Back and in deep freeze mode

Yeah, I am back to blogging after a 100+ day hiatus. No reason. Just found nothing exciting to blog.

A few minutes back, I read a nice piece by Greg Pytel titled “A US way out” and I almost froze. Here’s the excerpt from that chiller of a post –

“Washington Times compares the US model to Franklin D Roosvelt’s New Deal. However the current financial crisis does not resemble the 1930’s depression in its root cause. The current crisis is a result of a giant global financial pyramid collapse that left a quadrillions of dollars liquidity hole. Therefore President Obama’s actions may not be modelled on the New Deal, but on some other premise…

Considering the current US debt and its rate of increase, the US borrow and spend solution reminds an insolvent person who keeps on borrowing money, as long as there is anybody “silly” enough prepared to lend him. He knows that at the end of this process he will not pay anything back but simply declare bankruptcy, write off the entire debt and start its financial life anew.

The US, as the country, is economically and militarily powerful enough to declare that it no longer honours its debt and its currency. Effectively the dollar could be written off as a currency. As around two thirds of world reserves are held in dollar they will be written off. The US will have no debt.”

And then I read “History of Collapsed Dollar” in Commodityonline.com and Pytel’s hypothesis didn’t seem like a fictional conjecture at all. It could get catastrophically real.

“As with any fiat currency, the Continental dollar [USD version 1] later collapsed due to inflation. With politicians unwilling to fix the deficit and instead choosing to inflate the currency, the currency was left in ruins. The Continental dollar was eventually recalled by Congress and redeemed at 1/40th its face value. In a very few localities, it remained in existence for many more years, where it eventually plummeted to 1/1000th of its issuing value.

The factors that led to the demise of the first currency of the United States are the same that are leading the assault on the current US dollar. History shows us that when fiat currencies fail, precious metals remain as a standard of wealth and an accepted medium of exchange.”

And I now turn to a new asset class that I had shunned so far. Paper Gold. Gold ETF, I mean. Googled up and landed here. I will watch the price of Gold for next 4-5 months and might end up investing in this by August, 2010.

Just wish Barack Obama allows me time till then. Amen.
.

Mortgage crisis, Madoff madness - so what comes next?

Agreed. Mortgage crisis was because of a complex web of sliced and diced mortgages that escaped instant scrutiny. But how about a ponzi scheme run by an ex-Nasdaq broker dealer?

As a broker-dealer, Mr. Madoff's firm was already heavily regulated, and news reports say the Securities and Exchange Commission investigated him in 1992 without finding anything wrong. The SEC said in a statement Friday that its New York staff also conducted inquiries into Mr. Madoff's firm in 2005 and 2007. Mr. Madoff's separate investment company registered with the SEC in 2006, which is all that hedge funds would have had to do under the SEC's proposed (but failed) hedge-fund rule of a few years back.

The recent spate of scams from the US has made this once famous financial innovation powerhouse a den of con artists and shoddy regulators. Alright how about foreigners that invested so much money?

Without this flow of easy money into the U.S., globalization in its current form would not have been possible. The U.S. was the consumer of last resort, absorbing cars from Germany and Japan, electronics from Taiwan and Korea, and clothes and furniture from China. The earth was flat, and why not? Pluck a laptop from Taiwan and pay for it with a home equity loan, which—if you trace back the connections—was at least partly funded with foreign money, too.

The big unanswered question, for years, was why this money flow persisted. Why the heck were foreign investors willing to lend the U.S. such large amounts of money on such good terms? Economists and journalists spun out hypothesis after hypothesis (we'll see more below), but there was no agreement on why.

What comes next? The fallacy is punctured. Globalization will be seen as what it is—a game with risks that can't be wished away. And U.S. prosperity will depend on the success or failure of its ability to innovate—not its ability to tell an implausible story to foreign investors.

.

Get your act together, IT vendors...!

Readers of this blogstream should be wary of my screams for innovation in India’s IT vending space.

Now here is an analysis that explains why overwhelming focus on one sector – Financial Services – is extremely vulnerable. With the Wall Street turmoil, some of India’s big IT outsourcing vendors face a frosty weather.

I shall repeat. Go beyond BPO, ADM and easily replicable services. Differentiate. Make meaningful dents in diverse high-end fields like system integration, data center management, remote architecture support, process automation coupled with product innovations that stun the markets with their utilities and features.

And…And…And… Focus on domestic market. You’ll be in far better control. See Bharti has awarded its $1 billion IT infrastructure maintenance contract to IBM, not to any of our famed vendors ;-)

.

Socializing Capitalism...?

At the recently held meeting of energy ministers in Jeddah, P.Chidambaram, our Finance Minister (FM) proposed a Price Band Mechanism – that the consuming countries must guarantee that oil prices will not fall below an agreed level and producing countries must guarantee that oil prices will not rise above a guaranteed level.

Seems fair to Oil importing countries as of now… Now what if the Oil exporters demand a similar price band for their imports - iron ore, steel, consumer goods, IT offshoring contracts and even currency exchange / global interest rates - can the world cope?

What could be its economic nomenclature – socializing Capitalism or Capitalized Socialism?

.

Debunking two chinese myths

Well, the media is chockfull of reports that China’s economy may not be as robust as it has been made out to be. But should anyone be smug about that? The facts seem to the contrary. The global growth have slowed down.

As is the other popular wisdom, Chinese economy is way too much dependent on its exports and is certain to suffer a dent because rich world’s finances are in trouble. Here again it’s a myth waiting to explode. It seems it’s got to do with the investment led growth and increased domestic consumption, two healthy indicators that drive the Chinese economy.

.

Many hues of the world

Tom Friedman got it all wrong. Had the world been as flat as he thought it is, why do they scrimp at one end and splurge at the other? In the US and Europe, they worry recession, credit squeeze and speculate the impact of mortgage crisis. In Asia, it’s celebration time. They raise funds from public markets as if there are no tomorrows. Take a look at this data culled from a report from E&Y.

Indian bourses saw over $8 billion worth of initial public offers (IPOs) in 2007, but this is just a shade higher than the world's single-largest IPO by a Russia’s VTB Bank, which alone raised $8 billion. Largest Indian IPO was that of DLF that raised Rs.91.87 billion. ($2 billion plus).

Worldwide IPO activity raised a record capital of $255 billion till November in 2007, including $8.3 billion on Indian bourses. India was the fifth largest market in terms of number of IPOs and the seventh-largest in terms of the proceeds for the year. There were 95 IPOs till November 07 as against 78 IPOs raising $7.23 billion during 2006.

China came out on tops with total IPO proceeds of $54.4 billion through 222 issues. Globally, there were as many as 1,739 IPOs between January and November, while another 91 public issues are estimated to have hit the capital markets during December.

.

All happening while US and Europe are wilting under mortgage mess. Did you say we are globalized...?

.