e-Nagar

February 29, 2008

Sovereign-Wealth Funds

Filed under: Thoughts — pegasus @ 11:42 AM

With the fear of recession, the stocks of banks, financial institutions and several fortune 500 companies are at rock bottom. Nobody wants to speculate the size of bonds write-off and there are not many takers for the stocks now. In such a scenario, several Asian Governments (primarily the Oil rich nations and China) are buying substantial stakes in blue chip firms like RBS (Royal Bank of Scotland, Citibank, Syndicate Bank etc) and preventing bear markets to have a home run.

Unfortunately instead of thanking these brave governments for showing confidence in these troubled times and ensuring that there is sufficient liquidity in the market, the West seems to be scared. EU has imposed several restrictions and disclosure norms on them.

My only response to such practice:
“Beggars cannot be choosers.”

Whenever I see the US consumer spending charts, I am always reminded of the grasss-hopper story. US citizens were happily borrowing and living way beyond their means, while Asian Economies (like ants) were working hard day and night in their sweatshops.

Out of goodwill and to prevent a correction in USD (read devaluation of USD), we bought some USD and kept the prices up. After all a dollar decline helps nobody. Now that even the bond markets has collapsed, Asian Economies have a right to invest their own money in whatever securities they think is safe and serves best the interest of their nations and its political masters. They are doing a service to the world and business communities by infusing cash in the distressed companies and preventing them to go under. While the thankless West is simply making a big fuss out of it.

Whats ironical is that till a few decades ago, US/CIA used to invest in the under-developed world and then used those investments to get a political muscle in the region. There is a long history of developed world engineering a coup just to safeguard these investments. Although till now, no Asian Economy has even attempted such an outragious and selfish act, USA is blaming us for it.

Warren Buffet understands this. Hence he recently said:

“There’s been much talk recently of sovereign wealth funds and how they are buying large pieces of American businesses. This is our doing, not some nefarious plot by foreign governments. Our trade equation guarantees massive foreign investment in the US. When we force-feed $2 billion daily to the rest of the world, they must invest in something here. Why should we complain when they choose stocks over bonds?”

BTW, with Indian Forex reserves crossing 290 Billion Dollars, I think its high time that India should also start a Sovereign Wealth Fund.

VISA’s IPO

Filed under: IPO — pegasus @ 10:55 AM

Visa confirmed it would proceed with a public offering this spring. The company hopes to raise $18.8 billion, making it America’s biggest IPO. Visa takes fees from credit-card transactions;

Isn’t it odd that the in a time when the entire world is facing Credit Crisis, loan defaults are at an all time high, VISA (which makes all its money from Credit Cards) is confident that it can launch the biggest IPO in American history. Maybe it proves that the present crisis cannot scare off the companies with sound fundamentals.

PS: the default risk is borne entirely by the company issuing credit cards and not VISA. Hence the company could take this audacious step.

February 28, 2008

Mouse Trap

Filed under: Miscellaneous — pegasus @ 12:36 PM

A mouse looked through the crack in the wall to see the farmer and his wife open a package.

“What food might this contain?” The mouse wondered. He was devastated to
Discover it was a mousetrap.

Retreating to the farmyard, the mouse proclaimed the warning.

“There is a mousetrap in the house! There is a mousetrap in the house!”

The chicken clucked and scratched, raised her head and said, “Mr. Mouse, I can tell you, this is a grave concern to you, but it is of no consequence to me. I cannot be bothered by it.”

The mouse turned to the pig and told him, “There is a mousetrap in the house! There is a mousetrap in the house!”

The pig sympathized, but said, “I am so very sorry, Mr. Mouse, but there is
Nothing I can do about it but pray. Be assured you are in my prayers.”

The mouse turned to the cow and said, “There is a mousetrap in the house!
There is a mousetrap in the house!”

The cow said, “Wow, Mr. Mouse. I’m sorry for you, but it’s no skin off my nose.”

So, the mouse returned to the house, head down and dejected, to face the farmer’s mousetrap alone.

That very night a sound was heard throughout the house like the sound of
a mousetrap catching its prey.

The farmer’s wife rushed to see what was caught. In the darkness, she did not see it was a venomous snake whose tail the trap had caught.

The snake bit the farmer’s wife. The farmer rushed her to the hospital, and she returned home with a fever.

Everyone knows you treat a fever with fresh chicken soup, so the farmer took his hatchet to the farmyard for the soup’s main ingredient.. he slaughtered the chicken to make soup.

But his wife’s sickness continued, so friends and neighbours came to sit with her around the clock. To feed them, the farmer butchered the pig.
The farmer’s wife did not get well; she died. So many people came for her funeral; the farmer had the cow slaughtered to provide enough meat for all of them.

