If you follow the financial news, you probably already know that the ratings agencies have done a poor job of informing investors about risks before market events have made those risks clear. (To their credit, however, the ratings agencies are quite good at telling investors about risks after the market has already made them clear.*)
Furthermore, the business model whereby issuers pay the agencies for their ratings creates conflicts of interest that may be tainting what should otherwise be independent work. But a new rating agency model is upon us, and it puts the ratings in the hands of the people: Wikirating
As per The Financial Post "Wikirating boasts that its system is completely transparent and untainted by financial bias. It covers the same stuff as the other guys, including sovereign debt, companies, even structured products."
Will it ever become a legitimate competitor to the established agencies? Who knows. As a crowd-source application, it may just become Mr. Market if it gets popular enough. As a result, it would probably automatically be better at identifying risks than the established credit rating agencies!
* Here's a great example. In December of 2009, Moody's declared "Investor Fears Over Greek Government Liquidity Misplaced" and had Greece at an A1 rating. Six months later, Greece required a massive bailout. Just two years later, Moody's Greece rating is much, much lower to say the least.
H/T Frank Voisin
Posted by Saj Karsan (noreply@blogger.com) on March 06, 2012 11:16 AM· permalink
Scripscan:Medicamen Biotech Ltd
cmp:13
Code:531146
Story:Medicamen Biotech Limited engages in the manufacture and supply of pharmaceutical formulations primarily in India. The company offers various products, including tablets, capsules, liquid and dry syrups, ointments, and ORS. It also exports its products to Africa, Central America, Commonwealth of Independent States, and the south east Asia.Medicamen Biotech has two units located at Bhiwandi in Rajastan and Haridwar in Uttarakhand. Medicamens main strength is in antibiotic and anti bacterial segment.Its manufacturing units are approved by overseas authorities like National Drug Authorities- Kampala, Uganda,Food & Drug Board, Ghana.Ministry of Health (NAFDAC), Nigeria,. Ministry of Health, Zimbabwe,. Brazilian Sanitary Vigilance Agency, Brazil,. Board of Drugs & Medical Appliances, Ministry of Health, Republic of Yemen,.Tanzania Food & Drugs Authority- Tanzania ,.Pharmacy, Medicines & Poison Board- Malawi,.Ministry of Health- Ivory Coast ,.Bureau of Food & Drugs- Philippines ,Cosmetics, Devices & Drugs Authority- Srilanka ,.Drugs Administration of Veitnam- Veitnam ,.Pharmacy & Posion Board- Zambia etc. Its concentration in less developed countries gives immense scope for growth.Though its making losses for the present fiscal but may well surprise in the coming years.Keep a close watch on the counter.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on March 05, 2012 04:23 PM· permalink
Scripscan:Hardcastle & Waud Mfg Co Ltd
cmp:475
Code:509597
Story:Hardcastle & Waud Mfg. Co. Ltd engages in the manufacture and sale of industrial chemicals in India. The company offers heat treatment products, maintenance products, sealants, and synthetic resins; and fluid power products, die-casting lubricants, cutting coolants, drawing compounds, rolling and coating oils, rust preventives, hot forging lubricants, cleaners, and industrial lubricants. It also involves in the investment business; and purchase and sale of readymade garments.The company operations has been dismal thanx to the discontinuation of its operation in its sarigam facility.It has a very tiny equity of 60 lakhs and is thinly traded in the bourses.The reserves are a massive 27crs which makes it a strong candidate for a liberal bonus which if happens at all may make the scrip roaring to newer highs.It has investments of 12crs in books and carries unsecured loans to the tune of 7 odd crs.The book value as on last march is at 468rs.Hold the scrip in expectation of a great bonus issue and some improvement in its financial numbers.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on March 05, 2012 04:09 PM· permalink
Scripscan:H. S. India Ltd
cmp:6
Code:532145
Story:H. S. India Limited engages in the hotel and restaurant business in India. It also provides catering services.The Net Income of the Company for the year 2010-11 was amounted to 1464.18 lacs as against 1464.66 lacs in the previous year. Net profit after tax of the Company was amounted to 98.17 Lacs as against 232.34 Lacs in the previous year. Net profit after tax got decreased mainly due to increase in foods & beverages cost and repair & maintenance cost for up keeping the property.Demand levels of rooms are likely to improve in 2011-13 as economic growth gathers momentum and companies increase spending on travel. In long term, the demand-supply gap in India is very real and that there is need for more hotels in most cities. The shortage is especially true within budget and the mid market segment. There is an urgent need for budget and mid market hotels in the country as travellers look for safe and affordable accommodation. In the long-term the hotel industry in India has latent potential for growth. As mid market faces very little disturbances,the Company at locations where its targeting the mid-market segment, provide comfort and look as per guests' requirements. As a part of expansion plan,the Company has added 24 new rooms during the year with total rooms inventory of 134.Company has also started phase wise renovation of existing rooms which is expected to be completed by end of March 2012 to provide high class facilities to its valued customers and exhilarate hospitality standards.The hotel has a book value of 12rs and any good future financial numbers would help the company to quote near its BV.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on March 05, 2012 03:58 PM· permalink
Paulson Capital has already been discussed on this site as a potential value opportunity. But while the company remains deep in net-net territory, somewhat of a catalyst is now present, which could entice those of you value investors who have a catalyst bent.
Last week, this Nasdaq firm with a market cap of just $5 million stated that it has reached an agreement to sell its retail advisory operation (subject to regulatory approval). But there is a lot of uncertainty here, as the purchase price is not yet disclosed!
Seventy-five financial advisors at Paulson manage over $1 billion in client assets, so we could be talking about a sizable sale price relative to Paulson's market cap of just $5 million. At the same time, however, the operation has been losing money, so it's not clear at all what kind of price investors can expect.
Even if the business is sold for a low amount, however, investors are still protected by the company's balance sheet, which should only be bolstered with the funds from the sale of the retail unit. What the company will do with the proceeds is anybody's guess, however. Paulson has issued dividends before, but hasn't since 2006.
Either way, this could be a "heads I win, tails I don't lose" situation. If the purchase price is large and commensurate with the number of client assets being handled, shareholders will own cash far in excess of the current market cap. If the purchase price is low and commensurate with the operation's recent profitability, shareholders will still own a company that trades at a discount to its net current assets.
Disclosure: Author has a long position in shares of PLCC
Posted by Saj Karsan (noreply@blogger.com) on March 05, 2012 11:17 AM· permalink
A friend proposed a problem with international trust - how do Alice and Bob swap currencies where trust in trade has broken down. Both parties want to complete the transaction, but have no support from 'the system'. Ordinarily the parties could go to their banks and ask for e.g., letters-of-credit, but in this particular case banking services are frozen or drying up or unreliable. How then to do a swap of value when the only thing left is the basic payments system (one assumes that the banks have managed to keep that running...). Imagine Alice has 1m of A$ to swap with Bob's 1m of B$. The quantities and currencies are uninteresting. What is interesting is that both parties have committed, but one will lose their head if the other does not follow through. To borrow an idea from cryptographic bit-commit protocols, they could do it in tranches, which is what financial people call bits. It would go like this: Alice sends 10k to Bob. Bob returns with his 10k. And so on, until it is all done, 200 transactions in all. This would work, but it might be possible to do better. Notice above that Alice is always neutral or at risk, while Bob is always neutral or positive. Also, Bob is learning to trust Alice, but Alice has no such reward. Overall, we are talking about both risk & trust. On taking a risk, successfully, trust is built. With equal tranches, we have reduced the total risk overall, and increased trust, but we've done it in an asymmetric fashion. We could talk about balancing and benefiting from this. How about this: Alice goes first, and this puts Bob in the driver's seat, so right now he is taking no risk! So Bob could return the favour. To do that, he could return with 20k. Bob now has matched Alice's contribution, and has now taken on the same risk as Alice had in her first round. What does Alice return? She is now ahead by 10k. But she has received 20k, so her risk is actually not so bad. If she were to likewise double up, she could send 20k. Alice and Bob have now entered tit-for-tat, each taking on a risk of half their tranche. Perhaps we could ramp it up more? Consider taking each risk position and rewarding it by ramping it up by a positive multiplier: Alice sends 10k. Bob sends 30k - his risk is now at 20k, greater than Alice's original risk, so she is rewarded for her initial play. Alice now holds 30k for only 10k exposure. So she should send 20k to catch up to Bob, 20k to meet his risk, and another 20k to double the risk, being 60k in total. Bob now holds 70k received and has sent 30k. He should send 40k + 40k +40k = 120k. Alice holds 150k and has sent 70k. She should send 80k * 3 = 240k. Bob holds 310k, has sent 180k. He sends (H - S) * 3 = 390k. Alice now holds H = 540, and has sent S = 310. She sends 690. Bob now holds 1m. He should send 460, which is the lesser of outstanding balance and her straight formula. From the above, a formula emerges. Each round (except first and last) should transmit (H - S) * R where H is the sender's holdings, S is the receiver's holdings, and R is the risk multiplier. Risk multipliers are interesting. With R of 1, the initiator is always at risk, the follower is always with zero risk, catching up. But with R of 2, the follower matches her risk, not however extending it, so it quickly moves to balanced, symmetric exposure - tit-for-tat in a positive way. This is perhaps the comfortable compromise. With R of 3, Bob extends and rewards Alice's initial risk, by taking on new risk that goes well beyond what he need do. This has the advantage of reducing the transactions from o(100) to o(10), and giving the economists an enjoyable chance to show the precise logarithmic reduction that applies. Some comments on wider issues. Each exchange could agree on what R or risk parameter they desire. And here we reach some interesting questions in negotiation -- who goes first? Who selects R? Also who selects the initial amount I? Mechanism design might suggest that out of such a negotiation, a fair split in parameters might emerge. E.g., like cut & choose. Or maybe it is a matter for parties to choose. Also, there is a last round issue. The person who sends the last payment has an incentive to hold. Therefore the formula above might be modified to take account of the ceiling in payments, perhaps reducing the penultimate payments so as to require more trust as it gets closer. Especially for R = 3. It could also be balanced such that Alice as initiator is also the last to send. This would be the game theory way of looking at it. It is important to recognise that contractual aspects would bring in protection as well. For example, I would be looking to publish any parties who do not complete, perhaps making this compulsory with a 3rd party agency. Also one might refer the thing to binding Arbitration, with rights to full publication and fines, including liens on any future transaction on any other member.... Finally, there should be clauses to include the players and their executioners - names and all - so as to limit the cuts in case the other party begs off. Of course, the game theory aspects should be as strong as we can make them ... leaving the final exceptions to a short sharp dispute resolution process....
Posted by iang on March 04, 2012 02:27 PM· permalink
Scripscan:Patspin India Ltd
cmp:9
Code:514326
Story:Patspin India Ltd., belonging to BK Patodia group of companies, is a south based Cotton Yarn producer. As of 2011, the company's installed capacity is 111,024 spindles and 5.8 MW captive wind mill based power. Patspin posted Rs. 436.24 crores sales and a net profit of Rs. 25.34 crores in FY 2011 compared to a Sales of Rs. 292.7 crores and Rs. 4.06 crores net loss in FY 2010.It was jointly promoted by Patodia family, its group company GTN Textiles who together holds 47.25% of shareholding in Patspin, Japanese company Itochu Textile Materials (Asia) Limited holds 9.70% and Kerala State owned KSIDC holds 8.05% . Nearly 50% of its sales are exports and remaining is sold in the domestic market. The company undertook major expansion with the help of loans at attractive interest rates.Due the massive expansion plans the company's current debt to equity ratio is a HUGE 5.8 .Lot of other cotton yarn companies have also put up huge capacities using cheap funds supported by Ministry of Textile schemes. Currently there are surplus capacities and overall capacity utilization is very low. With the removal of export subsidies and incentives Patspin is at a disadvantage. No doubt the company's management record and its dividend payout has been excellent. It was paying good dividends till FY 2007 and then due the expansion plans, the interest costs and higher depreciation ate away its profits.2011 was an exceptional year for Cotton Yarn industry in my opinion.At Rs. 13 -Rs. 14 should be the fair value for this stock because even during the the boom time around November 2010 the stock made a high of just Rs. 25.05.The stock may rally further to those levels only when we see a rally in cotton and cotton yarn prices like 2010. Otherwise we can simply ignore this stock as there are better options in the Cotton Yarn industry with less debt and good dividend record.
Source:Hemant
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on March 04, 2012 01:48 PM· permalink
Scripscan:Zenith Fibres Ltd
cmp:30
Code:514266
Story:Zenith Fibres Limited engages in the manufacture and sale of polypropylene staple fibers for filter grade fabrics, floor and automobile carpets, geotextiles, knitted materials, thermal-bonded fabrics, hygiene products, and construction industries in India. The company provides woven, non-woven, and knitted fabrics for various applications, including spun yarn filter fabrics, non-woven filter fabrics, geo-textiles, floor coverings and carpet backings, furnishing fabrics, corduroy and velvets, blankets, shawls, hand knitting yarns and winter hosiery, and wall-coverings. It also involves in trading polypropylene spun yarns. The company also exports its products in Nepal, Malaysia, Saudi Arabia, the United Arab Emirates, Italy, Australia, South Africa, Japan, and Iran. The expected growth of PSF industry (Geo-Textiles) will directly benefit Zenith Fibres the most. Zenith Fibres enjoys a debt-free status with surplus cash accounting for half of its book value.This can very well be used to double its capacity with comfortable debt levels. With reference to the historical price behavior,I'm not ruling out a 20% price crash from the current levels, but it should be seen as a solid buying opportunity. The target price should be atleast Rs. 40-45 (More than 35% gain) within 9 months but it can double or even could be a multibagger from this price in 4-5 years time. As of now its a low priced Stock having high growth potentials.
Source:Hemant
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on March 04, 2012 01:44 PM· permalink
The author of the excellent book for beginners, Value Investing: From Graham to Buffett..., is back, this time with a book about how to understand and analyze competitive advantages. Investors interested in better understanding what gives a company a competitive advantage must give this book a read.
To further illustrate the effects of operating with and without competitive advantages, the authors further discuss the PC industry of the 1980s and 1990s. In the entire industry map of the PC industry, only the CPU and operating system segments had stable market share dominated by a few firms, suggesting these were the only ones with barriers to entry. Makers of peripherals (keyboards, mice etc.) and assemblers (IBM, Dell etc.) had no advantages.
The authors focus on two companies in particular, Compaq and Apple. As an early entrant into the premium business segment of the PC industry, Compaq did enjoy a competitive advantage for a time. Business users had a demand preference for the reliability and premium PCs Compaq offered, resulting in some economies of scale for the company as it built a lot of the peripheral devices (e.g. power supplies) itself.
As the PC market grew, however, these economies of scale disappeared, allowing low-cost firms the ability to best Compaq on price while matching them in quality. (Recall that a growing market erodes economy of scale advantages, as fixed costs become spread over a larger number of customers, reducing the advantage of the larger firms.) Eventually, Compaq was forced to abandon its production of devices that other, more-focused firms could provide.
After the ouster of Steve Jobs, Apple found itself involved in a lot of different components of the PC (peripherals, assembly, operating systems, application software) but none with competitive advantages. Even though Apple's operating system was likely superior to that of Microsoft in 1990, Microsoft enjoyed the scale that came with adopting the open standards that IBM set forth. At the same time, Apple used chips from Motorola, which again was at a disadvantage to the superior scale of Intel. Intel could spend much more on R&D, and yet still spend less on R&D per chip than its competitors, giving it a clear advantage in CPUs.
The authors discuss the strategic choices of these firms, arguing that both Compaq and Apple made decisions that suggested a lack of understanding of where their disadvantages lay.
Posted by Saj Karsan (noreply@blogger.com) on March 04, 2012 11:46 AM· permalink
The author of the excellent book for beginners, Value Investing: From Graham to Buffett..., is back, this time with a book about how to understand and analyze competitive advantages. Investors interested in better understanding what gives a company a competitive advantage must give this book a read.
The authors explore the idea of "local" economies of scale with a couple of examples. A number of reasons have been set forth explaining why Walmart has been so successful. The authors discuss some of these, and explain why they have had none or only small effects on Walmart's business. The strength of Walmart came instead from its local economies of scale, according to the authors.
As Walmart grew out of Arkansas and its neighbouring states, it had much greater local market share than its competitors (e.g. Kmart) even though many of its competitors were national. But national coverage makes distribution, advertising, and management supervision much more expensive.
At a tenth of the size of Kmart, Walmart actually benefited more from economies of scale than its larger competitors. Its stores were within 300 miles of its distribution centres, allowing its trucks to service distribution centres and stores in the same day. Its high local market share allowed for lower advertising costs as a percentage of its sales, and its managers were able to spend more time in stores rather than requiring travel time and additional layers of management.
Coors is in a completely different business than Walmart, but once again the concept of local economies of scale is demonstrated as an explanation for why Coors was so profitable in 1975, and why that profitability eroded in the ensuing years. In 1975, Coors was a regional brewer, with a national market share of 8%. Ten years later, it still had a national market share of 8%, but now it was a national player. Distribution and advertising costs increased as a percentage of sales because though its national market share was the same, it no longer had the local economies of scale. The authors argue that Coors did not identify its advantage, and therefore its expansion strategy did not focus enough on defending this advantage, causing it to lose local share to competitors.
Posted by Saj Karsan (noreply@blogger.com) on March 03, 2012 11:27 AM· permalink
At the close today, the premium has dropped to 22 points.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on March 02, 2012 12:47 PM· permalink
Wednesday, office products distributor Staples (SPLS) fell by as much as 10% after the company reported its latest quarterly numbers. As a result, Staples now trades with a P/E of around 10 despite recessionary margins (that temporarily lower the "E" in P/E) and an operating history that suggests this company has a strong moat. For long-term investors, Staples may represent a very attractive buying opportunity at its current price, as it is likely to continue to generate strong free cash flow for years to come.
Read more...
Posted by Saj Karsan (noreply@blogger.com) on March 02, 2012 11:44 AM· permalink
Scripscan:Bimetal Bearings Ltd
cmp:287
Code:505681
Story:Bimetal Bearings, is a South India-based auto ancillary unit, manufacturing thin-walled bearings, bushings and thrust washers. For the year ended 31 March 2011, the company posted a net sales of Rs. 153.76 crores compared to Rs. 119.61 crores in the year 2010. The company's net profit came flat Rs. 9.14 crores in the year 2011 compared to Rs. 8.94 crores in 2010.The company also exports its products which contributes nearly 25-30%. The company also maintains a very clean balance sheet with negligible debt and surplus cash and other investments. The company also maintains a generous dividend payout of about 35-40% of net profit.In 2011, the company celebrated their golden jubilee. It has very good track record of paying dividends and also maintains a debt free status. But, for the past 4-5 years the company's return on equity has been in single digits. The company could post rise in sales over the years but its net profit has been flat at Rs. 8-9 crores. The reason which I found was that, they depend on diesel generator for significant amount of their power requirements and the cost of grid power has also been increasing every year. As of 2011, their average power cost including grid power and diesel generator based power works out to about Rs. 8.80 per unit. This high power cost shaves of nearly Rs. 5-7 crores of net profit as of 2011, assuming the average grid-based power cost of Rs. 4.5 per unit.In 2011, the company utilised hundred percent of the installed capacity which can pave the way for future expansion. As on date, at the share price of about Rs. 287 the company is trading at below its book value of 329rs. At about 200 plus levels this stock should be a good buy and can at the maximum reach Rupees 400+ levels in 2 to 3 years time as the power cost gets reduced due to lot of power plants getting commissioned in Tamil Nadu in the next few years.
Source:Hemant
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on March 02, 2012 04:04 AM· permalink
Scripscan:Gloster Ltd
cmp:325
Code:590085
Story:Gloster Ltd, formerly known as Gloster Jute Mills, is a manufacturer of jute-based products.As of 2011, the company sold close to 50,000 MT of jute products and posting a revenue of about Rs. 300 crores. Exports contribute about 25% of its net revenue.The Government of India mandates compulsory packaging of food grains and sugar at 100% using Jute Packaging materials and so there is enough demand in the country . But at the same time jute industry in India also faces increasing threat of imports from neighbouring Bangladesh whenever Indian currency is stronger.If one looks at the balance sheet, it would be seen that the company has revalued its assets including land building and machinery in FY 2010 for about Rs. 210 crores and this has boosted its book value. The margins have fluctuated a lot in the past five years and as of 2011 there are no major expansion plans for this company. I feel the dividend payout is also lower than the average and hence I'm not too interested in this company to invest.At the current price of Rs. 325 the stock is trading close to its fair value which is around 370rs.However if it continues to improve its performance year after year, a re-rating may just be on the cards.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on March 02, 2012 03:57 AM· permalink
Scripscan:Schrader Duncan Ltd
cmp:98
Code:504908
Story:Schrader Duncan Limited manufactures and sells automotive and pneumatic products in India. Its automotive products include various valves, including car and light truck valves, tubeless single bend swival valves, extension stem assemblies for swivel valves, tractor valves, truck and bus valves, passenger car valves, scooter valves, rubber base convertible valves, convertible screw-on tube type valves, shock strut valves, high-pressure inflating connections, tubeless non-swivel valves, motor cycle valves, and light truck valves; and valve accessories comprising bridge washers, semi flexible extensions, valve cores, hex nuts, and rim nuts. Further, the company engages in processing of rubber compounds. It offers its products to tyre and original equipment manufacturers.The company has been making losses but there's a buzz in the market that its parent may buy out the company from the Indian promoters.Schrader Bridgeport International Inc, USA, which is the majority partner in the JV -- Schrader Duncan -- is in talks with J P Goenka to buy his 24 per cent stake in the company.Schrader Bridgeport International Inc, which is a part of global engineering and manufacturing group Tomkins PLC, UK, has a 51 per cent stake in Schrader Duncan.In order to increase its footprint in India, Tomkins PLC, the parent company, is likely to merge Schrader Bridgeport International's Indian business with another subsidiary, Gates India, which is an industrial hose manufacturer.Gates India has big manufacturing facility at Lalru, near Chandigarh, which is spread over an area of 35 acres. Gates India is a wholly-owned subsidiary of Gates Corporation, USA, which is a wholly-owned subsidiary of Tomkins PLC.Schrader Duncan has its pneumatic division in Mhape, Navi Mumbai, and an automotive division in Ranjangaon. The company has attractive real estate assets spanning more than 4.5 acres in Mulund, Mumbai.If the deal goes through expect the stock price of schrader to move into a different orbit.At 36crs marketcap considering the land and its assets its definitely grossly undervalued and would fetch a better value if the deal materializes.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on March 02, 2012 03:41 AM· permalink
Scripscan:Ruttonsha International Rectifier Ltd
cmp:18
Code:517035
Story:Ruttonsha International Rectifier Ltd. was incorporated in the year 1969 as a private limited company and got listed on The Bombay Stock Exchange (BSE) in the year 1992.Today its a Global Landmark in Semiconductors having more than two and a half decades of technological association with International Rectifier, USA, for the manufacturing of Power Semiconductors. The Company is having the ascendancy of IR Technology as well as access to Developmental & Technological expertise of Silicon Power Corporation, U.S.A (Ex General Electric Company). Silicon Power is into Power Process Solutions and today one of the World Leaders in Power Electronics.It has successfully implemented the Project of manufacturing High Power Semi Conductor Devices which has the Capacity to deliver the products ranging beyond 9000 volts and 6000 amperes.With an in house facility viz. Die Fabrication, Soldering, Encapsulation and Testing spread over a total built up area of over 40,000 Sq. Ft., near Vadodara, Gujarat, India, it stands firm as one of the leading International players in Semi-conductor Industry.Ruttonsha's well diversified product range includes Bridges, Modules, Diodes ranging from 6 Amps to 5000 Amps and Thyristors ranging from 16 Amps to 6000 Amps with voltage group ranging up to 5000 V.Its got the capacity to execute Bulk orders and have been successfully exporting to various parts of the world including U.S.A and Europe.The company has improved its performance over the last few years.Management seems competent and able enough to make it a larger establishment.It pays a good dividend yield too with chances of hiking the payout as financials further improve.I have kept this 13crs marketcap with sales of 28crs company under my radar.Keep a close watch on the counter folks.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on March 02, 2012 03:27 AM· permalink
The spot survived above 5300 in today's choppy trade. Futures is still trading at a premium. Above is the Futures action on a 3 minute chart.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on March 01, 2012 12:42 PM· permalink
Just over a year ago, InfoSonics was discussed on this site as a potential value investment. The stock promptly rose in the ensuing couple of months, but then got absolutely annihilated in the 3rd quarter of last year when double-dip and sovereign default fears reigned over the market. The stock has now bounced back, and while it may still be undervalued, value investors may want to take some off the table in order to pursue today's best opportunities.
The price action in InfoSonics over the last year reinforces a couple of lessons for value investors. First, be greedy when others are fearful. Shares of IFON fell from $1.12 earlier in 2011 to just $0.52 by October without much of a change in the company's business conditions (the company had positive cash flow but slightly negative earnings over this period). This kind of price volatility scares most investors, but should excite the value investor.
The second lesson is very simple: buy liquid assets when they are cheap and not being eroded. InfoSonics had net current assets of $19 million in October of 2011, and yet the entire company could be purchased for less than $8 million!
The company remains cheap on this basis even today (trading for $15 million), but the easiest, lowest-risk returns have now been achieved. There are now companies which much larger discounts (one example here) that investors may want to check out instead.
* Inspiration for the title thanks to a comment from loyal reader aagold
Disclosure: No position
Posted by Saj Karsan (noreply@blogger.com) on March 01, 2012 11:17 AM· permalink
Chris points to: Google once considered issuing its own currency, to be called Google Bucks, company Chairman Eric Schmidt said on stage in Barcelona at the Mobile World Congress Tuesday. At the end of his keynote speech, Schmidt hit on a wide array of topics in response to audience questions. "We've had various proposals to have our own currency we were going to call Google Bucks," Schmidt said. The idea was to implement a "peer-to-peer money" system. However, Google discovered that the concept is illegal in most areas, he said. Governments are typically wary of the potential for money laundering with such proposals. "Ultimately we decided we didn't want to get into that because of these issues," Schmidt said. Offered without too much analysis. This confirms what we suspected - that they looked at it and decided not to. Technically, this is a plausible and expected decision that will be echoed by many conventional companies. I would expect Apple to do this too, and Microsoft know this line very well. However we need to understand that this result is intentional, the powers that be want you to think this way. Banks want you to play according to their worldview, and they want you to be scared off their patch. Sometimes however they don't tell the whole truth, and as it happens, p2p is not illegal in USA or Europe - the largest markets. You are also going to find surprising friends in just about any third world country. Still, google did their own homework, and at least they investigated. As a complicated company with many plays, they and they alone must do their strategy. Still, as we move into GFC-2 with the probability of mass bank nationalisations in order to save the payments systems, one wonders how history will perceive their choice....
Posted by iang on February 29, 2012 11:56 PM· permalink
Scripscan:Dhampur Sugar Mills Ltd
cmp:39
Code:500119
Story:Dhampur Sugar Mills has remained an underperformer along with most of its peers over a prolonged period as can be seen from the adjoining monthly chart. The most important observation on the long term price charts is that the share price has bounced back in the last few weeks after testing an important trendline support formed by joining the major troughs since April 2003 Price action over the past one year the price decline has occurred in a well defined down-ward sloping channel formation. The current upmove has seen the share price revisit the upper band of the said channel backed by hectic volume activity. A sustained close above Rs 40 levels would result in a breakout past the said channel which would indicate a change of guard from medium term trend perspective. At the recent lows of |27-28 levels recorded in Dec-Jan period, the stock corrected more than 90% from its 2006 peak of Rs 271 levels. Historically it has been observed that stocks that have lost more than 90% market capital i.e. are trading around 11% value compared to the all time highs tend to post significant pullbacks once volumes also start picking and therefore offer good investment opportunity from a medium term perspective.The company is one of the bigger sugar companies in India with a sugar crushing capacity of 40,000 tonnes crushed per day (tcd), ethanol capacity of 270 kilolitres per day (KLPD) and co-generation capacities of 150 MW, out of which 85 MW is saleable. Higher sugarcane cost, volatile sugar realisation and an adverse court decision on sugarcane pricing has impacted the earnings of the company, which has resulted in huge sugarcane arrears in Uttar Pradesh (UP). We believe huge arrears would result in a decline in the area under sugarcane in the current year and further increase in domestic sugar prices in sugar years 2013 (SY13). The announcement of 2 million tonnes (MT) of sugar exports and expected partial decontrol in sometime would change the fundamentals of the industry. The stock is trading at an attractive P/BV multiple of 0.7x. We are positive on the stock and recommend that our investors buy the stock with a target price of Rs 55 per share giving it a multiple of 1x its book value.
Source:icici
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on February 29, 2012 04:31 PM· permalink
Scripscan:ASM Technologies Ltd
cmp:69
Code:526433
Story:ASM Technologies, established in 1992, is a pioneer in providing world-class consulting services in enterprise solutions for the Packaged ERP products and in enterprise product development for SMB segment and in technology solutions covering embedded systems and system software to its global clientele. ASM has development centres in Bangalore (India), Singapore, Chicago, Toledo and Tampa (USA), and London (UK). Advanced Synergic Pte Ltd, Singapore, Pinnacle Talent Inc, USA, ESR Associates Inc, USA and Abacus Business Solutions Inc, USA are subsidiaries.ASM has worldwide' Global presence with offices in India, Singapore, USA (Chicago, Toledo and Tampa), Japan & UK ' Focus on enterprise applications and technology solutions. It has development centres in India (Bangalore), Singapore, and USA (Chicago). During FY11-12, ASMTL explored the possibility of setting up operations in LATAM (Latin America) Region. During FY11, ASMTL acquired 100% of US-based Abacus Business Solutions, Inc., in an all cash deal through its wholly owned subsidiary, Advanced Synergic pte Ltd, Singapore. Abacus has been in the business for more than a decade assisting large corporations/Fortune 500 firms with Enterprise Applications, Oracle Applications, Oracle Tools and Technology, E- Commerce, Reporting and Data warehousing. The acquisition has afforded ASMTL an opportunity to expand its offerings to a larger ERP & Oracle client base in the US and thus broaden its revenue margins.With a healthy surge in outsourcing demand and strong deal pipeline, IT revenues are expected to get the biggest boost in coming quarters. With enterprises globally thawing IT budgets to prepare for the future, indication is clear-strong volume momentum will be the flavor of the season and double digit volume growth won't be a surprise to the Indian IT companies, but maintaining the right pace will be a challenge. Cloud computing is another area, which may drive the IT need of the services industry during the year mainly due to its manageable IT infrastructure and cost effectiveness. The mid market segment remains a major growth avenue for enterprise applications. Globalisation continues to drive global servicing models which ensure India to remain competitive and leverage on its talent pool. Customers are opening up to offerings around cloud computing solutions, SaaS, on demand solutions, etc., which enable service providers to address new customer segments.ASMTL will leverage the growth phase in consolidating and growing the organization by offering more services to the existing clients across other geographies and new client acquisitions. This growth phase will also set a platform to have more long term strategic partnerships with the customers moving up the value chain from project mode and center of excellence. ASMTL's competitive strengths and with its global delivery model and core competencies consider to address the changing economic scenarios as an opportunity to provide greater value to existing clients and further adding new clients. This spells good business opportunity for ASMTL going forward. At the CMP of Rs 70, the share is trading at a P/E of 3.1x on FY12E. We maintain BUY with a target of Rs 100 in the medium term.
Source:sunidhi
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on February 29, 2012 04:12 PM· permalink
Two weeks ago, we looked at the possibility of a Canadian housing bubble, and saw that Vancouver looked particularly bubble-icious in terms of new inventory. This is often a good indicator, as builders in a free, capitalist society should only overbuild if they are getting a strong price signal to do so. But of course, it is possible that builders are just irrationally overbuilding for some reason (e.g. government stimulus, tax credits, expectations of price increases etc.), so it does make sense to look at more metrics than just new home inventory before concluding that there is a price bubble.
