden rally has been liquidity. Central banks in their quest to encourage growth have made money cheaper and more accessible. Some of this has paid of and signs of growth are visible. The dilemma that Central banks now face, is how to structure the withdrawal of this liquidity without hampering growth.

In my mind, the market just realized that you cant fall of the floor. Sometime in march the market felt we were at rock bottom and going lower wasn't an option. But the impact of this realization has been rather startling, a one way rise to current levels.

Now the next question that comes up, is if this rally is sustainable. The global growth story is still hazy, the U.S. and Europe continue to grapple with issues they haven't fully understood. This leads me to believe that maybe being patient with your cash would be a good option.
The critical issue is whether the market will sustain without liquidity and higher interest rates.
Only the central banks know when they will reduce the morphine dose..

A Little Bridge

Each year a fresh batch of business graduates step into the corporate world. New ideas, high zeal and a sense of purpose not witnessed since Jawaharlal Nehru's 'tryst with destiny' speech. The fundamental quality of over confidence rides high over any sense of rationality.

The situation changes drastically once work begins. All the illusions of acquiring companies, rolling out businesses and expanding capacities are shattered into pieces. Realization sets in, that to do all these activities one needs to spend time on the ground. The planes of reality are significantly different and challenging. The discomfort in the grind consumes a few, who move to cooler climes like migratory birds.

This a big dilemma, as you cannot stop people from dreaming, at the same time work on the ground level is important. So the best solution is to connect these two little islands of reality and idealism. And here is when the little bridge of phased induction makes life comfortable.

Attaining Happiness

There lived a young boy named Gopi  in a small quaint village in central India. He was an inquisitive young teenager with a philosophical bent of mind. He was passionate about things around him. He kept probing into matters far deeper than people his age normally do.

Close to his village was a great monastery. The monk who resided there, was highly revered. People came from distant lands to seek his advice and blessings. Gopi often visited the monastery, sitting there and meditating. The monk observed Gopi but they never exchanged more than a smile.

One day Gopi approached the monk and asked him, "How can I always be happy?"
The monk reflected on the question and responded, "What makes you happy?"
Gopi replied, "Chasing my pet hen in the garden" , to which the monk said, "pursue it".

Gopi thought the response was fairly mundane, but did not want to question the monks wisdom. After all, this monk had followers across the country. He did as the monk said, and he had to admit; there was a strange sense of joy. Over time the joy subsided. After six months he visited the monk again.

Gopi asked the monk, "How can I always be happy?"
The monk again replied, "What makes you happy?"
Gopi replied, "Tilling my farm land", to which the monk said, "pursue it".
Gopi had hoped the response would change on this occasion. Again he controlled his urge of questioning the monks response. As time went by, Gopi was intensely focused on his farm land and crops. He did feel a divine satisfaction when he was on the farm. The same level of joy was absent once he got home. His pets did provide him with moments of joy. He felt he needed something else, he was a bit distracted lately. He decided to visit the monk again. He resolved that he will question the monk further this time.

He gathered courage from his past visits and asked the monk, "How can I always be happy?"
The monk again replied, "What makes you happy?"
Gopi replied, "Marriage to the baker's beautiful daughter", to which the monk said, "pursue her".
Gopi hesitated for a second, then said, "Every time I came to you with my question, you respond by saying pursue the matter. How are these related to my happiness?"

The monk smiled and said,"Every time I asked you your source of happiness, you told me a part of your dream, hence I asked you to pursue them. As you accomplished each target, your mind moved towards a new one. Happiness is a moving target of achieving your dreams. As time goes by, your goals and objectives change, you need to pursue them with vigour."

Gopi silently stared in awe. It was now clear to him why so many people approached the monk The monk did not give him the answer in the first visit, he helped him discover it before explaining it to him.
Gopi married the bakers daughter............

In Reality - There is no Versus

This century is proclaimed to belong to the Asian nations of China and India. It will be remembered in history as the arrival of these two giants on the world stage. Facts and data on various parameters involving these countries have been dissected and analyzed by all and sundry. Each 'expert' has painted a new portrait and given a new dimension to the economic successes of the two nations.Constant comparisons, vivid analogies, dramatic graphs and diagrams, have all romanticized the great 'China vs India' focus.  

I will try and replicate some views to highlight  some observations I made while reading economist views and media reports about these nations.