The mouse looked upon it all from his crack in the wall with great sadness.

So, the next time you hear someone is facing a problem and think it doesn’t concern you, remember when one of us is threatened, we are all at risk.

We are all involved in this journey called life. We must keep an eye out for one another and make an extra effort to encourage one another.

February 27, 2008

blogprinting

Filed under: Thoughts — pegasus @ 4:46 PM

Blogprinting Provides wordpress users with a very easy to use interface using which one can convert the blog into a pdf file and even fire prints.

I thought I would take a printout and distribute it to my friends. However, since the 900 odd posts which I had written in past 2.5 years run in over 550 pages, I thought it would be better for the trees if I just share the pdf. So if you are interested, please feel free to download the printer friendly version of the entire ENagar blog.

February 26, 2008

What is politics?

Filed under: Cartoons, Humor — pegasus @ 10:02 AM

Greetings!

I heard a good old joke today:

A little boy goes to his dad and asks, “What is politics?”

Dad says, “Well son, let me try to explain it this way:
I’m the breadwinner of the family, so let’s call me capitalism.
Your Mom, she’s the administrator of the money, so we’ll call her the Government.
We’re here to take care of your needs, so we’ll call you the people.
The nanny, we’ll consider her the Working Class.
And your baby brother, we’ll call him the Future.
Now, think about that and see if that makes sense?”

So the little boy goes off to bed thinking about what dad had said.

Later that night, he hears his baby brother crying, so he gets up to check on him. He finds that the baby has severely soiled his diaper. So the little boy goes to his parents’ room and finds his mother sound asleep. Not wanting to wake her, he goes to the nanny’s room. Finding the door locked, he peeks in the keyhole and sees his father in bed with the nanny. He gives up and goes back to bed.

The next morning, the little boy says to his father, “Dad, I think I understand the concept of politics now.”

The father says, “Good son, tell me in your own words what you think politics is all about.”

The little boy replies, “Well, while Capitalism is screwing the Working Class, the Government is sound asleep, the People are being ignored and the Future is in deep shit.”

Ah, the viewpoint of a child!

February 23, 2008

Spain (Too much wealth is a problem)

Filed under: History — pegasus @ 10:29 AM

Too little gold/wealth was always scary. The kingdom with empty coffers were always on the verge of annihilation. They never had money to build defenses, raise armies/navies, build cities/roads/ships/canals, import food (in case of drought) or even pay tribute so that the lives of its citizens would be spared. However people never realized that too much wealth can also be a problem.

Spain and Portugal, by the 1500, has discovered massive sources of gold and silver in the New World (Latin America). It won’t be wrong to say that the half of the world’s gold flowed through Spain. Yet in 1557 and then in 1597 Spanish Government was bankrupt.
- Source

The influx of gold from Caesar’s campaign in Gaul caused a plunge in the value of gold by over 25%. Its no wonder that the strongest nation in the world faced a civil war soon afterwards which destroyed the republic for ever.
- Source

It was only after 1568, that people realized the problems of too much wealth. Jean Bodin (1530-1596), a French lawyer, writing in 1568, while analyzing the the inflationary effect of the (Latin) American money concluded
there were several reasons for the rising prices in the sixteenth century but that “the principal and almost the only one
(which no one has referred to until now) is the abundance of gold and silver, which is today much greater in this kingdom than it was four hundred years ago”.

However, there was little one could do about it. Take Spain for example. There are tonnes of silver and gold in the New World which was getting mined, and shipped to Europe. Because of this sudden influx of gold, nothing was too expensive. The demand and the prices of goods rose many folds, but in that Pre-Industrial age, the production of goods could not be scaled up. Hence, this demand resulted in increase of wages making production to be commercially inviable in the whole of Spain.

The situation was so bad that by 1590, 80 per cent of all goods shipped from Spain to its new colonies were goods that had already been imported from elsewhere in Europe. (source)
England and rest of the Europe on contrast build manufacturing capabilities. They used their colonies as a source of raw materials and a destination for manufactured goods. Making their economy more robust.

This manufacturing capabilities fueled the industrial revolution and made their economies stronger. Hence, even after the loss of major colonies, other European Counties were not suddenly reduced to poverty. In contrast, Spanish grew weaker because of too much wealth. Their wealth forced them to fight too many costly battles which emptied their coffers. The Britisher Privateers disrupted the supply of gold using Guerrilla tactics and weakened the empire. Finally the Spanish Armada was defeated and Spain lost control of the High seas and the New world reducing them to almost nobody in the arena of Wealth, Power and Influence.

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