Sunday, July 17, 2011

Inclusive Education

My colleague Dr. T.N.Ravi, an eminent scholar, and I presented a paper at the 2011 IACBE Asia Regional Conference on July 16, 2011 at Alliance University, Bangalore, India. The title of the paper is "Academia-led Industry Interface: The Pro-active Initiatives for Inclusive Education and Employment Opportunities".

In India our micro, small and medium enterprises (MSME) contributes almost 8 - 10% of our GDP. The majority of these enterprises are unlisted firms and sole proprietorship in nature, and mostly family owned businesses. Traditionally these businesses have been running maybe for a very long time but somehow the experience of running these businesses have not been brought under the ambit of business education.

A petty trader or grocery shop owner (the mom-n-pop stores) does mainatain the business' cash receipts and payments in a rough format without even realizing the potential benefits of maintaining his books of accounts using a simple double-entry book-keeping system. If he can be taught how to do so, and get guidance to maintain his business transactions he can easily ascertain his profits, cash flows and determine his financial position.

This simple step can give him better eligibility to avail business/trade credit from the public banks at a lower rate of interest and bring him under financial inclusion. This cannot be achieved through a formal setup (which is more prevalent) and needs a non-formal channel for delivery. Inclusive education conventionally have covered only school drop-out children, children with disability, are from ethnic minorities, or are underprivileged. It failed to cover the target beneficiaries like petty traders, shopkeepers, farmers, women, daily wage labourers, etc.

The pro-active initiatives by the business management schools, partnering with industry, can be at the center for non-formal inclusive education for the otherwise neglected classes and help them to scale up their businesses by imparting simple but practically important things.

Monday, May 9, 2011

Viability Gap Funding - An Emerging Model for Social Infrastructure Financing

The transition from economic backwardness to economic advancement is generally characterized by special focus on social sectors like healthcare, education, and general infrastructure for achieving the much needed inclusive growth. Since India is going through this period of transition there can never be an overemphasis on the need to create a model for funding projects in this sector to scale up the intellectual capital which is an essential component of a knowledge economy with the assurance of proper healthcare facilities for all segments of the society.

In Western countries the young population supports the old population by contribution to social security. However, because of the ‘Silver Tsunami’ in many of these countries the scheme is running into serious problems, compelling the governments to seriously think about nationalization of healthcare. Also, international tax competition that results in lowering tax on capital and increasing tax on labour creates problems for the Western countries with large welfare states.

But, in a country like India a major cohort of the population is young, and an imaginative and creative model for funding such projects by roping in the private players and effective supervision by the government could alleviate this problem of lack of funding and the consequent lack of initiatives from the private sector. The approach to this problem should aim at shifting the focus away from the state and move towards public-private-partnerships (PPPs). At the same time it should also ensure that the interest and initiative from the private players is sustained through the emerging model of ‘viability gap funding’.

This can achieve the twin purpose of effective government supervision and proactive initiatives from the private sector to scale up the intellectual capital which is the very essence of a knowledge economy and also supported by proper healthcare for all.

Saturday, May 7, 2011

Financial Inclusion and CSE

James Austin and Ezequiel Reficco in their HBR working paper (March 2009) aimed to address the contemporary challenges in Corporate Social Responsibility (CSR) through an innovative process called Corporate Social Entrepreneurship (CSE). According to Austin & Reficco "CSE aims to produce a significant and comprehensive transformation of the way a company operates."

Top leadership of an organization should be visionary enough to identify potential talent within the company who demonstrates high levels of energy and enthusiasm, is proactive in taking up responsibilities and has the fire in the belly to break the sloth of conventional ideas - even if it requires to put his/her foot down to disagree with other fellow mates.

I was curiously thinking how CSE can have an impact on the human welfare element. Let us take the example of insurance business in India - it has all potential to be used successfully for financial inclusion but, unfortunately have not gained much momentum primarily because operating performance of this industry was not properly aligned with professed commitment to social value creation. The top- and middle-level management in this industry is more interested to drive business volumes rather than ample coverage of people under insurance benefit.