The ratio of house prices to income levels is another useful metric for judging how expensive houses are relative to a historical standard. Canada-wide, this ratio is elevated, but perhaps not dramatically so. Recall from last week, however, that there is considerable variability with respect to housing data within the country. It, therefore, makes sense to look at this ratio for specific regions in order to identify trouble spots.
Considering Vancouver has the highest house prices in the country, it makes sense to start there. Consider the house price to income ratio* in Vancouver over the last 35 years:
That is a scary chart. For this ratio to be back in line with its levels of just 10 years ago, prices will have to fall by 50% or incomes rise by 100%...which of those is most likely? The former. Though this ratio can continue to rise for a while, with cheap money funding further asset purchases, it can't go on forever. At some point, it seems very likely that some heavy pain will be felt in this region.
* Income used is "average family income" as per the Statistics Canada CANSIM database. House prices are "detached residential average sales prices" as per REBGV
Posted by Saj Karsan (noreply@blogger.com) on February 28, 2012 11:21 AM· permalink
What happens the next day after a 2% to 3% down day? I checked on the Nifty spot data from the year 2000 to date. Out of 147 instances the next day closed in the green 81 times. The next day average return is 1.4%
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on February 28, 2012 06:37 AM· permalink
OfficeMax was discussed on this site just two months ago as a potential value investment. Since then, it's price is up some 40% while its value is (in my opinion, at least) down. As a result, OMX now makes the migration from the Stock Ideas page to the Value In Action page, and taught us a couple of lessons in the process.
OfficeMax's balance sheet looks absolutely horrendous at first glance. But a key lesson for investors is that first glances can be very deceiving. Though the company shows $1.7 billion of debt on its books, which the company could not hope to pay off with its paltry cash flow levels, $1.5 billion or so of that is non-recourse. (For more on how that works, see here.) Removing this non-recourse debt from the balance sheet actually puts the company in a net cash position!
But while Mr. Market appeared to rejoice at the company's latest conference call last week, where the CEO proudly announced several times that declines are slowing (it sure doesn't take much these days - I guess it's just that kind of market!), a silent but very deadly liability has reared its ugly head. OfficeMax's unfunded pension liability (the difference between the plan's assets and an estimate of the present value of what it will owe) jumped from $180 million to $330 million. The entire company's market cap is only $500 million, so this is an important development indeed!
For whatever reason, Mr. Market completely missed this change or deemed it unimportant (at least it did until, perhaps, Friday). Yours truly, however, sees this as a risk and a cash drain. This year, the company plans to pay $30 million into the plan to help fund it. This is not a trivial amount, as it represents more than half of the company's operating cash flow for all of 2011! Even though the plan is frozen, it may prove to be a big drain on what would otherwise be shareholder funds!
Chalk the gains from OfficeMax up to a little bit luck and a little bit margin of safety. The price went up big even though the value dropped significantly. Happy investing!
Disclosure: No position
Posted by Saj Karsan (noreply@blogger.com) on February 27, 2012 11:56 AM· permalink
If anyone of you wish to get associated with me for lifetime do come up fast to get the motilal oswal online trading account done at the earliest.Account opening procedure is very easy and hassle free.Just courier me the below mentioned documents and your account would get done in 3-4 days.No matter where you stay in India or in any part of the world you can always have an account with my firm.All tips and guidance would be provided free for lifetime.Membership for the happening brokerage blog and "PAID CALLS" worth 8000rs yearly too would be provided for "FREE".(a trading account holder receives my stock consultancy services for fully free)
btw:Only active members who can do justice with the motilal oswal account are requested to show interest.Mere opening the account and keeping it inactive would find one's membership deactivated in no time.
The account would be in motilal oswal.Check the demo at
onlinetrade.motilaloswal.com
1)Charges would be around 1000rs for onetime including the demat+amc+account opening charges.From 2nd year the charges would be 400rs.
btw:The account can act as your portfolio management account too where all transactions would be done from my end on your behalf,If you wish at all.
So here is what you need to courier me for an online trading account:-
1.PAN Card zerox
2.Address proof(Voter card/Passport/telephone bill/Ration card/driving license/Latest Bank Statement with Bank seal)
3.Two Photos
4.One cancelled cheque(A cheque which you need to criss-cross or simple write cancelled)
5)A margin cheque of 1000rs to be drawn in favour of Motilal Oswal sec.
In a piece of paper do write your:-
1)Qualification
2)Occupation
3)email id
4)Cell number
5)If you work for a company,its name and address.
btw:Please self attest/sign the xerox copies of the documents and the cancelled cheque.
Address where you will courier:-debjyoti is the broking partner of mine.
Debjyoti Gupta
Flat No-E,Ground Floor
1/1,Dover Lane,Garia hut
Kolkata-700 029 Phone: (office)0091-033-24630125/64506292 (Res)0091-033-24643793
Cell No-9830352795/9230529459.
Hope to have your active support folks.Sent these to me and I assure all of you would have a gala time.
Regards,
ARUN
9804589299
I can be reached at:arunsharemarket@gmail.com
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on February 26, 2012 04:27 PM· permalink
Scripscan:Tamboli Capital Ltd
cmp:25
Code:533170
Story:The company is an investment holding company having investments primarily in Tamboli Castings Limited,the wholly owned subsidiary of the company and in financial instruments. The company's subsidiary is engaged in manufacturing of Investment Castings with in house facility of CNC machine shop.The profitability of the company is linked to the performance of the said investments.The reversal of recessionary trend in Europe especially in Germany did go through and augured well for the company and its markets. The company and its subsidiary have performed better than last year. There is a threat on the margins in the present scenario as the raw material and oil prices are uncertain.Its a nothing company actually to bark much.Stock price would follow the financial performance of its subsidiary.Exit at rallies and move on to something else.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on February 26, 2012 01:02 PM· permalink
Scripscan:Emmbi Polyarns Ltd
cmp:13
Code:533161
Story:Emmbi Polyarns' business revolves around the plastic packaging solutions. The company makes flexible intermediate bulk containers or jumbo bags, technical textiles, flexible tanks, woven sacks, container liner, anti-corrosive packaging and car covers. The user industries include chemicals, agri-processors and consumer products.Barring a few products, the business of Emmbi Polyarns is mainly volume-driven. The company is in the process of entering new technical textile applications, which hold potential for higher margins, based on demand potential in the overseas markets.The company has been supplying to established consumer and industrial companies such as Tata Chemicals, Godrej Industries and ITC. It has historically enjoyed operating margins in the 12-14 per cent range, while margins earned by competitors are around 8-10 per cent, claiming that it is able to price in raw material cost increases to its clients. However, whether it will be able to maintain margins in future, is open to question.Niche products such as flexible tanks, woven sacks and liners compensate for the wafer-thin margins earned by the jumbo bag business. The wide range of applications for flexible packaging make for reasonable growth potential. However, the sector is quite fragmented and features considerable competition. Plans to foray overseas would expose the company to global competition.The company clocked a sales of 77crs and profits on 2.6crs last fiscal.At present prices it remains a hold candidate.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on February 26, 2012 12:53 PM· permalink
The author of the excellent book for beginners, Value Investing: From Graham to Buffett..., is back, this time with a book about how to understand and analyze competitive advantages. Investors interested in better understanding what gives a company a competitive advantage must give this book a read.
In this chapter, the authors describe the three steps involved in assessing a firm's competitive advantage.
The first step involves developing an industry map. This separates the different segments of a given industry, identifying the leading firms in each segment.
Next, each segment should be tested for competitive advantages. The two tests the authors suggest are market share stability and return on capital metrics. High market share stability and strong returns on capital over a decade by the dominant firms in a segment suggest an advantage may exist.
Finally, the source of the competitive advantage must be determined. It may be due to proprietary technology, cheap resources, customer captivity, government intervention etc. The absence of such a source suggests the superior performance of the firm in question may be due to operational efficiency.
As an example, the authors perform this process for the PC industry from the point of view of Apple. They conclude that "[i]n the PC industry, Apple is going nowhere".
Posted by Saj Karsan (noreply@blogger.com) on February 26, 2012 11:56 AM· permalink
Scripscan:Mold-Tek Packaging Ltd
cmp:55
Code:533080
Story:Hyderabad-based Moldtek Packaging Ltd. (MPL) is a leading company in rigid plastic packaging with over 25% market share in Lube and Paint packaging segments. The Company has five ISO 9001:2008 certified plants consisting of state-of-the-art in-house Tool Rooms equipped with sophisticated Swiss and German machinery to design and produce complex molds. The Company is a domestic leader in injection molding with esteemed clientele like Castrol, Exxon, Shell, Nerolac, Amul and ITC (Foods Division), among other reputed companies in FMCG and Pharma segment. An innovation led company, Moldtek introduced Spout and In-Mold labeling for the paint and lube industry. Moldtek Packaging is the leader in manufacturing of plastic packaging products, including Pails. The Company specializes in both standard and made-to-order packaging solutions for leading brands in Paints, Lubricants, Pharmaceuticals, Cosmetics, FMCGs, etc.Based on a strong technological foundation, Moldtek has successfully broken away from its mould as a supplier to Paint and Lubricant industry and successfully forayed into the Food and FMCG space.The integrated IML manufacturing it created is going to take the company into a different growth orbit.With the Indian consumption story improving, and prospects of rapid growth in Paint, Lube & Food sectors, Moldtek's future looks bright. The company aims to emerge as a leader in packaging for these industries.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on February 25, 2012 04:37 PM· permalink
Scripscan:Omkar Speciality Chemicals Ltd
cmp:59
Code:533317
Story:Omkar Speciality Chemicals is involved in the production of speciality chemicals and pharma intermediates.Omkar manufactures a range of organic, inorganic and organo inorganic intermediates.The inorganic intermediates include Molybdenum derivatives, Selenium derivatives, Iodine derivatives, Cobalt derivatives, Bismuth & Tungsten derivatives and the organic intermediates include Tartaric acid derivatives and other intermediates. These products find applications in various industries like pharmaceutical industry, chemical industry, glass industry, cosmetics, ceramic pigments and cattle and poultry foods.Omkar exports its products to Europe, North America, Asia, South America and Australia.The company has chosen to compare itself with Camlin Fine Chemicals Ltd, Transpek Industry Ltd, Alkali Metals Ltd and Suven Lifesciences Ltd(in its ipo drhp). These companies are strictly not comparable and they have been given only as without comparison valuations are not complete. Looking at the scope, capacity expansion and the domination of pharmaceutical in the business mix helps the company in margins and growth strategy. The company is in a growth stage and has been clocking a compounded annual growth rate of over 35% in the last four/five years. It is now taking a quantum jump and increasing its capacity four fold. Once the same is in production it would be prudent to expect this company being a 450-500 crs company in 2014-15 with margins of 11-12% at the net level.The prospects for the company are bright.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on February 25, 2012 04:18 PM· permalink
Scripscan:GTN Industries Ltd
cmp:11
Code:500170
Story:GTN Industries Limited engages in the manufacture and export of cotton yarn primarily in India. The company offers fine and superfine cotton yarns, grey knitted fabrics, gassed fabrics, mercerized fabrics, and life style garments. It also manufactures metallic products for the export of engineered castings and bar stocks. In addition, the company manufactures oil field equipments ranging from valves made out of castings and forgings, to casing hangers, pneumatic actuators, and flanges and plugs. GTN Industries exports oil field equipment to the United States, Europe, and South East Asia.GTN Industries, which has overall investment of Rs. 350 crore in the mercerised cotton garment facilities, is expecting its overall group turnover to touch Rs. 700 crore in FY 12 as against Rs. 675 crore last year.A hold at present levels.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on February 25, 2012 04:07 PM· permalink
The author of the excellent book for beginners, Value Investing: From Graham to Buffett..., is back, this time with a book about how to understand and analyze competitive advantages. Investors interested in better understanding what gives a company a competitive advantage must give this book a read.
In addition to the two types of competitive advantages discussed in the last chapter, the authors discuss a third advantage in this chapter: economies of scale.
But economies of scale can be eroded. Therefore, firms enjoying such advantages must defend market share. It's also important for defending companies to recognize that size is not the same thing as scale. The relevant market (either geographic or product) is the market in which the fixed costs exist, and this is where the advantage lies. For example, a retailer concentrated in one geography has an advantage (through distribution, marketing etc.) over a spread-out retailer with higher national market share. Finally, market growth actually hurts advantages based on scale. This is due to the fact that as a market grows, fixed costs (which are fixed) become a smaller percentage of total costs (as variable costs grow), reducing the advantage of scale.
As a result and somewhat counterintuitively, economies of scale are easier to achieve in smaller rather than larger markets. For example, consider an isolated town with a population of 50,000 that can support only one large discount store. An incumbent store gets to enjoy a monopoly as a result, since a new entrant would not be able to achieve satisfactory profits. A large city on the other hand would support a number of large discount stores, removing the advantage of the incumbent.
The authors therefore lay out the strategies imperative to maintaining an advantage due to scale. The best strategy is to match the aggressive competitor, whether it be in price cutting, adding products/services and/or entering new niches. In this way, relevant market share is held firm, and profitable niches (whereby competitors could build scale) are not conceded.
Posted by Saj Karsan (noreply@blogger.com) on February 25, 2012 11:43 AM· permalink
Great insights into India's breakdown of governance,
from
N. Sundaresha
Subramanian in the
Business Standard.
Jeff Glekin and Hugo Dixon have a great
three-part
rumination
about India. Also
see
Jeff
Glekin
and
Shaji
Vikraman on the ruckus at UTI.
Cullen
Murphy has a great article about the Inquisition. His story is
a troubling one for us in India, where we are at the point of
transition from persecution by thugs to persecution by competent
organisations.
At
the crossroads, an article on education by me in the
February issue of
Pragati. Also see
here.
Pratap
Bhanu Mehta and
Ila Patnaik, in the
Indian
Express, on the UID controversy.
Do
away with surfeit of financial regulators to make the financial
sector better, in the
Economic Times. (This was by Shaji Vikraman.)
Ila
Patnaik on the best contribution that RBI can make for high
Indian GDP growth. And by her, see:
capital
controls are no way to try to block rupee depreciation
[
link].
Ila
Patnaik on the subject of how the Eurozone crisis changes our
thinking about achieving bank safety by stuffing banks with
government bonds.
SEBI
turns heat on USE, by Palak Shah in the
Business
Standard.
Equity
licence: MCX-SX faces fresh hurdle by Pramit Bhattacharya
in the
Mint, which was followed
by
The
question of motive by the editor, R. Sukumar,
of
Mint.
Sino-Americana
by Perry Anderson, in the
London Review of Books. You might
like to also
read
The
undersupply of criticism by me.
How
your cat is making you crazy by Kathleen Mcauliffe in
the
Atlantic, and a great
video
of an interview with Robert Sapolsky.
Wikipedia
has serious problems, an article in the
Chronicle
Review by Timothy Messer-Kruse. My experiences have also been
similar; I've given up on fixing errors in Wikipedia because
people generally undo the work later on.
Posted by Ajay Shah (noreply@blogger.com) on February 25, 2012 04:44 AM· permalink
Scripscan:Empee Sugars & Chemicals Ltd
cmp:16
Code:500132
Story:Empee Sugars and Chemicals Limited engages in the manufacture and sale of sugar and industrial alcohol in India. It offers cane sugar, rectified spirits, and extra neutral spirits, as well as bio-mass fertilizers. The company is based in Nellore, India. Empee Sugars and Chemicals Limited is a subsidiary of Empee Distilleries Limited.Empee sugars performance has been pathetic to say the least over the last few quarters.Empee Sugars & Chemicals reported net loss of Rs 12.47 crore in the quarter ended December 2011 as against net profit of Rs 11.44 crore during the previous quarter ended December 2010. Sales declined 81.60% to Rs 22.25 crore in the quarter ended December 2011 as against Rs 120.95 crore during the previous quarter ended December 2010. If one has to stay with sugar then best thing would be to be with the leaders.Smaller players would find it pretty tough to find their feat.Investors having empee sugars should exit at rallies.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on February 24, 2012 02:16 PM· permalink
Scripscan:Jindal Worldwide Ltd
cmp:130
Code:531543
Story:Company is recognized as one of the major player in HOME Textile Segment in the global market. With the economy on the upswing, the outlook for the industry looks good.Management is optimistic of capturing further market share by expanding capacities of the company.The Company strives to maintain its market share by aggressively concentrating on new avenues and is geared up to meet opportunities for growth in market.The group has diversified into various activities such as Textiles and Trading of securities.They demonstrate ability to manage well diversified business using professional management and financial acumen.The Gross Turnover of the Company during fy10-11 was Rs. 36685.16 as compared to that of previous yearwhich was 29080.82 Lacs.Gross Profit before Depreciation & Tax of the company was placed at Rs.2388.69 Lacs ,which is higher as compared to last year which was Rs. 1519.61 Lacs. Whereas after depreciation and taxes, the Company registered a profit of Rs. 1349.15 Lacs.Consolidated Turnover of the Company grew to Rs. 36685.16 from Rs. 29080.82 Lacs (Previous Year) in this financial year.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on February 24, 2012 02:10 PM· permalink
Scripscan:Flexituff International Ltd
cmp:240
Code:533638
Positives:The SEZ unit at Pithampur enjoys certain tax benefits in the nature of income tax exemption (up to 31 March 2013), excise duty exemption, sales tax exemption and many other statutory duties. The unit at Kashipur is located in the excise-free zone and has received a tax exemption for 10 years from the payment of excise duty (up to 19 January 2019) and income tax (up to 31 March 2018).The company has well diversified products portfolio: flexible intermediate bulk containers (FIBC), reverse printed BOPP woven bags, special PP bags and Leno bags, geo-textile fabrics and ground covers.It is not dependent on a single market and present both in overseas as well as domestic markets. It exports to around 30 countries across the globe and present in four continents.
Negatives:Exports to US and Europe contributed 49%, 62 % and 78% of its total revenue for FY 2011, FY 2010 and FY 2009, respectively. Any change in the policies governing the packaging industry and /or an economic slowdown in these regions may affect its financial condition and business operations. Also foreign currency exchange rate fluctuations can have a material adverse effect on its financial conditions.The company had negative cash flow from operating activities of Rs 5.6 crore in FY 2010 and of Rs 2.08 crore in FY 2008.As on March 31, 2011, contingent liabilities not provided for appearing in consolidated financial statements as restated aggregated to Rs 38.38 crore. If any or all of these contingent liabilities materialize, it could have a material adverse effect on business, financial condition and results of operations.There exists a potential conflict of interest between the company and its promoter, Sanovi Trading Private Ltd., and its group company, Pusti Trading Pvt. Ltd., which may adversely affect its business.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on February 24, 2012 01:36 PM· permalink
Corrections always bring in choppiness in the market. Good Morning. Here are few observations for the day Market Observations Two consecutive days of correction has happened. Is market ready to rally again? At least the Global setup suggests so. All US indices posted gains overnight. Nifty has yet to complete its downside target of 5420-5430. [...]
Posted by Deepak Singh on February 24, 2012 03:24 AM· permalink
Below are two screen shots from Investopedia. One defines volatility and the other a choppy market.
You need to define things like this.
Stock markets are full of uncertainty and technical analysis is basically a
stochastic process. Given this background, if you don't have any definitions then you're adding vagueness to uncertainty making technical analysis more difficult.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on February 24, 2012 01:30 AM· permalink
Yesterday the 15 minute chart showed a nice divergence set up.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on February 24, 2012 01:12 AM· permalink
The political bickering that takes place in Washington can usually be ignored by the bottom-up value investor. But not always. Yesterday, US President Obama announced a plan to reduce corporate tax rates from 35% to 28%, along with the cancellation of several tax deductions. It's worth it for investors to keep an eye on this situation, for if this plan (or some variation of it) makes it into law, it will have a dramatic effect on the intrinsic value of a number of companies!
For example, a US retailer in your portfolio is probably paying a very high rate, since it doesn't get to take many deductions (for R&D, manufacturing, foreign earnings etc). That retailer would likely see an immediate 10%+ jump in earnings if this plan were to become law, giving it greater power to invest, borrow and therefore return cash to shareholders.
On the other hand, a company paying low rates because it has been able to take advantage of deductions that will no longer be accepted will be worth a lot less (e.g. that company in your portfolio with the fleet of corporate jets that is headquartered in the US but generates all of its earnings from its Bermudan subsidiary thanks to LIFO accounting).
The onus is on you to figure out how this will affect the margin of safety of each of the companies you own and each of the companies in your watch list, so get to it!
Posted by Saj Karsan (noreply@blogger.com) on February 23, 2012 11:15 AM· permalink
Check the link on the sidebar under Astronomy.
Input your city co-ordinates to see how the sky looks from your city. Co-ordinates for Mumbai are 19N04, 72E52
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on February 22, 2012 02:52 PM· permalink
Shares of Build-A-Bear (BBW) fell 30% last week after the company reported a lower-than-expected operating profit in its all important Christmas quarter. As a result, the company now trades for just a shade over $100 million despite a net cash balance of $46 million and decent operating cash flow over the last few years.
The company has been fairly friendly to shareholders over the last few years, slowing its expansion plans when results haven't materialized, and instead returning some cash to shareholders. The company has bought back $35+ million worth of shares in the last three years, and may do some more this year, considering the strong cash position and the share price weakness.
Since Build-A-Bear has been operating close to break-even for the last three years, management appears to be taking initiative on cutting costs going forward. The company will close 15 to 20 stores (out of its approximately 350) and relocate another 10 to 15 to smaller locations. Unfortunately, with five new store opening and five remodels also on the way, capex spend for 2012 is expected to match depreciation levels, suggesting the firm won't be generating cash like it did in 2010 and 2009 unless it is finally able to drive store profitability once again.
There is one major downside, however, relating to the company's leases. While Build-A-Bear has no "official" debt, it has minimum lease payments of almost $250 million due in the coming years. If business turns negative for some reason (a few failed films with which its products are associated, for example) things can go downhill in a hurry.
Can Build-A-Bear regain its footing as a profitable, cash-generating machine? Investors may not have to pay a whole to find out, but they do have to risk a lot!
Disclosure: No position
Posted by Saj Karsan (noreply@blogger.com) on February 22, 2012 11:49 AM· permalink
Once in a while I take a look at the high low range as it helps to understand where we stand in the volatility cycle. The yellow line above is the 10 day average of the daily high low range and is plotted against Nifty (black line). Most of the gains during the recent rally have come from gap up openings and you can see the range is actually dropping. Below is a plot of the daily percentage change during the recent rally.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on February 22, 2012 01:57 AM· permalink
India's
education crisis is now high on our consciousness. In response
to the recent developments, CNBC Awaaz did a four-hour symposium on
national television (in Hindi/English) titled Kala Akshar: The
Great Education Crisis. This brings together an interesting and
diverse set of voices on the subject.
Posted by Ajay Shah (noreply@blogger.com) on February 21, 2012 09:29 AM· permalink
What is there to Fear? It seems the new market manta. The decline of intra-day volatility clearly reflects lack of tussle between bulls and bears. Bears seem to have given up. And that is driving the market higher and as the market is going higher, fear is also evaporating in the air. Let us look [...]
Posted by Deepak Singh on February 21, 2012 06:11 AM· permalink
The author of the excellent book for beginners, Value Investing: From Graham to Buffett..., is back, this time with a book about how to understand and analyze competitive advantages. Investors interested in better understanding what gives a company a competitive advantage must give this book a read.
A lot of managers believe they can differentiate their products in order to avoid the competition that ends up driving returns on capital to average levels. But this is incorrect, according to the authors. Differentiation is not free. Investments must be made in advertising, product development, service, distribution and other functions. As long as there are no barriers to entry, competition can make the same investments. The authors cite Mercedes Benz as an example. It is a differentiated product, but competes with a bunch of other differentiated products (luxury cars) such that its returns on capital are just normal.
Competitive advantages are only present when there are barriers to entry, according to the authors. There are three kinds of advantages, two of which are discussed in this chapter: supply advantages and demand advantages.
A company that can keep costs lower can keep competition from entering (a supply advantage). Even if new competitors do enter, the incumbent can lower prices until the entrant can't match. This advantage could be the result of lower input costs or proprietary technology, including patents. Xerox, Kodak, Polaroid and many pharmaceutical firms have benefited from such advantages over the years.
The problem with patents is that they expire, and the problem with know-how is that it can be hired away and can be copied eventually or surpassed by new technology. In the long-term, "everything is a toaster" (where there is no premium on capital to be earned).
Demand advantages come from a firm having customers that new entrants don't have as much access to. This can be because of customer habit (e.g. this occurs in the soft drink industry, but not to the same extent in the beer industry for whatever reason), high switching costs (e.g. software that requires personnel training) and high search costs (e.g. where personal experience is the best method of selection, such as when choosing a doctor).
While these advantages can last longer than supply advantages, they have their limits. New customers, by definition, are unattached. Old customers leave, mature and/or die. Depending on the industry, this could be a short or long life-cycle. Heinz and Coke are examples of life-cycles that span generations, whereas teen apparel would have a short cycle as new, unattached teens are created every day while older teens move on.
Posted by Saj Karsan (noreply@blogger.com) on February 20, 2012 11:04 AM· permalink
2007, 2009 and 2010 were kinda bull markets so the probability of a full gap up day or a partial gap up day ending into the green was high. 2008 and 2011 were bear markets and so the probability of a full gap down day or a partial gap down day ending into the red was higher too.
Secondly, we now arrange all the data into one and it looks like below:
If we look at the total number of gaps and total number of trading days in any year above, it is almost guaranteed that a particular day is going to be one of the four types of days.
Look at the recent data:
Data, data, data! I can't make bricks without clay! - Sherlock Holmes
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on February 20, 2012 05:39 AM· permalink
This study is similar to the earlier gap study.
Partial Gap Up = Today's open > yesterday's close but is < than yesterday's high
Partial Gap Down = Today's open < yesterday's close but is > than yesterday's low.
Edit - There were some errors in the data for partial gap downs. I've rechecked and corrected the errors.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on February 20, 2012 05:07 AM· permalink
The author of the excellent book for beginners, Value Investing: From Graham to Buffett..., is back, this time with a book about how to understand and analyze competitive advantages. Investors interested in better understanding what gives a company a competitive advantage must give this book a read.
The authors start by defining strategy. The word strategy is often evoked to describe long-term plans companies devise in order to make money. But the authors argue that not all such planning is strategic. It is only strategic if external responses by competitors are taken into account. If only internal actions are considered, the authors argue that an action is tactical.
For this reason, companies operating in industries where barriers to entry are low can't really come up with viable strategies. There are too many competitor actions to take into account. As such, companies can only focus their efforts internally on becoming as efficient as they can, as this is the only path to success in such industries.
The authors believe Porter's Five Forces was a useful framework, but they believe giving equal weighting to all forces makes analysis complicated. So they have prioritized the forces, with the single most important force being barriers to entry. Once the extent of that force has been determined for an industry, one can better understand how the other forces interact with competitive advantages.
strategy (takes competitor actions into account) vs tactics (internal)
Posted by Saj Karsan (noreply@blogger.com) on February 19, 2012 11:04 AM· permalink
After a week of fairly strong deliberations, Mozilla has sent out a message to all CAs to clarify that MITM activity is not acceptable. It would seem that Trustwave might slip through without losing their spot in the root list of major vendors. The reasons for this is a combination of: up-front disclosure, a short timeframe within which the subCA was issued and used (at this stage limited to 2011), and the principle of wiser heads prevailing. That's my assessment at least. My hope is that this has set the scene. The next discovery will be fatal for that CA. The only way forward for a CA that has issued at any time in the past an MITM-enabled subCA would be the following: + up-front disclosure to the public. By that I mean, not privately to Mozilla or other vendors. That won't be good enough. Nobody trusts the secret channels anymore. + in the event that this is still going on, an *fast* plan, agreed and committed to vendors, to withdraw completely any of these MITM sub-CAs or similar arrangements. By that I mean *with prejudice* to any customers - breaching contract if necessary. Any deviation means termination of the root. Guys, you got one free pass at this, and Trustwave used it up. The jaws of Trust are hungry for your response. That is what I'll be looking for at Mozilla. Unfortunately there is no forum for Google and others, so Mozilla still remains the bellwether for trust in CAs in general. That's not a compliment; it's more a description of how little trust there is. If there is a desire to create some, that's possibly where we'll see the signs....
Posted by iang on February 19, 2012 03:53 AM· permalink
Through a series of experiments, Dan Ariely documents the many ways in which humans behave irrationally. By understanding these human tendencies, we can both learn to behave more rationally when it is to our benefit, and better understand why those around us are behaving in the way they are.
In this final chapter of the book, Ariely pleads with the reader to test the reader's own intuitions. Every day, we are faced with many decisions, some large and some small, and in almost all cases we assume that we made the right decision. But our biases (as discussed in the book) have likely influenced us without our even knowing it, and so it is imperative that we question why we do what we do.
Ariely takes the reader through the history of one profession that has traditionally only done things through intuition and through what has been passed down (i.e. "it's the way we've always done it"): that of medical doctors. Today, the FDA requires the testing of medication to ensure the benefits are higher than the risks, but in how many other professions does this kind of test take place? Ariely argues that poorly understood, intuitive and "that's the way we've always done it" methods continue to dominate the business and personal lives of everyone.
Finally, the author discusses a personal story of his own to demonstrate just how much certain biases have affected his decision-making in the past, and how that has affected his current situation.
Posted by Saj Karsan (noreply@blogger.com) on February 18, 2012 11:55 AM· permalink
When the US underwent its housing bubble (and subsequent burst) a few years ago, there were a few signs of trouble. New home inventories were high, as expectations were through the roof (never a good sign). Home builders traded several times their book values, suggesting extreme optimism and over-building (to capitalize on unsustainably high profit margins). Price to rent and price to income ratios skyrocketed.
Today, many are saying similar residential real estate bubbles are occurring in China, Australia and Canada to name a few. As a home owner in Canada, I'm interested in studying this phenomenon so as to ensure I don't end up on the wrong side of it, much like many of my unfortunate American brethren.
Clearly, Canadian house prices to incomes have fallen out of line with their historic norms, as have Canadian price to rent ratios.
But another thing we learnt from the US housing bust is that not all regions froth to an equal degree. Las Vegas and Phoenix, for example, saw massive declines when the bubble finally burst, while other places escaped with barely a scratch. Canada is a particularly geographically diverse (in terms of natural resource availability, types of industry etc.) nation, and so it's conceivable that the stress of any Canadian housing bust will be felt to varying degrees depending on the region.
To that end, I've compiled several years worth of new home inventory (source: CMHC) levels for three large Canadian cities (and their surrounding suburbs), Vancouver (which is the most expensive city), Toronto (the largest city), and Calgary (which is somewhat reliant on the oil market for its level of prosperity):
From this chart, it hardly looks as if inventories are out of control, as they are well-within their range of the last decade. In fact, there may even appear to be a shortage of homes in Toronto.
However, switching to the condo market, one does start to see some potential over-optimism on the part of builders, resulting in very high inventories of as-yet unsold new multi-family units:
Here we see how hot Vancouver is compared to the other cities. But wait! The above chart isn't adjusted for population. Toronto's population is more than double that of Vancouver's, and yet Toronto has only half as many condos available. Adjusting the inventory chart for population makes the situation look like this:
Clearly, there are a lot of new condos in Vancouver, both on a historical standard and compared with other cities. For now, there are enough sales taking place in Vancouver such that this inventory is not staying on the market long enough to significantly pressure prices. But that can change in a hurry. A rise in interest rates or a reduction in consumer confidence or some other shock could reduce demand, and that would leave a whole lot of properties on the market. Whether this situation will also affect the detached home market is anybody's guess, but if capital becomes tight as a result of fear in a certain part of the housing sector, it may take the whole sector down with it...who knows!
Posted by Saj Karsan (noreply@blogger.com) on February 17, 2012 11:28 AM· permalink
My friend Smart Trader has set up an excellent blog on day trading Nifty Futures. Take a look at the link below.