Reports in China

• China's economy grew by x% to reach of a figure of $y billion
• China constructing a bridge to connect mainland to Hongkong
  

Reports in India

• India's economy grew by a% to reach a figure of $b billion, but China's economy grew by x% to reach of a figure of $y billion, what does this mean?
• Bandra worli sealink completed, but China constructing a bigger bridge. 

These are not isolated comparisons. If you Google 'India vs China', you will find mostly Indian or American websites discussing the two countries in tandem. Read the interview of Chinese economists (click here) and then you will realize that China is not concerned about India. There is not a single mention of India in the entire article. Its we who are obsessed with them with our constant comparisons. Our media has created the drama, our economist are constantly comparing, our kids are writing essay and preparing for group discussions on this topic.

China is working on a export driven economy and India is building a strong domestic driven economy. It makes more sense to focus on our own path and channel energy towards our own goals. Probably the reason for their success lies in the fact that they are not paying attention to us. Maybe the two 'engines' of global growth need to discover their own destinies.

"My bat talks to me"

In a recent interview Sachin Tendulkar was asked on what parameters does he evaluate his sports gears before selecting them. He mentioned the usual ones about his gloves, pads and bats. Then went on to say that, 'The bat speaks to him", thus he knows which one to select. It might sound ridiculous when you first read it, talking to to an inanimate object. Then you read the statement again; this guy is truly genius.

Champions in the past have often talked about the connectedness with various aspects of their profession. In all aspects of life, the dedicated champion has an additional element apart from skill, focus and luck. This zen like state of mind is when you and your art become one. You talk to and listen from your heart. You are in complete control of every movement and action. Your mind, body and spirit is totally immersed into the space of calm achievement.

One can aspire to achieve this state. Till then, keep trying is the mantra.

Crisis Rollover

On the last Thursday of every month, the analyst appears on the television discussing the rollover in the derivatives market. Rollover is a term used to describe the closing of a derivative position for one month and opening it for the next month. Its rather strange that we have been rolling over one crisis after another, without much to cheer, for the last 18 months. Here is a quick recap of events.

• April 2007 - World wakes up to the concept of subprime mortgages and its implications.
• June 2007 - S&P downgrades over a 100 bonds.
• Aug 2007 - Large banks halt redemption's for a few fund offers.
• September 2007 - Central banks increase liquidity by reducing interest rates.
• October 2007 - U.S. Treasury announces the HOPE NOW initiative, an alliance of investors, mortgage market participants.
  
• December 2007 - U.S announces the Troubled Asset Relief Programme
  
• January 2008 - Stock markets across the world start collapsing.
  
• March 2008 - Bear Stearns is acquired by JP Morgan Chase in a distress sale
  
• September 2008 - Lehmann Brothers collapses.
• October 2008 - There is total freeze in the credit markets.
• November 2008 - The U.S. Treasury purchases a total of $125 billion in preferred stocks in nine U.S. banks.
• December 2008 - The U.S. Treasury authorizes loans of up to $13.4 billion for General Motors and $4.0 billion for Chrysler to bail them out.
• March 2009 - Stock markets bottom out and reach the point of despair.
• April 2009 - Swine flu scare grips the world.
• June 2009 - India receives deficient rainfall and the threat of drought looms large.

Its been a tumultuous few months for everyone. In this typhoon the small fry have been really badly hit. It seems to me, and I say this without data, that the tide is turning. The news cycle will move towards positive and so will the rollover.

Two Brothers - One Nation on its knees

This is a fascinating tale of two brothers. They grew up together with their parents in perfect harmony. Life seemed perfect and abound in happiness. But you know these things hardly last forever. The entire neighborhood looked at them with pride and sometimes a little envy.

Their father bought them a new GI Joe action figure. This was no simple action figure, it was a unique GI Joe collectors special. One of its kind figure. The brothers loved it, they played with it together all the time. Slowly a mild discontent starting brewing between the brothers. The GI Joe being the focal point of existence. Each tried to stake a claim over it. The situation deteriorated by the day, the parents intervened to no avail. The matter got so serious that the people in the neighborhood would discuss it with great detail. Slowly the battle ground became clear. You had to be supporting one of the two brothers, there was no middle ground. There were ugly exchanges between the two brothers and their associates. The local media for lack of other stories covered this one with great excitement. True to its style, the media added new twists to the saga. Somehow the local politicians also got involved. Things snowballed out of control. The amount of interest generated reached hysterical proportions.

