Captive Adaptations

I have resisted the temptation to use PDA’s for data communication for a long time. I use a Palm treo for the past 3 years, but mostly as a voice device, and a PDA. I have never been compelled to use it for data. Its mostly the inertia associated with the data communication devices that I use. I have access to a laptop or a desktop most of the time. Even in the busy traffic of India, being one of the lucky ones to be chauffeur driven, I can catch up with my emails in the backseat with a laptop and a data card.

But, off late since I am in Chicago land, day-in and day-out I get to talk & hear about the highly tech savvy Obama. He would’nt let go of his blackberry even after becoming President-elect and now as a President, his highly secure PDA is the talk of the town. See and click on the image below for details.

The primary reason I figured that I will use a data device is only for quick response emails. Isn’t that also the holygrail for Blackberry’s success. But they are quite costly, and most other PDA’s now have grown to become too clunky with too many features. And I believe in the “Occam’s razor” theory.

So, after much research for the past 2 months, I settled on the simple device below, also I have an incentive to use it for work related needs. I bought it on Jan 20th and received it today. See and click below for details.

Its the gadget of the year for 2008 as per many top magazines. And for less than $20 a month I get unlimited emails and unlimited SMSes. Don’t be surprised if my next email response says, sent on the go with my Peek device !

Quote of the day.

“The world has achieved brilliance without wisdom, power without conscience. Ours is a world of nuclear giants and ethical infants. We know more about war that we know about peace, more about killing that we know about living“.

-Omar Bradley.

Google Omar Bradley for more.

Google is a favorite. If you are interested in analyzing human behaviors and want to read people’s minds, there are all sorts of trending tools these days. One of the most interesting is the Google auto-completion. Type for example “George Bush is” in the search box, as shown below.

Well, his acts like the one below, surely qualify him for that !

I am an optimist. Trust me. I am a person who always says, “Shit happens everyday — literally — that doesn’t mean we stop all other activities for the rest of the day, we move on. We carry on cheerfully and try to add meaning to our everyday lives, no matter how uneventful or insignificant our life is”.

So, what does that tell you about me as a person, I am wired for optimism, try to believe in the “bonafide” nature of the world around me. But sometimes, people, events and the general air around me makes me feel sick. During such times I vent on this blog.

Just a couple of days ago I blogged about balance sheet misadventures, and how mostly all corporations have resorted to cheap financial engineering tricks of cooking books. Evidence for that I found in yesterday’s economist article. To quote a paragraph from the article “The world’s sums do not add up. Statisticians are unable to offset the recent burgeoning surpluses with deficits elsewhere: according to the IMF, in 2007 the surpluses exceeded the deficits by $265 billion”

Yes, annually $265 billion goes missing, in effect all the surpluses are just cooked. Individuals like Raju, Madoff, Thain who at the helm with their mix of greed, incompetence and out right gluttony have performed acts which have ultimately led to “Global Imbalances”.

May be we live in a really shallow world and I am naive to expect ethical behavior like I have blogged here and here. Or may be I should stop reading about business, economics and the ugly “malafide” sides of human behavior. I am sure there are lots of people who participate in communities and do selfless work. They should be the ones I read and think about.

The pain that the current Global meltdown has caused financially is well known, well covered by Main Stream Media and well documented, but the grief it is continuing to inflict on our collective psyche, is little understood.

Today, on NPR I heard about Virtuous Recession. Apparently, most companies are even capitalizing on this. The advertising, PR and marketing machinery of Fortune 500 companies are in high gear selling it to Americans.

Presumably slumps are good. Recessions enable correction. As Paul Krugman, the nobel prize winning economist once wrote, slump is part of the economic healing process. The excess capacity gets worked off, prices and wages fall from their excessive boom levels, and then the economy will eventually rebound.

True, maybe its all part of the healing process. But if you ask me, Are there any virtues to a recession at all ? NO. Its always painful.

Anybody who knows the classic 5 stages of grief and has realized Kubler-Ross model understand that the process goes through phases of Denial, Anger, Negotiation (Bargaining), Depression and Acceptance. DANDA (people who know Hindi will certainly remember this model) in short.