All the best to you ST.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on February 17, 2012 05:30 AM· permalink
With the first release of OECD PISA results for India, and with the
release of one more year of Pratham data, there has been an upsurge in
interest in education in India. The following set of materials are a
useful reading kit to get a grip of the field.
Elementary education
- At the crossroads, in Pragati, 16 February 2012.
- Education
in India at the crossroads, 24 January 2012.
- Ila
Patnaik in the Indian Express, 20 January 2012.
- ASER
2011 report by Pratham. Article in the Indian Express on
this
by Rukmini Banerji.
- Accountability
in education by Jeff Hammer, 18 January 2012.
- The
first PISA results for India: The end of the beginning by
Lant Pritchett, 5 January 2012.
- The
Right to Education Act: A critique by Parth Shah, 1 April
2010. Also see Raghuram
Rajan and Abhijit Banerjee 20 February 2010.
- Getting
results on education and health expenditures of government, by
Lant Pritchett and Jeff Hammer, 16 July 2009.
- Ila
Patnaik on the then draft Right to Education Bill, 13 January
2008.
- The
mess in education by me in the Business Standard, 28
February 2006.
- The World Bank's WDR
2004: Making
services work for poor people.
- Rethinking
elementary education by me in the Business Standard,
1 July 1998.
Higher education
Posted by Ajay Shah (noreply@blogger.com) on February 16, 2012 06:19 PM· permalink
Yesterday, Oddball Stocks had a great write-up of Danier Leather as a potential value investment. I wrote about Danier almost a year ago, but since then it has had a successful few quarters, accumulating cash while improving margins. At the same time, its price has actually fallen some 20%, making it much more attractive. If you're interested, go ahead and read the post at Oddball. The only thing I would add is that there is a dual-class share structure, and so the incentive for management may be skewed towards growing the company rather than returning the company's substantial cash hoard ($32 million in cash versus a market cap of $50 million) to shareholders.
Disclosure: No position
Posted by Saj Karsan (noreply@blogger.com) on February 16, 2012 11:39 AM· permalink
The breakout has happened and the balloon (Nifty) is now way up in the air and Global cues is now acting as a wind getting reflected by Liquidity and it all depends on it where we go from here. What happened yesterday? There was a gap-up and Nifty broke out of the 7-day range and [...]
Posted by Deepak Singh on February 16, 2012 02:03 AM· permalink
Management will act in its own best interests, and for this reason investors should ensure that management's interests are aligned with theirs. Sometimes, however, management may be swayed to act in the interests of major shareholders, whether under the threat of a hostile takeover or as part of a courtship process for a friendly merger. Investors armed with this knowledge are in a position to better understand what is about to take place, and may thus make investment decisions that are in tune with their investment strategies.
For example, value investors can take a hint as to the company's future capital allocation plans if a company under review already has a large shareholder with a history of a preference for companies which return capital to shareholders vs those which try to empire-build. But to the aspiring value investor, finding this information isn't always easy.
Shareholders who peruse SEC company filings will have come across Schedule 13d from time to time. This is a mandatory filing that must be submitted by anyone who owns more than 5% of a company. On this form, major shareholders are required to disclose who they are, their relationship to the company, and even the motivations behind the transaction (though that can be conveniently changed at a later time).
But even if the schedule itself does not make the motive of the purchase abundantly clear, researching the large investor's background may help clear up uncertainties with respect to the company's near-term future. For example, if Berkshire Hathaway has taken a large stake in a company, it may be seen as an endorsement of management. On the other hand, if Carl Icahn is the buyer, director and management changes may be on the way!
That management should act in the best interests of shareholders is often discussed, including on this site. Implicit in this idea, however, is the notion that all shareholder interests are the same. Unfortunately, this is not always the case. However, disclosures are available which can aid the shareholder in determining whether the interests of major shareholders are aligned with theirs.
Posted by Saj Karsan (noreply@blogger.com) on February 15, 2012 11:47 AM· permalink
Rare earth metals are used in all sorts of applications from lightbulbs to hybrid cars. Their prices are rather volatile, and have swung dramatically in recent quarters on supply/demand issues and export restriction news out of China. Value investors may not be interested in buying rare earth metals at market prices...but what if they could be purchased at a major discount?
That's the opportunity that's potentially available through the purchase of the stock of Dacha Strategic Metals (DSM). Dacha trades for $40 million, but has rare earth inventories valued at $100 million against very little in balance sheet liabilities. The investor is thus given the opportunity to buy rare earth metals at a considerable discount.
Management appears to be trying to do something about the discount, as it purchased 10% of the company's float in the last 8 months. It will be eligible to buy back more shares in June, which could help close the discount. Unlike most companies, Dacha reports on the market value of its inventory position weekly, so your not stuck sitting on a company with stale three-month-old financials.
But there are a few risks that could result in losses despite such an apparently large margin of safety. First, the prices of these metals are volatile. As such, they could fall abruptly, destroying any margin of safety in the process.
Further complicating the matter is that some estimates have to be made in order to determine the market value of the company's inventory. The bulk of this inventory is not sold frequently, reducing the transparency of the "market value" of these elements.
Finally, there are some options outstanding which will likely reduce the potential upside. There are 20 million options outstanding (compared to just 75 million shares), the vast majority of which have exercise prices lower than the current share price.
Nevertheless, some value investors who are not terribly bearish on rare earths may find Dacha to be of compelling value.
Disclosure: No position
Posted by Saj Karsan (noreply@blogger.com) on February 14, 2012 11:57 AM· permalink
You probably won't find a lot of value investors in the solar industry. As a relatively nascent industry, it hasn't yet proved its economic viability. Moreover, that viability is based on the prices of substitutes (e.g. natural gas, wind power etc.) and perhaps the support of the agents of taxpayers (i.e. politicians). Finally, there is a commodity-like element to this industry, as companies fight to provide relatively undifferentiated products to customers only interested in price.
This introduces a ton of risk into the equation for anyone trying to value a solar stock to any reasonable degree of certainty. But sometimes, could a balance sheet be so pristine that it trumps many of the downside risks, leaving only the upside potential of this volatile industry to the investor?
After falling almost 20% on Friday, Amtech Systems (ASYS) now trades for $85 million despite a net cash position of $55 million and earnings over the last two years totaling $30+ million.
In the near-term, however, earnings will not be pretty. The industry is currently in a state of oversupply, meaning Amtech's solar cell manufacturing customers are hurting. As a result, they have reduced or pushed back their plans to buy the capital equipment (which Amtech provides) needed to expand production. Management predicts revenue will fall some 66% y/y in the current quarter, pushing the company into a loss position.
But because of the company's fortress balance sheet, might it be an attractive purchase anyway? The company should be able to ride out any short-term oversupply the market is experiencing. Furthermore, the company also sells its capital equipment to semiconductor manufacturers, diversifying its revenue base to some extent.
The question for investors is how long such an oversupply in the solar industry may last. Answering this question isn't easy, as a lot of moving parts (including the competitiveness of solar vs traditional energy, which is changing due to technology improvements) have to be taken into account. For those who understand the industry well and who believe the downturn to be temporary, however, Amtech may be a bargain.
Disclosure: No position
Posted by Saj Karsan (noreply@blogger.com) on February 13, 2012 11:58 AM· permalink
Posted by Ajay Shah (noreply@blogger.com) on February 12, 2012 01:06 PM· permalink
This is how each stock from the Nifty 50 basket stands from its 50 day average. 28 stocks are 10% and more above their 50 day average and that's an extreme overbought reading.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on February 11, 2012 05:03 AM· permalink
I ran some RSI tests on the CNX 500 basket and above is the result. Look at the number of stocks where the RSI is falling (46.2%). Maybe it's too early to say but looks like we are topping out.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on February 11, 2012 04:28 AM· permalink
In 2009 May, the index went 36% above its 50 day average. This is the highest reading so far.
The above chart is from 2010. The current reading is at 110 and is the second highest reading. The red and green lines in the lower pane above can be thought of as the overbought / oversold lines respectively. When price equals the average then we get the center white line at 100.
This is an extremely bullish sign and the way things are going, we may hit 5600++ very soon.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on February 09, 2012 01:24 PM· permalink
Four days of consolidation ended late afternoon today with a blast over 5400. Above is a 60 minute plot. Nifty has thus entered into a new phase with targets at 5600++
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on February 09, 2012 10:16 AM· permalink
by Thomas
Laubach and Ajay Shah.
Economics is a rich and fascinating subject. But all too often, the
teaching process forces young people in the field to look at the tail
of the elephant, to think about macroeconomics as the game of solving
dynamic models. There is actually much more going on. (On a related
note, you might like to see Books
that should be read before starting a Ph.D. in economics on
this blog, 18 May 2011).
In this blog post, we walk through the evolution of the key ideas
in historical order, and offer suggestions to interesting readings,
which will help you see the fuller picture. Many of them are on your
reading list, but some are not.
The old paradigm
Nobody tells it better
than The
age of uncertainty by John Kenneth Galbraith.
The old paradigm is now in the dustbin of history. But in order to
comprehend the revolution in macroeconomics, it is rather useful to
start from there. One encounters these arguments from time to time, so
it's worth knowing about the furniture of that mind.
The revolution of modern macroeconomics
The starting point is a speech
: The
role of monetary policy by Milton Friedman, American
Economic Review, 1968, which had enormous influence in
arguing that the mainstream Keynesian paradigm was fatally
flawed, and that it was not going to work as a guide to policy
on a sustained basis. By the early 1970s, the empirical evidence
was showing that Friedman was on the right track, which led to
everything that followed. This speech is arguably the beginning
of modern macroeconomics. At the same time, this was only an
argument conducted in English, and not a model.
The next big milestone was the Lucas
critique: Econometric
policy evaluation: A critique by Robert
Lucas, Carnegie-Rochester Conference Series on Public Policy,
1976. This devastated traditional macroeconomics. In addition, it's
a remarkably elegant idea.
Lucas, Sargent and others mapped out a work program in a series of
non-technical pieces, which were enormously influential. They set a
generation of economists going to build a class of models that were
rooted in the intuition of Friedman, 1968, and were invulnerable to
the Lucas critique. You should
read: Understanding
business cycles by Robert Lucas, Carnegie-Rochester
Conference Series on Public Policy,
1977; After
Keynesian Macroeconomics by Lucas and Sargent, Federal
Reserve Bank of Minneapolis Quarterly Review,
1978; Methods and
problems in business cycle theory by Robert Lucas,
Journal of Money, Credit and Banking, 1980.
As important as the Lucas Critique was Rules rather than
discretion: The inconsistency of optimal plans by Kydland and
Prescott. An accessible set of materials on this work is found in
their 2004
Nobel Prize page.
This work came to fruition in the early 1990s in the form of the
NK-DSGE model with a policy rule. Important tools got developed in a
classical setting (the RBC model), and then Keynesian frictions were
put in, to give the NK-DSGE model. It has many problems, but with
this, the Lucas program did work out. Nice readings on the NK-DSGE
model
are The
science of monetary policy: A new Keynesian perspective in
the JEL by Clarida, Gali, Gertler (1999), and
their Monetary
policy rules and macroeconomic stability: Evidence and some
theory in the QJE in 2000.
The new macroeconomics is nicely showcased in Technology, employment,
and the business cycle: Do technology shocks explain aggregate
fluctuations? by Jordi Gali in AER, 1999. This is a wonderful
example of confronting empirics with theory, plus a fundamental (if
highly controversial) contribution in the eternal quest for the
sources of business fluctuations.
On the other side, there is a powerful critique of the
micro-founded approach to
macroeconomics: The
scientific illusion of empirical macroeconomics by Larry
Summers, Scandinavian Journal of Economics, 1992.
By the late 1990s, there was a lot of progress to report. There is
a nice
article: Thirty-Five
Years of Model Building for Monetary Policy Evaluation:
Breakthroughs, Dark Ages, and a Renaissance by John
B. Taylor, Journal of Money, Credit and Banking,
2007. There is the best single book on monetary
policy: Monetary
Policy Strategy by Frederic S. Mishkin, 2007. And, there
are two other nice
articles: A
stable international monetary system emerges: Inflation
targeting is Bretton Woods, reversed by Andrew
K. Rose, Journal of International Money and Finance,
2007,
and How
the World Achieved Consensus on Monetary Policy, by
Marvin Goodfriend, Journal of Economic Perspectives,
2007.
The second stage
Once the basic plan was laid, important work emerged in connected
fields. A critical issue that came to fore was the role of finance
in
macroeconomics. Agency
costs, net worth, and business fluctuations by Bernanke and
Gertler, AER 1989, is the most elegant illustration that financial
structure matters for macroeconomics.
We close this off with a canonical reference about fiscal policy
from a macro perspective. A good recent treatemnt
is Activist
fiscal policy to stabilise economic activity by Auerbach and
Gale, from the 2009 Jackson Hole symposium.
Post-crisis revisionism?
On this, see Monetary
policy and financial stability: Is inflation targeting
passe? by Takatoshi Ito, July 2010.
Posted by Ajay Shah (noreply@blogger.com) on February 09, 2012 04:41 AM· permalink
Bulls make money, bears make money whereas pigs get slaughtered. Sadly, yesterday was one of the day where I bet majority of the traders would have been on slaughter board getting chopped by bizarre moves of the market. This always happens when market is violently consolidating in a range As you can see in the [...]
Posted by Deepak Singh on February 09, 2012 02:09 AM· permalink
Clive asks in comments a long time ago (apologies for late reply): any thoughts to VISA's extraodinarily abrupt behaviour over stopping all ePassport issued VISA cards? ( http://m.krebsonsecurity.com/2010/09/visa-blocks-epassporte/ ) Aside from the seamier side (which all financial systems attract) a large number of "little" people used the system to be paid for their legitimate labours (code cutting etc) and VISA appears to have left them high and dry. Hi Clive, One comment gives a fairly good impression about what to expect. I'd say this is a fairly typical pattern in alternative payment systems. Aside from that, let me develop it in a series of viewpoints. Evolution. It goes more or less this way: Some entrepreneur figures out a way to get a hot money product out there that appears to bypass the conventional channels. This is reasonable, economic, and politically appealing. (By politically appealing, we might recall that quote about Paypal founders telling all their new staff about the end of government, libertarians to rule the world, boundless new efficiencies, etc.) For a while, whichever payment system we are talking about, it does well. A new product that provides a completely new way of doing business will always find a market in those that really need that. This will also include a significant proportion of morally questionable activities, being those that are shut out by conventional channels which have decided to impose the morals. So, both "clean" and "morally questioned" users exist, both, and both of them are contributing their revenues to the wellbeing of the new payment system. (Cases in point are: video, ecommerce websites, cheap telephony, certificates.) The latter group, which we might call the moral arbitrageurs, have an advantage because their business model generally promises higher margins. They tend to grow faster, and frequently become the major force at many levels in new business models. Attack. At some point, the arbitrageurs in the system start to do too well, and come to the attention of some authority somewhere. It matters not which one, or which product, or which morals. That authority starts investigating, figures out where the weak parts are, and leans on them. In the case of payment systems, the weak points are generally the finance partners. Once the leaning starts, the partner pulls out. In the case identified the partner is Visa, but more often it is a partner bank. This brings us up to the point where Clive asks, but why!? Why did the partner pull out and leave the "little people" high and dry? For the partner, it is a question of straight economics, not morals. Let's look at the economics of the payment partner. It is based on fees, many of them, easily collected, without trouble, because margins are tight. Each of those fees that is then reneged upon, or worse, the principal is lost, results in much higher costs to the facilitator. So each partner can only accept a tiny percentage of failures before it starts losing money. Hence, an attacker (in this case the authorities) only needs to lean on a small percentage of payments before the entire body of payments is seen as a loss by the facilitator. There doesn't need to be a proof of a crime, or indeed any evidence. Just the knowledge by the bank that it isn't worth the fees anymore is good enough, as any fee benefit is going to be consumed in compliance overload and risks. Also, the bank (Visa) knows that a lot of the traffic that is shut out of this system will find its way back to the "legit" system one way or another, and therefore, the bank often prefers to see the alternative payment system as competition it would rather destroy, rather than honest trade to be defended. In the alternative payments market, it doesn't need much pressure to get a partner to walk away. Enemies. Where it goes wrong, or what is wrong with this entrepreneurial process depends on who you ask (and yes I'm getting to your second question :) If you ask the regulators, these systems are made for money laundering (ML), so shut them down, or else. No discussion possible, there, because the claim of ML always sticks like mud. If we ask the banks, they'll say they are unfair competition, as the newcomers don't have to pay the regulatory toll (which the incumbents argued successfully for), and the nasty cheap competitors are too cheap. Shut 'em down, yesterday, already! No interest in negotiation. On the plus side, if we ask the operators, they will say that the system is fair, adults are entitled to play adult games, and real competition is what consumers deserve. They might also point to their safeguards. Nobody ever asks the consumers, and there is little benefit in asking the suppliers of whichever questioned goods we are offended by :) All these things are likely true at some level (and false at other levels), so which is which and which are correct or false or relevant or specious tends to be irrelevant, because they can all be used. And often are. The alternative payment system lives in a very aggressive world, they have too many enemies. Addiction. But, I have a different perspective. If you ask me, I'd say it is because the operators got a little too addicted to the morally questionable business. They should have been smarter, avoided the addiction, and eased themselves off it before the habit turned nasty. Where, both how much and which drug are defined by their circumstances. As I'm most familiar with the story of gold payment systems, a decade or so back, let me outline that one by way of example, but please also note that the evidence published by Paypal reveals the same forces. The gold community's morally questionable friends were the ponzi schemes and fast-moving payments games, which on the strength of fees income, took the e-gold business into the black, early 2000. This was around 9 months after the first games (aka ponzis) turned up above the radar, so quite a stunning result. I'd also mention that e-gold wasn't the only one, there were others on all sides of the tracks, but e-gold was the leading indicator, the case study. At that point (strategically speaking, says I), as they entered the black, they should have shifted strategy to increase other "cleaner" opportunities, and reduced the impact of the arbitrage games/schemes. Instead, it could be said that they seemed to chose to defend the adults in their right to participate in these things. Two things are worth noting. This is the libertarian view, which is quite popular in arbitrage sectors, so e-gold's customers were happy. Secondly, adults do have a right, at some fundamental level to lose all their money. But they also seem to like going crying to regulators after enjoying their right to unregulated carnage. And crybabies punch above libertarians at about 100:1 (take note Ron Paul). Hence, the pattern is somewhat inevitable. For the gold sector, the steamroller started moving by end of 2002, and within 5-6 years, a lot of players were shut down. Now, with that in context, your real question was this: why did all these honest people lose their money? Why so sudden? Why so immediate? I think the answer to that is found in the world views of the players. The Feds/banks have already decided that (a) the system is illegal, or quasi-illegal, and, the people using it are either (i) outright crims, (ii) engaging in immoral or quasi-illegal behaviour, or (iii) should have known better than to associate... Further, it will be an internalised truth for the investigators and the banks that, if there are any honest people, they will come forward and prove a claim to the money. "If you've done nothing wrong, you have nothing to hide." Some of this is true. There were criminals using those gold payment systems, and it was bad stuff. I don't tend to write about it because (a) I lack strong evidence, and (b) people simply don't believe it when I tell them. "Yadda, more conspiracy talk..." It was bad stuff. That said, it is also true that not all users are tarred with the same brush. The crims are a minority. Many of the users are honest, and they will still lose. Big time. Here's why, on the demand side: Not all will those honest people will come forward (because they are scared), not all people will be able to prove their claims (because the case is already stacked against them), some of them will have questionable behaviour of other forms, and worry about collateral damage, many of the holdings will be in the order of under $10k and therefore uneconomic to fight, and many of the people concerned will not have enough money to pay for legal help (especially those that lost a lot of their money!). Of course there will be some claims, and some money paid out. On the supply side, the Agency has the incentive to give it a go, because it keeps the money. So, to answer your question, it's because of a combination of forces: the bank could not care less, and it would like the competition to go away anyway; the odds are stacked against the people claiming the money back; and the value seizure is done by people who are structured to ignore the issue, because they are going to benefit. And, to restate my view: the operators took the good times to heart, and didn't clean up their house quickly enough to escape the backlash. Again, apologies for the long & late reply....
Posted by iang on February 05, 2012 10:24 AM· permalink
FMCG, and IT have underperformed in this rally. Health Care is up 9.2% Real Estate leads at 29.7% Metals and Banks are at 27.8% and 27.2% respectively. Capital Goods is also up at 27.2% Somewhere in the middle are Autos at 16.94% and Oil / Gas at 15.4% The benchmark Sensex is at 13.9%
Now, before we start getting excited about this rally, let us change the date to 31-st December 2010 and see how the performance looks like:
So as you can see, on this scale FMCG is the sole leader and everything else is down. There is still lot of ground to be covered. Maybe there is some change happening and if the sectoral performance keeps improving in the coming weeks then we may be able to turn around for good.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on February 04, 2012 07:29 AM· permalink
Finally the trendline and the 200 day average got busted by this fierce rally. Now the immediate near term target is 5400.
This uptrend is very strong because prices never ever retraced anywhere near to the middle 20 day average. See the daily chart with Bollinger Bands:
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on February 04, 2012 06:22 AM· permalink
 |
| Girish Sant, at New Rajendra Nagar in New Delhi, 10 January 2002 |
Girish Sant died of a heart attack in a hotel in Delhi yesterday.
`Bandya', as he was known to friends, could have chosen any career when he stepped out of IIT in 1986. He chose the less travelled path of taking interest in the public policy, and applying himself to a combination of technical mastery and the dogged persistence that is essential to making a difference. He founded a think tank,
Prayas, which has come together as a pretty unique organisation in the Indian landscape. The Indian development project desperately requires more people who combine his intellect with his commitment to fixing up the world.
I always thought of Bandya as a gentle giant. He combined a soft and understated personality with depth of knowledge. When I spoke with him, I was always running at 100% CPU utilisation.
On a more personal note, Bandya was a lead climber in the first ascent of
Konkan Kada, and I was part of that team. That was a peak experience. We will miss him.
Posted by Ajay Shah (noreply@blogger.com) on February 03, 2012 06:06 PM· permalink
Freedom of speech is high on our minds in India today, with the
problem rooted in laws about three fronts: obscenity, defamation and
hate speech. While freedom of speech is an essential foundation of
democracy, it is closely connected with other dimensions of freedom.
Here are some fascinating episodes, in the liberal project of
getting to personal freedom.
United States, 1644
Faramerz
Dabholwala in the Guardian:
When the Massachusetts settler James Britton fell ill in the
winter of 1644, he became gripped by a "fearful horror of
conscience" that this was God's punishment on him for his past
sins. So he publicly confessed that once, after a night of heavy
drinking, he had tried (but failed) to have sex with a young
bride, Mary Latham. Though she now lived far away, in Plymouth
colony, the magistrates there were alerted. She was found,
arrested and brought back, across the icy landscape, to stand
trial in Boston. When, despite her denial that they had actually
had sex, she was convicted of adultery, she broke down, confessed
it was true, "proved very penitent, and had deep apprehension of
the foulness of her sin ... and was willing to die in satisfaction
to justice". On 21 March, a fortnight after her sentence, she was
taken to the public scaffold. Britton was executed alongside her;
he, too, "died very penitently". In the shadow of the gallows,
Latham addressed the assembled crowds, exhorting other young women
to be warned by her example, and again proclaiming her abhorrence
and penitence for her terrible crime against God and society. Then
she was hanged. She was 18 years old.
India, 2007
Vinod
K. Jose in Caravan magazine:
...on the morning the poll was published, an angry mob of about 50 people
attacked the Dinakaran office in Madurai, Azhagiri's home base. They
threw petrol bombs and set the newsroom on fire; two journalists and a
security guard were burned alive.
Pakistan, 2012
Declan
Walsh in the New York Times:
One morning last week, television viewers in Pakistan were treated
to a darkly comic sight: a posse of middle-class women roaming through
a public park in Karachi, on the hunt for dating couples engaged in
`immoral' behavior.
Panting breathlessly and trailed by a cameraman, the group of about
15 women chased after - sometimes at jogging pace - girls and boys
sitting quietly on benches overlooking the Arabian Sea or strolling
under the trees. The women peppered them with questions: What were
they doing? Did their parents know? Were they engaged?
Some couples reacted with alarm, and tried to scuttle away. A few gave
awkward answers. One couple claimed to be married. The show's host,
Maya Khan, 31, demanded to see proof. ``So where is your marriage
certificate'' she asked sternly.
India, 2012
Reportage in
the Hindustan
Times:
Over 50 Shiv Sena activists attacked the The Times of India building
at south Mumbai on Saturday and damaged plants and furniture at the
reception.
The men, who claimed to be supporters of former Sena MLA Anandrao
Adsul, were protesting against a news report that appeared in
Maharashtra Times, a Marathi daily. The report speculated that Adsul
was on his way to join the Nationalist Congress Party.
Adsul, who addressed the media later, has threatened to file a Rs
100-crore defamation suit in addition to a complaint with the State
Election Commission and Press Council of India. "Such baseless
allegations made without hearing my version won't be accepted," Adsul
said. The Sena man was unapologetic about the incident. "My supporters
went with a letter, but they were not allowed inside. So they reacted
in anger."
India, 2012
Johnson T. A. in the Indian Express:
While she was being beaten up, Suvarna insisted that she would only
marry Govindaraju and that it was she who wanted to meet him that day,
Govindaraju told the police in a statement last week when he briefly
emerged out of hiding. An enraged Davalana, according to the police
complaint, directed his relatives to `hang this girl who is insistent
on marrying a Madiga'.
Police investigators say they believe Suvarna probably died after
the thrashing from her father at her relative's house but her body was
dragged to Govindaraju's house and strung up on a rope to make it seem
like a suicide in the lover's home.
Posted by Ajay Shah (noreply@blogger.com) on January 30, 2012 06:26 AM· permalink
Just have a look at the credit deposit ratio chart. It's the highest in 35 years.
Posted by Ranjit kumar (noreply@blogger.com) on January 29, 2012 11:13 AM· permalink
Everybody knows that the markets are in the extremely overbought zone and are ripe for a break considering the overhead resistances discussed earlier. But what if the thing just refuses to go down and instead keeps going up tagging the upper Bollinger band? One must assume this and stay on the long side rather than taking any anticipatory short position. That's easier said than done but then who wants to miss out on a further rally towards 5400?
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on January 27, 2012 01:07 PM· permalink
Does trading on a particular time offer any advantage? To check this, we divide one trading day into 12 slots of 30 minutes and the last slot is of 15 minutes. Then we check the high low percentage return in each slot. For this study, I randomly selected 60 trading days. The average percentage return in each slot is shown above. There seems to be some truth in the so called "the 2:30 factor" hypothesis which says that the market (Nifty) makes big moves during the last hour. And sure indeed - the percentage returns are higher during the last hour and also in the 1-st half an hour. The quiet period is in the 11:15 to 12:15 time. Maybe one needs to check this out on some more data and if you've done any study on this then you can shoot me a mail and share your findings.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on January 27, 2012 11:25 AM· permalink
This table shows by how much % each index stock is from its 50 day average. This data sure deserves an "overbought" stamp.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on January 26, 2012 09:45 AM· permalink
The debate
Roughly one decade ago, there was a strong debate in India about
how we should tackle the problem of education. There were two
views:
- Intensification
- On one side were those who felt that
nothing was fundamentally wrong; all that was needed was more
money. So we should just continue building more government schools
and hiring more civil servants to act as school teachers, and we'll
be fine.
- Reform
- On the other side were the reformers, who argued
that the basic incentives in Indian education were wrong. Putting
more money down a dysfunctional system was pointless.
The Intensifiers won this debate. An informal coalition of
educationists (i.e. the incumbent education system) and leftists came
together, supported by the World Bank, which pushed for mere
enlargement of Indian education, without questioning the
foundations.
All of us are involved in this story at many levels. At the
simplest, we are the customers of the education establishment. We pay
income tax and VAT and a few other taxes. On top of this, we pay the
2% education cess. In return for this, we get certain educational
services. These influence our kids, and they influence all the young
people that we encounter in this young country. Trillions of rupees
have been spent, and more than a decade has gone by. It is time to
assess the performance of this strategy.
Three blocks of evidence are now visible, which tell us that the
Intensifiers were wrong. The old strategy, which was invigorated by a
vast rise in spending, was the wrong one.
Evidence #1: OECD PISA results for India
This story is well told in
a
recent blog post by Lant Pritchett. Bottom line: The first
internationally comparable measurement of what children learn has
been done. The sample correctly includes urban and rural children; it
correctly includes children going to private or public schools; there
are no first order mistakes in what was done. It tells us that Indian
education policy has failed miserably: the results have come out at
the bottom of the world.
Evidence #2: ASER 2011 results
Pratham has been running surveys which measure characteristics of
children and schools in rural India (only). Their latest survey
results, for 2011 show the following facts.
First, rural kids learn less at public school. Here's a simple
example of what the evidence shows. Surveyors ask kids in class III to
recognise numbers upto 100. Here are the numbers, for the proportion
of kids in class III who
cannot recognise numbers upto 100:
In 2008, the failure rate with private schools was roughly 17 per
cent. Government schools were much worse at over 30 per cent. A short
three years later, conditions had deteriorated sharply in government
schools. The failure rate had gone up to 40 per cent. Private schools
had also worsened slightly, to a failure rate of 20 per cent. By 2011,
a big gap had opened up between the two: private schools are failing
to teach 20 per cent of the kids while government schools are failing
with a full 40 per cent of their kids.
Parents in India face the
choice between sending their
children to a government school, which is free and serves a mid-day
meal, versus sending them to a private school where they pay
fees. Yet, an increasing fraction of parents
choose to send
their children to a private school, paying tuition fees from their own
pockets, while government schools are free. The relationship between a
parent and a private school is a transaction between consenting
adults. The relationship between a parent and a government school
involves all of us, because we are paying for it.
Given the low income of parents in India, their use of private
schools is a striking indictment of what the Intensifiers have
wrought:
At class II, the fraction of rural children in private school went
up from 19 per cent (2007) to 23 per cent (2011). At class VII, this
rose more slowly to levels slightly above 20 per cent.
Evidence #3: CMIE household survey
CMIE has data for the year ended March 2011 about the behaviour of
169,492 households, about their expenditure on school/college fees and
tuition fees. Here's
the
picture for the quarter ended September 2011; all values as
percent of overall expenditure:
| Income class | School/college fees | Private tuition fees |
|---|
| Rich - I | 4.79 | 0.66 |
| Rich - II | 3.79 | 0.51 |
| High Middle Income - I | 3.54 | 0.63 |
| High Middle Income - II | 3.12 | 0.65 |
| High Middle Income - III | 2.44 | 0.68 |
| Middle Income - I | 1.93 | 0.59 |
| Middle Income - II | 1.62 | 0.45 |
| Lower Middle Income - I | 1.38 | 0.49 |
| Lower Middle Income - II | 1.05 | 0.60 |
| Poor - I | 0.76 | 0.58 |
| Poor - II | 1.13 | 0.28 |
| Overall | 2.10 | 0.57 |
If parents chose to stay within public sector schools, their
expenditure on fees would have been zero. The table shows that across
all income groups of India, there is movement towards private
provision of education, both by paying fees at schools and by paying
for private tuition classes. These two elements add up to 2.67 per
cent of overall expenses of households. (The CMIE household survey
separately measures expenses on books, journals, stationary,
additional professional education, education overseas, hobby classes
and other education expenses. This helps us gain confidence in the
extent to which the two fields in the table above narrowly pin down the
feature of interest).
These decisions of well intentioned parents are the strongest
indictment of education policy in India. The product being given out
by the Intensifiers is such a terrible one, the parents of India are
walking away from it even though it is free and the alternative is
not and the parents are poor.
Implications
For more than a decade, the Intensifiers have controlled Indian
education policy. They have said:
Leave education to the education
establishment, do nothing radical, just give us more money, we will
deliver results. Now we know that they were wrong. They took the
money, but failed to deliver the results.
Kapil Sibal has said that his ministry should not be held
responsible for the stream of bad news that is coming out. To me, this seems to be dodging accountability. His ministry is responsible for
Sarva Shiksha Abhiyaan, for the Right To Education Act, for blocking
OECD PISA from being done in India, etc. The bureaucratic consensus of
his ministry represents the education establishment.