Some sort of resolution had to be reached. The parents could not side with one and hence tried remaining neutral. After much thought and debate they confiscated the GI Joe. One wrap on the knuckles set things right. It was now clear to the brothers that unless they resolved their differences the GI Joe would be lost forever.
Conflict resolution was difficult. The politicians thought that the issue will distract the nation from more meaningful problems, so they wanted the battle to continue. They became party to the 'resolution meetings'.
Just like when god send the devil to count the political parties in the country and the devil never returned, these 'resolution meetings' continued without progress.

The episode had far reaching consequences. GI Joe never manufactured another toy in the country. A generation of children grew up without GI Joe's to play with.
And the saga continues...........

P.S - I apologize for my lack of subtlety.

English Premier League - Overview and Predictions

The biggest football league will kick off next month. Like millions of fans, I am waiting with baited breath for the action to unfold. There has not been significant action on the transfer market in England, Real Madrid have hogged all the spotlight. Lets evaluate the chances of three contenders for the title.

Liverpool
There have been no significant additions to the Liverpool team. Glen Johnson at right back is the only signing so far. The team lacks match winners and is largely dependent on the two kingpins, Stevie G and Torres. If the opposition stifle them, Liverpool finds it difficult to score. Young players like Babel, El-Zhar, Ngog etc have flattered to deceive last season.

Chelsea
The biggest change this season has been the arrival of coach Carlo Ancelotti. The team remains well balanced and the only reason they fell behind last year was due to the unsettling approach of their former coach. Chelsea are strong defensively and play attacking football. The key strength lies in their midfield. For Chelsea to win this year, they need to make sure that there are no off field distractions. They do need to introduce some young talent to ensure that the veterans do not burn out.

Manchester United
The champions for the last three years are going to find it difficult this season. Departures of Ronaldo and Tevez will deplete the attacking resources. The challenge will be to find the goals this season. The manager has made a baffling choice by signing Owen. In the past he may have pulled some master strokes but I am not sure if this horse will payout. The core defense remains the same and the philosophy of 'If the opposition cannot score, you cannot lose' will be the driving force.

Verdict
The other teams will face an uphill task catching up with the big boys. Arsenal, City and Villa seem to have interesting projects developing.
As things stand, I think Chelsea will win the title this season. It will be difficult for United and Liverpool to remain consistent this season. But football is a game where strange things happen.

Silver Joy

The sky looks down from its perch,
it seems wise and gray.
The earth below observes carefully,
not knowing which emotion is more appropriate, eagerness or fear.
From the distance it hard to comprehend,
will it face the wrath or gentle caressing.

The sky, with its belly bursting,
oscillates between parenthood and headmaster.
With a raised brow it unleashes its fury.
The initial rage is hard to accept,
the pain, the sting, with little pellets attacking.

Soon the anger subsides,
gentle drops kiss earth again.
The love, the affection is overwhelming.
The silver drops of joy encompassing.

Givers

A long long time ago, in a place not to far but still far away, there lived a gentlemen named Mr A. Mr A was the proud owner of a vast piece of barren land. He reared his flock of sheep on this land. The sun shone harshly upon his land, but the moon brought some relief when it rose. There was not enough water to cultivate the land, hence it was predominantly barren apart from a few sparse shrubs. Mr A was content, life was peaceful.

Due to changing economic cycles, Mr A lost money in his other ventures and needed to sell his sheep and land. He easily sold his sheep to a wandering shepherd for a fair price. His barren land however, proved more difficult to sell. He struggled and searched for a suitable buyer, but none offered a fair price for the land. Eventually Mr A met Mr B, an honest and respected gentlemen. Mr B offered a good price for the land and a deal was struck.

Mr. B wanted to use this land to cultivate crops on this land. He realized before buying the land that there was not sufficient water available. He knelt down in prayers and asked the Lord for help. After completing his prayers, he asked his workers to dig at that spot. Hoping for water, his workers find an old chest buried in the ground. Mr B discovers that this chest contains gold.

He immediately goes to Mr. A and says, "I found this chest of gold on your land, and I have come to return it". Mr A is stunned, he never owned a chest of gold. He mulled over the situation for a few seconds, he needed the money, but the gold was not his. Mr A replies in a stoic voice, "The gold does not belong to me, you bought the land and you found it, its yours." Undeterred Mr. B replies," I bought the land, not whats beneath it, please accept the gold." Mr A exclaims, "You bought the land and everything that came with it".
Neither one was willing to keep the gold.