What the story on NPR taught me was that the collective psyche of certain parts of our society, are in the phase of “Negotiation or Bargaining” with the current condition the economy is in. Saying all these bad things are good, its a cleansing system and correction phase, are all consoling ourselves. “Virtuous Recession” is nothing but a figment of our imagination. Its a behavior similar to this.

During this Economic Grief, there are probably many who are still in denial mode, some are angered by what is happening, many more are already in depression and people like me have long accepted that we are in a pretty bad shape. Are there any virtues to such man made catastrophes ? An emphatic NO. Its just that we are all in different stages of our healing process and that manifests itself as funny behaviors.

I am no Economist, but I understand basics of how Economies work. Most private banks in developed countries are today insolvent. Below is also the current market cap of most banks in the US.

Click to Enlarge

So while we are trying to solve their insolvency, there is nothing we can expect from them, to revive the Economy.

The primary bail-out instrument for Govts have been treasury bonds and notes. The US treasuries in particular operate on the following simple principles.

• The higher the treasury price the lower the yield and hence lower the interest rate. Read full basics here.
• The lower the interest rate the more beneficial it is for the revival of the Economy. For eg. Home Loan & Mortgage Rates will be low

So that should rejuvenate the housing market, and other asset markets which are currently being crushed because of de-leveraging.

But here is what is currently unfolding. Most govts are printing money and also printing treasuries without any regard to any type of benchmark. Mostly US treasuries have had a great demand and enjoyed very good support for the past 4-5 decades, which in turn enabled US to capitalize its debt and has managed to bail itself out every time its in trouble.
Even now, all the bail-out and stimulus packages announced so far are primarily via treasury bonds and notes. But mostly countries with trade surpluses like China, Singapore, Korea, UAE have been hoarding US treasuries. But off late they have started shunning Treasuries, mostly to fund their own stimulus packages in their own countries. Read here, here and here.

What does this mean for the US ? There will be surplus of treasuries in the market, hence the prices of treasuries will fall and the yields will rise. If the yields rise, the interest rates rise. If the interest rates rise, mortgage defaults and foreclosures will accelerate and the Economy will further deteriorate, so the revival will likely go into early 2010.

Exactly around 2010 the baby boomers will start to retire, and every year around 4 million will start to retire for the next 20 years. Baby boomers (born between 1945-1965) are around 84 million in strength, so there are atleast 42 million homes that they own. So every year there will be approximately 2 million homes that will be added to the existing home inventory.

Unfortunately the next generation (Generation X - born between 1965-1980) is only 43 million in strength, so as couples or families there are only approximately 20 million buyers. Even if we say all Generation X couples are capable of buying a home, there will still be 20 million homes in surplus. This will further drive down the housing prices. And there is no easy solution for this atleast for the next 10 years till Millenials (Born between 1980-2005 and 78 million in strength) get enough purchasing power.

We have definitely run into big time rough weather, looks like a very long time it might take. Like one famous pilot said, “Brace for Impact“.

No, the image below is not Lincoln. Yes, that is Mr. President elect, and I am trying to link Obama to Lincoln.

Am I the first one to do so ?. No. Mr. President-elect, the man who will be Mr. President today, himself started drawing parallels to Lincoln as early as 2005 in a time magazine article. And there have been articles highlighting the daring nature of Obama campaign to do so. Of course after his victory it’s been a season to do such comparisions. Read News week article here and more here.

Some of the similarities are actually quite compelling (at least on the surface), you would have already read in the articles above.

• Both are from Illinois, and both are adopted sons of Illinois, started their campaigns from Springfield, etc.
• Mr. Obama has taken the train journey similar to Lincoln last night and he also apparently will be using the same Bible
• Most importantly both accepted the mantle of leadership during the time of crisis.