The key phrase that needs to be emphasised today is
accountability. If a contractor took money from
you, and failed to deliver on building your house, you would sack
him. (You would also take him to court, to recover the money that was
paid to him, for services not delivered). In similar fashion,
education is too important to be left to the educationists. We need to
start over.
What is to be done
- We need to start over in the field of education, with a fresh
management team, one that is not a part of the status quo, one that is
rooted in the worlds of incentives, public policy and public
administration.
- In 2004, we were told that in return for a tax rate increase of 2%, in the form of an education cess, we would obtain improvements in education. We now know that those improvements did not come about. Hence, that tax rate increase should go. (Even if sharp improvements in educational outcomes had been obtained, the education cess was a mistake in terms of basic public finance, and needs to go. Public expenditures on education should simply come out of general tax revenues; there is no need to have a cess.)
- The flow of public money into the status quo needs to go down
sharply. There is no reason to put money into something that fails to
deliver the goods. First we must prove that a mechanism
delivers results, and only after that should we put money into
it. This is the common sense that a housewife would apply. She would
not spent gigabucks on promises from people who have failed to
deliver.
- OECD PISA measurement needs to take place every year at every
district. The production of this data is a public good that the government can and should do. It can be fully contracted out to private firms so as to avoid the problems of public sector production. Datasets about student characteristics and school characteristics should be released, covering every district and every year, so as to enable research.
- Civil servant teachers, who have tenured (permanent) have no
incentive to teach well, regardless of their qualifications or high
income. We can't sack them, but what we need to do on a massive
scale is to stop recruiting them. The existing stock can be
reallocated to other civil servant functions where staff is in short
supply. Through this, it would become possible to whittle away at
the accumulated stock over the coming 20 years.
Posted by Ajay Shah (noreply@blogger.com) on January 25, 2012 04:32 AM· permalink
Wipro announced little better than expected results and and stocks soared because of that , the Company has posted a net profit of Rs. 10639 million for the quarter ended December 31, 2011 as compared to Rs. 12239 million for the quarter ended December 31, 2010. Total Income has increased from Rs. 67876 million for the quarter ended December 31, 2010 to Rs. 85156 million for the quarter ended December 31, 2011. revenue in the third quarter was up 28% from a year ago to Rs 9,997 crore.Net profit for October-December rose 10% year-on-year to Rs 1,456 crore.
Wipro 20122 December Quarter Results.
Wipro Announces Quarter Ended December 2011 Results is a post from: First Blog for Indian Financial Market
Posted by Lalitha on January 20, 2012 05:08 AM· permalink
by Jeff Hammer.
I was shocked
by Lant
Pritchett's note on the appalling performance of India's best
two states on the international PISA assessment. Actually, I was
not really shocked; I didn't expect anything else as I've been
listening to Lant for years now. By the same token, I agree with
Jishnu Das that
we really don't know much about what works in education (other than
that good teaching makes a difference) and that our bean-counting of
inputs into education may be completely wrong headed. From
conversations with him (also over years) I surmise that the only
thing we really know about what leads to more learning is that it is
correlated with how many years children stay in school. What that
suggests, though, is that attention be directed towards the choice
of parents and students to stay in school.
In my opinion people choose to do things if it is worth it to them.
This is a common assumption for economists. While challengeable in
some circumstances, does it make any sense to think that people send
their children to school if they don't think it's worth it? If it is
compulsory: sure. With compulsion, attention of policy makers and
carefully watchful observers such as Pratham should be to make sure
school is worth the year of children's attendance since people would
not be able to decide for themselves. Until we see compulsory
schooling enforced, though, years of education remain a family's
choice and we have to understand how and why people make that
choice.
Unless we think parents are utterly clueless about the value of
education and totally incapable of telling if teachers are doing
anything or their children are learning anything, the effectiveness of
teaching and the amount of knowledge imparted must be a major factor
in their decision as to whether school is worth it. Don't get me
wrong, I've met dozens of educators and education officials in India
who believe parents are, indeed, clueless and such decisions should be
out of their hands. But they are the very people who gave us the PISA
ratings and are indeed throwbacks to the License Raj where only
bureaucrats were assumed to know anything. Further, with the explosion
of private schools, even in rural areas, it is laughable to think that
there are so many parents who value education so little. They are
willing to forego free public education in order to pay for something
more worthwhile.
Which brings us to accountability.
What could parents be looking at, that makes them think school is
worth it? It must be based on performance: parents don't really see
the inputs, they mostly just see their children learn. Or not learn as
is the case. So how can they translate their concern for learning into
actual learning? They have to be free to pick the educational
context that they see is working for them or their
neighbors. That's where accountability comes in.
A provider of any good or service is likely to be most accountable
when their livelihood depends upon attracting customers. If what they
provide is worth it, people will take the service, and the provider
can make a living. If not, parents won't pay and teachers won't get
paid. As of now, there is no mechanism to allow families to make that
choice. There is no such compulsion for teachers to provide a service
worth paying for. No doubt there are many teachers (probably most) who
are doing the best they can regardless of how they are paid. But with
over 24% absenteeism, large numbers of teachers observed to be doing
anything but teaching, and many sub-contracting their position to
under-qualified replacements at a fraction of government salaries,
there is substantial room for improvement.
Further, if we are going to get more students (and, hence,
teachers) into classrooms, the dedicated teachers may be the ones who
are already on the job. People induced to enter the profession may not
be as dedicated and, hence, need some other way to hold them
accountable than internally felt professional ethics.
I am an educator (of sorts) but have no opinion about what the
bottleneck in children's learning really is. Jishnu says the most
successful headmasters all say different things (after good teachers -
but then, don't we judge the goodness of teachers by whether their
students actually learn? It's an output based judgment, too.) I know
little of pedagogical theory. But I know just as little about the
inner workings of most complex things I use -- computers and the
Internet, water systems, bicycles. I can tell when they work and when
they don't, though. Similarly, I know that my sons learned to read and
write, become responsible citizens and to develop and exercise
critical intellectual capacities (sometimes way too critical for my
taste) even though I have no idea how they learned them. I did know
that their teachers were in school almost every day and doing things
that sounded like teaching to me. I did not have to be an expert on
pedagogy to hold the schools completely accountable for my children's
education.
I was also fortunate enough to be able to take (or threaten to
take) them out of government schools if I thought otherwise. Funding
for government schools (in the U.S.) follows enrollment, if not so
directly and obviously as for private schools. So my threats about
shifting my children out of government school directly mattered to
their teachers.
There is no reason why Indian parents can't do the same. They, on
average, may not have my education but after talking to hundreds of
families in rural areas, tribal villages, urban slums and SC hamlets,
I hear no less concern for their children's future than I have for
mine and no less ability to tell if a teacher appears to be doing his
job. They may be more capable than me since they are more likely to
see the teachers themselves -- I needed to ask my children.
In many rich countries, the issue of vouchers to pay for schools is
emotionally charged. Historically, free compulsory public education
was a result of fights between church and State (even in Japan where
`church' doesn't quite fit -- but religion and State does). Children
were already attending school in high percentages and there was a
fight for their hearts and minds. In rich countries currently,
suggestions to provide vouchers instead of State-run schools re-kindle
this old antagonism against religious instruction.
India never had this fight nor this evolution of public
provision. Our view of schooling here in India was imposed based on
the final result of universal free education seen in rich countries
without the history from which that final result evolved.
India needn't go through the phase of fighting over who gets to
teach students who are already highly motivated to learn and have seen
learning take place. If India wants to see all children educated, she
can certainly pay for the cost of education (in fact, the job can be
done for much less per student is presently spent) so that families
don't have to. But the government doesn't have to provide it directly
(though government schools should be free to compete for this money if
it can). The fight is the State against society (families), not
against the church.
What the State can do is make as much information known to parents
as possible. What should children know after how many years of school?
How do you know if your child is keeping up? How do you know what
you're paying for is worth it? As of now, this information is
certainly not given to parents. Maybe State run schools don't want
parents to know (and, unfortunately, most Indian parents will not know
about PISA). And as of now, there is nothing parents (particularly
poor parents) can do about it anyway.
Posted by Ajay Shah (noreply@blogger.com) on January 18, 2012 05:12 PM· permalink
JSW Steel has been one stock that has been hammered beyond recognition in last 1.5 years. BUT the stock is now ready to free itself from underperformance tag. JSW Steel has broken out of key resistance level Click on the image to see larger view Source: Chartalert.com There is a saying that downtrend ends when [...]
Posted by Deepak Singh on January 17, 2012 02:23 AM· permalink
I read a beautiful article, Why
software is eating the world by Marc Andreessen. It made me
reflect on how the world of computers and networks has evolved over
the last 20 years. It is comfortable for us to think that the world
has only evolved in incremental ways. But as I look around me, it
seems that the hard-driving pace of change on many fronts has added
up to fundamental change, to places far away from the comfort zone
of people of my vintage.
All the way till the 1980s, business computing was dominated by
databases. The basic story was one of capturing data, storing it, and
summoning it forth with queries.
At first, databases were the exclusive preserve of mainframes and
minicomputer. The PC revolution made it possible for small databases
to be held on the desktop. It's interesting to note that at first,
we got PCs without networks. We evolved from databases stored on
remote mainframes or minicomputers to databases stored on PCs. All
the way into the late 1980s, it was quite a cool thing to have a
standalone PC holding a database where certain queries could be
executed.
The first wave of change, of the early 1990s, was networks in the
form of TCP/IP (the universal communication protocol) and the
Internet (the universal network). Now, suddenly, the data centre
became more interesting. Instead of storing and manipulating data at
the desktop, we could do so many better things by storing and
manipulating data at a big central computer. The desktop diminished
from being the location of data and computation to being the
location of the user interaction.
Then came a series of surprises which have added up to a
qualitative shift.
1. The network got ubiquitous
First, the Internet went everywhere for the road warrior armed with
the laptop computer. Crashing prices of laptop computers and then
netbooks meant that essentially everyone had one. So workers started
spending much more time outside the office (with 100%
connectivity).
Software had to adapt itself to reach out on an Internet
scale. This killed off applications which worked on the scale of the
LAN. The software that the busy road warrier used was the software
that worked effortlessly on his laptop.
Today, 1 Mb/s wireless networks are common and 50 to 100 Mb/s
offerings are on the anvil. This is relentlessly shifting the
balance of convenience to mobility.
In a place like India, the low-end staff might not have netbooks
and/or Internet on the go. So for certain very low-end applications,
it might make sense to hug the desktop at the workplace. For any
modestly well paid person, laptops / netbooks coupled with 3g or CDMA
networks are the norm, and hence being tethered to the office network
is quite limiting.
2. The user interfaces got better
In the 1980s, software came with fat manuals. Users actually sat
down in training classes. A remarkable feature of the new world is
how the manuals and training are gone. Software is incredibly
capable but there are no manuals. Google maps or Amazon or Apple
Mail are very powerful programs, but the fundamental assumption is
that a reasonable person can just start tinkering with them and
learn more as he goes.
The modern office worker gets no formal training in software all
his life. The modern knowledge worker learns major tools (e.g. a
programming language) and often puts in enormous effort for these.
But for the rest, the ordinary flow of day to day life,
where new software systems come up all the time, is done without
formal training.
Once the modern office worker faces high quality UI design from
google and such like, where there is zero training and zero marketing,
it became much harder to accept training. Standards have changed; in
the olden days, people would actually try to learn. Today, knowledge
workers are willing to get training in programming languages (e.g. R
or Stata) but not in applications. The MBAs are generally
training-proof.
3. All of us got busy
There was a time when one purposedly went about the work day
systematically doing certain things with certain software
tools. Knowledge workers have become deluged with information and
with stimuli. We have gone from being an information scarce economy
to being an attention scarce economy.
Software and information systems are now competing for the
attention of the user. The scarce resource is now the mind share of
the user. This is linked to the problem of user interfaces. If
something has a complicated user interface, and there are a hundred
other tasks that need to be done, the user ignores the complicated
thing. Software systems that don't fly immediately just die.
4. Peers determine where attention is directed
In a world where the knowledge worker is bombarded with hundreds of
things every day, what does he do? He tends to direct his scarce
time into the things that come well recommended. The
recommendations of respected peers are supremely important in
determining what a person does.
High powered sales compaigns have lost power. The person just asks
his friends what they do. The impulses through the day coming into
each person - over email, IM, twitter, social networks, etc. - are
the de facto controllers of the persons' time.
Peers are thus the gatekeepers to the user. The stuff that is
striking and remarkable gets noticed and pointed to friends. What
gets pointed tends to get a high google pagerank.
The importance of high pressure sales dropped. Some of the most
successful firms got by with negligible sales departments. Their
stuff was intuitive and good, and got immediately picked up.
5. Network effects leading to user generated content
The old model was one of corporations producing information and
users consuming information. In that power structure, the user was
only a source of revenue.
In the new world, the critical story is about kicking off network
effects. The systems that win are those that get better because of
one more user interaction.
At the simplest, user interactions kick off impulses to peers which
brings in more customers (viral marketing). But very soon, user
interactions generate relevant data. Google watches what users click
and uses that to improve search. Amazon tells you that the people
who liked this book also liked that book. Amazon has user-generated
content in terms of reviews.
Good systems create a warm and supportive environment in which
users contribute bug fixes, feature suggestions. These systems ride
the power of user eyeballs and brains to get better. The power
structure has changed. IBM DB2 used to be designed in a temple and
then went out to the helpess masses. Google's world is critically
linked to the users at so many levels (a receptive environment for
bug reports, feature requests, user generated content, and usage
data being turned back into strengthening the system).
The bottom line: Successful designers found ways to harness every
single user and user interaction to build the quality, the content
and the footprint of the system. Stalinist structures, which
disempowered the user and treated him only as a source of revenue,
stand isolated and stagnant.
6. Loss of power of enterprise IT
In the old world, enterprise IT mattered more. Grave decisions were
made by enterprise IT managers and then thousands of users fell in
line. In the new world, users forge ahead with their laptops and
tablets and mobile phones, exercising enormous autonomous choice
about how they spend their time. Consumer considerations, and the
loyalty of each individual user, are far more important than they
used to be. The enterprise IT department is much less of a
gatekeeper. In the olden days, hardware and software was sold to
enterprise IT, which made decisions for everyone inside the
organisation. In the new world, usage is won one user at a time, and
it is contestable every day.
7. CPUs became too cheap to meter
In the old world, computation was something scarce. The money that
went into building data centres was carefully weighed. System
designers carefully did things that were parsimonious in the use of
CPU.
With the rise of parallel computation, bringing 1000 CPUs into a
problem became cheap. Successful designers were those that found
ways to deploy incredibly large amounts of computer power to do
things that delight users. Google and amazon are spending millions
of clock cycles in the back end, thinking about how to handle the
next move, as the mouse cursor moves! When faced with a choice
between doing something nice that users will like, versus doing
something that saves compute power, the former always won.
8. Unexpected revenue sources
Who would have imagined that an ad agency would become the most
powerful author of operating systems for mobile phones in the world?
When hardware got dramatically cheap, and the Internet generated
access to eyeballs on an unimaginable scale, new revenue models came
about which were surprisingly different from the way we used to
think earlier.
Posted by Ajay Shah (noreply@blogger.com) on January 15, 2012 07:23 PM· permalink
A nice pair on UIDAI from the Economist: The
magic number and Reform by numbers.
Trampling on the individual in India: Akshaya
Mishra on Firstpost.
Devangshu
Datta in the Business Standard.
Ila
Patnaik, in the Indian Express looks at Italy and
worries about India.
Kanika
Datta in the Business Standard on the Bombay Club.
Authoritarian India at its worst.
Ila
Patnaik in the Indian Express worries about the economic
consequences of NREGA.
Ila
Patnaik in the Indian Express on RBI's thinking about new
entry by private banks.
A great article on India's energy-fiscal mess
by Urjit
Patel, a rare person who understands both.
Tamal
Bandyopadhyay in Mint, and Ila
Patnaik in the Indian Express, on RBI's use of capital
controls to combat rupee depreciation.
In the Indian
Express, Ila
Patnaik reminds us to avoid adventurism in the use of reserves
for buying natural resources.
Shahan
Mufti has a great article in Business Week on the
supply chain problems that the US faces in Afghanistan.
I have often worried
that we
are not as bright as we used to
be. Mark
Pagel has an argument about why that might be.
Fundamental
progress on payments by Russ Jones. I'm not a lawyer, but it's a
fair guess that Square will be banned in India.
I just
re-read James
Buchanan's 1986 Nobel prize speech.
Once the public goods
of a
strong statistical system are in place, the real challenge
becomes the brainpower that is deployed into thinking about the
data. In India, we don't
have half
decent maps data in the public domain. But once high quality
maps data becomes freely available, things
change. Seth
Stevenson on Slate tells a story of a beautiful design
for a humble problem: a map.
Posted by Ajay Shah (noreply@blogger.com) on January 15, 2012 07:02 PM· permalink
It is a time for deep thinking about what has gone wrong in
India. Here are a few excellent takes:
As we watch many train wrecks in India unfold in slow motion,
Timothy
W. Ryback in the New York Times reminds us about that
ineffable substance of the human soul ... that shapes individual
decisions and ultimately determines the course of actions, both
large and small, that constitute the chain of events we know as
history.
Posted by Ajay Shah (noreply@blogger.com) on January 13, 2012 04:53 PM· permalink
And so it came to pass that, after my aggressive little note on GFC-1's causes found in securitization (I, II, III, IV), I am asked to describe the current, all new with extra whitening Global Financial Crisis - the Remix, or GFC-2 to those who love acronyms and the pleasing rhyme of sequels. Or, the 2nd Great Depression, depending on how it pans out. Others have done it better than I, but here is my summary. Part 1. In 2000, European countries joined together in the EMU or European Monetary Union. A side-benefit of this was the Bundesbank's legendary and robust control of inflation and stiff conservative attitude to matters monetary. Which meant other countries more or less got to borrow at Bundesbank's rates, plus a few BPs (that's basis points, or hundredths of percentage points for you and I). Imagine that?! Italy, who had been perpetually broke under the old Lira, could now borrow at not 6 or 7% but something like 3%. Of course, she packed her credit card and went to town, as 3% on the CC meant she could buy twice as much stuff, for the same regular monthly payments. So did Ireland, Portugal, Greece and Spain. Everyone in the EMU, really. The problem was, they still had to pay it back. Half the interest with the same serviceable monthly credit card bill means you can borrow twice as much. Leverage! It also means that if the rates move against you, you're in it twice as deep. And the rates, they did surely move. For this we can blame GFC-1 which put the heebie-jeebies into the market and caused them to re-evaluate the situation. And, lo and behold, the European Monetary Union was revealed as no more than a party trick because Greece was still Greece, banks were still banks, debt was still debt, and the implicit backing from the Bundesbank was ... not actually there! Or the ECB, which by charter isn't allowed to lend to governments nor back up their foolish use of the credit card. Bang! Rates moves up to the old 6 or 7%, and Greece was bankrupt. Now we get to Part 2. It would have been fine if it had stopped there, because Greece could just default. But the debt was held by (owed to) ... the banks. Greece bankrupt ==> banks bankrupt. Not just or not even the Greek ones but all of them: as financing governments is world-wide business, and the balance sheets of the banks post-GFC-1 and in a non-rising market are anything but 'balanced.' Consider this as Part 0. Now stir in a few more languages, a little contagion, and we're talking *everyone*. To a good degree of approximation, if Greece defaults, USA's banking system goes nose deep in it too. So we move from the countries, now the least of our problems because they can simply default ... to the banks. Or, more holistically, the entire banking system. Is bankrupt. In its current today form, there is the knowledge that the banks cannot deal with the least hiccup. Every bank knows this, knows that if another bank defaults on a big loan, they're in trouble. So every bank pulls its punches, liquidity dries up, and credit stops flowing ... to businesses, and the economy hits a brick wall. Internationally. In other words, the problem isn't that countries are bankrupt, it is that they are not allowed to go bankrupt (clues 1, 2). We saw something similar in the Asian Financial Crisis, where countries were forced to accept IMF loans ... which paid out the banks. Once the banks had got their loans paid off, they walked, and the countries failed (because of course they couldn't pay back the loans). Problem solved. This time however there is no IMF, no external saviour for the banking system, because we are it, and we are already bankrupt. Well, there. This is as short as I can get the essentials. We need scholars like Kevin Dowd or John Maynard Keynes, those whos writing is so clear and precise as to be intellectual wonders in their own lifetimes. And, they will emerge in time to better lay down the story - the next 20 years are going to be a new halcyon age of economics. So much to study, so much new raw data. Pity they'll all be starving....
Posted by iang on January 08, 2012 12:12 PM· permalink
Last year has been quite about foreigners running out the door, while domestic institutions have been buying.
And if you want to see the scale, let's invert the FII figure and track them together:
FIIs sold over 26,000 cr. worth of cash securities, which is about $5 billion.
Posted by Deepak Shenoy on January 05, 2012 06:49 AM· permalink
Reliance Industries (RIL) has sold its stake in media entity Eenadu to TV18, in a convoluted complicated deal quite characteristic of RIL and TV18. Let me help you decode.
First, the more recognized sources:
What is the deal?
1. RIL owns stake in Eenadu TV. 100% in regional news and entertainment channels, and 49% in telugu channels of ETV. This was purchased for 2600 cr.
2. RIL is selling part of this to TV18 - the full 100% of the regional news channels, but only half of their stake in the entertainment and Telugu channels. (TV18 will still get the right to buy the rest of Reliance stake, but we don't know at what price)
3. TV18 will pay Rs. 2100 cr. for this, according to their Press Release. Reliance, in it's press release, says the stake in the channels is "being profitably divested". We'll revisit this.
4. But TV18 doesn't have the money.
5. So they're going to fund the purchase through a mega rights issue of Rs. 2700 cr. "Rights" means existing shareholders get to buy in the proportion of their holding, not outsiders.
6. More than 50% of TV18 is owned by Network18 (the parent), which also doesn't have the money even to buy into the rights issue.
7. Therefore, even Network18 will announce a total fund raise of Rs. 2700 cr. Due to the cross holding, the total amount actually raised will be Rs. 4,000 cr.. Out of this, the promoters - read: Raghav Behl and the like - will put in Rs. 1700 cr.
8. But even the promoters won't put most of the money themselves - instead, they will get money from Reliance! They will borrow money from "Independent Trust" which is an RIL entity, and the borrowing will be "optionally convertible" to shares. We don't know more details, but this is quasi ownership, through optionally convertible debentures.
9. Infotel, that RIL investment in 4G and BWA, gets all the Eenadu and TV18 web and media content as a "preferred" partner to sell through its pipes. We don't know when, though.
Result
TV18 gets access to the Eenadu TV portfolio. Raghav Bahl retains control of TV18 and Network18, until Reliance decides to convert its ownership to equity.
Reliance gets official entry into media (till now the holdings weren't so well known), and gets to record a profit. Infotel gets content to sell through its pipe, when that happens.
TV18 and Network18 went up 20% each yesterday, and are up 7-10% today already. Reliance has gone up 2.5%.
Reliance pays itself and makes a profit?
Reliance is paying TV18 promoters who will buy into a TV18 rights issue which gives TV18 the money to buy from Reliance. That is what this deal is, and the beauty is in the books:
Reliance has sold part of its media investment, at what they say is a profit. That means they get to record a profit in the Jan qtr or whenever the deal is finalized. (And they funded that purchase, so they "bought" profits!) The funding part is a balance sheet item and changes nothing on the profit and loss statement.
Now Reliance bought for 2600 cr. and TV18 is buying for 2100 cr. - where is the profit? Reliance retains a part of their media holding in Eenadu, which I am sure will be valued at >500 cr. (some banker will certify it - who's to disagree?). That gives Reliance the profit - we don't know how much, though - that might only be visible next qtr.
RIL and Media companies?
A source - anonymous - writes about how, through a web of companies, Reliance has been building its own entry into the media space. The deal goes through Nimesh Kampani (who fronted the ownership, buying into Eenadu in 2008, and who is close enough to have mediated talks between the Ambani brothers) and then a slew of cross-held private companies.
Who's going to buy into the rights issue?
Apart from the promoters, that is. They haven't got the prospectus to SEBI yet, and I'm looking forward to the juicy details. We don't know the price (Network18 is less than Rs. 60 a share, and TV18 less than Rs. 40 - both are significantly higher than their pre-announcement prices).
We don't know who will buy - the share is likely to go up to "excite" people, and will be managed quite well by speculators.
Strangely, a good part of promoter stake is owned by "Senior Professional Welfare Trust"; This is the entity which borrows money, using Network18's holdings as collateral! Oh, such circular logic - these two companies deserve each other.
And wait, let's look at the market capitalization of these companies:
Network18 has 14.26 cr. shares. Even at today's price of Rs. 53, that's a market cap of 756 cr.
TV18 Broadcast has 36.21 cr. shares. At today's price of Rs. 38, that's a market cap of 1376 cr.
Both these companies are raising 2700 cr. each through rights issues. That is quite remarkable, and it'll be interesting to see who buys in. It'll take an awesome bull market to pull this off - and to get the FIIs and mutual funds to buy in as well. It'll depend on the pricing of the issue, and then the market price.
Is there a trade?
I'm not touching Network18 right now. (I can't stand the market manipulation in the stock - not blaming entities, but this share behaves as if it's rigged). But the trade in it will be to let the euphoria die and then short it.
As for Reliance, this won't impact them much.
Disclosure: no positions.
Now open to more questions and revelations. Thanks for reading.
Posted by Deepak Shenoy on January 04, 2012 05:40 AM· permalink
Technicals are flashing Stop Sign to Tata Motors stock. But will the stock stop? Tata Motors Chart Source: Chartalert.com As you can see in the chart above: Tata Motors is at 200 dma. The last two times it rallied to 200 dma: it failed. So, will this time be same or different? What does this [...]
Posted by Deepak Singh on January 04, 2012 01:57 AM· permalink
Highest Paid Deposit As on January 2012 -Senior Citizen and Normal Rate
| Institution |
Duration |
Rate |
Senior Citizen |
Deposit Amount Restrictions |
| Lakshmi Vilas Bank (LVB) |
1 year-2 years |
10.5 |
10.75 |
|
| Tamilnad Mercantile Bank (TMB) |
1 year-2 years |
10.25 |
10.5 |
Must be atmost Rs. 1 crore |
| Catholic Syrian Bank (CSB) |
375 days-990 days |
10.1 |
10.6 |
Must be atmost Rs. 50 lakhs |
| City Union Bank (CUB) |
1 year-3 years |
10 |
10.25 |
Must be atmost Rs. 1 crore |
| Development Credit Bank (DCB) |
540 days |
10 |
10.5 |
Must be atmost Rs. 1 crore |
| Karur Vysya Bank (KVB) |
1 year-2 years |
10 |
10.5 |
|
| Ratnakar Bank |
1 year-2 years |
10 |
10.5 |
Must be atmost Rs. 1 crore |
| Dhanalakshmi Bank (Dhanalaxmi Bank) |
500 days |
9.75 |
10.25 |
Must be atmost Rs. 15 lakhs |
| Federal Bank |
1 year |
9.75 |
10.25 |
Must be atmost Rs. 1 crore |
| Karnataka Bank |
1 year-2 years |
9.75 |
10.25 |
Must be atmost Rs. 5 crores |
| Oriental Bank Of Commerce (OBC) |
1 year-2 years |
9.75 |
10.25 |
Must be atmost Rs. 1 crore |
| Punjab and Sind Bank (PSB) |
500 days |
9.75 |
10.25 |
Must be atmost Rs. 1 crore |
| South Indian Bank (SIB) |
1 year-2 years |
9.75 |
10.25 |
Must be atmost Rs. 1 crore |
| State Bank Of Patiala (SBP) |
555 days |
9.75 |
10.25 |
Must be atmost Rs. 1 crore |
| Corporation Bank (CorpBank) |
1 year |
9.65 |
10.1 |
Must be atmost Rs. 15 lakhs |
| Dena Bank |
1 year |
9.6 |
10.1 |
Must be atmost Rs. 1 crore |
| YES Bank |
465 days-480 days |
9.6 |
10.1 |
Must be atmost Rs. 15 lakhs |
| Allahabad Bank |
1 year-2 years |
9.5 |
10 |
Must be atmost Rs. 1 crore |
| IDBI Bank |
500 days |
9.5 |
10 |
Must be atmost Rs. 1 crore |
| Indian Overseas Bank (IOB) |
1 year-2 years |
9.5 |
10 |
Must be atmost Rs. 1 crore |
| IndusInd Bank |
400 days |
9.5 |
10 |
Must be atmost Rs. 1 crore |
| ING Vysya Bank |
367 days-500 days |
9.5 |
10 |
Must be atmost Rs. 1 crore |
| Kotak Mahindra Bank |
701 days-2 years |
9.5 |
10 |
Must be atmost Rs. 15 lakhs |
| Nainital Bank |
1 year-2 years |
9.5 |
10 |
Must be atmost Rs. 15 lakhs |
| State Bank Of Bikaner and Jaipur (SBBJ) |
1 year-3 years |
9.5 |
10 |
Must be atmost Rs. 50 lakhs |
| State Bank Of Hyderabad (SBH) |
500 days |
9.5 |
10 |
Must be atmost Rs. 1 crore |
| State Bank Of Mysore (SBM) |
1 year-2 years |
9.5 |
10 |
Must be atmost Rs. 1 crore |
| State Bank Of Travancore (SBT) |
500 days |
9.5 |
10 |
Must be atmost Rs. 15 lakhs |
| UCO Bank |
1 year-2 years |
9.5 |
10 |
Must be atmost Rs. 5 crores |
Highest Paid Deposit As on January 2012 -Senior Citizen and Normal Rate is a post from: First Blog for Indian Financial Market
Posted by Lalitha on January 03, 2012 03:48 PM· permalink
Markit has released the Purchasing Managers Index (PMI) for Dec 2011, which is up to a high value of 54.2 (remember, lower than 50 is contraction, above 50 is expansion).
This comes after three tough months of touching close to 50; interestingly, they say:
All in all, these numbers suggest it's premature for the RBI to replace inflation with growth
as the main concern.
Inflation still remains stubbornly high - and I'm sure the dollar situation with the rupee will show up in inflation numbers for Dec or Jan.
Note that this is only manufacturing. The true picture will come only after the services PMI is released, which will be on the 4th.
Posted by Deepak Shenoy on January 02, 2012 08:18 PM· permalink
And to continue with the 2011InCharts theme, we have the market snapshot since the highs of 2008:
(Click for larger pic)
We're at a 16.75 P/E and near recent lows - and below both long-term moving averages. Sectors in 2011:
Rea; estate was destroyed by over half; infrastructure by 39%. Banks and Midcaps were down over 30%, and the only sector that looked good was FMCG, up 8.4%. A bad year for everyone except those selling soap and toothpaste!
Posted by Deepak Shenoy on January 02, 2012 06:45 AM· permalink
Remember in 2007 how they would tell you that the markets would return great money over five years? Well, you could have gotten better returns in a 3.5% savings account, it turns out.
(All returns are annualized)
The 1 year return is -25%.
The 3 year return is 16.5% after the huge dip in 2008; if we don't recover by May, when the index went back up to the 12000 levels on the Sensex, we will see even the three year return go to single-digits.
The 10 year return is a good 16.7%, which is due to the crash in 2001 (lower base). But that dip continued till July 2003, so unless the markets dip substantially from here, I expect the 10 year rolling return to stay above 10% (per year).
But what's interesting is that in the last five years, the Indian GDP has nearly doubled to 80 lakh crore. The Indian markets, though, have gone nowhere.
Posted by Deepak Shenoy on January 02, 2012 06:32 AM· permalink
The great monthly chart shows Nifty and Sensex Monthly Returns since, well, since a long long time. December, despite historically being a great month, went down -4.3%.
That means we have had 9 losing months in the year - the only three positive months were March (+9%), June (+1.6%) and October (+7.8%). It has been a hugely volatile year.