I do not know how the story ends, but I think the message is already evident.

Valuing Ronaldo

The deal has finally been completed. Ronaldo's dream of playing for Real Madrid will finally come true, albeit at a great cost. Real Madrid did not flinch to shell out £80m. The press went crazy, experts gave their two bits, fact sheets were reprinted and the whole circus played out. Obviously Ronaldo made a few wiseacre, 'Im the best' comments to add to the hysteria.

I have often wondered how these clubs assign a value to a player. It is obvious that some players perform better than others, but how much are they really worth. Basic finance has taught me, that the value of an asset is equal to the amount of cash it can generate in the future discounted to its present value.

Lets list the cash flows Ronaldo will generate for Real Madrid.

1. T-shirt sales: At the moment he is arguably the most popular player on the planet (almost in the league of Beckham).
2. T.V. rights: Clubs in Spain negotiate T.V. rights individually. Ronaldo's popularity will give Real more bargaining power.
3. Endorsements: Ronaldo will definitely attract big brands to Madrid.
4. Stadium Receipts: The best players attract larger viewers to the game.
5. Buzz: This is not exactly tangible. But Ronaldo has a habit of shocking. check this (stupid but catches media attention)

I was wondering if you could use some multiples to arrive at a value. Here are some i could think of:

1. Player Value / T-shirts sold
2. Player Value / Goals scored
3. Player Value / Assists
4. Player Value / (Wins/Games started)

I still think its more art than science. Not really sure if the managers actually care about valuations but the finance guys at the clubs surely would.

Destiny ==> Rome

Less than a day before the biggest football night of the year kicks off. The Champions League final will be played in Rome. Two of the best teams competing for, well history actually. Manchester United take on Barcelona in a final between equals, there is truly no favourite.

Its the biggest match in football players life (except maybe a world cup final). The pressure, anxiety, nerves and demons need to be fought. The 'stars' will be expected to dazzle, but its going to be the 'workmen' who deliver.

As is usual in sport, its going to be the 'Reds' against the 'Blues' ( why do all sporting contests have these two colours)

And there are no prizes for guessing my loyalty!!
Victory be ours, its destined..

Clear Mandate!!

Election 2009 will be remembered for a lot of things, but nobody had predicted the sweeping results. The Congress triumph, the BJP despair, the Left sent right out(pun unappologetically intended), Mayawati has more time to build statues (not in Delhi), Lalu can take a train to Bihar(on the side middle berth), Mulayam and Amar Singh can use the time to update their facebook profile (in English, they have 5 years to learn it). Who would have thought all this was possible. Let me state right at the outset that I have no brilliant insights you wouldn't have read, but I am so excited and that I am compelled to write this post. Thus a summary of events brought out by this election.

The most powerful statement made by voters this time is that extremism will not be tolerated. Extremism of any form, religious, ideological or caste based. Mr. Muthalik, beating women at pubs will get you pink chaddi's but not votes. The fact remains that India is secular not because the minority are secular, but the majority are secular.

My caste my vote; no longer true. People have matured (I hope my inference is correct) and are voting for development and visible economic benefits. Recent assembly polls and the last two national elections seem to reflect this.

Cut the negativity. The Congress party focused on the work that did in the last five years (I'm not getting into whether they actually did anything). While the BJP were harping on the 'Weak PM' line, the outcome indicates Dr Manmohan knocked them out with just one punch.

Humility. Its an under-rated virtue, but it is most appreciated. A host of politicians made arrogant statements, took cheap shots at opponents, trash talked. The endearing humility of the PM stood out and endeared the voters. The message was clear; 'My works speaks for me'.

The clear mandate to the UPA provides them with the opportunity to implement reforms they could not earlier bring about. The pressure is back on the Congress to deliver and validate the voters confidence. This election outcome leaves our country on the threshold to a lot of possibilities, let us achieve all of them.

Colour Obsession

As a nation we are obsessed with fair skin. No this post is not another rant about our hypocritical view on skin tone. I am also not going to debate on the ethical stand point of fairness cream advertisements as well. This is more like a journey through our collective past, which I think shaped our mindset.