I would like to draw your attention not to these parallels, but to what I call the “Sikander effect“. To the common world its called Megalomania or Delusions_of_grandeur. The concept was captured wonderfully in the movie “The Man Who Would Be King”

Yes, if you believe something strongly over a period of time, the mind can trick you to start accepting that you are ordained, endowed with divine blessings, and are the chosen-one. In the process our own mind, can cut us from our roots, rendering us to not be well-grounded. We all experience this in our lives, especially Indian Immigrants to the US, who come from humble beginnings, soon start to taste success, forget that at the very core they truly belong to their not-so-wealthy Indian backgrounds and crave to cling on to the “delusions_of_grandeur” in the US. So its very important that we keep reminding ourselves about our origins.

Will Mr. Obama become another Lincoln ? Can we truly start believing that he is indeed the chosen one to lead the world out of the crisis ? Time will tell.

I recently wrote about Execution and Art of Getting Things done. This is an anti-post for that post. The flowchart below is truth laid bare on mostly what we all do, in our internet infested lives. We all love such flowcharts, don’t we ?

One of my friends asked me the other day, what is the best Investment Strategy, that works all times ?

I thought for a while and it occurred to me that my parents, their parents, possibly my great grand parents, always followed this model.

20% - Gold
20% - Fixed Deposit
25% - Land (remember not an Apartment, not a built house, it was land - they lived in rented houses for most of their lives)
10% - On LIC or Other Postal Instruments of Investment
15% - Cash (remember they always had cash for the rainy days)
10% - Risky bets (they used to deal in Chits, or give short term loans to friends or bought depreciating assets)

They never owned Stocks, they never dealt with Mutual funds (or any other funds), nor did they invest in unnecessary real-estate, and they lived their lives happily ever after.

Tell me, is it so difficult ? The truth in today’s world is that information is ubiquitous, common sense is not.

Corporate India seems to have been institutionalized by Corporate America. While I am an ardent supporter of free market capitalism, I also always have been an advocate of “Simhavalokana Krama” - which essentially translates to “To continue to Reign as a King, you should learn to question everything you learnt, every step of the way, and only then proceed“.

What does this mean ?. Not to take anything at face value, to introspect and look ahead on continuous improvement. People in Corporate Governance particularly in US have always used buzzwords like Innovation and Continuous Process Improvements. But mostly they have failed to execute on them. Why do I say that ? Because companies in America for the last 8 years relied heavily on “Financial Engineering” to boost earnings. In almost every major company (manufacturing, Retail, Real Estate, etc) the profits from their financial services Biz Units rose to 30-40% of the overall corporate profitability.

Here are some examples of marquee companies which have been doing this.

GM - Why are they today in a mess, is because instead of focusing on innovations in Car Manufacturing or Distribution logistics, they focused on “financing” the purchases of cars, and even entering into mortgage business (ditech.com).

Circuit City - the bellweather electronics retailer which is now history - was making money mostly from its financial services.

GE - through GE Capital, instead of continuing its excellent path of cutting-edge engineering, got side tracked and is now cleaning up the mess.

And not just these, all Investment banks which are now history and a plethora of banks as well, ventured into very risky “financial engineering” and created vast amounts of “Financial Weapons of Mass Distruction - the CDOs, CDS, LBOs, CMBS, MBS etc. The funny part is, Wall Street always tends to pay lower prices for each dollar of financial earnings, apparently viewing them of a “lesser quality” than real-profits. This was even highlighted in this 2005 article.

Most went even a step further and started “Cooking their books”, to show bloated profits on their balance sheets. Starting with Enron, to all these recent guys under FBI investigation.

India Inc, which has been making news in the past decade, seems to have now joined this new bandwagon of “Financial Engineering”. Main Stream Media (MSM) is now covering every bit of news on Satyam, but there are some very big names that are making fast and quick maneuvers which are not covered by the MSM. Siemens Information Systems is now actually part of Siemens Corporate Finance. This is the best example of Financial engineering taking over real engineering.

Mannu Bhai, has already said that episodes like Satyam are a blot on India Inc image. The upheaval caused by the Balance Sheet Adventures or should I say Misadventures is likely to cause a Financial Chill in all of our lives.