2011 was the second worst year since the NSE was started, with -25% on the index. It was second only to 2008 which was twice as worse, with a -52% return.
2011 had the dollar falling nearly 17% so the net return, in dollar terms, is -42%.
The Sensex too has had the second worst year ever:
Annual Nifty Returns
The last 10 years have mostly been positive; before 2008's debacle, the worst year was 2001 with -16.2%.
(This is part of my "2011InCharts" package which I'm preparing over the next few weeks)
Posted by Deepak Shenoy on January 02, 2012 06:18 AM· permalink
Nifty has mildly pulled back in last 3 trading days and there is only one sector responsible for bulk of the damage. Sector: Bank Nifty As you can see in the chart above: Bank Nifty has given up all the gains and is back to levels where it was 5-trading days back unlike Nifty which [...]
Posted by Deepak Singh on December 28, 2011 01:44 PM· permalink
With a turnover of just 5138 cr., December 26, 2011 has taken volumes to a (near) five year low.
(You have to ignore Diwali Mahurat trading days, the big upper circuit day in May 2009 and a few saturdays of test trading by the NSE)
The chart says it all. Markets are dying.
Posted by Deepak Shenoy on December 27, 2011 08:24 AM· permalink
Is market trying to move past 2011 problems and look for newer things in 2012? Remember, the job of market is to move from one set of issues to another. The Basic Argument The market does not wait for solution to move on. All it needs is some light at the end of tunnel and [...]
Posted by Deepak Singh on December 27, 2011 02:09 AM· permalink
Patrick Chovanec has a fascinating article in Foreign
Affairs, titled China's
Real Estate Bubble May Have Just Popped. This is interesting
and important from two points of view.
First, bad news for China is bad news for the world economy. We are
already in a bleak environment, with difficulties in Europe, Japan,
the US, and India. It will not be pretty if China runs into trouble as
well. I am reminded of the feeling of carefully watching real
estate in the United States in 2006, with a sense that the future
of the world economy was going to turn on how it turned out.
Second, it made me think about real estate in India. As with China,
one often sees buyers of real estate in India have the notion that
this is a safe financial asset. This
is a
questionable proposition. Real estate is perhaps not an asset
class with a positive expected return in the first place; and it is
certainly not a convenient asset class with features like liquidity,
transparency, diversification and easy formation of low-volatility
diversified portfolios. I find it hard to explain the prominence of
real estate in the portfolios of even educated people in India.
In the article, Chovanec says:
For more than a decade, they have bet on longer-term demand trends by
buying up multiple units -- often dozens at a time -- which they then
leave empty with the belief that prices will rise. Estimates of such
idle holdings range anywhere from 10 million to 65 million homes; no
one really knows the exact number, but the visual impression created
by vast `ghost' districts, filled with row upon row of uninhabited
villas and apartment complexes, leaves one with a sense of investments
with, literally, nothing inside.
This has not happened in India. So in this sense, the situation in
India is not as dire. But his second key message seems uncomfortably
close:
As 2011 progressed, developers scrambled for new lines of financing to
keep their overstocked inventories. They first relied on bank loans
(until they were cut off), then high-yield bonds in Hong Kong (until
the market soured), then private investment vehicles (sponsored by
banks as an end run around lending constraints), and finally, in some
cases, loan sharks. By the end of last summer, many Chinese developers
had run out of options and were forced to begin liquidating
inventory. Hence, the price slashing: 30, 40, and even 50 percent
discounts.
Part of this looks familiar. There is a lot of leverage in Indian
real estate development and speculation. Real estate speculators and
developers are finding themselves in a bit of a scramble hunting for
credit. One hears about very high interest rates being paid by
developers. Other sources of financing are
also weak. This reminds me of the
dark days before the global crisis, when borrowing by real estate
companies was the canary in the coal mine.
If business cycle conditions and financial conditions worsen, the
problems of borrowing by real estate developers and speculators will
get worse. How might this turn out? Perhaps the borrowers will merely
get uncomfortable. Or, a few firms could really get into trouble,
and start liquidating inventory. That would have substantial
repercussions.
Suppose there is a situation where there are many people who have
speculative positions in real estate, but significant selling of
inventory has not yet begun. The longs would then be nervously looking
at each other, wondering who would be the first one to sell, to take a
better price and exit his position. The ones who sell late would get
an inferior price. In such a situation, conditions could change
sharply in a short time.
On a longer horizon, I would, of course, be delighted if real
estate prices are lower. This would help shift the supply function of
labour, reduce the cost of setting up new businesses, etc. But that's
more about the long-term policy changes, which would remove barriers
for converting land into built-up housing, while rising vertically
into the sky with FSI in Indian cities ranging from 5 to 25.
Posted by Ajay Shah (noreply@blogger.com) on December 24, 2011 12:36 PM· permalink
Heart Break for Bears and Minor relief for Bulls Heart Break = False Breakdown There is nothing more disturbing to trend traders than a pattern failure Source: Chartalert.com As you can see in the chart above: Nifty formed a Head and Shoulder pattern over a long period of time and then it broke down this [...]
Posted by Deepak Singh on December 23, 2011 06:14 AM· permalink
A quick post about how the markets have done over the last few days, in both reaching a two year low (lowest since August 2009) and then doing a 4% recovery over two days.
(Click to enlarge)
The slope of the 50 and 200 DMA are now down and it looks like the index is headed downwards. Strong technical support exists at 4,500 but nowadays strong is a relative word; news flow can be much stronger.
Posted by Deepak Shenoy on December 23, 2011 03:26 AM· permalink
Gold prices have come off quite sharply in last few days and few analysts are now busy writing obituaries of Gold Bulls. Is it all over for Gold? The Technical Structure of Gold Bulls live above 200 dma whereas Bears live below it The most alarming thing that has happened in last few days: The [...]
Posted by Deepak Singh on December 21, 2011 03:50 AM· permalink
US markets staged an impressive U turn overnight. The most bullish thing a market can do is to GO UP What happened overnight in US market? The market has been so depressed off-late that a small dose of positive news emanating from Europe and US sparked off a mega rally. As you can see on [...]
Posted by Deepak Singh on December 21, 2011 01:11 AM· permalink
Posted by Ajay Shah (noreply@blogger.com) on December 16, 2011 09:39 PM· permalink
For the week ended 3 December 2011, Primary Articles Inflation contracted to 5.48%. This is largely food and a good crop has made prices come down.
I believe we will see inflation go temporarily negative at this rate, though the rise of the dollar will percolate into the system and raise prices very soon.
Posted by Deepak Shenoy on December 15, 2011 10:40 AM· permalink
The RBI rates for the dollar are nearing the 54 mark, with a record 53.577 touch today. It supposedly traded at 53.80 also in the spot market, and is at 53.81 in the USDINR futures market.
This is gonna hurt real bad.
Posted by Deepak Shenoy on December 14, 2011 05:11 PM· permalink
Above is a 60 minute plot. There is a contraction taking shape on the Bollinger Bands. Today there was a lot of chop and couple that with the contraction and you know there is a big move ahead. I think 4742 will break down tomorrow and the index is likely to retest 4650.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on December 14, 2011 10:48 AM· permalink
Back in the old days, I invented the five parties model so as to protect static assets that had to be protected. I don't have a good URL for it, because to a large extent I was still in my pre-naivete phase, in which I thought this stuff is basic engineering, don't bother me with doco. So in brief: A repository stores the metal, on behalf of the issuer of a financial instrument. A signatory, independently to the issuer signs incoming and outgoing metal, so as to stop the secret sales of metal. A Manager receives customer metal and disburses out of a kitty, and interacts via the signatory into the repository for large amounts. Finally, all of the preceeding 4 parties publish reports in real time to the fifth party, the public, who relies on the reports to guard against fudged account and re-use of assets, a.k.a. theft and fraud. It's as easy as 1,2,3,4,5. Or so I thought: ...just ask Gerald Celente what happened to his so-called gold held at MF Global, or as it is better known now: "General Unsecured Claim", which may or may not receive a pennies on the dollar equitable treatment post liquidation. What, however, was less known is that physical gold in the hands of the very same insolvent financial syndicate of daisy-chained underfunded organizations, where the premature (or overdue) end of one now means the end of all, is also just as unsafe, if not more. Which is why we read with great distress a just broken story by Bloomberg according to which HSBC, that other great gold "depository" after JP Morgan (and the custodian of none other than GLD) is suing MG Global "to establish whether he or another person is the rightful owner of gold worth about $850,000 and silver bars underlying contracts between the brokerage and a client." In short, the legal titleholder of the silver (MF Global) seems to have re-used the metal of customers, in a process known as hypothecation. Apparently legal, but definately dodgy. As, when MF Global went down due to increasing margin calls on dodgy financial calls, the creditors were left to sort out the opposing positions. Which causes a crisis in faith in the system itself: Silver positions are being liquidated by COMEX traders after the MF Global fiasco uncovered the fragility of paper assets. ... The issue has been worsened as the CME Group has been unable to refund investor money even after a month after the MF Global filed for bankruptcy. Many traders have pulled out their money from the markets while many are advising others to close their paper trading accounts and instead focus on the physical metal itself. Now, my view on this was clear: don't do that! The metal held on trust should have been simply held with one-to-one ties between the physics and the paper. Although it is common practice with other assets to loan out customer assets ( http://www.zerohedge.com/news/shadow-rehypothecation-infinte-leverage-and-why-breaking-tyrrany-ignorance-only-solution ) that shouldn't be done with gold or arguably with silver. Precious metal's special feature is its vote against the financial system, which it only preserves when done simply. Not in complexity. Another point of favourite polemic from those days was whether the gold was ever really there in the first place. Many observers didn't really trust the repositories, a point which was underscored when LBMA announced a few years back that for the first time in around a century, it would start assaying bars at random. How do we know the bars that have been in there for decades are really bars at all? Auditing technique such as point-in-time spot checks are good ones for flushing out long-lived frauds: tell me right now, on the spot, which is my gold! And then I'll count it. Maybe assay it too. My idea here in the sense of open governance was to have well known representatives of the body public come in and also audit the stuff. Unlike auditors who were hopelessly conflicted, the five parties thesis said that users could be responsible for auditing the system, *iff* they were given the tools. Then, I too would be delighted that this idea has come of age: ... we were delighted to see that after years of ridicule and provocations, the SPDR GLD ETF finally cracked and decided to do a wholesale PR campaign to comfort the investing public it actually does own its gold, by inviting none other than Bob Pisani in its secret warehouse which allegedly contains 40 million ounces of gold, When an unbiased user goes in there and touches the gold, she has no particular incentive to do anything than report what is seen. All parties are incentivised to make it real. Or so we thought: While the 4 minute PR campaign is enjoyable and we invite readers to watch it, what is amusing is that it is sure to set off another set of conspiracy theories. Here's the reason: amusingly the very gold bar that Pisani demonstrates so eagerly for the camera, Rand Refineries ZJ6752, is somehow, at last check, missing from the full barlist as posted daily by the GLD. Whose is it? Where did it go? When was this clip shot? Inquiring minds want to know... Oops! Not their bar... At the direct level, the visit by none-other-than Bob Pisani proved *NOTHING* about the reserves of gold. It did show that the issuer SPDR GLD ETF felt that it could do a pretty marketing presentation, and that would substitute for real governance. It did however prove everything about the five parties model and the wider question of open governance: The User closes the circle, if the circle exists and can be closed. Read the above post for the conspiracy theories and supporting analysis that the bar so displayed was not "in the vault" at all. I'll just leave you with this insight into open governance: Our advice: please tell your client HSBC to open up its vault to general observation and assay: at that point, we are confident all conspiracies will end. Until then, be prepared to be retained by HSBC on a frequent basis as more and more ask themselves: what is really in that vault? The users have called SPDR GLD ETF's bluff. Is there gold in the vaults? To me, this stinks, and raises a sell question over SPDR GLD. Just as you insist on real gold in your real issuance of Internet gold, don't go short on the governance. Insist on full open governance with five parties in control. Demand those reports, insist on independent visits. Now, more than ever. Chances are good that everyone will see their governance model tested within the next 12 months....
Posted by iang on December 14, 2011 05:15 AM· permalink
Follow me on Twitter I am active on twitter. You can follow live updates about market, Nifty support, resistance, trading ideas, thoughts and random updates on economy. My Twitter URL: http://twitter.com/smarket The Best way to read state of the market updates on twitter:
Posted by Deepak Singh on December 13, 2011 11:30 PM· permalink
China's
Pakistan Conundrum by Evan A. Feigenbaum, in Foreign Affairs.
The most important task of government is the public goods of law
and order: laws, courts and judiciary. The first step towards
strengthening these lies in sound measurement. Writing
in Pragati, Sushant
K. Singh has an excellent article on the problems of measurement
of crime in India.
An
independent judiciary by Ruma Pal.
Devesh
Kapur, in the Business Standard, on the HR crisis in
the Indian State.
Shyam
Saran in the Business Standard on a more sensible
approach that we should bring to intra-South-Asia logistics.
The lack of freedom of speech in
India: Karan
Singh Tyagi in the Hindu.
Amit
Rai writes in the Times of India about the mistakes of
the legal actions following the AMRI fire.
Mobis
Philipose in Mint on how charges by exchanges have made
a difference to the currency futures market.
Every advocate of a big spending Indian government should ponder
this
article about Greece by Landon Thomas in the New York
Times.
Dreze and
Sen on what India does right and wrong. We may not agree with
most of this, but they are smart people and it's worth reading.
Hard times at
UTI: Anirudh
Laskar and Vyas Mohan in Mint,
and Niladri
Bhattacharya and N. Sundaresha Subramanian in Business Standard.
Air
India
and Maharashtra
PSUs remind us, in interesting ways, about why government
should not be in business.
Martin
Feldstein explains what went wrong with the Euro.
Look at profiles
of Mario
Monti, who will try to fix Italy,
and Loukas
Papadimos, who will try to fix Greece. I guess that every now
and then, the professional politicians foul up big time, and then
bring in the economists to clean up. It reminds me of a perspective
by C. B Bhave on urban governance in India: when things are going
well, the politicians want an accomodating civil servant; when the
city goes to hell, they want a tough competent one. Also
see Greece
and Italy Seek a Solution From Technocrats by Rachel
Donadio in the New York Times.
Charles
Moore looks back at the story of Maggie Thatcher, who ended
Britain's long decline in the 20th century.
Read Larry
Summers in the Financial Times on the problem of
inequality and three things that need to be done about it.
Two important platforms for modern web development were Flash and
HTML5. It
now looks
like Flash
is dying. Looks
like Steve
Jobs was right on one more thing.
Posted by Ajay Shah (noreply@blogger.com) on December 11, 2011 08:13 PM· permalink
I spent over a decade building the snappiest financial system around. In that time I pursued one goal of efficiency: reduction of complexity. This wasn't only goodness in an angelic sense, it was a pragmatic goal to reduce my own costs in building systems. The result was pretty spectacular: we were settling trades in seconds and doing so with every leg firmly fastened to the ground. That is, the whole thing was running with direct concrete ties to assets. But, the big players weren't interested. Indeed they were more than uninterested, they were highly interested in making sure this would never ever happen. Time after time, the message was delivered: Never. Other companies received the same message, so after a few years, I started to take it seriously. At the time I hypothesised that the reason for this was insider fraud, or at least profits capture. The complexities were endemic and there were very few people who could see the whole picture. So, I theorised that those who could understand the complexities were cashing in on their advantage; from the inside. And some very few who cashed in were also driving the information agenda, as their success made them both wealthy and influential: more complexity! Of course such a hypothesis is unlikely to find proof. By its very nature, how do you prove such a tendency towards chaos? Here comes an alternate perspective from ZeroHedge, citing two papers (1, 2): And the punchline: "Liquidity requires symmetric information, which is easiest to achieve when everyone is ignorant. This determines the design of many securities, including the design of debt and securitization." Reread the last statement as it explains perhaps better than anything, the true functioning of modern capital markets and why they are terminally broken: in order to preserve the system, the banking cartel need to make everything of virtually infinite complexity so that no one has a clear understanding of what is going on! Consider the perfect market hypothesis: the market already has all the information priced in, so you yourself cannot beat the market. Or, more politely, you get to earn the market rate of return, so you may as well invest in a unit fund that covers the entire market. Although this hypothesis is proven, and proved time and time again (look at the averaged hedge fund returns against stock market returns over time), it is also clear that, at the limit, the hypothesis is impossible: if the market already knows, no new information will come to the market. In which case it gums up. (Leaving aside temporal arguments for now.) So, the market also defends itself by creating reasons to bring in new information. ZeroHedge highlights Gorton & Metrick's punchline: "Liquidity requires symmetric information, which is easiest to achieve when everyone is ignorant. This determines the design of many securities, including the design of debt and securitization." The market promotes impenetrable securities, which promotes Ignorance, which generates symmetric information, and hence liquidity. QED. Well, we're all on the same page. Banks support e.g., OTC or over-the-counter market, and will kill to preserve it, because it creates symmetric information. a.k.a ignorance, leading to profits. Meanwhile, I invented the Ricardian Contract which created an excessively visible and tangible chain of contract. These two concepts are at war, opposite poles of complexity versus transparency. Which is where sites like Zero Hedge step in - to expose "shadowy" places where things are best left unseen. Yeah. That's what I thought, too. As we watch the complexity-driven system implode it would be easy to assume that now is the time for transparency to rise from the ashes of Europe, thus to be renamed Phoenix. But, such a thought would be facile and naive in the extreme. A forlorn hope. The implosion of the world financial system doesn't make people any wiser, just poorer. Since when has the world responded to a crisis by getting smart? What Zero Hedge is really discovering is that rewards are there if you participate in being aware of the complexity. It is a proof of the hypothesis: wisdom emerges in understanding where the masses, the herd, have it wrong. It is not in itself an absolute, nor a way to save them. For anything good to arise, something else is needed....
Posted by iang on December 11, 2011 09:33 AM· permalink
New insurance premium is waning, says Sunaina Vasudev at BS. Overall, nwe premiums have fallen 21% with Reliance, Bajaj and ICICI seeing their new premiums cut but more than a third.
In quantity, LIC is the biggest player out there with about 36,000 cr. in new premiums, down from 45,000 earlier. But of the rest:
Posted by Deepak Shenoy on December 05, 2011 10:09 AM· permalink
Thomas Laubach will do a talk
titled Inflation:
Expectations, Targets and the Institutional Framework for Monetary
Policy at the NIPFP auditorium at 3:30 PM on December 9
(Friday). He is Professor at Goethe University in Germany. All are
welcome.
Posted by Ajay Shah (noreply@blogger.com) on December 02, 2011 05:22 PM· permalink
q: How big is the market for the rupee?
The rupee is now a big market. Summing across both spot and derivatives, perhaps $30 billion a day of onshore trading and $40 billion of offshore trading takes place. Both these markets are tightly linked by arbitrage. In other words, for all practical purposes, it's like NSE and BSE which are a single market unified by arbitrage. If you place a small order to buy 100 shares on either NSE or BSE, you get essentially the same price, and arbitrageurs are constantly at work equalising the price across both markets. It is a similar state of affairs between the onshore and the offshore rupee. Both markets are tightly integrated by arbitrage.
The offshore market for the rupee, and a large part of the onshore market, is OTC trading. Hence, the efficiencies of algorithmic trading and algorithmic arbitrage cannot be brought to bear on onshore/offshore arbitrage. So the arbitrage is done by manual labour. Still, it gets done. Both markets are tightly linked and show the same price. We should think of them as one market. It's one big market, it is one of the big currencies of the world, it's roughly $70 billion a day.
q: How might RBI do manipulation of this market?
If RBI wants to hit the market with orders big enough to make a difference, they have to be ready to do fairly big orders and to be able to do it on a sustained basis. As a rough thumb-rule, I might say that in order to make a material difference to a market with daily volume of $70 billion, they have to be in the market with atleast $2 to $3 billion a day.
q: What would go wrong if they tried this?
Three things would go wrong.
First, foreign exchange reserves are $275 billion. If RBI sells off $2.75 billion a day, the reserves would be quickly gone.
Second, when RBI sells dollars and buys rupees, this sucks liquidity out of the market. The side effect of selling dollars would be a sharp rise in domestic interest rates. In other words, monetary policy would get hijacked by currency policy. This would not be wise. Monetary policy should be focused on delivering low and stable inflation: it should have no ulterior motives. We have to make a choice: Do we want to use up the power of monetary policy to achieve domestic goals, or do we want to use up the power of monetary policy to achieve currency policy goals?
Third, suppose you and I saw a market price of Rs.45 per dollar, which is created by RBI and not a market reality. We would know that in time, the truth will out, that the price will go back to Rs.52 a dollar. The rational trading strategy for each of us would be: To sell any and every domestic asset, and shift money out of the country. This would trigger off an asset price collapse in India. We would take the money out, and wait for the distortion of the currency market to end. At that point (perhaps Rs.52 a dollar, perhaps worse) we would bring the money back to India and buy back our assets. We might make two returns here: first, on the move of the INR/USD from 45 to 52 (or worse) and the second, on the gain from the drop in asset prices.
q: Isn't it hard to take money out of India in this fashion?
It's
easier than we think. Remember September 2008? The mythology in our heads was: we in India are crouching safely behind a wall of capital controls. In truth, the wall wasn't there.
q: But until recently, RBI used to give us a pegged INR/USD exchange rate! What changed?
In late 2003, RBI ran out of bonds for sterilisation. Associated with that, there was a first structural break in the rupee exchange rate regime, with a doubling of volatility. A short while later, in March 2007, there was another structural break, with another doubling of volatility. From April 2009 onwards, RBI's trading in the market has gone to roughly zero. RBI stopped managing the exchange rate a while ago.
The exchange rate is the most important price of the economy. The decontrol of this exchange rate is the biggest achievement of the UPA in economic reforms. The credit for this goes to Y. V. Reddy and Rakesh Mohan (who took the first two steps of doubling exchange rate flexibility twice) and to Dr. Subbarao (who got out of trading on the currency market, which did remarkably little to INR/USD volatility).
q: Why did nobody tell me that something changed in the exchange rate regime?
RBI should be talking more transparently about what is going on. But they are not transparent about what they do. Even though hundreds of millions of people are affected by their trading on the currency market (or the lack thereof), the manual which governs their currency trading at any point in time (i.e., the documentation of the prevailing exchange rate regime) is not transparently disclosed to the people of India. We have to
decipher what is going on by statistically analysing exchange rate data.
The dates of structural break of the exchange rate regime are extremely important dates in thinking about what was going on in macroeconomics and international finance. Any time one is using data about exchange rates, interest rates, etc., it is important to work within one segment of the prevailing exchange rate regime at a time. It is wrong to pool data across many years. All users of data need to be careful in this regard.
q: So what might happen to the rupee next? Is there a `law of gravity' which will pull it back to erstwhile values of Rs.45 or Rs.50?
When you don't manipulate a financial market, the price time-series comes out to something close to a
random walk. In the ideal random walk, all changes are permanent. The random walk never forgets; there is no law of gravity which takes it back to recent values. Your best estimator of what it will be tomorrow is: what you see today.
In order to get a sense of what will come next, go through the following steps. First, go to INR/USD
options trading at NSE, and pluck out the implied volatility for the four at-the-money options. I just did that, and the values are: 10.43, 10.32, 10.33 and 10.08. Calculate the average of these four numbers. With the above four values, the average is: 10.3. (This is a quick and dirty method;
here is one which is much better).
This tells a very important thing: The options market believes that in the future, the volatility of the INR/USD rate will be 10.3 per cent per year.
In order to re-express this as uncertainty per month, we divide by sqrt(12). This gives the volatility for a month as : 3% per month.
Roughly speaking, the 95% confidence interval for what might happen over a month, then, runs from -6% to +6% (this is twice the standard deviation, which we just worked out was 3% per month).
The INR/USD is now Rs.51.62. By the above calculation, we can be 95% certain that one month from today, it will lie somewhere between 48.5 and 54.7.
These trivial calculations have been done by equity market participants for the longest time. It is a standard and trivial idea: To read the implied volatility off the Nifty options market, and to do such calculations to get a sense of what might come next with Nifty. But on the currency market, this is relatively novel. Only recently have we got a nice currency options market, and only recently have we got to a genuine market. Now these skills can be brought to bear on the currency market. It's a brave new world, one in which the operations of financial derivatives markets (Nifty options, INR/USD options)
produces forward-looking and timely information about the economy (implied volatility).
q: What changed in imports and exports which gave us the big recent move of the rupee?
The current account (goods, services, and then some) adds up to a mere buying and selling of $4 billion a day. The bulk of currency trading is about the capital account. The currency is a financial object; the exchange rate is
defined by financial considerations and not by current account considerations.
q: What happens to the Indian economy when the rupee depreciates?
This has been the source of a great deal of confusion and it's important to think straight about this. There are three important effects in play:
- Some people had borrowed in dollars, and left it unhedged since they were speculating that the INR would appreciate. They have got burned. That's okay - in a market economy, many people place bets about future fluctuations of financial prices, and half the time the speculator loses money. (If the rupee had not depreciated sharply, these speculators would have been truly joyous).
- When the rupee depreciates, imports become costlier and India's exports become more competitive. So exports (X) gradually start going up and imports (M) gradually start going down. The net gain in X-M is increased demand in the local economy. In this fashion, INR depreciation is good for aggregate demand (and conversely INR appreciation pulls back demand). However, we have to bear in mind that these effects are small and take place with long lags.
- Many things in India are tradeable. It is important to focus on the things that are tradeable and not just on the things that are imported. As an example, there are many transactions between a domestic producer of steel and a domestic buyer of steel. The buyer and seller are both in India. But the price at which they transact is the world price of steel (which is quoted in dollars) multiplied by the INR/USD exchange rate. This situation is called `import parity pricing'. Through this, the domestic prices of tradeables goes up when the rupee depreciates.
q: What is the impact of costlier tradeables for RBI?
RBI's job is to fight inflation. RBI must work to deliver year-on-year
CPI inflation (a.k.a. `headline inflation') of four to five per cent. When tradeables become costlier, domestic CPI inflation goes up. So the rupee depreciation has made RBI's job harder. RBI will have to respond by hiking interest rates. (Note that one impact of higher interest rates will be that more capital will come into India, which will tend to yield a rupee appreciation;
import parity pricing has created a new channel through which RBI rate hikes combat inflation).
q: What is the impact of costlier tradeables for business cycle conditions in India?
As the example above about steel suggests, the price realisation of all tradeables companies goes up when the rupee depreciates. Costs change by less by revenues (since many costs are not tradeables), and profitability goes up.
Firm profitability has dropped sharply in 2011. My prediction is that firms producing tradeables will show better profitability in Oct-Nov-Dec 2011 when compared with the previous quarter, thanks to the rupee depreciation.
This is great news for business cycle conditions. Profitability goes up, which yields more cash for investment by financially constrained firms. And, when profitability is higher, more investment projects look viable.
q: In the bottom line, what is the link between the rupee and India's business cycle stabilisation?
If RBI tried to peg the exchange rate, the lever of monetary policy would get used up to deliver the target exchange rate. By not trading on the currency market, the lever of monetary policy is now available. A pretty good use for this lever is to deliver low and stable CPI inflation. If this is done, then an RBI focused on inflation would help stabilise the economy by cutting rates when CPI inflation drops below 4% and hiking rates when CPI inflation goes above 5%.
But floating the exchange rate also yields stabilisation purely in and of itself. In bad times, capital leaves India, the rupee depreciates. This gives higher profitability in tradeables firms and bolsters investment. Conversely, when times are good, more capital comes into India, the INR appreciates, which crimps profitability of tradeables firms. The floating exchange rate exerts a stabilising influence upon the economy: purely by doing nothing on the currency market, RBI has unleashed this new force of stabilisation which will help India.
q: What should RBI do next?
RBI should do as they have done, i.e. avoided trading on the currency market.
RBI should keep driving up the short-term interest rate until point-on-point seasonally adjusted CPI inflation shows a decline and goes into the target zone of 4-5 per cent. After this hangs in there for a year, `headline inflation' (y-o-y growth of CPI) will be in the target zone.
q: What do other countries do?
When we look at countries with good governance, the mainstream strategy seen worldwide is an open capital account and a central bank that delivers on an inflation target. By and large, this goes with a floating exchange rate. Trading on the currency market interferes with achieving price stability and has hence been dispensed with, by most good countries. Japan and Switzerland come to mind as exceptions to this broad regularity.
Posted by Ajay Shah (noreply@blogger.com) on December 02, 2011 11:02 AM· permalink
Posted by Ajay Shah (noreply@blogger.com) on November 29, 2011 10:45 AM· permalink
Quiz Time I am really pleased to bring back the quiz version which many of you have been asking for. I hope you will find the new quiz more entertaining and will learn from it The quiz comprises of 10 questions and it tests your knowledge on market, stocks and events that impact these stocks. [...]
Posted by Deepak Singh on November 27, 2011 07:08 AM· permalink
The entire market has been in strong bearish grip but Jubilant Foodworks seem to be defying gravity. Jubilant Foodworks continue to hold 200 dma Source: Chartalert.com As you can see in the chart above: Jubilant Foodworks has somehow sustained above 200 dma despite intra-day sell offs. It seems stock wants to hold the current levels [...]
Posted by Deepak Singh on November 23, 2011 01:38 PM· permalink
A HUGE and informative infographic at xkcd.com about Money:
(Click!)
Posted by Deepak Shenoy on November 22, 2011 08:03 AM· permalink
Good Morning. This is what you need to know before the start of the trading day. Nifty: Will 4740 Hold? Majority of market participants think No. Source: Chartalert.com There has been relentless selling in Nifty in last 8-9 trading sessions. Nifty is now closer to levels from where it has bounced twice and hence there [...]
Posted by Deepak Singh on November 22, 2011 01:43 AM· permalink
Good Morning. This is what you need to know before the start of the trading day. Introduction Nifty is down 7.8% this month whereas Dollar Denominated Nifty is down 12.5% this month. INR depreciation has messed up FIIs portfolios big time. Charts have been badly damaged by the selling and it would be wishful thinking [...]
Posted by Deepak Singh on November 21, 2011 03:17 AM· permalink
For the first time after a brief visit in 2008, the dollar-rupee rate has crossed Rs. 51.
All these currency movements are nearly vertical, it seems.
Posted by Deepak Shenoy on November 18, 2011 06:11 AM· permalink
by Percy S. Mistry.
How did it happen?
The worst financial crisis in the western world for nearly 80 years
broke in September 2008.
It required banking/financial systems to be supported and
recapitalised by governments across the EU and in the US.
In June 2009 it became apparent that the peripheral countries of
the Eurozone (Greece, Portugal, Spain and Ireland) were grossly
over-indebted.
Yet in some instances (Spain) their public debt to GDP ratios
happened to be lower than those of the US, France, the UK and
Germany.
The continued viability of their public finances depended entirely
on markets being willing to refinance them with cheap money.
But, when markets scrutinised the sustainability of their fiscal
positions, they baulked from refinancing except at punitive rates.
CDS spreads (against Germany as a benchmark) of peripheral Eurozone
countries (PIGS or Club Med) debt began widening relentlessly.
Global financial markets began to price in an escalating risk of
partial/full voluntary/involuntary default on PIGS bonds since
December 2009.
Contrary to first impressions, except for Ireland, that was a
result not just of the financial crisis and bank recapitalisation
demands on the fiscus.
It became apparent instead that bank recapitalisation demands on
public finance were only the last straws that broke the camel's
back.
Greece, Portugal, Spain and Italy, as a direct consequence of
joining the Eurozone, had been running up unsustainable fiscal
deficits since 2000.
Ireland had not. It suffered because the bailout of its
disproportionately large banking system caused its public debt to rise
astronomically.
PIGS became over-indebted despite the supposed self-imposed
discipline adopted by the Eurozone of prohibiting fiscal deficits >3%
of GDP.
That discipline was violated by almost all Eurozone members,
beginning with France and Germany, but more egregiously by the
PIGS.