If we look back at our history and ponder over the last five hundred years and examine our rulers. First we had the Mughals of Persian-Afghan descent. Then for over a century we were ruled by the British. This era had a significant impact on our psyche. As the skin tone of our masters became fairer, our fear of the colour increased. We are victims of our past. I don't blame anyone, after all the British did dominate our existence rather brutally. And when they left our shores the fear, shock, awe,respect turned to love for fair skin. I wonder if our attitude would have totally opposite if we were ruled by a darker skinned race?

As we complete almost 61 years of independence, we are breaking the shackles. We are more confident in all aspects of life, acquiring businesses, leading innovation and driving growth (No this is not part of the India Shining campaign). The fear has reduced but it has not been replaced with equality in our minds.

You can't really blame the advertising guys behind the fairness cream ads, they are just taking advantage of a dominant prejudice (though the underlying concept still rankles me).
P.S - There is no anger directed at anybody.

Poll Commentary

The great dance of the Indian democracy is drawing to its climax. The general elections are always exciting and full of drama. This time was no different, the incessant mud slinging, changing partners and meaningless cacophony littered among some important issues. The election process ends mid may.

I voted; but where was the rest of Mumbai? It is appalling that only 44% of the electorate exercised their vote. This is not very different from the last time, but the environment has changed dramatically. Mumbai was hit badly and one expected a stronger reaction from the citizens. A lot of anger was vent during the rally at Gateway post the terrorist attack, but heck the attitude has not changed. It makes me wonder that if this does not change us, then what will?

We face adversary with our chin up, but we missed an opportunity to be the change. No matter what the reason for not voting, the black dot on the finger is far more important.

Transcending Horizons

I took another small step venturing further out into the world. The graduation ceremony was a culmination of our efforts over the two years. At the end there is a small sense of achievement, a little pride and renewed ambition to face the next challenge.

As I move ahead its time to ponder on the experience. Reflect on the learning and the mistakes. The voyage has been excellent, just hope the shore is also fruitful.
Ahead i move on a wing with a prayer..

New Epidemic

There is a new virus infecting journalists across the globe. Its called the 'shoe-thro'. What seemed to be an isolated incident in Iraq is now proving to be a tipping point. Flinging shoes is the new method of registering your protest and being heard. Our very own defence minister got a shoe flung at him. Though it was a symbolic and the journalist did not intend to hit him, it has serious implications.

The first time this happened I was amused. This time I am a bit concerned. Is this the beginning of a new unhealthy trend. The 'watchdogs' of society are turning into wild dogs. The journalist already has a mighty weapon, the pen, now he wants the shoe as well. In the future I wont be surprised if they are requested to remove their shoes before entering a press conference!!

Exported IPL

Wohoo!! The IPL is going to happen this year!!!
Like the rest of the country, I was deeply concerned at the thought of the IPL being shelved this year. After all the IPL is the single biggest eye ball magnet after Ekta Kapoor came up with 'Kyunki..' It has become a part of my April calendar.

This year the IPL will take place in South Africa. Personally I think its a great opportunity for the tournament to become truly global. Its a forced option, but it can take this league to the next level. The tournament has cemented a bond with the people of India and now it is going to do the same globally.

One may argue that for a resident of Durban it will not be exciting to watch, say, a 'Mumbai Indian' versus 'Kolkata Knight Riders'. I can think of four reasons why someone would pay to watch it.
1 - Its cricket, and South Africans are crazy about the game.
2 - Its got all the top international stars littered in different teams.
3 - A whole host of film stars lend some glamour to the event.
4 - Indians are present in every country. In South Africa there are 1.1 million to assure packed stadiums.

In my view the IPL is too big an event to ignore. It is a Rs 1000cr money spinner. Sharing this pie with another nation, albeit forcefully, is better than foregoing in altogether. An unintended consequence of this would be strengthened cricketing relations between the two nations.
This adversity definitely provides a profitable opportunity.

Political Opportunism

Nothing feels like the joy success, even if it belongs to someone else. Indian politics is all about blatant opportunism and riding on others success. Take the recent example of the Congress using the new national anthem 'Jai Ho' as its campaign song. This post is not a rant on our politicians, its more about how they sense our pulse.

Every Indian was brimming with pride when Rahman picked up his two Oscar. There was a sense of national achievement, albeit half of the people did not know what an Oscar was. The movie struck a chord with the people. The Congress party swiftly connected the dots to capitalize on the popularity. The Congress party on its platform of hope for the aam admi linked itself with the story in the movie of a common man who makes it big. There is a emotional connect in the song and the theme of the Congress party.