The agency based system in the Indian insurance sector has diluted the core objective of insurance as a tool for risk management. Today most of us still consider insurance as a tool for maximizing financial returns. The agents (mis)sell the insurance products by luring customers by how much they can earn, by paying a stipulated premium per annum, at the end of the maturity of the policy.

Insurance companies can empower their agents to build their income streams through CSE and social value creation and not just fulfilling hourly/daily/weekly revenue targets. The same agents can become the torchbearers of spreading awareness among the rural people on the true benefits of insurance products. If the innovative insurance products can be supplemented with a league of motivated sales & marketing force it can address the financial inclusion challenges to a great extent.

Thursday, May 5, 2011

Can Economists Build Brands?

Recently in a conversation with my colleague Dr. Shamim Mandal we were discussing about higher education opportunities for Indian students at various U.S. universities. We concurred upon one point in this regard that beyond scholastic aptitude of the student it is the recommendation(s) that plays a major role.

Dr. Shamim and I hail from the same academic discipline - Economics, and thus essentially we focused on students majoring in Economics who wanted to go to U.S. for higher studies and research. The outcome of the discussion was that someone from India, essentially a bright scholar, sometime in the past would have impressed his American professor with his intellect and talent quotient so much that he became a hallmark and his recommendations can be relied upon without second thoughts. In the following years that bright scholar would create a legacy by recommending other Indian fellow mates and help them explore their pursuit of knowledge and success in the U.S.

Sukhamoy Chakravarty was one such brilliant and most trusted scholar of Paul Samuelson who can be attributed with the credit of creating a legacy of Indian economists at M.I.T. Similarly, Amartya Sen caught the attention of his professors and built his own brand at Stanford University.

Thursday, April 22, 2010

Inclination Towards Passively Managed Funds

Index funds and Exchange Traded Funds (ETF) have become attractive in the eyes of the mutual fund investors owing to many mutual funds lagging benchmarks. I expect a spurt in passively managed funds as they are less expensive and less complex to understand.
ETFs have a lot of scope to grow in India as they are a huge asset class globally. This is reiterated by the fact that many large fund houses are aiming to launch ETFs like Motilal Oswal, Reliance MF, Benchmark MF, Deutsche, etc.
Post the market crash I have observed that despite of entrusting investments with professional fund managers a lot of retail investors have lost their money. According to rough estimates, only 17 per cent funds globally outperform the indices. Hence, passively managed funds would gain importance and mileage in the event of the MF platform of BSE and NSE becoming active. Currently, although these platforms exist, the number of trades is quite small.

Wednesday, April 7, 2010

Building the next-generation business leader

Garth Saloner, dean of Stanford University’s Graduate School of Business, discusses the challenge business schools face in educating students for a new world of companies without borders.

Friday, February 26, 2010

Bharti's African Safari

Bharti's entry into Africa, which has a huge untapped market, via Zain's African assets (ZAF) seems positive from a long-term perspective. It also reduces the risk that may have arisen because of the intense competition in the Telecom sector in India.

Bharti Airtel (BAL) has bid for ZAF (excluding Sudan and Morocco) at US$ 10.7 bn. The acquisition will give BAL control over ZAF and while valuations are at a premium, the strategy will pay rich dividends in the long term.

ZAF’s assets have been impacted in terms of growth and profitability by the currency devaluation and poor economic conditions. ZAF’s revenues declined 12% through 9MFY09 (annualised), but grew 5% based on constant currency. The ZAF acquisition is likely to lead to mild EPS dilution in the second year of acquisition and is expected to be EPS-accretive from 2013. The current fall in BAL’s stock price (11% post announcement) is a chance to accumulate since the performance will likely improve post more clarity on the deal structure and business fundamentals.