To make matters worse, however, the PIGS were also running
increasingly large current account deficits (with Germany, France,
China).
Though countries like France (and to a lesser extent) Germany were
fiscal sinners, they were at least running current account
surpluses.
PIGS had access to excessively cheap public and private money
available on terms totally inappropriate to their economic
circumstances.
Given their inherent risks, which markets mispriced completely,
their borrowing costs should have been 300-500 bp higher than
Germany's.
Instead, they were virtually the same for nearly a decade. That
relieved market-induced pressure on PIGS' governments to behave
responsibly.
Consequently, their public expenditures after 2000 ballooned out of
all proportion to their intrinsic capacity to fund them from tax
revenues.
Such expenditures became almost wholly dependent on access to
increasing amounts of cheap public borrowing from capital markets.
In response to access to excessively cheap money, wages in the PIGS
rose across the board as did growth in public sector employment.
With the financial crisis triggering bank recapitalisation needs,
on top of this unsustainable structure, the edifice began to
crumble.
The first early warning signals became apparent in December 2009
but the dam broke in mid-2010 with the first Greek bailout.
How has the Eurozone crisis been handled?
Extremely ineptly; indeed very foolishly, by sophisticated Eurozone
authorities (political, fiscal and monetary) that should have known
better.
Eurozone leaders learned nothing from the preceding debt crises in
Latin America (1982-87, 1994-95) and Asia (1997-2000).
They went through avoidable phases of serial denial that there was
a structural debt (solvency) crisis that could spread via
contagion.
They treated it as a liquidity crisis that could be dealt with by
temporary patch-ups of additional money combined with fiscal
restraint.
They reiterated their commitment to ensuring there would be no
default - partial or full, voluntary or involuntary - by any Eurozone
member.
They believed that their remedial measures would stop the crisis
from ballooning beyond the first bailout package for Greece.
They were totally wrong. That package did nothing to convince
markets that Eurozone leaders understood the nature/severity of the
problem.
In fact, the inadequacy of that first bailout package -- which did
not provide enough money for sufficiently long - became quickly
apparent.
Eurozone leaders were fixated on debt-affected PIGS being forced to
live within their means through indefinite austerity without end.
Debt recovery/sustainability models did not provide sufficient new
money, or permit debt restructuring, in ways that would restore
stability.
Least of all were bailout packages designed to restore growth in a
conscionable period of time that would be socially/politically
acceptable.
Without financial system (and borrowing cost) stability, and absent
growth, debt problems can never become better. They can only
worsen.
Instead, as a result of poor design, all the bailouts did (except
for Ireland) was to add new debt to bad debt and reduce growth
prospects.
To exemplify: In mid-2009 the debt/GDP ratio for Greece was 115% of
GDP and the debt service ratio about 11% of GDP.
But, by October 2011 the debt/GDP ratio for Greece was 161% of GDP
and the debt service ratio nearly 20% of GDP.
It is projected with the third bailout to rise to 185% of GDP
(although debt service will be lowered to 16%) before it comes down
again.
In the meantime, over the last 32 months, the Greek economy has
shrunk in size by almost 17% in nominal terms. It will be 1/5 th less
in 2012.
Such inane 'remedies' do not solve debt problems. They only
aggravate and exacerbate them.
While behaving in this absurd fashion Eurozone leaders repeatedly
asserted for two years that they would do everything in their power
to:
- Maintain the credibility of the Euro while ensuring that every
member stayed in the Eurozone
- Not allow any default of publicly issued bonds to occur; and
- Do everything possible to avoid contagion spreading beyond PIGS (even
as it became clear that markets were worried about Italy.
Instead they achieved the exact opposite of all three objectives
through their inability to understand the implications of what they
were doing.
Though now contrite and claiming to have learnt a few lessons from
their serial bungling over 30 months Eurozone leaders have no
solution.
The EFSF facility they created is woefully underfunded. It can
barely deal with financing the third Greek bailout.
The idea of leveraging it or using it as a partial guarantee
facility is absurd since it would add to risk and uncertainty not
resolve them.
Yet over-indebted governments (including France and Germany) would
have to issue more public debt in order to fund the EFSF properly.
That would simply mean requiring their fragile, near-bankrupt,
banking systems (or the ECB) or global markets to buy more Eurozone
debt.
Except for Germany (and even that will be in doubt soon) the market
has no appetite for taking on more Eurozone debt given its risks.
Contagion has spread from the periphery and now lodges at the core
of the Eurozone economy in which Italy is the third largest member.
What could have been resolved with about 300 billion euro in
additional financing in mid-2010 is now a problem that may require 2
trillion euro.
Where are we now?
Over 35 EU/Eurozone summits in 30 months have resolved
nothing. They have made matters worse; despite Herculean
exertions!
Right now Greece is in 'effective' default; though markets are
overlooking that because of the implications of CDS contracts being
triggered.
Its borrowing costs for refinancing its debt would exceed 30% if it
had any access to private markets; which it does not.
Any refinancing of, or addition to, Greek debt can now only be
financed by the ECB; which the Germans will not permit the ECB to
do.
Meanwhile the Greek banking system is bankrupt. Indeed the entire
Eurozone banking system's credibility/stability/solvency is in
doubt.
Today an outstanding portfolio of about 11-12 trillion euro in
Eurozone debt - of which about 80% is held by EU firms - is souring
relentlessly.
About 7 trillion euro of that portfolio is sufficiently affected by
contagion to require provisioning (France and Belgium may soon be
added).
About 5 trillion euro of Eurozone high-risk-debt is currently held
by EU banks, insurance companies, pension funds and individuals.
That sovereign debt, which is supposed to constitute the 'safest'
component of any asset portfolio, now constitutes perhaps the riskiest
element.
That reality inverts the whole basis of banking/financial system
soundness and stability across Europe (including the UK).
It compounds the problem of calculating capital adequacy
requirements for these banking systems and puts regulators in a
quandary.
Ireland's bailout programme is working but could be derailed by
what is happening in the rest of Europe.
Portugal's programme is not working as intended. But nobody is
talking about it because it pales in comparison with Italy and
Greece.
Italy's outstanding public debt will soon cross 2 trillion euro
(120% of GDP) and its debt service payments amount to around 300
billion euro per year.
That is made up of about 120 billion euro in interest payments and
180 billion euro in principal repayments. Average duration is 5
years.
Public debt service in Italy now amounts to around 17% of GDP and
will rise to 20% unless Italy's debt is dramatically restructured.
Italy now needs to borrow about 40 billion a month euro (gross) and
about 28 billion euro a month net in private markets to refinance its
debt.
The world is holding its breath with every auction of Italian
public debt (3-8 billion euro per week) any of which could trigger
accidental default.
The cost of refinancing Italy's public debt has risen from around
4% a year ago to around 7% now. That adds 20 billion euro a year to
its debt.
Meantime the Italian economy is flat-lining and its capacity to
service additional debt is diminishing despite its running a primary
balance.
Banks around the world are dumping their holdings of Italian public
debt but there is no buyer other than the ECB because of the risk.
The ECB's capacity to refinance Greek, Italian and Portuguese debt
is limited and constrained by Germany's unwillingness to consider
that.
Contagion from Italy is now beginning to affect Spain and France
which is supposed to be a bulwark for the EFSF's borrowing
capacity.
The resulting gridlock is pushing the entire Eurozone system toward
a catastrophic denouement with a binary outcome. Either:
- Crisis-induced progress toward fiscal union with
national sovereign bonds being replaced by a single Eurozone
bond with a joint/several guarantee, or
- Sudden disorderly collapse of the Eurozone with unimaginable
fallout and consequences that would trigger a global double-dip
recession.
Such a recession would last for a minimum of 2-3 years and would
probably be quickly followed by a similar debt crisis in the US.
The resulting fallout of disorderly Eurozone break-up could trigger
a break-up or restructuring of the larger EU as well.
So where do we go from here?
With the foregoing in mind it seems absurd that the world is
waiting with bated breath to see what the new technocratic governments
in Greece (Papademos) and Italy (Monti) will actually achieve by way
of structural reform and increased debt servicing capability in coming
months.
These technocratic governments inject new credibility but lack
political and social legitimacy. They have been appointed not
elected.
It remains to be seen how long their technocratic legitimacy holds
out without the backing of gradually earned political/social
legitimacy.
The risk is that if the ministrations of these technocratic
governments (which their societies believe have been imposed on them
from the EU above) do not work and bear fruit relatively soon (the
probability is that they won't), public patience with them will
melt.
Will they be able to convince electorates to accept the
inevitability of austerity without growth for the indefinite
future?
The next Greek crisis is perhaps 10-12 weeks away.
The next Italian crisis could be triggered by any one of the
upcoming weekly auctions of Italian government debt.
Despite these rather obvious realities, global markets deem to be
reacting in dream-like hope and optimism that all will be well.
There is of course a solution at hand; and the only one that will
work because all the other options seem to have been exhausted.
That option requires Germany to reconsider its refusal to bear its
large share of the fiscal burden that will come with Eurozone fiscal
union.
It requires political/social willingness on the part of rich
northern Eurozone members to finance fiscal transfers to poorer
southern members through an exponential expansion of structural funds,
currently applied to help develop more rapidly the poorer regions of
the EU.
Reciprocally, it requires other Eurozone countries to relinquish
fiscal, and a great deal of political, sovereignty immediately; in
order to assure global markets of their commitment to structural
reform, restoration of competitiveness, and relentless pursuit of
fiscal/monetary discipline.
It requires all unwanted national sovereign bonds of Eurozone
members to be replaced by a single Eurobond that is jointly and
severally guaranteed and underpinned by the weight and ability of the
ECB behind it to print money if necessary to ensure that such bonds
are honoured.
This solution would resolve both the over-indebtness problem of the
Eurozone and the problem of banking system collapse at a single
stroke.
If it were adopted the need to provide for risky Eurozone debt and
recapitalise (yet again) the EU banking system would disappear.
Yet, this is the one solution that keeps being discarded because of
legitimate German constitutional, judicial and political
constraints.
They inhibit movement in such a direction regardless of the
consequences for the Eurozone, the EU, and mostly Germany itself.
It is like witnessing a repeat of 1939; not of conquest but of
mindless destruction. But, this time with money rather than tanks
being involved.
If that only workable solution continues to be discarded, the other
possibility that will manifest itself is the disorderly break-up of
the Eurozone; simply because its orderly break-up defies contemplation
and imagination.
Talk of Greece being ejected from the Eurozone, or of Germany
departing from it voluntarily, is fanciful simply because neither can
afford to bear the costs of the consequences that will follow,
regardless of what their populations and political leaders may believe
or think (though 'thought' seems to be conspicuously absent from the
process just now). Neither can their neighbours, regardless of what
they may think.
Yet it is not unimaginable that a break-up will be forced on
Eurozone members by global markets if the only workable solution
continues to be ruled out as it seems to be repeatedly by the German
Chancellor. But she has changed her mind so often the hope is she will
yet again.
A disorderly break-up may result in a reversion to national
currencies; which would be better than members trying to retain some
semblance of the Euro through separate residual monetary unions of
more compatible economies.
That would probably require four different Euros (for the
super-efficient Northern economies a Baltic Euro, for the relatively
efficient middling economies a Franco-Euro; for the newly acceding
countries an Eastern-Euro and for the inefficient, uncompetitive
Club-Med economies, a PIGS-Euro). Other than the first, none of the
others would be credible for holding as reserves, or for trading
significantly in global currency markets.
Finally, bear in mind that we have spoken of only the public debt
problem in the Eurozone.
Should the unthinkable (but increasingly likely) disorderly break-up happen, the public debt
problem will be accompanied by an unresolved private debt problem
throughout the Eurozone of equally monumental proportions! That
really will break the system and the banks!
Posted by Ajay Shah (noreply@blogger.com) on November 17, 2011 06:23 PM· permalink
Yesterday, I conducted a 90 minutes session on Trading options in India on WizIQ. I have since recorded the session and have it for you to watch:
Do let me know your thoughts and comments!
Posted by Deepak Shenoy on November 17, 2011 11:10 AM· permalink
Good Morning. This is what everything you should know before start of trading day. Nifty: The Trend is down but Bulls try to hold up the market above 4990-5000 spot. Yesterday, Nifty opened gap-down and spent the whole day trying to recover and establish support at 4990-5000 spot. It was an extremely volatile day with [...]
Posted by Deepak Singh on November 17, 2011 02:24 AM· permalink
Because it is right now in freeze mode and contemplating about next move. The only problem: the direction is not yet known 2011 has not been great year for Infosys. Despite spectacular recovery in last couple of months from lows of 2200: the stock is still down 18% YTD [Year-to-Date]. But it seems now the [...]
Posted by Deepak Singh on November 16, 2011 02:42 AM· permalink
The charts do indicate that and the sad part is no one is happy with the decoupling. US Market: Poised for Breakout above 200 dma S&P 500 posted another small rally overnight and closed at the higher end of the range just below 200 dma. Despite all the turbulent news: S&P500 has been exhibiting strength [...]
Posted by Deepak Singh on November 15, 2011 11:26 PM· permalink
Bruce Schneier posts on something I've felt as well: Advanced Persistent Threat (APT) It's taken me a few years, but I've come around to this buzzword. It highlights an important characteristic of a particular sort of Internet attacker. A conventional hacker or criminal isn't interested in any particular target. He wants a thousand credit card numbers for fraud, or to break into an account and turn it into a zombie, or whatever. Security against this sort of attacker is relative; as long as you're more secure than almost everyone else, the attackers will go after other people, not you. An APT is different; it's an attacker who -- for whatever reason -- wants to attack you. Against this sort of attacker, the absolute level of your security is what's important. It doesn't matter how secure you are compared to your peers; all that matters is whether you're secure enough to keep him out. APT attackers are more highly motivated. They're likely to be better skilled, better funded, and more patient. They're likely to try several different avenues of attack. And they're much more likely to succeed. So, this becomes a really classic case of that old saw: "What's your threat model?" There are apparently two sterotypical attackers out there (at least in this dichotomy): the random agnostic thief: "A conventional hacker or criminal isn't interested in any particular target. He wants a thousand credit card numbers for fraud, or to break into an account and turn it into a zombie, or whatever." He doesn't share our economic beliefs of society and trade, but he certainly subscribes to the power of our money. the advanced persistent threat: the spy who's after your state-level secrets. He's not economic, in the sense that he isn't constrained by normal commercial levels of investment, instead he's got a very large budget behind, with very large strategic interests directing the target choice. Very different agents, leading to very different models of security. And all other things, such as how we as society deal with these issues. Schneier finishes on this: This is why APT is a useful buzzword. Sure, no matter how uncomfortable we are with the background, it's the buzzword we've got. Why then did we disbelieve the APT for so long? I think there are three factors. We the people aren't bothered by the APT, we're bothered by the random agnostic thief. The credibility of the USA industrial-military machine is at an all time low. Since the low-point of Colin Powell's speech to the UN, the people routinely disbelieve anything said, and now demand evidence. They presented no evidence. We had to wait until DigiNotar and the surrounding other events (the other CAs) to understand that this was the real deal. We still aren't so totally accepting. We still have the problem that our attacker is the random agnostic thief. Why still resist? My feeling is this: I'm annoyed that the state has managed more success in swinging the major Internet vendors around to dealing with the state's APT -- NIST's pogrom on small numbers, etc -- than we ever had as an open community in dealing with our random agnostic thieves. We're still following the NSA's drumbeat....
Posted by iang on November 15, 2011 05:57 PM· permalink
Last year: there was nothing that could go wrong with Bank Nifty and this year: it appears as if nothing that can go right with Bank Nifty. Mathematically and Technically, Nifty cannot make any sustainable progress on the upside if Bank Nifty remains in current depressed state. As of now, None of the Banking stocks [...]
Posted by Deepak Singh on November 14, 2011 01:19 AM· permalink
Update : These changes are applicable from 1-12-2011 (source)
There is good news for all the investors who are primarily debt instruments investors. Govt on Friday increased the PPF interest rates to 8.6% , which was 8% from very long time and the investment limit for PPF is increased to 1 lac from old 70,000 . This will be applicable from the dates which will be notified by govt very soon. There are some other changes which were done in other investment products , which are
Source : Hindustan Times
- The Maturity tenure for National Saving Certificate (NSC) has been reduced to 5 yrs (earlier it was 6 yrs) and interest rates increased to 8.4% from 8%
- A new National Savings Certificate (NSC) would be launched with a 10-year maturity with an annual interest rate of 8.7 per cent.
- Post office savings account interest is increased from 3.5% to 4 per cent.
- Interest on loans obtained from PPF will be increased to 2% p.a. from existing 1% p.a
- Kisan Vikas Patra has been discontinued from now onwards . The committee had said that the KVP was a bearer-like certificate with a regulated premature closure facility and was open to abuse by tax dodgers. They can be bought or sold without going to the post offices.
- Maturity period for Post Office Montly Savings Scheme (POMIS) has been reduced to 5 yrs and interest rate has been increased from 8% to 8.2%. Also the 5% bonus on maturity has been scrapped.
- Commission for agents on PPF and Senior Citizens Savings Schemes are scrapped. For any other instruments, agents commission will now be 0.5% against 1% earliar . According to the Gopinath Committee, the agents were paid around Rs 2,400 crore commission in 2010-11.
- The interest rates of varios tenures fixed deposits in Post Office is increased , for example for 1 yrs Fixed deposit , the new interest rates is 7.7% against 6.25% earliar . There are changes in other tenure fixed deposits also (See image above) . This has happened because interest rates on small saving instruments have been aligned with G-sec rates of similar maturity, with a spread of 25 basis points.
These measures are in sync with the recommendations of former RBI deputy governor Shayamala Gopinath committee that submitted its report to finance minister Pranab Mukherjee on June 7 this year.
Jayant Pai has an interesting comment on ppfas blog which goes like this
By now you must be aware that the interest rates on Government Small Savings Schemes (SSS) have been increased. Newspapers are going around town proclaiming that this is a bonanza for small investors. Well, it is true that soon (Most probably from December 1, 2011) you will be earning more by investing in these instruments but in a way this move is similar to the recent deregulation of bank savings account rates by the Reserve Bank of India .
You may be earning more today but this could change in the future. In other words, interest rates on all SSS will be dynamic and linked to the yield for comparable Government Securities although the rate changes will occur only once in a year and the relevant announcement will be made on April 1 each year. The Government will however ensure that a spread ranging from 25 to 50 basis points over the relevant benchmark security will be maintained.
Note that the news of PPF interest hike was published on Jagoinvestor news blog within few minutes of govt decision
Posted by Manish Chauhan on November 13, 2011 01:50 PM· permalink
A pioneering
conference of the academic community in the field of
international relations in India.
Pramit
Bhattacharya in Mint on the impact of transaction
charges on the currency futures/options markets.
In continuation
of my
blog post on Pakistan, India, MFN, read
Bibek
Debroy on the subject.
Watch
me talk
about risk aggregation in the Indian economy, presenting joint
work with Sucharita Mukherjee. This is from a
fascinating conference
organised by IFMR. From this same conference, also see
the most
excellent opening talk by Nachiket Mor.
The
ally from hell by Jeffrey Goldberg and Marc Ambinder in
the Atlantic magazine. Things aren't going well in
Pakistan. What can India do to
help? Mani
Shankar Aiyar says, and I fully agree: One, return to the
Musharraf/Manmohan Singh proposal to create a borderless Kashmir
- where the LOC is rendered irrelevant - as a precursor to a
borderless subcontinent. Two, agree to maintain uninterrupted
and uninterruptable dialogue, that will remain unbroken and
regular, irrespective of terrorist attacks or any other
calamity. Three, introduce a visa regime similar to Nepal and
remove all restrictions of pilgrimages. The fourth remedy is to
ensure a full and free media exchange, including and not limited
to movies, TV channels and newspapers. Five, an open investment
regime without any barriers to trade. Six and seven involve
standing together on the international stage to push for the
expansion of the UN Security Council and launch a joint
initiative for global nuclear disarmament.
David
E. Sanger in the New York Times about how things aren't
going well in Iran.
Adam
Satariano and Peter Burrows have a fascinating story about
how, in addition to innovation and design, Apple has a great third
weapon: Operations.
In continuation to my post
about Dennis
Ritchie and Steve Jobs,
read M. Douglas
McIlroy on Dennis Ritchie, written on 19 May 2011.
Paolo
Pesenti takes us back to 20 years ago, when Europe went
through another economic crisis. It is useful knowledge about
economic history, and it gives us some insights into the Eurozone
crisis of today.
Posted by Ajay Shah (noreply@blogger.com) on November 09, 2011 02:07 AM· permalink
As an example of good disclosure that we can use to analyse our risks on new attacks come from Symantec: Key points: Executables using the Stuxnet source code have been discovered. They appear to have been developed since the last Stuxnet file was recovered. The executables are designed to capture information such as keystrokes and system information. Current analysis shows no code related to industrial control systems, exploits, or self-replication. The executables have been found in a limited number of organizations, including those involved in the manufacturing of industrial control systems. The exfiltrated data may be used to enable a future Stuxnet-like attack. Now, Symantec are somewhat 'interested' in this disclosure, in the commercial sense, because they gain reputation and thence sell more defences to more customers. They could just shout FUD out to the world. But in this sense, the market has moved to a sense of competition on solid disclosures, as compared by competitor McAfee also putting its own analysis out there. And, it turns out that Symantec is doubly interested as the new trojan was signed by one of their (Verisign?) certificates: *Update [October 18, 2011] - *Symantec has known that some of the malware files associated with the W32.Duqu threat were signed with private keys associated with a code signing certificate issued to a Symantec customer. Symantec revoked the customer certificate in question on October 14, 2011. Our investigation into the key's usage leads us to the conclusion that the private key used for signing Duqu was stolen, and not fraudulently generated for the purpose of this malware. At no time were Symantec's roots and intermediate CAs at risk, nor were there any issues with any CA, intermediate, or other VeriSign or Thawte brands of certificates. Our investigation shows zero evidence of any risk to our systems; we used the correct processes to authenticate and issue the certificate in question to a legitimate customer in Taiwan. Still, I can't fault the disclosure: they investigated and now claim it was a good cert, stolen from the client. They revoked it the same day of being shown the code/sig. This information is provided in a way we can RELY on it. From this we can make risk management judgements. See more here....
Posted by iang on October 21, 2011 02:29 AM· permalink
Several credit card issuers and banks offer accident covers along with the cards. Again, the company buys a group cover for the purpose and no premium is to be paid by the user for the cover. Their structure and claim process are mostly similar to a regular personal accident policy from a nonlife insurer. In the event of the holder's death, a lump sum is paid out to the nominee. Such covers could come with permanent disability riders, too, to provide succour to the insured if s/he meets with a debilitating mishap.
They may not cover loss of wages in case the policyholder is temporarily incapacitated and is not able to resume work. Also, there is a possibility of you becoming dependent on the bank or the issuer merely because of the cover. You would do well to consider buying a basic cover, independent of such products.
To sum up, ensure that you focus on the merits of the main product. If it fits into your financial plan and serves your purpose, go for it. Any additional benefit would be a bonus. 
Posted by Prajna Capital (noreply@blogger.com) on October 17, 2011 05:22 AM· permalink
The Infosys stock is down 3.5% to 2,500 as we speak, and it’s a result day tomorrow. Result days are big for the INFY stock; the chart of the day shows the movement of the INFY stock the day before, and on the result day itself.
The last five quarters have seen huge negative moves on result announcements. Probably this has spooked investors already? But honestly the day before has little predictive value: of the last 17 quarters only 8 quarters have seen the earlier day move in same direction as the results day – and even there, magnitudes haven’t been enough for prediction.
Posted by Deepak Shenoy on October 11, 2011 09:48 AM· permalink
ESTATE planning involves planning for the succession of one's assets to reduce taxes, to avoid probate, avoid post-death disputes and issues. The process also includes giving clear instructions in case of disability or ill health, where one can no longer make decisions. You work hard to build your assets, such as investments, home, personal property, and to provide a level of financial security for loved ones. Then, doesn't it make sense to work just as hard to protect them in the event something should happen to you?
That's the primary goal of estate planning to protect, preserve and manage your estate/assets during your life and after death.
Significance :Estate planning is the process by which an individual or family arranges the transfer of assets in anticipation of death or incapacitation. An estate plan aims to preserve the maximum amount of wealth possible for the intended beneficiaries and flexibility for the individual prior to death.
The primary goal of estate planning is ensuring that the estate of the individual passes to the estate owner's intended beneficiaries, often including efficient tax and succession planning and avoiding or minimising court proceeding in probates (that is a "will" certified under the court with the grant of administration to the estate of person who has made the will). First introduced in 1953, going to courts on disputes arising out of wills either on the question of authenticity, mental soundness of the person making the will or alleged forgery, the trust route created during the lifetime of the individual is emerging as a more viable solution to estate planning.
The grounds on which a will may be challenged are numerous, the time taken in India to get a probate of the will, in case the will is contested, could be several years and it could be a very expensive affair, exactly what any family doesn't need. In addition, the necessity to obtain a probate of the will makes it public.
As a public document, a will is subject to scrutiny by anyone who wishes to know its contents.
Benefits of trust structures: By adopting the trust structure for planning your estate, you can achieve: Estate protection because a trust is a bankruptcy remote structure.
Self beneficiary: The person who creates the trust can himself be one during his lifetime. As a beneficiary, he can enjoy the benefit of his own estate during his life time.
Efficient succession planning by providing for children and grandchildren and great grandchildren.
Management of all types of assets through expert advisers.
Accumulation of the estate during the lifetime and after death through the hands of trustees.
Avoidance of family disputes leading to disintegration of family businesses.
Retaining confidentiality, as obtaining a probate is not necessary.
Efficient management of the estate as a trust can be operational during the lifetime and after the death of the client.
Providing for future administration of assets to protect against future incapacity and for incapable beneficiaries.
Making provision for religious or charitable purposes.
Lower contestability as compared to a will.
Conclusion: Although planning one's estate may feel uncomfortable, the cost of procrastination can be high. Though some people are put off by the belief that estate planning will be complicated, time-consuming and costly, set ting up an estate plan doesn't have to be a complex process.
You execute a trust deed where you appoint a trustee, name your beneficiaries and specify how and when the properties of the trust would be distributed to the beneficiaries.
In a trust, you transfer ownership of some or all of your assets (which can include investments, real estate and bank accounts, among others) and even personal property (jewellery, antiques or furniture) from your name to that of the trust.
Transfer of ownership of assets to the trust can be done at anytime after the creation of the trust either by the settler or any other person.
After you transfer the assets, you maintain the same access and control as you did before you put them in the trust in case of a revocable trust.
In case you create an irrevocable trust, then you can retain some control over the assets in the trust by either having the trustee consult you or by appointing an administrator/protector who will be consulted by the trustee.
Posted by Prajna Capital (noreply@blogger.com) on October 11, 2011 08:49 AM· permalink
What is the best way to get pension income in India? Is it the pension plan from pvt companies, LIC policies or some unit linked plan from companies claiming to provide you with Rs. ‘X’ for ‘Y’ numbers of years once you retires?
A lot of investors think that pension products are the only way to go; and if they do not invest in these products today, then they will miss out on something. In this article let’s talk about pension products. Before I move ahead I would like to coin two terms used in Financial planning which are very easy to understand.
Accumulation Phase : Accumulation Phase is that period of your life, where you invest regularly each month and “accumulate” the Wealth. You start getting pension later in life. So when you invest your money in ULIP’s, Mutual funds, Direct Stocks or anything else you are into accumulation phase.
Distribution Phase : This phase refers to period when you start withdrawing money from your already accumulated wealth for consumption purpose. So at the time of your retirement or even before that, when you start taking out certain amount per month for next ‘N’ years, that’s called distribution phase.
Image taken from a 30dayplan financial plan
Two major categories of Pension Plans
Let me start by taking about pension plans and their types. There are mainly two type of pension plans at broad level.
Deffered Annuity Plans : Most of the pension plans which are sold in India by LIC and all the private companies are deferred pension plans. These plans have accumulation phase inbuilt in itself and hence you first pay premiums for ‘X’ number of years. Once you retire, then you start getting pension. You can see these types of plans all over the market. Some examples are LIC Jeevan Tarang, LIC Jeevan Nidhi , Bajaj Allianz Swarna Raksha ROC , New Pension Scheme (NPS)
Immediate Annuity Plans : These products are called immediate annuity plans because they start paying you the annuity right from day one once you make a lumpsum payment. So if a person wants a monthly pension and has huge lumpsum money, he can buy an immediate annuity plan and start getting pension. It’s a simple product which is not so much popular in India like deferred annuity plans. Some of the examples of immediate annuity plans are LIC Jeevan Akshay , ICICI Pru Immediate Annuity , HDFC Immediate Annuity .
4 reasons why you should not buy deffered annuity plans
Let me tell you 4 strong reasons why you should avoid buying pension plans in India .
1. There are better options for growth of your wealth
The accumulation of your wealth happens in a pension plan for many years, but it’s not the best way your money can grow, ultimately if you had to invest your money in equity (underlying asset class), you have simple and no-cost options like mutual funds, index funds. Also you can choose to put money in real estate. A regular SIP in an equity diversified mutual funds should give much better returns then accumulation in a pension plan (read unit linked products).
2. No predictable returns for annuity
The core function of a pension plan is to give you pension. But do you know how much returns you will get out of your pension plans when time comes for retirement? A lot of pension products do not give a clear idea on how much will you get at the end. What is the return earned is around mere 4%? What will you do? The same is true for NPS.
One major (I mean MAJOR) DRAWBACK is you have no clue what will happen once you finish the accumulation stage and go on to the withdrawal stage. Let us say you have accumulated Rs. 500 lakhs in a NPS account. They allow you to withdraw say 50% of the amount and the balance has to be invested BACK in an annuity. Let us say you ARE FORCED to invest Rs. 250 lakhs in an annuity which pays Rs. 11,000 per month as a pension…looks good? Well depends on what you are capable of doing with your own money!
says PV Subramanyam in this article
At this point of time, the better alternatives would be old fashioned products like Post office monthly schemes , Fixed deposits with monthly payouts or even senior citizen savings scheme. these all give near inflation returns atleast .
3. Rigidness and no flexibiity
Almost all the pension products are rigid in taxation and what you can do with your money at the end. Under current laws you can withdraw only 1/3rd of your accumulated money tax-free, where as there is long term capital gains at the moment is 100% tax-free. Also it’s compulsory to buy annuity for the remaining money. What if I want all my money for some reason at the end? What if I don’t have a requirement for income later?
These problems won’t be there if you accumulate your money in plain vanilla mutual funds or PPF or other simple investment products.
4. High charges
Who does not know how ULIP’s and other similar products have charged so high costs for initial years without giving clarity to customers. These annuity plans also have high allocation charges many times and customers do not know about it and can’t do much later when he acknowledges it! So why do you want to pay high fees for these products?
Conclusion
It’s suggested that you invest in some instrument which does not have any rigidness on what can be done with your investments at some later stage, like Mutual funds, Direct Equity, PPF, Index Funds, Real estate or even old fashioned products like FD, NSC, KVP… You can create your own accumulation stage and when the time comes for “distribution phase” (pension), you can always buy some immediate annuity plans or create your monthly income through ways of renting out property, getting FD interest or plain dividends from stocks or any combination of these.
Posted by Manish Chauhan on October 11, 2011 05:25 AM· permalink
Mutual funds are an effective engine to route your investments in the equity markets. They offer several advantages over direct stock picking viz., diversification, professional management, light on wallet, economies of scale, liquidity, etc. But even after knowing the importance of investing in mutual funds, very often, we see that mutual fund investors are surrounded by myths based on widely held, yet incorrect beliefs and also based on flawed information. Both these kinds of myths can consequently lead investors to make incorrect investment decisions. We'd like to take this opportunity to debunk some common mutual fund investing myths:
Myths based on Incorrect Beliefs
When asked why the avid investor of stocks/shares does not take to mutual funds with the same passion and enthusiasm, the likely response is that mutual funds investments are dull and boring. They lack the thrill that one gets by investing in stocks. Bringing us to Myth # 1:
· Mutual funds lack excitement
"Who wants to invest in a staid investment like a mutual fund that probably grows half as fast as some 'exciting' stocks like Infosys, ONGC or BHEL during a bull run?" The poser is relevant. Underperformance almost always gets the thumbs down, no matter what the reason. After all, every investor wants his money to work for him and if a stock does that better, why invest in a mutual fund?