On most occasions such political gimmicks have failed miserably, remember the glorious 'India Shining' campaign. The reason for these failures can be attributed to the lack of connection with the average person. Its great that the GDP grows at 9% but how does it translate to his life. If you can make that connection and help the common man relate to your story then your campaign is likely to be successful.

In my humble view, the Congress has pulled a master stroke with the 'Jai Ho' campaign. Time will tell if it translates into votes.
The link to one of the videos - http://www.youtube.com/watch?v=jUZblPEdEd8&feature=related

Heir Apparent

I write this post after watching Manchester United beat Inter Milan by two goals last night. The self proclaimed 'special one' was no match for Alex Ferguson's men and tactics.

There has been a lot of talk about who will replace Alex Ferguson when he announces his retirement. I for one am convinced that it will be Jose Mourinho. If you look at the intrinsic quality of the two coaches there are some similarities. Both men deflect the pressure of their teams and take it on to themselves. Both are master tacticians and realize that a football match is not won by the players skill alone. They have a sense of humour but of a different nature. Sir Alex has the amiable British banter, while Jose is more cynical and subtle.

One striking similarity is their attention for detail. In his press conference Jose said he knows everyone at United. He mentioned that spoke to the 'grassman' (groundsman) before the game. It is a reflection on the amount of preparation he puts into each game.

They both have different approaches to the game, but each is a uniquely successful man. I look forward to seeing Mourinho at Old Trafford in the years to come.

New Breakfast Trends

Eating out has really caught on in India in the last decade. Visits to restaurants for lunches and dinners are fairly common and occur on a weekly basis. We have imbibed a lot from the west and the most recent addition is 'breakfast at the cafe'.

A typical day for any Indian would begin with a cup of chai and Times of India accompanying his breakfast. Now the breakfast varies depending on which part of the country he is from. Parathas in the north, idlis in the south and poha in the west are the conventional choices (of course there are plenty of options and egg remains the universal choice). The reason I am talking about this, is because there is a new trend of having breakfast at the cafe. McDonalds has launched a new breakfast menu across few cities. Costa coffee and Barista already have the breakfast option.

What this means is that there is a significant number of people willing to have their breakfast outside home every morning. We have moved from traditional fare to cereals and now breakfast on the go. I would attribute this change to the effect of western sitcoms. Its not a question good or bad, these guys have identified a growing trend and are capitalizing on it. It makes the food industry more interesting now.

Now its Gold

Gold the ethereal shiny metal has been in the spotlight of late. We Indians have a fairly complex equation with gold. In the Western world it is viewed just as any other asset.In India it has a lot of symbolic value, parents gift their daughters on their wedding day. Gold remains the most popular gift on Diwali. In essence, gold is not traded frequently and mostly owned in physical form.

There has been a shift in recent years. Securitazion of gold has made it more accessible and to some extent reduced its elusiveness. Gold exchange traded funds (ETF's) allows you to own gold without physically owning it. Gold is now a financial asset which is traded on an exchange along with its derivative products like futures etc..

The real estate bubble burst and the equity markets collapsed in 2008. Oil witnessed a three fold increase in price but has now collapsed to reality. During this entire period gold has been quietly rising. Now when you compare returns across asset classes gold has outperformed. Now a lot of money is chasing gold, the quintessential safe haven.

I am no expert, but I can identify euphoria. The gold rush seems to be reaching the crescendo of madness, what with all the small players wanting a piece of the action. I see the headline of newspaper in the future reading, "Now its gold.....

The graph above is very interesting. The price from 1978-80 went from $200 to $820. The nature of the current incline seems to be following a similar trajectory.

Beach

I walk on the sand, with no one around me,
only my footprints follow me.

I wonder where my destination is,
as I watch the sun come out of its cover.
Illuminating this dark world.

The beach is empty, the waves are my only companions.

I venture into the water, not too deep though.
A wave hits me and I am back on the sand.
The journey is easier here, no challenges, no hardships.

The beach is filled with people now, the sun fully out.
I look behind me and realize that my footprints have disappeared.

Few people head for the water, the rest throng the sands.
I wake up to the fact;
the water is where I should venture.