Though the current market situation and scope for profitability growth in Africa may look glum but post the credit crisis in ’08, African currencies significantly devalued 3-39%, with African nations highly dependent on natural resources (crude) and remittances. With current mobile penetration at 36% in ZAF’s markets of presence, Africa presents an opportunity similar to that in India in ’08 and will likely witness the maximum interest by global telcos in this decade.

Thursday, February 25, 2010

India Rising - Three Stalwarts' Views

The hype about the emerging economies, especially India and China, has picked up momentum in the recent past. But, this is not something new and probably have been happening for the past 25 years. The rise of the Indian middle class, the growth in per-capita income, literacy rates and slowdown of population growth rate are the few indicators of the Indian growth story. At our Alliance campus I had the privilege of interacting closely with three stalwarts in a span of roughly one month on this topic.

Dr. Jagdish N. Sheth, a renowned scholar and world authority in the field of marketing, was here on January 17. He was sharing his insights on global competition, strategic thinking and customer relationship management. He strongly believes that while the 20th century economics was driven by government policy of advanced economies, the 21st century economics will be driven by competitive markets of emerging nations. To his opinion this would be primarily achieved through 100% education, gender neutrality, and open to change. He says that the factors attributable for India's growth are:
- Change in the economic policies
- More advanced nations are ageing and ageing rapidly
- Economic pragmatism
To my opinion the public sector enterprises will play a major role since they already have the scale and just needs reforms and better governance.

I had a question for Zarir J. Cama, Deputy Chairman & CEO, HSBC Bank, Malaysia when he recently visited our business school on February 19. I asked him that can U.K or U.S.A continue to consume goods and services that are manufactured in the emerging economies without having the corresponding growth in earning capacity? He said that an economy like U.K. cannot continue with a deficit of 180% of its GDP very long, and the similar logic is applicable for the U.S. On the other hand the emerging nations like India and China cannot solely rely on the advanced economies for the market of their products and services; they will also have to start consuming their own produces. Referring to the recent financial crisis he opined that it is now clear that Asian banks are emerging stronger and more resilient from the crisis than the most. However, as Asia's economies and businesses grow, they will demand deeper and more sophisticated capital markets to ensure the efficient allocation of capital.

During my one-to-one interaction with Mr. V. Ravi Kumar, Executive Director, Bangalore Stock Exchange at our campus, on February 23, I had asked him "will the divergent growth rates in the U.S. and China finally erode the hegemony of the U.S. dollar?". In reply to my question he made a very candid remark - "all said and done don't forget that the U.S. is still the elephant in the room and will continue to be the same for years to come".

Though we cannot undermine the upward growth of the emerging nations and possibilities and outcomes of a trilateral relationship between the U.S., India, and China still there is a long way to go. We are excited about China's over 10% growth for the past 10 years but, are we sure that this growth rate is sustainable? In India only financial and monetary reforms cannot shape our future, the next reform we need is inevitably reforms in governance.

Monday, January 18, 2010

Long Live Revolution

When Jyoti Basu acceded to the chief minister's position in West Bengal, after Dr. Bidhan Chandra Roy, one could have hardly imagined that this gentleman politician will trigger awe among all politicians and general public for the years to come. The communist regime in West Bengal was greatly led by him, and his doctrines have kept the Left Front well-knit and alive.

Irrespective of political colour, Basu was a pragmatic adviser to his contemporaries. It would not be an overstatement to call him “The Last of the Marxists”, and confer him the status at par with Mao, Che Guevara, Simon Bolivar or Fidel Castro.

Thursday, October 15, 2009

Something Is Fishy About Bt Brinjal

The GEAC (Genetic Engineering Approval Committee) has lived up to its name and approved India's first genetically-adulterated food crop. Now the question that arises is that "was this approval unanimously passed?"

I sense a "conflict of interest" in this issue. The panel of experts of GEAC who have approved
Bt Brinjal has "at least" three members who were actively involved in developing and testing of Bt Brinjal. And who owns Bt Brinjal? Monsanto-Mahyco.