Yes, stocks can be exciting. And mutual funds may lack the excitement of a stock, but it's the kind of excitement that investors can do without for their long-term wealth as well as health. Mutual funds may not give an impetus to the investor's portfolio in a bull run like some 'exciting' stocks. But, you can be sure that they won't burn a huge crater in the investor's portfolio either. Something that could be inevitable, should individual stocks be crashing by say 40%.
· Mutual funds are too diversified
"Mutual funds own too many stocks to be of any serious benefit. A focused portfolio of 8-10 stocks will generate a more attractive return than a mutual fund portfolio comprising 30-40 stocks."
We are not sure if there is any theory to prove or disprove that concentrated portfolios (8-10 stocks) do better than diversified portfolios (30-40 stocks) in the Indian context. Of course, Mr. Warren Buffet has successfully managed a small portfolio over a long period of time. But, not too many investors can claim to have his investment discipline, insight and experience. In the absence of these important traits, it would be incorrect to expect a concentrated portfolio to outperform a diversified portfolio, at least over the long-term (3-5 years).
Remember, fund managers are experienced money managers and their mandate is to outperform the benchmark index of the fund. And if these experienced managers have chosen the diversification route that tells us a little about how to go about making money in the stock markets.
· Mutual funds are too expensive
"Mutual funds aren't cheap. On an average, the recurring expenses for a diversified equity fund ranges from 2.25% to 2.50% of net assets."
The 2.50% (maximum) recurring expenses charged by the mutual fund go towards meeting the brokerage costs, custodial costs and fund management cost. These are expenses that stock investors incur as well (barring the fund manager's salary). Consider this, when you have a competent fund manager who combines his time, effort and expertise to research stocks and sectors to pick his best 30-40 stocks and also buys and sells them for you, you have someone who is doing a lot of work for you and is charging only a maximum of 2.50% of your investments. Of course we agree that this must be followed by sheer out performance of the benchmark index and even peers. You don't want to pay for underperformance.
The good news is that quite a few diversified equity funds have managed to put in what can be termed as 'a very good performance' over 3-5 years vis-à-vis the benchmark index and peers. Which are these funds, you ask?
| Scheme | 6-mth (%) | 1-Yr (%) | 3-Yr (%) | 5-Yr (%) | Since Incept. |
| IDFC Small & Midcap Equity (G) | -6.96 | 10.66 | 23.08 | - | 21.93 |
| ICICI Pru Discovery (G) | -4.53 | 11.37 | 20.04 | 13.19 | 26.93 |
| HDFC Equity (G) | -5.00 | 17.54 | 18.19 | 16.53 | 22.74 |
| Quantum LT Equity (G) | -4.12 | 16.37 | 16.51 | 16.70 | 17.29 |
| Mirae Asset India Oppor-Reg (G) | -4.50 | 11.91 | 16.41 | - | 17.86 |
| HDFC Top 200 (G) | -5.22 | 15.70 | 15.81 | 16.65 | 23.27 |
| Reliance Equity Oppor-Ret (G) | -7.62 | 12.26 | 15.74 | 13.45 | 23.40 |
| IDFC Premier Equity-A (G) | -8.06 | 12.81 | 15.67 | 20.49 | 23.75 |
| DSPBR Small & Mid Cap-Reg (G) | -9.06 | 12.88 | 15.53 | - | 13.99 |
| UTI Master Value (D) | -6.32 | 14.86 | 14.42 | 11.81 | 23.22 |
| BSE SENSEX | -5.34 | 8.48 | 5.02 | 10.05 | NA |
| S&P CNX Nifty | -5.71 | 8.81 | 4.93 | 10.24 | NA |
· Performance as on April 18, 2011
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Also, know how to buy mutual funds online:
Invest in DSP BlackRock Mutual Funds Online
Invest in Reliance Mutual Funds Online
Invest in HDFC Mutual Funds Online
Invest in Sundaram Mutual Funds Online
Invest in Birla Sunlife Mutual Funds Online
Invest in IDFC Mutual Funds Online
Invest in UTI Mutual Funds Online
Invest in SBI Mutual Funds Online
Invest in L&T Mutual Funds Online
Invest in Edelweiss Mutual Funds Online
Posted by Prajna Capital (noreply@blogger.com) on October 11, 2011 03:27 AM· permalink
TTK Prestige threw in a fantastic set of results today, with 55% EPS growth, and 51% revenue growth, year on year.
The stock closed up 7% at 2818.
The chart has shown signs of peaking. I have no positions anymore, as I exited on a sharp reversal around 2650. But the stock might be worth picking up if it breaks through the key levels I’ve talked about. It’s already through the 50DMA on good volume, a positive sign.
Interestingly, the forward P/E of this company is still around 30, while it grows EPS more than 50%. It’s a highly priced stock but apparently, not high enough. But given the recent volatility – it’s corrected 20% – I would not take a large position; the stop loss has to be the 200 DMA.
Posted by Deepak Shenoy on October 10, 2011 05:39 PM· permalink
A value investment plan (VIP) is a new investment option launched by a few mutual funds. This concept may gain popularity in the times to come. A VIP is supposed to be a better form of the SIP (systematic investment plan).
A VIP too follows the averaging concept. This investments strategy also works on monthly contributions. The differentiating point is the approach to the amount of each monthly contribution as compared to a SIP. In case of a VIP, you have to set a target growth rate or amount for each month, and then adjust the next month's contribution according to the relative gain or shortfall made on the original portfolio. In this case, you have to invest more when the market prices fall. On the contrary, you have to invest less when the stock prices rise.
Your investment pattern follows the market. You buy more when the prices are low and invest less when the markets are rising - the ideal thing an investor should do. The investment pattern mirrors the market trend. For example, assume you want to add Rs 5,000 per month to your mutual fund portfolio, and on the first of the month you invest Rs 5,000. Next month say the value of your investment is Rs 5,200. So, you will invest Rs 4,800 only next month rather than Rs 5,000. The balance is contributed by selling securities of an equivalent value (Rs 200 in this case). In the third month, let's say the value of your investment falls to Rs 8,000. You will have to contribute Rs 7,000, so as to make the target amount of Rs 15,000 (Rs 5,000 for three months). This roll-over goes on during the specified period.
With this plans, you invest a higher amount when the markets are going down. Similarly, you invest a lesser amount when the markets are going up. This is precisely what investors should do. An investor cannot predict the direction of the markets. The VIP mode of investing helps synchronise the investment amount with the market movements. In contrast, a SIP mode of investing is based on the principle of rupee cost averaging. The cost of acquisition in VIP is usually lower vis-a-vis a SIP.
Another difference from a SIP is that each month the amount to be invested will vary. In case of a SIP, a fixed amount is invested each month. In case of a VIP, the difference between the target value and the portfolio's actual market value is to be invested. So, you cannot really plan out the cash flows with precision, because the amount to be invested is based on the market values, which itself is volatile. In case there are prolonged bear market phases, the amount required to be invested will be much higher. The point to be kept in mind is that if a bear phase continues, let's say for 3-4 years, it can be value eroding for an investor. He will continue investing in a falling market. In case of bull phases, the incremental investments to be made will be smaller. So, in case one expects a cash crunch, it is advisable to fix a lower target rather than go aggressive and fix a higher target.
Usually, in the long term, a VIP is expected to give better returns than a SIP. This is mainly because investments are automatically triggered as the markets fall. The basic premise is that money is invested in periodic intervals in a portfolio in such a manner that the portfolio tries to approach a target rate of return.
Posted by Prajna Capital (noreply@blogger.com) on October 10, 2011 05:23 PM· permalink
Without adequate cover, you may have to dip into savings or borrow, in case of emergencies
It is almost a cliché to say medical costs have rocketed over the years. We all tend to spend a lot of time and grey cells on how to save money for the future to fulfil our various goals like children's education, retirement, home purchase and others. We generally don't give as much thought to medical exigencies as required. Considering, if one does not have a proper medical cover, expenses on medical emergencies can drain out his savings and even put a person in debt. This means your entire future can get compromised by not having a proper medical cover. Medical emergencies don't announce themselves in advance before striking. Therefore, the only thing to do is to be prepared.
For this, you must start by assessing how much cover would be required and look at the probability of covering most events. A `5 lakh cover for an adult should cover 85 - 90 per cent of medical situations. The right approach would be to transfer risk by taking an appropriate medical insurance cover and being prepared to spend if expenses overshoot the same. We generally recommend individual medical covers. A normal medical insurance policy covers hospitalisation and also includes an exhaustive list of day care procedures. They also cover domiciliary hospitalisation and pre- and post hospitalisation medical expenses. In some cases even hospital daily cash and health check-up expense reimbursement may be included. These days most policies allow cashless settlement of all the claims.
Depending on the policy, there could be coverage for some atypical expenses like maternity, dental or even eye care procedures, coming into effect after a certain number of policy years have lapsed. Before selecting a policy, one needs to clearly understand its benefits. Premium alone cannot be the sole consideration for choosing the policy. Claim settlement is of paramount importance. If your insurer of choice has a history of processing claims fast and the policy benefits, too, are good, this insurer's policy should definitely make it to your policy shortlist.
There are people who prefer floaters, which are comparatively cheaper. The benefits are similar, but there is one umbrella cover for the entire family. For a smaller premium, one will have to assume higher risks.
Many who are employed enjoy cover from their employers. This would be a group insurance cover, that generally tends to be more beneficial than a general medical insurance policy. The latter covers pre-existing illnesses from day one and maternity benefits on an immediate basis. Some of these may also allow coverage of parents, who may not otherwise be eligible for medical covers. Some of these policies also allow one to pay further premiums and increase the cover. The premium in a group medical insurance policy are also lower as compared to normal policies.
There is one major downside to it though this cover ceases when one leaves employment. Today, when people are mobile and change jobs frequently, this can become a problem. When a person is in transition from one job to another, there may not be any cover at all. This is a pitfall of depending on a group medical cover. Also, the next employer may or may not have a medical cover as comprehensive. Hence, it is always a good idea to have a separate medical cover, even if you already have one. The separate cover can be at an appropriately lower level.
There are several additional covers like critical illness cover, hospital cash, surgical covers, accident covers and so on. Typically known as riders, these provide additional benefits but are not must haves. There is no end to the extent of security you may want. Whatever choice you make, make it carefully, after considering your needs and premium outgo.
1. Prior to buying medical insurance, start by assessing the cover needed and look at the probability of covering most ailments
2. Build a corpus to foot expenses if medical cover falls short
3. Choose a medical cover based on premium outgo, claim settlement record of the insurer and policy benefits
Riders such as critical illness cover, hospital cash and accident covers provide additional benefits
Posted by Prajna Capital (noreply@blogger.com) on October 10, 2011 03:08 PM· permalink
I am married to some stocks, which in these times of hyperactive trading, is quite shocking to a lot of people.
I have held some of these stocks for five to ten years. I have discussed most these companies on my blog in the past. A partial list follows
- Balmer lawrie – Held since early 2005: compounded return of around 26% per annum including dividends. You can read the analysis here, here and here
- Asian paints – Held since 2001: Compounded return around 31% per annum including dividends. You can read the analysis here and here
- Gujarat gas – Held since early 2005: Compounded return of around 38% per annum including dividends. You can read the analysis here and here
- Crisil – Held since late 2008: Compounded return of around 42% per annum including dividends. You can read the analysis here and here
- Lakshmi machine works – Held since late 2008: Compounded return of around 50% per annum including dividends. You can read the analysis here and here.
Buy and hold philosophy?
The most common reaction to such an approach is to call it the buy and hold philosophy. I personally don’t follow any dogma in investing. At the time of investing in any stock, my approach is to buy stock in a company which has a sustainable competitive advantage (ability to maintain above average return on capital over a long period) and at a discount to fair value. I will hold the stock as long as the company continues to do well (maintains its competitive advantage) and is not too overpriced.
As you would notice in my approach above, there are no quantitative measures. Competitive advantage, though a well defined concept, is fuzzy in practice and not clear cut always. In addition, though some analysts like to give a specific number for fair value, it is usually an approximate number. As a result overvaluation also depends on your specific point of view (what you think about the company’s future prospects).
Due to the above subjectivity, I do not have a specific holding period in mind when I take a position in a stock. I generally evaluate the performance of the company annually, update the fair value and will hold till the market price does not exceed this fair value by 20-30%.
The above approach has led to a holding period of 5-10 yrs in case of some stocks.
Do I ever sell?
I will not hold the stock of a company, no matter how I feel about it, if I think the stock is overpriced. For example, I have reduced my position in asian paints in the last 2 years as the stock became overpriced.
I have exited Gujarat gas in the past when I thought it was overpriced and re-entered the stock when I felt it was undervalued again.
So in way, it is truly not a marriage, but more of a long term steady relationship :)
Why do most investors hold for shorter periods?
I have a theory or hypothesis on this. There is some research to support this theory too. Let me call this the ‘macho effect’. Most men, me included, want to look macho or ‘manly’ in almost all the activities they do. This testorone display is useful in a lot of activities (though one can doubt that too), but it is completely disastrous as far as investing is concerned. What is the macho effect? Simply put, most men think that they are highly skilled in investing and the way to show it off is to aim for the highest possible returns. Any returns less than 40% per annum is for sissies. So in order to get these super high returns, they trade in and out of stocks and in the end are not even able to match market returns. The means becomes more important than the end itself.
If you don’t agree with my hypothesis, try discussing about a stock which can give you 20% per annum for the next 5 years with a high probability. Most of the guys will dismiss such a stock as useless and point to you a hot idea which can double in 3 months.
The same research (Barber and Odean (2000) study), also points out that women are much better investors than men. I think that would be true if they were more involved in the financial decisions of the family.
What are the downsides of long term holdings?
One downside is that such ideas will not make you look smart in front of your friends. These ideas will also not satisfy that ‘macho’ urge in you :). If you really have that itch to scratch, keep around 10% of your portfolio for entertainment.
In addition, it is not always possible to know such ideas in advance. Some stocks develop into long term holdings as the company in question continues to perform well and as a result there is no reason to sell the stock. One can only look for good quality companies and hope that they will continue to perform well into the future.
How should one buy?
In times of market distress, several high quality companies are available at cheap valuation. One can look at creating a position in these stocks at such times. The advantage of buying the stock on the cheap is that one gets a double kicker – one from the reversion of the valuations to more normalized levels and the other from a steady increase in fair value of the stock.
I am quite comfortable with stocks listed in the post. In addition, I will add to them if the market continues to drop and they get cheaper.There are no guarantees that each of these companies will continue to do well, but as a group I would expect them to do well. Of course one has to be careful about the valuations at which you buy any stock.
Posted by Rohit Chauhan (noreply@blogger.com) on October 10, 2011 02:53 PM· permalink
Sintex announced results post market hours, at 3:45 pm today. While revenues are up 25% to 1154 cr., the net profit has dropped 61% to just 38 cr. from 101 cr. Much of this loss was due to Foreign Currency Convertible Bonds (FCCBs) based losses. Companies that borrow through FCCBs (in foreign currency) have to make an allowance for the exchange rate changes. A fall in the rupee means they have to pay more in rupees than earlier and this is considered a loss.
At the current price of Rs. 115, the P/E comes to 8.1, which isn’t very expensive.
FCCBs: Sintex issued $225m of FCCBs in 2008, payable or convertable in 2013. The conversion price is Rs. 247, said their group president, Sunil Kanojia. The yield is 5.2% which means a total payment of $290M in 2013, which at today’s USD-INR price amounts to Rs. 1450 cr. Including this, their total debt is 2900 cr.
It might be noted that Sintex has 25% higher revenues and FCCB losses are “exceptional items”. In fact Sintex’s press release embodies that fact:
But since Sintex has revenues in Europe and the US their revenues would go up in rupees simply because of the exchange rate – so some of the higher revenue in rupees also comes from the higher exchange rate.
Fundamentally, this stock doesn’t show great signs, though I’ve heard of a few people looking to “buy on dips”. (I think that’s a dangerous term)
The stock has declined a lot, so it’s not a great technical buy either:
Perhaps there needs to be serious strength – beyond the 160 high – for a purchase to be worthwhile.
Posted by Deepak Shenoy on October 10, 2011 02:30 PM· permalink
Reserve Money is the base money of our banking system, a level before the banks come in an multiply it with credit. It consists of the money RBI prints (“currency with the public”), the reserves banks keep with the RBI (which is a factor of how much they lend out) and some riff-raff. Typically, a growth in reserve money is useful because it helps keep prices stable as productivity increases in the system. But when you have serious inflation, the money growth needs to slow to control it.
Any slowing of the reserve money will appear in inflation and broader money supply (“M3”) only with a lag.
India’s grown money supply tremendously through 2007-08 and that continues to pose an issue today; with the brief dip in 08-09, when banks weren’t lending, the growth went back up to 20% and remains above 15% today.
In that context, though they’re not directly linked, this indicates why inflation is at 10% or more. When your base money grows 15%, and M3 (the “multiplied” money) grows 18-20%, you will need dramatic productivity benefits to match it.
An example: If Rs. 100 money supply would buy 10 mangoes at Rs. 10, and you scale the money supply to Rs. 120, then you need to somehow produce 12 mangoes – 20% more – for the price per mango to remain the same (Rs. 10). If you get productivity gains of only 10% – and are able to only produce 11 mangoes, then the per mango cost will go to nearly Rs. 11 (120 divided by 11 mangoes), an “inflation” of 10%. India’s productivity gains seem to be in the single digits – 6-8% – which means that money supply is growing much faster. It isn’t surprising then that we see inflation.
(I suggest that we sell our dollars and take the resulting rupees out of circulation – this will reduce money supply. It does cause liquidity issues, but it will address inflation better than interest rates IMHO)
Posted by Deepak Shenoy on October 10, 2011 05:42 AM· permalink
One Up on Dalal Street
Posted by Saumil Mehta on October 10, 2011 04:24 AM· permalink
Update for investors: My friends at Manual of Ideas produced an interesting video on their research products, take a look.
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Weekly Cartoon
Most Interesting Reads:
How To Actually Change Your Mind: A collection of blog posts - via Less Wrong -People go funny in the head when talking about politics. The evolutionary reasons for this are so obvious as to be worth belaboring: In the ancestral environment, politics was a matter of life and death. And sex, and wealth, and allies, and reputation… When, today, you get into an argument about whether “we” ought to raise the minimum wage, you’re executing adaptations for an ancestral environment where being on the wrong side of the argument could get you killed… Politics is an extension of war by other means. Arguments are soldiers. Once you know which side you’re on, you must support all arguments of that side, and attack all arguments that appear to favor the enemy side; otherwise it’s like stabbing your soldiers in the back – providing aid and comfort to the enemy.
Economic Inequality Is Linked to Biased Self-Perception – via Sage – People’s self-perception biases often lead them to see themselves as better than the average person (a phenomenon known as self-enhancement). This bias varies across cultures, and variations are typically explained using cultural variables, such as individualism versus collectivism. We propose that socioeconomic differences among societies—specifically, relative levels of economic inequality—play an important but unrecognized role in how people evaluate themselves. Evidence for self-enhancement was found in 15 diverse nations, but the magnitude of the bias varied. Greater self-enhancement was found in societies with more income inequality, and income inequality predicted cross-cultural differences in self-enhancement better than did individualism/collectivism. These results indicate that macrosocial differences in the distribution of economic goods are linked to microsocial processes of perceiving the self.
Income inequality, happiness, and trust. – via Deric Bownds- Using General Social Survey data from 1972 to 2008, we found that Americans were on average happier in the years with less national income inequality than in the years with more national income inequality. We further demonstrated that this inverse relation between income inequality and happiness was explained by perceived fairness and general trust. That is, Americans trusted other people less and perceived other people to be less fair in the years with more national income inequality than in the years with less national income inequality. The negative association between income inequality and happiness held for lower-income respondents, but not for higher-income respondents. Most important, we found that the negative link between income inequality and the happiness of lower-income respondents was explained not by lower household income, but by perceived unfairness and lack of trust.
Does income inequality cause health and social problems? – via JRF- The UK witnessed a dramatic growth in income inequality in the 1980s, and since then the level of inequality has increased further, though at a slower rate. But should we be concerned about this? This report provides an independent review of the evidence about the impact of inequality, paying particular attention to the evidence and arguments put forward in ‘The Spirit Level’ by Richard Wilkinson and Kate Pickett (2009).
John Kay: The Map is Not the Territory: An Essay on the State of Economics – via John Kay - The reputation of economics and economists, never high, has been a victim of the crash of 2008. The Queen was hardly alone in asking why no one had predicted it. An even more serious criticism is that the economic policy debate that followed seems only to replay the similar debate after 1929. The issue is budgetary austerity versus fiscal stimulus, and the positions of the protagonists are entirely predictable from their previous political allegiances.
Guess What? Midlife Crisis Don’t Exist - via Mind Hacks - It turns out that the idea of the ‘mid-life crisis’ is surprisingly new – first touted in 1965 – but was invented to refer to a crisis of creativity in geniuses – rather than a sudden urge to dye one’s greying hair. There isn’t actually any evidence that middle age is more of a time of crisis than any other period of life, but the concept has stuck.
Is Evolutionary Psychology Bunk – Prospect – Stephen Pinker argues that we are becoming less violent. Nonsense, says John Gray
What if academics were as dumb as quacks with statistics? – via Bad Science- They’ve identified one direct, stark statistical error that is so widespread it appears in about half of all the published papers surveyed from the academic neuroscience research literature.
Hernando de Soto: The cost of financial ignorance - via Washington Post- Advanced nations seem to have forgotten Point 10 of that consensus: how important documenting assets and transactions is to the creation of credit. Consider that most private credit is made up not of bills and coins, anchored in bank reserves, but in papers that establish rights over the assets, equity and liabilities that guarantee loans. Over the past 15 years, however, as they package, bundle and resell securities, Americans and Europeans have gradually undermined the reliability of the records that guarantee or make credit trustworthy — the deeds, titles, liens and other documentation that establish who owns what and how much, and who holds the risks.
Understanding Variation & Chance with respect to bowel cancer – via Understanding Uncertainty -I’ve taken the headline from this BBC story. The three-fold variation is between Rossendale, in Lancashire, where there were 9 deaths per 100,000 people, and Glasgow City, where there were 31 deaths per 100,000. It’s based on this press release from the charity Beating Bowel Cancer, Nowhere in either source is consideration given to how much of the variation might be due to chance: that’s what this article is about.
Follow the Money: Behind Europe’s Debt Crisis Lurks Another Giant Bailout of Wall Street - via RobertReich- Today Ben Bernanke added his voice to those who are worried about Europe’s debt crisis. But why exactly should America be so concerned? Yes, we export to Europe – but those exports aren’t going to dry up. And in any event, they’re tiny compared to the size of the U.S. economy. If you want the real reason, follow the money. A Greek (or Irish or Spanish or Italian or Portugese) default would have roughly the same effect on our financial system as the implosion of Lehman Brothers in 2008.
Video:James Surowiecki: Out of Our Control - via Fora.tv- On playing with other people’s money.
Why do Facebook and Twitter facilitate revolutions more than TV and radio? – via Kiss& Alfonso – A distinctive feature of recent revolutions was the key role of social media (e.g. Facebook, Twitter and YouTube). In a simple model we assume that while social media allow to observe all previous decisions, mass media only give aggregate information about the state of a revolt. We show, first, that when individuals’ willingness to revolt is publicly known, then both sorts of media foster a successful revolution. However, when willingness to revolt is private information, only social media ensure that a revolt succeeds, with mass media multiple outcomes are possible. This suggests that social media enhance the likelihood that a revolution triumphs more than traditional mass media.
The Probabilistic Mind – Human brains evolved to deal with doubt – via Science News & Leadon Young -Humans live in a world of uncertainty. A shadowy figure on the sidewalk ahead could be a friend or a mugger. By flooring your car’s accelerator, you might beat the train to the intersection, or maybe not. Last week’s leftover kung pao chicken could bring another night of gustatory delight or gut agony.
Video: Michael Lewis: The First World Third World – via Paul Kedrosky
Paul Graham: – Why Startup Hubs Work – via Paul Graham - A couple weeks ago I finally figured it out. I was framing the question wrong. The problem is not that most towns kill startups. It’s that death is the default for startups, and most towns don’t save them. Instead of thinking of most places as being sprayed with startupicide, it’s more accurate to think of startups as all being poisoned, and a few places being sprayed with the antidote. Startups in other places are just doing what startups naturally do: fail. The real question is, what’s saving startups in places like Silicon Valley?
Can Google Searches Predict Stock Price Performance? - via Freakonomics- We propose a new and direct measure of investor attention using search frequency in Google (Search Volume Index (SVI)). In a sample of Russell 3000 stocks from 2004 to 2008, we find that SVI (1) is correlated with but different from existing proxies of investor attention; (2) captures investor attention in a more timely fashion and (3) likely measures the attention of retail investors. An increase in SVI predicts higher stock prices in the next 2 weeks and an eventual price reversal within the year. It also contributes to the large first-day return and long-run underperformance of IPO stocks.
Coping with Unpleasant Surprises in a Complex World: Is Rational Choice Possible in a World with Positive Information Costs? -via Congelton- This paper provides a rational choice-based analysis of the causes and consequences of surprise events. The paper argues that ignorance may be rational, but nonetheless produce systematic mistakes, inconsistent behavior, and both pleasant and unpleasant surprises. If ignorance and unpleasant surprises are commonplace and relevant for individual and group decision making, we should observe standing institutions for dealing with them – and we do. Insofar as surprises are consistent with rational choice models, but left outside most models, it can be argued that these methodological choices mistakenly limit the scope of rational choice based research.
A brief history of the brain – via New Scientist- This is possible because all living cells generate an electrical potential across their membranes by pumping out ions. Opening up channels that let ions flow freely across the membrane produces sudden changes in this potential. If nearby ion channels also open up in response, a kind of Mexican wave can travel along a cell’s surface at speeds of several metres a second. Since the cells in glass sponges are fused together, these impulses can travel across their entire bodies.
Is willpower all about sugar? - via Bakadesuyo- Acts of self-control deplete relatively large amounts of glucose. Self-control failures are more likely when glucose is low or cannot be mobilized effectively to the brain (i.e., when insulin is low or insensitive). Restoring glucose to a sufficient level typically improves self-control. Numerous self-control behaviors fit this pattern, including controlling attention, regulating emotions, quitting smoking, coping with stress, resisting impulsivity, and refraining from criminal and aggressive behavior. Alcohol reduces glucose throughout the brain and body and likewise impairs many forms of self-control. Furthermore, self-control failure is most likely during times of the day when glucose is used least effectively. Self-control thus appears highly susceptible to glucose. Self-control benefits numerous social and interpersonal processes. Glucose might therefore be related to a broad range of social behavior.
New Book: A profession with “no” at its core – via Mindhacks- This book is 75% solid gold – absolutely essential perspective for scientists who want to communicate outside of their specialism. But it is also 25% misleading and elitistic simplification. At heart, Randy Olson’s message as a populariser ends up pandering to a mistaken belief in scientific exceptionalism – that what scientists do and who scientists are is so beyond the ken of the rest of the population that it cannot be conveyed to them, that we have to use a pound of silly songs and fart jokes to make the public to swallow an ounce of important information. Sorry, Randy, but when you underestimate the public taste you end up demeaning it.
Video: Ted Talks- Less stuff, more happiness – via Ted.com- Writer and designer Graham Hill asks: Can having less stuff, in less room, lead to more happiness? He makes the case for taking up less space, and lays out three rules for editing your life.
How Two Scammers Built an Empire Hawking Sketchy Software – via Wired- Before they built an international underworld empire—before they weaseled their way onto millions of computers, before their online enterprise was bringing in hundreds of millions of dollars a year, before they were fugitives wanted by Interpol—Sam Jain, now 41, and Daniel Sundin, 33, were just a couple of garden-variety Internet hustlers. The two, who met around 2001, started out with a series of relatively modest scams and come-ons. Capitalizing on post-9/11 paranoia, Jain sold anti-anthrax gas masks. Exploiting the anxieties of aspiring non-English-speaking immigrants, he helped run a green card lottery site that tricked applicants into paying for an INS form that the government provides for free. Together, the two men sold gray-market or counterfeit versions of popular software. They marketed all these dodgy ventures with a mix of hyperaggressive tactics, including classic blackhat tricks like “browser hijacking” and “typo-squatting.” But Jain and Sundin weren’t technological wizards; they didn’t break into their marks’ computers or steal their credit card numbers. Instead, they were masters of social engineering who got people to hand over their money willingly. The work was lucrative enough that Jain and Sundin could afford to hire programmers, designers, and emarketers. Still, their approach was unfocused—and exhausting.
Quantum biology: The weirdness inside us – via NewScientist- EVER felt a little incoherent? Or maybe you’ve been in two minds about something, or even in a bit of delicate state. Well, here’s your excuse: perhaps you are in thrall to the strange rules of quantum mechanics.
Richard Thaler: Deer in the Headlights, Financially Speaking – via NYT- BY any measure, the global economy is facing unusually high levels of uncertainty and volatility. But human nature may be impeding our ability to turn the economy around. Fear and anxiety don’t bring out the best in anyone. When normally loving spouses are lost in traffic and late for a flight, their conversation is rarely suitable for young ears, even when the children are in the back seat. Along with making people irritable, uncertainty can create paralysis. Some animals freeze when they are frightened. Acting like a deer in the headlights can be a good strategy if you are trying not to be seen, but it can get you run over.
Decision Making/ Behavioral Economics/Psychology/ Risk/ Sciences:
The Benjamin Franklin Effect – via You are not smart – You grow to like people for whom you do nice things and hate people you harm.
The Inherent Reward of Choice – via Sage- Research suggests that the exercise of control is desirable and adaptive, but the precise mechanisms underlying the affective value of control are not well understood. The study reported here characterized the affective experience of personal control by examining the neural substrates recruited when individuals anticipate the opportunity to make a choice—in other words, when they anticipate the means for exercising control. We used an experimental paradigm that probed the value of having a choice. Participants reported liking cues that predicted a future opportunity to make a choice more than cues that predicted no choice. The anticipation of choice itself was associated with increased activity in corticostriatal regions, particularly the ventral striatum, involved in affective and motivational processes. This study is the first direct examination of the affective value of having the opportunity to choose. These findings have important implications for understanding the role of perception of control, and choice itself, in self-regulatory processes.
What a Feeling: The Role of Immediate and Anticipated Emotions in Risky Decisions – via JBM- The risk-as-feelings hypothesis argues that many risky decisions are not only predicted by anticipated emotions, as most consequentialistic decision making theories would presume, but also by immediate emotions. Immediate emotions refer to the “hot” visceral feelings people feel as they contemplate a specific decision option at the cusp of making a decision, whereas anticipated emotions are those emotions that people forecast that they will feel once they experience possible consequences of that decision. Four studies focused on the role of both types of emotions in decisions under risk and uncertainty. Decisions were substantively predicted by immediate emotional states beyond anticipated emotions or the subjective probability attached to outcomes. Thus, risky choices may be prompted, in part, by how people feel about the “riskless” portion of the decision—specifically, the various decision options they are contemplating—rather than the potential outcomes those options may produce.
100 Ways to leave your lucre – via PsiFiBlog- To finish Sutherland suggests that if we want to improve our rationality we need to follow Aristotle’s dictum: if we want to be good we need to resist being bad because practising good habits leads to them becoming automated. Well, maybe, but either way Irrationality is an essential part of any investor’s toolkit. We all ought to want to practice rationality in markets – unless, of course, we simply want to let the securities industry take our profits in order to fund its next round of profligacy. Now that would be genuinely irrational.
Video: Neuroscience and Justice – via Edge.org- Asking the fundamental question of modern life. In an enlightened world of scientific understandings of first causes, we must ask: are we free, morally responsible agents or are we just along for the ride?