Anatomy of a Trade

Warren Buffet recently stated that, you only know who was swimming naked when the tide goes out. But some people just enjoy the nudity. I guess it must be fun for some to remain uncovered (pun intended). I for one, prefer to keep my trunks on..

The movement on the ticker entices a trade. The risk capacity dictates the size. The ego maneuvers the time duration. The stop loss is forgotten in the book.
The beta attracts, it titillates and it destroys. The joy in the volatility subsides when the margin calls you. The ride is over, the wallet is empty. Its time to move towards sanity.

Always on the edge

It is very common to see Indian's gesticulating angrily. Whether its in the queue to purchase a ticket, or in public transport or on the road. If you speak with any foreigner about their experience with Indian people they will surely use adjectives like, 'calm, hospitable, accepting, pleasant, adjusting' etc. Almost no one will say Indian's are angry people. Genetically we are not angry people, but we still display a lot of anger even in mundane activities.

Let's take a step back and evaluate the anger. Let us suppose that you are standing in line to purchase a rail ticket; there are a lot of other people as well. One smart Alec tries jumping the queue. If he is spotted, people vent their fury in dramatic fashion. The anger displayed is irrationally greater than the nature of the offense. The reason for this is traveling by train is stressful due to the crowds. If a man has to think about something as basic as his commute, he definitely is a stressed being. Over population is taking its toll.

Let's take another step back. We better not be living in the illusion that Indian sperms are more potent, and that is the reason for our population growth. But if society treats procreation as a form of recreation, then we are in trouble. Social studies have indicated lack of education as a significant reason. Illiteracy has been identified as the root to many issues. Thus it needs to be tackled in a huge way.

This is probably too simplistic an explanation of why we are always on the edge.

'Shut'yam

The investor community and markets been caught napping. The facts on Satyam have been documented and are available. Enough has been spoken on the lack of corporate governance and level of fraud. I am going to focus on what I perceive as the way forward and possible outcomes.

Scenario 1: Company Liquidates
The current situation for Satyam is extremely delicate. If we examine the last quarter numbers (as stated in Raju's letter), the revenues stand at Rs 2112cr and operating margins at just Rs 61cr. This effectively means Satyam is losing money at the net level. For a company with no cash (cash balances stated are not present) it may not be able to meet its financial commitments and fixed expenses. If these unfortunate events materialize, and no other means of financing are available to salvage the business, the company may be forced to down its shutters.
Probability: Low

Scenario 2: Satyam gets Acquired
You may wonder why anyone would want to board a sinking ship. The pragmatic answer is, only if he can repair the holes. Satyam has large holes in its accounts. Rs 5000cr of non existing cash, shrinking margins (3%) and potential client churn.
In an industry which has operating margins around 30%, Satyam's 3% looks abysmal. It reflects poor pricing and ineffective cost structures.
If a potential acquirer were to value Satyam. He would be looking at skilled employees and large number of clients. It would be fair to assume most clients would already be looking for alternatives. If Satyam manages to salvage 50-60% of its clients it would be an achievement. For a mid size I.T companies with significant cash balance, Satyam may prove to be an attractive proposition. This will be viable if the acquirer can manage to reduce operating costs and retain clients.
Probability: High

Scenario 3: Replacement of Management
Though an interim CEO has been appointed, there is a chance that other stakeholders (government, shareholders or regulators) may force a change in the management. The new management will have to inspire confidence amongst its employees and clients. Getting the business back to shape will be a long drawn process with lots of tough decisions.
Probability: Moderate

Theme for 2009 - Survive

Keep your head above the water.. Breathe.. Gasp.. Oxygen.. Hang on to anything that floats.. Oxygen.. Breath.. Breathe..

The theme for this year, cannot be any clearer. And it would be fair to say, that it is applicable for all spheres of human existence. We don't know when the haze will clear, not sure how deep it is either. What we do know is that its real and its going to be around for a while.

As the fog makes its presence felt, businesses feel the pinch. Probably defaults may rise. Litigation may raise its ugly head. Skeletons will fall out. (Watch out as Satyam unfolds)

At the individual level, expect your biscuit packet and your pay packet to be smaller. Drink less, eat less, spend less is the new mantra. (Helps you loose weight in the process)

Since life moves along a circular path, things will be bright again. The sun will rise brighter, the coffee will smell stronger and the food will taste better. Till then, stay afloat!!