Monsanto India Limited is a subsidiary of the well known multinational in agricultural science products, especially chemicals and pesticides. Monsanto’s work in India began over 50 years ago, soon after independence. Monsanto India has been providing plantation growers with good weed control solutions and new generation herbicides, especially for farmers growing wheat, rice, and soya.

In the run for "commercialization" are we heading for a devastation? Isn't there a better way out to stop the contamination of our nation's fragile food supply? Can we truly discount the possibility of a business house influencing the decisions of a government authority to suit their benefits in this case?

The World According to Monsanto, the documentary film has already nailed such lies by pointing out that India’s cotton seed market has been taken over by Monsanto to produce a virtual monopoly. There are also several anecdotes to show that farmers committed suicide in the areas where the company overran traditional agriculture.

Sunday, September 20, 2009

FIIs in Indian Capital Market - How Predictable Are They?

I just presented a paper on "Impact of FIIs and DIIs in Dynamism of Indian Capital Market" - co-authored with one of my senior colleague Dr. Rekha - at the 5th National Conference on "Indian Capital Markets - Retrospect and Prospects" held at GJIMT, Mohali.

Dr. Prem Kumar, Director, Ludhiana Stock Exchange and an eminent industry practitioner had asked me "what is my thinking about FIIs' investment flow in Indian capital market in future". While answering his query one thing that kept coming to my mind is that the FIIs, though being a major source of liquidity in the Indian capital market, are basically speculators. Otherwise why would they repatriate their money from an economy which is fundamentally sound - a $1 trillion economy with a steady-state growth of 6.5% (when others were striving hard to show a positive figure).

It is understood that there was a severe liquidity crunch at their home, the Indian stocks were highly over-valued, and we also cannot eliminate the possibility of a subtle pressure from their governments to bring back the money home. But, the investment behaviour of the FIIs in the Indian capital market - especially the equity segment - is crazy. The bull-run in the market post elections results in May 2009 seemed to me a handi-work of the foreigners. Out of the 14 trading days, during which the Sensex shot from12000 pt to 15000 pt, they were net buyers on 10 occasions. But, they immediately offloaded some investments in the months of June and July. What is the justification for this behaviour? Isn't it queer?

Also, the Sensex is too narrow an index to reflect the actual impact. Dr. Prem Kumar suggested broadbasing of the Sensex which is highly solicited. Also, the regulatory framework should ensure that the FIIs stay invested for long-term. The FIIs comprise only about 20% of the total combined turnover of NSE and BSE, yet they are powerful enough to influence the retail investors and dance them to their tunes.

Wednesday, September 9, 2009

Another Sign of Recovery

The direct tax collection figures can indicate whether an economy is doing well or not. If the economy is passing through a slowdown and there is a contraction in industrial production and corporate earnings then the direct tax collected thereof would also be low. Also, in the event of a economic slowdown (if not recession) even if the direct tax collections, at least, matches with that of the figures prevailing in the good times then it is indeed a sign of recovery.

There were concerns among the policy makers of a lower mop up of direct taxes due to reduced corporate earnings. But, the all India figures for direct tax collection till September 5, totalling Rs. 90,039.7 crore, is actually higher than what it was for the corresponding period last year.

The finance ministry's projection for direct tax collection in the current fiscal year is about Rs. 400,000 crore. The last year's collection was targeted at Rs. 345,000 crore while the actual collection was lower by Rs. 6,000 crore. (Source: ET)

Tuesday, September 8, 2009

The Saga of Illiquid Stocks in BSE

Ideally a stock is termed as illiquid if its is not actively traded in the market or has been lying dormant for a long time. In the current scenario in Indian stock market, on one hand when we see a marked improvement in investor interest in shares, on the other hand there is a spike in the number of illiquid stocks in the BSE.

The number of listed stocks on BSE is around 7750 while its counterpart NSE has close to 1200 listed stocks. The number of illiquid stocks have risen from 1600 in September 2008 to 1800 in August 2009. On NSE, this number has gone down to 235 from 327 in the same period.

This sudden spurt in the number of illiquid stocks vis-a-vis listed shares does not send a good message about the exchange's business health. It also points out that the difference in listing requirements across exchanges. Is SEBI doing something in this direction to improve turnover and volume? After all a stock if not actively traded for a long time is as good as a privately held company.

Tuesday, July 21, 2009

SBI Beats Recession

The global financial crisis has done collateral damage to many except few and, State Bank of India (SBI) is one among those few exceptional banking institutions. SBI is India's largest lender and has recorded a growth of 1.5% in its share of deposits (in FY09) from that in the previous fiscal.

The total deposits raised by all commercial banks in India by end March 2009 is worth US$ 818.57 bn out of which the SBI group raised US$ 197.67 bn. In a year when growth was unimaginable SBI group has emerged victorious, despite of the gruelling slowdown.

It's another way to exhibit that the Indian banking system is standing tall among the ruins - not just because of inaction!!

Friday, June 26, 2009

'The Man In The Mirror' Vanished So Unceremoniously

In my schooldays (1983 - 1997) I grew up listening to Western music of a few selected rock n' roll bands and pop singers. Without a grain of doubt I can recall that the first name that flash across my mind when I think of one pop-star is none else but Michael Jackson.

A celebrity's life is not at its pinnacle if it doesn't have enough scandals which give critics their food for thought. Michael Jackson as a celebrity had enough of them. But, to me since my childhood, he has been an angel. His 'Heal The World' was like a hymn to us in school and the most frequently sung opening chorus on our Annual Day. It is the same song which we belted out to win the 2nd prize in an Inter University National Youth Festival.

I never had an inkling of an idea that the 'Man In The Mirror' would vanish away so soon!!

Monday, June 22, 2009

Two Major Moves By LIC And India Post

I am excited about two major moves going to be taken by two different financial services institutions in India. The first move is by Life Insurance Corporation of India (LIC) and the second one is by the Indian Postal Services Department aka India Post.

LIC will be implementing a project called Enterprise Document Management System (EDMS), which they plan to complete by 2011. It will enable LIC to extend 'Anywhere Anytime' service. They have already launched the project in 2007 partnered with Hewlett Packard (HP). It will enable the policy holders or their nominees to pay LIC premium or claim their settlement payment from any location in India. This would indeed make lives of 230 million policy holders across the country much hassle free. Also, the digitization of record of these policy holders will ensure archival of physical records in electronic form and will eliminate risks of loss or damage to physical records due to natural and other disasters.

The second move that I was referring to, by India Post is that they are going to provide on-site ATMs for their customers. To note India Post has 155,000 locations across the country. This would be a massive value-added service to the post-office savings bank account holders. The hours of waiting in long queues at post-offices for withdrawing or depositing money can be cut down substantially. India Post had 228.9 million savings bank accounts with an aggregate outstanding amount in these accounts of US$ 457.89 million (as on March-end 2009).

Saturday, June 20, 2009

Is Indian Economy Resilient To A Poor Monsoon?

Delayed monsoon and rising El Niño risks gives me a hint ... “are we going to see once again the market selloff during the drought of 2002?” The water reservoir levels are already low, and this factor coupled with poor monsoon may have adverse effects on farm income, and raise fiscal burdens. We are already halfway through in July and there has been no significant sign of onset of monsoon. My apprehension may turn out to be true depending on the progress in this month.

The year 2009 season has started on a bad note. The overall rainfall for the season until Jun 17 has been 45% below normal, with 28/36 meteorological divisions receiving rainfall below the long-term average. The water levels in reservoirs are at 10% of capacity (vs. norm of 14% for Jun). This is indeed an alarming situation. According to Australia’s Bureau of Meteorology, the signs of a developing El Niño, which usually lead to drought in Asia, have strengthened during the past fortnight. And if their predictions materialize in reality then we are definitely heading towards a crisis situation.

Indian agriculture is no more heavily dependent on monsoon. There has been much progress in the irrigation facility, and also the share of agriculture in GDP has declined. The share of the monsoon-dependent kharif crop has declined. Since 1987, agri output fell in only 5/8 years when monsoon rainfall was +5% below average. Also, the area under irrigation (now 43%) has been rising steadily, albeit gradually. This is a positive indication.

With agriculture now accounting for only 18% of GDP (versus 33% even in the early 1990s), the Indian economy is far more resilient to a poor monsoon season. However, a poor crop will deflate the current buoyancy in farm incomes. At a time of +10% fiscal deficits, there is little room for further fiscal support.

Tuesday, June 16, 2009

Investor Hostility and the Communist Governed States in India

In one of my earlier posts “Brand Bengal: It’s High Time to Rethink”, dated September 06, 2008 I had discussed the current state of investor hostility in the Communist regime in West Bengal. After the Dubai based Smart City decided to quit its ventures to set up self-sustained townships for information technology and knowledge-based industries near Kochi, Kerala I am compelled to think ‘is investor hostility plaguing communist governed states?’

The proposed Smart City was likely to generate direct employment for 80,000 people and provide indirect employment to another 20,000 people. This is only the employment generation aspect, besides this there are other aspects like revenue generation for the state in the form of taxes, and economic growth of the state which gets adversely affected. Added to this will be a domino effect wherein other investors restrain themselves from investing in projects in Kerala.

When the Tatas pulled out of its Nano project from Singur, West Bengal the immediate loss was over Rs. 5,000 crore and the potential loss was a whopping Rs. 80,000 crores. Smart City, Dubai had urged the Kerala state government to commit at least 12% free land out of the total 346 acres of land. The Kerala government still does not have a clear-cut answer to this issue and have dilly-dallied things.

Kerala and West Bengal are two states where the communists have ruled for long tenures and had once built a strong political base. In West Bengal the current public choice is against the red-brigade, they have been badly beaten in the Panchayat (local self-governments) elections followed by the Parliament elections. The story in Kerala is also similar, and if the investor hostility continues then the communist governments in these two states would have to pack their bags soon.

Tuesday, February 24, 2009

Slumdogs Are No Underdogs

The laurels that A. R. Rehman, Gulzar & Resul Pookutty brought to India at the centrestage of the Academy Awards function have enthralled every conscious Indian. We may have had loads of criticism against the portrayal of India's poverty and wretched condition of life of its slum-dwellers in this movie, but we cannot detach ourselves from dousing in the celebration for the victors who are very much Indian.

This is not the end of the story; India have once again proven her worth in another field - banking. Our very own State Bank of India (fondly known as SBI) have superseded Citigroup's market capitalisation to be among the largest banks in the world. The market capitalisation of SBI on Friday closed at Rs. 66,285 crore. This is around 25% more than the closing market capitalisation of Citigroup on the NYSE on Friday. The market capitalisation of Citigroup was Rs. 52,931 crore.

Though Citigroup's revenue in the last four quarters is almost eleven times more than the revenue earned by SBI, its profits are nowhere near the figures earned by SBI. While Citigroup has suffered losses of Rs. 83,474 crore in the last four quarters, SBI has booked profits of Rs. 8,262 crore. Martin Hutchinson, an economic commentator, recently put out a list on the status of the 12 largest banks in the US. He categorised Citi as a zombie bank. “Citi has been a serial flirter with bankruptcy over the past 30 years and remains a basket case,” he wrote.

Monday, January 12, 2009

Amazing Facts About The Big 4

The Big 5 (Sorry 4) accounting firms have been on the top of every finance professional's mind for some reason or the other. There are a couple of true but amazing facts about them, not known to many. Known as the Big 4 accounting firms they are:
(Arthur Anderson which made it the Big 5 is now in archives).

Of course they set the global standards for transparency in business. But who is their owner? Shhhhh ... It is a well-guarded secret. Even though present in over 120 countries, for obvious reasons each one of them is headquartered in a tax haven. If you enquire any details about these firms in a tax haven like Panama, you may end up spending the next 2 years in jail. Understand how secret the ownership is!

They have paid billions of dollars as fines in the U.S alone to the SEC. In U.K they are being subject to investigations under the Fair Trade Practices Act. They are the subject of cartoons in the western press and lampooned by the media.

They have been found innovative in:
  • Booking bogus sales
  • Capitalizing revenue expenses
  • Insider trading & related unethical practices
  • Not accounting sales returns
  • Inadequate disclosure of off-balance sheet items
  • Assisting the management in asset stripping
  • Failing to record liabilities or suppress liabilities

Well the list on their accounting "innovation" could go on ... That is if you do not reckon shredding of documents as an expert service. It is these 'credible' professional outfits that are in India, advising the Government of India on:

  • Speed and directions of reforms
  • Advisor to the planning commission
  • Providing expertise to the disinvestment process
  • Privatization and Globalization
  • Policies for inviting FDI

So if you want to innovate your accounts hire these "experts", they would do a good job for you and of course make a fortune in the bargain. If you are corporate manager, you may have personally felt bombarded, sullied, trampled over, bullied and even decried at your own office by representatives of the Big 4. Simply because they are from the Big 4. Remember, they charge you and you pay even for the time spent on abusing you!

If you are a decision maker you might have noticed subtle hints to influence your decisions. Hiring the kith and kin of the decision makers is one of their tried and trusted methods. They are experts in the art of making friends and influencing people. They are too good at Dollar Diplomacy!

Their ownership is unknown, their competency is suspect and their advice bogus. Then, why do the financial institutions, banks and the corporates in India keep them as auditors, advisors or consultants? Why are they allowed to operate in India, and hired and respected by the Government of India? WHY?

Simply because we are not aware of these firms and therefore we are silent. The need of the hour is to create public awareness.

Thursday, January 1, 2009

Silver Tsunami

On February 12, 2008, America's first baby boomer, Kathleen Casey-Kirschling, received her first Social Security payment. That was just the beginning. Over the next 20 years, 80 million boomers (those born between 1946 and 1964) will begin collecting Social Security. That's an average of more than 10,000 per day. The wave of retiring boomers has been dubbed the "silver tsunami".

When World War II ended, there were 44 people paying into Social Security for every retiree. Now only three people pay in, for each person taking out, and it could be bankrupt by the year 2043. So, if Social Security doesn't benefit from boomers retiring, who does?
Courtesy: Will Ashworth

Tuesday, December 23, 2008

Ten Surprises for 2009

In a collaborative effort between Global Equity Strategy and Global Asset Allocation, and in keeping with their year-end tradition, UBS presented in their final publication of 2008 a list of ten possible ‘surprises’ for the coming year. Its aim is to identify plausible scenarios, representing risks—up or down—to investor consensus thinking, and in some cases, to its own views.

UBS' list of ‘surprises’ include:

1) Corporate default rates don’t rise significantly;

2) Oil prices fall below $20 per barrel;

3) The dollar falls to new lifetime lows;

4) Breakeven inflation rates remain near zero;

5) Global growth is negative for 2009;

6) The Fed purchases corporate credit;

7) Emerging markets regain parity valuations;

8) Equity ‘fallen angels’ soar;

9) Obama pushes for a ‘tax holiday’; and,

10) Gold goes to $300.

Perhaps next year the surprises will be somewhat more positive? Who knows! Now let us take a look at their last years' surprises (predictions) and compare their conjectures to actual outcomes.

1) Global growth surprises on the upside: Did it happen? No.

2) Oil prices: Is 50 the new 20? Did it happen? Yes.

3) The dollar appreciates: Did it happen? Yes.

4) World trade clouds: Did it happen? Sort of.

5) Developed deflation, developing inflation: Did it happen? No.

6) Financials outperform: Did it happen? No.

7) Emerging equity markets under-perform: Did it happen? Yes.

8) Japanese equities outperform: Did it happen? It depends.

9) Equity volatility settles at lower levels: Did it happen? No.

10) Chinese inflation falls sharply: Did it happen? Yes.

With a success ratio of 40% in their last year's predictions it attests that this exercise has merit. At least it can provide an avenue for 'out of the box' thinking which can aid risk management. Whether their predictions hold good or live upto its own benchmark is a question that only time can answer. Let's wait and watch!!

Sunday, December 21, 2008

Market Failure and the Big Three

It was much debated on whether the Federal Reserve should bailout the U.S auto industry or not. Many were of the opinion (with a conservative view) that the Big Three could probably survive and be competitive if the U.S government would let them go into Chapter 11 bankruptcy instead of bailing them out with taxpayers’ money.

In a capitalist economy, government intervention is less likely and less welcome unless there is a market failure which has far reaching effects. The fall of the Big Three would have been an imminent danger to the U.S.A's national economy. President Bush's order for an emergency bailout of the U.S auto industry offering $17.4 billion have risen mixed feelings. The autoworkers union complained the deal was too harsh on its members, while Bush's fellow Republicans in Congress said it was simply bad business to bail out yet another big industry.

To my opinion the Fed's decision is perfect as it could not afford to allow the massive auto industry to collapse when the economy is already in the middle of an economic downturn. The Big Three's fall could send the U.S economy into a deeper and longer recession. But, it is also high time for the U.S auto companies to reform bad management practices and begin the long-term restructuring to safeguard the millions of jobs it provides.

Saturday, December 13, 2008

Chiquita, Not Just Bananas!

The name Chiquita in the western world is synonymous to a banana. But there's a lot more to Chiquita than just bananas!

The company's website parade about its ethical business practices without shame or modesty which they hardly practise in reality:

In March 2007, Chiquita was convicted of federal criminal charges for making more than 100 payments, totaling more than $1.7 million, to the United Self-Defense Committees of Colombia (Autodefensorias Unidas de Colombia or AUC), which has been designated as a Foreign Terrorist Organization by the U.S. government. Chiquita paid a $25 million fine.
In July, 2007 Colombian families represented by EarthRights International (ERI), together with the Colombian Institute of International Law (CIIL), Judith Brown Chomsky, and Schonbrun DeSimone Seplow Harris & Hoffman LLP (SDSHH), filed a federal class-action lawsuit charging Chiquita Brands International, Inc., the multi-national produce company, with funding and arming known terrorist organizations in Colombia in order to maintain its profitable control of Colombia’s banana growing regions starting in the mid-1990s.

Chiquita’s payments to these paramilitary groups, including the AUC and its predecessors, were reviewed and approved by senior executives of the corporation, and resulted in the targeted killings of hundreds or thousands of individuals, including trade unionists, banana workers, and political organizers. It is also said that the company have been engaging women and child labourer in their plantations in El-Salvador, Colombia and other Central American nations, who were made to work under inhumanic working conditions.

It flaunts its 'Code of Conduct' (CoC) and holds it up as the representative of its ethics and compliance program. Apparently, going by the CoC of the company, it looks like the company is deep-rooted in strong fundamentals. But, the dark-side of the company's economic activities is scary.

Tuesday, December 9, 2008


In the face of the global financial meltdown it is now predicted that the recessionary situation in Japan may deepen further. The previous record was three quarters in a row, as in the last contraction seven years ago in the wake of the bust.

High oil prices were the primary cause for economic slowdown in Japan until the third quarter. But, what is currently being observed that Japanese companies are curtailing production at an unprecedented pace as demand plunges not just in the United States and Europe but also in emerging nations that had until recently weathered the global financial storm. The situation is aggravated further by the sharp appreciation in yen.

Economists have been expecting a 0.4 percent contraction in fiscal 2008/09 but that now needs to be revised down. It's hard to see at this point how the economy will return to a recovery. The sharp fall in oil price and other commodity prices should positively impact Japanese consumption but there is still time when the positive effects are felt.