Collective behavior in financial market - via Cornell- Financial market is an example of complex system, which is characterized by a highly intricate organization and the emergence of collective behavior. In this paper, we quantify this emergent dynamics in the financial market by using concepts of network synchronization. We consider networks constructed by the correlation matrix of asset returns and study the time evolution of the phase coherence among stock prices. It is verified that during financial crisis a synchronous state emerges in the system, defining the market’s direction. Furthermore, the paper proposes a statistical regression model able to identify the topological features that mostly influence such an emergence. The coefficients of the proposed model indicate that the average shortest path length is the measurement most related to network synchronization. Therefore, during economic crisis, the stock prices present a similar evolution, which tends to shorten the distances between stocks, indication a collective dynamics.
The Push and Pull of Temptation: The Bidirectional Influence of Temptation on Self-Control – via Sage- This article examines how people respond to the emergence of temptation in their environment. Three studies demonstrated that how people respond to temptation depends critically on their visceral state—whether or not they are actively experiencing visceral drives such as hunger, drug craving, or sexual arousal. We found that when people were in a “cold,” nonvisceral state, the presence of temptation prompted cognition to support self-control. However, when people were in a “hot,” visceral state, temptation prompted the same cognitive processes to support impulsive behavior. Study 1 examined how heterosexual men’s level of sexual arousal influences their attention to attractive women. Study 2 examined whether satiated and craving smokers would engage in motivated reasoning in order to dampen (or enhance) the appeal of smoking when confronted with the temptation to smoke. Study 3 tested the boundaries of the interaction between visceral state and temptation.
Do we advise others to acquire status - via Overcoming Bias- We study the effect of participative decision making in an experimental principal agent game, where the principal can consult the agent’s preferred option regarding the task to be undertaken in the final stage of the game. We show that consulting the agent was beneficial to principals as long as they followed the agent’s choice. Ignoring the agent’s choice was detrimental to the principal as it engendered negative emotions and low levels of transfers. Nevertheless, the majority of principals were reluctant to change their mind and adopt the agent’s proposal. Our results suggest that the ability to change one’s own mind is an important dimension of managerial success
We See Dominance it’s our nature – via Overcoming Bias- This study also showed that when social relationships are difficult to learn, people’s preference for hierarchy increases. Taken together, these results suggest one reason people might like hierarchies—hierarchies are easy to process. This fluency for social hierarchies might contribute to the construction and maintenance of hierarchies.
Narcissistic Leaders and Group Performance – via Sage – Although narcissistic individuals are generally perceived as arrogant and overly dominant, they are particularly skilled at radiating an image of a prototypically effective leader. As a result, they tend to emerge as leaders in group settings. Despite people’s positive perceptions of narcissists as leaders, it was previously unknown if and how leaders’ narcissism is related to the performance of the people they lead. In this study, we used a hidden-profile paradigm to investigate this question and found evidence for discordance between the positive image of narcissists as leaders and the reality of group performance. We hypothesized and found that although narcissistic leaders are perceived as effective because of their displays of authority, a leader’s narcissism actually inhibits information exchange between group members and thereby negatively affects group performance. Our findings thus indicate that perceptions and reality can be at odds and have important practical and theoretical implications.
Habituation from Thought: Thinking Can Enhance Self-Control—in Eating and Elsewhere - via There Are Free Lunches- Last December, a series of provocative studies appeared in Science. The finding: imagine eating a food, over and over and over, and you will eat less of it when you are actually given the opportunity to do so. At first glance, it seems completely counterintuitive. Don’t we get hungry when we watch The Food Network or read delicious descriptions in cookbooks, magazines, or novels? Doesn’t thinking about eating make us hungrier to eat? Yes. Absolutely. But these studies come with a twist, and that twist is repetition. Mind-numbing, frequent repetition, plain and simple.
Business/ Entrepreneurship/Finance/Investing:
The Thirty-Year Stock Market Hangover – via Unexpected Utility- This result confirms what psychologists have known for some time about our perception of extreme outcomes: whereas the psychological impact of most of our experiences diminishes rather quickly with the passage of time, extreme experiences tend to remain vivid in the psyche regardless of when they occurred. This means that when we reflect on our past experiences, what we perceive is not a historical average of those experiences. This retrospective evaluation is heavily influenced by the most recent experience and by the most extreme, because this is all that we still perceive. So when I think about my entire stock market experience, the only things that I bring to the evaluation are the current disappointing performance and the stock market crash of 1987. This is hardly the basis for an aggressive equity engagement today. In fact, for me, there is hardly ever a basis for an aggressive equity engagement. My only consolation is that, after 2017, I might finally be able to chase my stock market demons away.
What Would Keynes Say Now? – via New Yorker- Finally, and I didn’t put this in the piece, I think Keynes would be sympathetic towards the anti-Wall Street protestors who are camping out in downtown Manhattan. Somewhat like George Soros, Keynes was an ardent and skilled speculator in the markets who, nonetheless, had few illusions about the social utility of various fashionable forms of finance. “Speculators may do no harms as bubbles on a steady stream of enterprise,” he wrote. “But the position is serious when enterprise becomes a bubble on the whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, it is likely to be ill-done.”
Koch Brothers Flout Law Getting Richer With Secret Iran Sales - via Bloomberg- In May 2008, a unit of Koch Industries Inc., one of the world’s largest privately held companies, sent Ludmila Egorova-Farines, its newly hired compliance officer and ethics manager, to investigate the management of a subsidiary in Arles in southern France. In less than a week, she discovered that the company had paid bribes to win contracts.
The Eclectic Mix:
Short-Term Music Training Enhances Verbal Intelligence and Executive Function- via Sage- Researchers have designed training methods that can be used to improve mental health and to test the efficacy of education programs. However, few studies have demonstrated broad transfer from such training to performance on untrained cognitive activities. Here we report the effects of two interactive computerized training programs developed for preschool children: one for music and one for visual art. After only 20 days of training, only children in the music group exhibited enhanced performance on a measure of verbal intelligence, with 90% of the sample showing this improvement. These improvements in verbal intelligence were positively correlated with changes in functional brain plasticity during an executive-function task. Our findings demonstrate that transfer of a high-level cognitive skill is possible in early childhood.
How our brain links to our immune system via vagus nerve – via Deric Bownds- Neural circuits regulate cytokine production to prevent potentially damaging inflammation. A prototypical vagus nerve circuit, the inflammatory reflex, inhibits tumor necrosis factor–α production in spleen by a mechanism requiring acetylcholine signaling through the alpha 7 nicotinic acetylcholine receptor expressed on cytokine-producing macrophages. Nerve fibers in spleen lack the enzymatic machinery necessary for acetylcholine production; therefore, how does this neural circuit terminate in cholinergic signaling? We identified an acetylcholine-producing, memory phenotype T cell population in mice that is integral to the inflammatory reflex. These acetylcholine-producing T cells were required for the inhibition of cytokine production by vagus nerve stimulation. Thus, action potentials originating in the vagus nerve regulate T cells, which in turn produce the neurotransmitter acetylcholine required to control innate immune responses.
Do cents follow Benford’s Law? - via Decision Science News- Benford’s law, if you don’t know about it, is an amazing thing. If you know the probability distribution that “natural” numbers should have, you can detect where people might be faking data: phony tax returns, bogus scientific studies, etc.
Are Claims Of Transparency All They Are Cracked Up To Be? - via Grossman, Komai, Benie - The current “buzzword” among leaders is “transparency.” Hardly a day goes by that a group leader (politician, manager, or administrator) doesn’t state that he values transparency and will provide full disclosure of his information and actions. This project tests experimentally whether or not leaders, when given a choice, actually reveal a preference for transparency. Our experiment is based on a theoretical model by Komai, Stegeman, and Hermalin (2007). Fifteen subjects are randomly assigned to five groups of three. Each group separately participates in an investment game with three possible return scenarios (high, average, and low) that are equally likely to happen. Investing in the low-return scenario is not profitable to either individual group members or the whole group. In the average-return scenario, group well-being is maximized if all the group members invest in the project, but full cooperation may not be achieved simply because the dominant strategy of the individuals is to free ride on others. In the high-return scenario full cooperation is also optimal for the group, but subjects may or may not coordinate on full cooperation because they may fail to coordinate their efforts with the others. We consider a leader-follower setting. Only one member of the group (the leader) observes the scenario. The leader moves before the rest of the group members and first decides whether or not to invest in the project. The leader then chooses between two information regimes: revealing his decision and the return scenario to the rest of the group or revealing his decision but not the return scenario. Absent any information provided by their leader, followers know only the possible return scenarios and their likelihoods. They do not know which scenario is assigned to their group. Given the leaders’ information choices and investment decisions, the relevant information will be conveyed to the followers. The followers then will separately and simultaneously decide whether or not to invest in the project (followers do not know anything about the different information regimes). This is realistic in many real-world circumstances because in many business or political environments the leaders have exclusive access to critical information and are in charge of deciding whether or not to reveal the details of their information and actions to their potential followers; in many circumstances it is practically difficult for the followers to verify the real information or the leaders’ actions.
Talking tech with Peter Thiel, investor and philanthropist (Q&A) - via Cnet- Peter Thiel believes technology will make the world a much better place. He’s simply frustrated at how long it’s taking. The billionaire entrepreneur is best known for co-founding PayPal, and, more recently, for his very early investment in Facebook. He founded Clarium Capital Management, a hedge fund, created the philanthropic Thiel Foundation, and co-produced the irreverent 2005 comedy Thank You for Smoking.
Novelty in Music and Markets: The Evolutionary Forces Behind our Appreciation of the Unfamiliar - via Why We Reason - All great musicians share one thing in common: the ability to combine the familiar with the unfamiliar to create something novel and intriguing but, at the same time, not alienating and absurd. It’s Dylan going electric; it’s the Beastie Boys combining punk and hip-hop; and it’s Zappa incorporating jazz and rock. Going too far in either direction is risky. As any one hit wonder will tell you, too much familiarity is a career killer. And the work of musicians like John Cage illustrates that music which is completely unconventional is usually rejected. Daniel Levitin, author of This is Your Brain on Music, explains this perfectly: ”As music unfolds, the brain constantly updates its estimates of when new beats will occur, and takes satisfaction in matching a mental beat with a real-in-the-world one… [but it also] takes delight when a skillful musician violates [an] expectation in an interesting way – a sort of musical joke that we’re all in on. Music breathes, speeds up, and slows down just as the real world does, and our cerebellum finds pleasure in adjusting itself to stay synchronized”.
Ambition Gone Awry: The Long-Term Socioeconomic Consequences of Misaligned and Uncertain Ambitions in Adolescence – via Wiley - The objective of this study was to investigate whether misaligned or uncertain ambitions in adolescence influence the process of socioeconomic attainment.
Visual Journalism & Infographics :
How US Poverty Undercount The Jobs- via Sociological Images - Children are our most important resource. Everyone says it, but we don’t really mean it. Exhibit one: the percentage of children under the age of 18 that live in poverty. In 2007, at the peak of our previous economic expansion, the child poverty rate was 18%. In 2009, it hit 20%. The figure below provides a look at child poverty rates in each state. New Hampshire had the lowest rate: 11%. Mississippi the highest rate: 31%. According to a recently released Census Bureau study, the 2010 national child poverty rate was 22%.
Obama Presidency by Numbers: Contrasting Statements with Statistics – via Infosthetics- During the 2011 State of the Union Address, the White House showed a series of infographics alongside the televised speech to show the data-driven evidence behind some of most important themes that were addressed.
Posted by Miguel on October 09, 2011 11:51 PM· permalink
Posted by Prajna Capital (noreply@blogger.com) on October 09, 2011 08:57 AM· permalink
Since the growth of the credit information industry, the only implemented generic scoring model that has been introduced and is being used extensively by lenders in India is the Cibil TransUnion Score.
Through advanced analytics, this score assigns a number from 300 to 900 to a borrower based on the credit history. The higher the numerical value of the score, the lower is the risk associated with the individual. Here is how you can manage your credit score for deriving maximum benefit for accessing credit and developing this vital reputational collateral.
Almost all the credit institutions in India use the Cibil TransUnion Score while deciding on the loan application of a consumer. It is, therefore, imperative for you to access your credit score before applying for a loan to get a precise understanding of your credit standing and the likelihood of the loan approval. This will enable you to see yourself as loan providers do and make prudent borrowing decisions. Therefore, as a first step to managing your credit score, it is imperative to know what your current Cibil TransUnion Score is.
You can know your score by accessing it from Cibil along with your Cibil CIR for . 450. The payment can be made by following an online payment procedure or through a demand draft. Along with the application form and online payment receipt or demand draft, you will have to submit documents as identity and address proof.
Once you have accessed your score it is important to review it and understand how your credit score has been derived.
Your Cibil TransUnion Score is calculated based on the information in the "accounts" and "enquiry" section of your Cibil CIR. A majority of the score is made up of the following factors:
CREDIT UTILISATION:
How much credit is the consumer using?
DEFAULTING:
How many accounts are past due date – how much and by how many days?
NUMBER OF ENQUIRIES:
Has the consumer applied for additional credit lines?
TRADE ATTRIBUTES:
How old are the consumer's lines of credit? What type of credit does he have? Does the consumer have a good mix or balance of credit or is it all credit cards?
Now that you know your score and the broad factors that determine the credit score, it is imperative to understand how to manage your credit score. Here are some ways to make sure that you are being financially disciplined and, thereby, maintaining a healthy credit score:
EMIS:
Pay your loan EMIs on time. If you have more than one loan running, it is prudent to track it well. Make regular and timely re-payments of your loan to maintain your credit level.
CREDIT CARD:
Never fail to pay the minimum payment on your credit card. Credit card is categorised as revolving credit and it helps in building a good credit score if payments are regular.
CREDIT EXPOSURE:
Do not apply for loans or credit cards if not required, as this would mean more credit exposure. This could affect your credit score. Instead of applying for another loan, try checking for a top-up loan option on your existing loan. This will make your debt burden easier to manage.
REPAYING DEBT:
Use some of your savings to repay some of your debt. Always plough back extra income to reduce your debts.
REVIEW:
Review your credit history and credit score frequently, throughout the year.
For maintaining a good history and subsequently a worthy credit score, you should ensure that you are always in control of your finances.
Remember, a good credit history results in speedier access to credit. It is beneficial to both the credit grantor as well as the borrower.
However, if your credit score is low, don't be disheartened. The credit system always gives chances to improve. You can start improving your credit score by simply paying off your debt and not opting for more until your score improves. Better late than never!
Posted by Prajna Capital (noreply@blogger.com) on October 09, 2011 05:43 AM· permalink
Mutual funds entails several costs, payable at different stages. These include:
On investing: Entry load or the upfront fee levied by mutual funds while investing was abolished by Securities and Exchange Board of India (Sebi) from August 1, 2009. In lieu of that, an advisory fee of 1-2 per cent of the investment amount is charged by distributors. This fee depends on the agreement between the investor and the distributor. However, if you invest via a broker (stock exchange platform), instead of the advisory fee, a transaction fee (about 0.5 per cent) is charged, which is similar to brokerage paid while trading in equities. If you approach the fund house directly, no charges are levied.
Recurring cost: Each mutual fund scheme discloses an 'expense ratio'. This signifies the proportion of recurring expenses that a fund charges to its schemes' assets under management (AUM) year after year. This includes fund management fee, administrative costs and marketing and advertising costs incurred by the fund house. The expense ratio varies across fund houses and schemes. However, Sebi has capped the annual charges at 2.5 per cent of the AUM for equity funds and 2.25 per cent for debt funds for the initial corpus of `300 collected. The cap dips as the AUM increases. Reason: as the expense ratio is charged as a percentage of the total AUM, it spreads across a larger corpus. Thus, it reduces by 0.25 per cent with each consecutive tranche of `300 crore collected for equity as well as debt schemes. It is finally capped at 1.75 per cent for equity schemes and 1.5 per cent for debt funds, each with a corpus exceeding `900 crore .
So, those who enter a fund with a smaller corpus, effectively pay a higher fee. Whereas, those entering with a larger corpus pay lower charges. For index funds and exchange-traded funds, the expense ratio is capped at 1.5 per cent of the AUM, irrespective of the corpus accumulated. You do not have to pay these charges separately. The net asset value of the units held by you is declared after deducting these charges.
On redemption: Conventionally, an exit load of about aper cent of the total redemption amount is levied for premature withdrawals, usually made within a year of the investment. Each company can stipulate this lock-in period independently. However, there is restriction on the exit load charged. Except, if it exceeds one per cent, the excess must be reinvested in the scheme. Investors also have to pay a Securities and Transaction Tax (STT) of 0.25 per cent on redemption. It is applicable irrespective of the investment channel chosen. But the manner of levying the tax varies with your choice of intermediary. If invested via a non-exchange channel, STT will be levied on redemption. But over the exchange platform, STT is divided into two parts of 0.125 per cent each and levied both on investing and redeeming.
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Also, know how to buy mutual funds online:
Invest in DSP BlackRock Mutual Funds Online
Invest in Reliance Mutual Funds Online
Invest in HDFC Mutual Funds Online
Invest in Sundaram Mutual Funds Online
Invest in Birla Sunlife Mutual Funds Online
Invest in IDFC Mutual Funds Online
Invest in UTI Mutual Funds Online
Invest in SBI Mutual Funds Online
Invest in L&T Mutual Funds Online
Invest in Edelweiss Mutual Funds Online
Posted by Prajna Capital (noreply@blogger.com) on October 09, 2011 03:33 AM· permalink
A mutual fund is an investment that pools together money from various investors, which are further managed and invested by a professional with a view to achieve more competitive returns. The money collected by the fund manager is thus, invested in different instruments such as shares, debentures and other debt instruments based on the stated objective of the fund. The capital generated from these investments is shared by the holders on the basis of the investments made by them.
Mutual fund investment is the most suitable instrument for most people as it provides an opportunity to invest in a diversified fund through a professional at a relatively low cost. An individual usually finds it difficult to keep a track of his investments, therefore a professionally qualified and experienced fund manager makes the task easy.
The mutual funds industry in India provide investors with a number of products which aim towards shares, debentures, fixed interest securities and many more.
Types of Funds
- Open and Closed ended funds
An open ended fund does not have a fixed maturity and is always available for subscription. The distinct feature of an open-ended fund is liquidity where an investor can buy and sell units at net asset value (price of a unit of a fund) related prices.
A close ended fund on the other hand is a fixed maturity period, usually ranging from 3-15 years and the fund is open only during a specific period for subscription. The unit capital in this scheme is fixed.
- Load Funds and No-Load Funds
Load funds refer to the funds that levy charges at the time of entry or exit to the fund from the investor; whereas a no-load fund as the name suggests does not charge anything from the investor at the time of entry or exit to the fund. Entry load is the load charged at the time of entering into the fund by deducting a specific amount of money from the initial contribution towards a scheme. There are a few funds, charging a management fee, where the initial expenses are borne by the Asset management Company/Fund Manager. Here the individual enters or exits depending upon the NAV (net asset value) of the fund.
Debt funds are fixed interest funds which can invest in long-term or short-term bonds. The main objective of investing in a debt fund is to preserve the investment while getting the best interest available. These funds invest in fixed return investments like bonds. Therefore, the risk borne by the investor is lower than any other equity fund.
Debt funds can be classified into three types which are income/bonds, liquid/money market and gilts schemes. Income/bond schemes are the ones that invest in long and medium term instruments like corporate bonds, fixed deposits, etc. Liquid/money market schemes invest in short-term instruments like treasury bills and commercial paper, whereas Gilt funds invests in papers issued by the government. The maturity in these schemes are either long or medium term depending upon the objectives of the scheme.
Equity fund also known as a stock fund, usually invests in equities of listed companies. They principally invest in the securities in share markets which can be either domestic or worldwide markets. It allows the investor to access a diversified portfolio managed by a professional.
There are different types of equity funds in the market, therefore the level of risk in each fund is different depending upon the fund:
A fund that has a stock as well as a bond component in a single portfolio.. It targets to provide the investor with growth as well as regular income. A unique feature of such funds is that, they manage the downturns in the stock market without much loss to the investor. But, at the same time, they increase less even in a booming market.
Balanced funds, also sometimes known as hybrid funds, invests in various tools thus avoiding excessive risk.
Benefits of Mutual Funds
A unique feature of Mutual funds is diversification where there is an option of investing into various schemes depending upon the market situation which keeps the finances safe. The value of all funds keep fluctuating but does not go low at the same time, thus reducing the risk.
In an open-ended fund, one can get the money back instantly according to the net asset value of the fund. Also, units in a close-ended fund can be sold at the prevailing market prices on a stock exchange. Thus, providing liquidity to the investor.
Mutual Funds provide the investor with a stock of schemes to choose from depending upon the investors needs.
- Professional Management of Funds
Allows professional management where an experienced professional tracks the investors money along with the performance of various funds. The fund manager also guides the investor to invest in the funds, keeping in view the objectives of each scheme.
An investor can start investing in mutual funds with as low as Rs.1000. Thus, making it affordable for anyone.
Posted by Prajna Capital (noreply@blogger.com) on October 08, 2011 05:39 PM· permalink
HDFC Mutual Fund has launched two fixed maturity plans (FMPs) – HDFC FMP 92D October 2011 (2) and HDFC FMP 370D October 2011 (2). The new fund offers will be open for subscription from October 14, 2011 to October 18, 2011 for HDFC FMP 92D October 2011 (2) and from October 14 to October 19, 2011 for HDFC FMP 370D October 2011 (2).
The schemes will be listed on the National Stock Exchange.
Posted by Prajna Capital (noreply@blogger.com) on October 08, 2011 03:17 PM· permalink
India Infoline Asset Management Company is the latest to enter the mutual fund industry. Its first offering is an exchangetraded fund (ETF) called IIFL Nifty ETF. The fund will invest in securities that make up the S&P CNX Nifty Index, in the same proportion as the index. The Nifty tracks the behaviour of a portfolio of bluechip companies, the largest and most liquid Indian securities.
Exchange-traded funds score on account of their low-cost structure when compared with actively managed fund. The IIFL Nifty ETF proposes to have one of the lowest cost structures in the industry with expense ratio capped at as low as 0.25%. Actively managed funds charge a fee of between 1% to 2.5% as expense ratio.
There are two things to look at in an exchange-traded fund. One is the size of the fund and the second is the tracking error. Tracking error tells us the difference in return between the actual fund and its benchmark.
Both these aspects can be gauged once the fund has been in existence for some time and has a track record. Hence, experts advise investing in such funds through the secondary markets, rather than in NFOs.
The fund size should be big enough so that investors are not exposed to the moves of a single investor or a group of investors.
Exchange-traded funds are popular in the global markets where they account for 5% of the industry. In India, however, they are yet to pick up and account for merely 1% of the size of the industry.
The IIFL Nifty ETF new fund offer (NFO) is open till October 12. Investors can either buy it during the NFO or from the NSE once it is listed 10 days after the NFO closes.
However, to buy it fromthe stock exchange, investors need to have a broking account as well as a demat account, which come at a cost.
WHY INVEST:
The fund has one of the lowest expense ratio of 25 basis points. The Goldman Sachs Nifty ETS has an expense ratio of 50 basis points.
WHY NOT TO INVEST:
Since an ETF has no history, one cannot say with certainty what the tracking error will be. A high tracking error is not good for investors.
Posted by Prajna Capital (noreply@blogger.com) on October 08, 2011 01:52 PM· permalink
I have been besieged with increasing demand from my fans ( Fan club of two people - My pet frog and my pet rock) to start writing on the blog again. So here goes …
I m sure most of you have read about endowment bias on multiple blogs. Prof Bakshi has written on it and so have my friends Rohit and Neeraj commented on it.
Endowment bias or effect is the phenomenon where people start valuing something more after they own it. It is the effect where people would demand a considerable higher price for a product that they own as opposed to what they would be prepared to pay for it before they own it.
A practical example is that people will always expect a higher amount for their home when they are selling as compared to what the prevalent market rate. In case of the house part of the value ascribed comes from the effort put in over the years in converting the house to a home at a emotional level. The buyer of course has no such emotional attachment to the house. A car once purchased, miraculously seems to better features than the neighbours car and so does our television or tablet etc
Endowment bias seeps into our stockpicking when suddenly the company we buy transforms from a ugly duckling into a white swan. It begins to look very precious with great business opportunity, great management, ability to increase marketshare, ability to increase margins etc. This flaw also plays out in our decision to sell the business when we always perceive it to be more valuable than what the market is willing to pay for it.
The paradox of course is that we suddenly don’t find our wives more beautiful or more precious after we marry them ( hopefully my wife is not reading this). I haven’t encountered men (even women) paying glowing tributes to their spouses like saying “ How good a cook my wife is or how beautiful/ intelligent she is or how caring my husband is etc
One way of looking at the paradox is that we really don’t own our wives :-). A lovely song by the Beatles called the “Norwegian Wood” comes to my mind immediately
“I once had a girl, or should I say, she once had me …"
Posted by Ninad Kunder (noreply@blogger.com) on October 08, 2011 06:38 AM· permalink
DSP BlackRock Mutual Fund has announced the launch of DSP BlackRock FMP Series 15 – 3M.
The new fund offer will be open for subscription from October 7, 2011 to October 11, 2011. The scheme will mature on January 10, 2012.
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Also, know how to buy mutual funds online:
Invest in DSP BlackRock Mutual Funds Online
Invest in Reliance Mutual Funds Online
Invest in HDFC Mutual Funds Online
Invest in Sundaram Mutual Funds Online
Invest in Birla Sunlife Mutual Funds Online
Invest in IDFC Mutual Funds Online
Invest in UTI Mutual Funds Online
Invest in SBI Mutual Funds Online
Invest in L&T Mutual Funds Online
Invest in Edelweiss Mutual Funds Online
Posted by Prajna Capital (noreply@blogger.com) on October 08, 2011 04:31 AM· permalink
These funds offer a greater choice to fund managers in selecting companies
MUTUAL fund investors have a wide array of options regarding the type of funds that they can choose for their portfolio. Earlier the classification was simple as there were equity diversified funds and within this category too the funds could be separated into areas like large-cap equity, mid-cap equity, index funds and so on.
In recent times there is an added confusion for the investor because they find that there are several funds that do not fit into these previously considered broad categories at all and hence there has to be a different way in which these need to be analysed.
Multi-cap funds: The fund, which invests across a range of areas, and sectors are known as multicap funds. As the name suggests these are different from the traditional largecap or mid-cap funds as there is likely to be the presence of companies with different levels of market cap in the portfolio of the fund. This can make the segregation of the fund quite difficult and hence investors have to understand the changing situation differently at various points of time.
These funds thus represent a greater choice for the fund manager in the manner of selection of the companies within the portfolio.
Changing nature: The first way in which these funds need to be considered is by actually considering the current stocks or areas where the investment is actually made. The flexibility for the investment provides a wide amount of choice for selection of the stocks in the portfolio. For this reason, it is essential that the investor consider the allocation that is given to the different areas in the investment declaration of the mutual fund offer document. This will provide the range within which the holdings will be visible but this can also change quickly.
The investor could find out that for some time the fund is in the nature of a large-cap fund while at other times it functions as a small-cap funds. On several occasions there might not even be specific characteristics of the fund as various stocks with different market caps are similar in size.
Fund manager: This manner of construction of the portfolio is also an important reason why the fund manager occupies an important position for the investor into such a fund.
The fund manager will decide upon the selection of the various holdings in the portfolio and if this is done in an effective manner then there is a good chance that there will be an outperformance for the fund. The downside is also high as there are various times when the view of the fund manager will not work out as expected and in such a situation there can be a wide divergence in the performance of the fund. Focus on the style of fund manager to manage the fund will be a critical r decision while selecting a particular fund.
Evaluation: The evaluation of such funds is not an easy task because they are constantly changing their characteristics. So for example, if this was in favour of the large-caps then you might be comparing their performance to how the large-caps are doing but while doing that you might realise that the fund is actually a mid-cap fund so you need to change the benchmark.
One of the ways in which the activity can be undertaken is by using the benchmark that is mentioned by the fund. The other way of doing this is also be looking at some benchmark that you might set out on your own and that can be used as a guidepost to look at how the situation is turning out to be.
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Also, know how to buy mutual funds online:
Invest in DSP BlackRock Mutual Funds Online
Invest in Reliance Mutual Funds Online
Invest in HDFC Mutual Funds Online
Invest in Sundaram Mutual Funds Online
Invest in Birla Sunlife Mutual Funds Online
Invest in IDFC Mutual Funds Online
Invest in UTI Mutual Funds Online
Invest in SBI Mutual Funds Online
Invest in L&T Mutual Funds Online
Invest in Edelweiss Mutual Funds Online
Posted by Prajna Capital (noreply@blogger.com) on October 07, 2011 05:12 PM· permalink
When you sign up for a new health insurance policy, it doesn't get implemented with immediate effect. The policy comes into effect after a 'waiting period', which depends on the kind of insurance and other factors, such as age, your medical history and the company. In other words, the insurer is liable to entertain any claim amount filed only after this waiting period. If an individual undergoes an accident or undergoes hospitalisation during the waiting period, the customer may not be covered for a loss.
As mentioned before, the concept of waiting period exists across different kinds of insurance policies, and the quantum of waiting period may differ depending up on the insurer and the nature of the insurance policy. However, following are the broad indicators of waiting period.
There is an initial waiting period of 30 days, which goes up to 90 days in some cases, from the effective date of the policy. Some insurance policies may permit treatment for accidental external injuries with a minimum of 24-hour hospitalisation.
Pre-existing diseases may not be covered in the first 2-4 years of the policy depending on your age and the nature of the policy. A pre-existing disease refers to any medical condition of an individual prior to the commencement of the policy. Now the policy may be effective for any other ailments in the first few years of the policy. Buy any claim filed for illness related to the pre-existing disease will not be covered in the first 1-4 years of the policy as stated in the policy document. This feature is most common in insurance policies designed for senior citizens. Also, the insurer may insist that you stick with the same insurer if you want the cover to continue without further waiting periods in future. The third is the ailment-specific waiting period, during which an ailment will not be covered. This again varies from company to company. But some common ailments that involve waiting periods include, ENT disorders, polycystic ovarian diseases, diabetes, osteosrthiritis, osteoporosis, hypertension and hernia. These ailments are usually covered only after two years from the date of commencement of the policy.
Posted by Prajna Capital (noreply@blogger.com) on October 07, 2011 04:24 PM· permalink
YOUR plan to switch your existing health insurance policy from a non-life insurer to a life insurance company may not be possible, at least for now. The insurance regulator is likely to confine the portability of health insurance policies to non-life insurance companies.
"To start with, only mediclaim policies offered by general insurance companies will be portable. Health insurance policies offered by life insurance companies, which are much more complex in nature, will not come under it," said a senior official of the Insurance Regulatory and Development Authority (Irda).
One of the primary reasons for not extending the facility is that the term of the policies offered by general insurance companies is one year. However, for life insurance companies, it is long-term, raging between three and 15 years. Portability allows a policyholder to shift the policy offered by one insurer to the other, while keeping the terms and conditions of the cover unchanged.
"Most health plans offered by life insures are indemnity policies or benefit policies, which are associated with lump sum benefits at the end of the term, subject to certain pre-specified conditions. Hence, it is very difficult to port credits, since these policies require completely different underwriting techniques," said a life insurance company official.
More than 90 per cent of the health insurance business is confined to the general insurance industry. Policies offered by general insurers are fixed-benefit plans and are renewed annually. This is different from plans offered by the life insurance companies. So, portability between health products offered by life and non-life insurance companies is not feasible.
In short, for mediclaim policies, there are no survival benefits or life covers. So, general insurance companies would not be able to service these kinds of health insurance plans, he the official said.
Another aspect is the pricing of the policies. "One of the important issues is how to price the benefits. Different companies offer different benefits to add exclusivity to their products. For instance, in the case of portability, one has to forgo some benefits. Thus, the policyholder might claim some discount, which the insurer might not allow," said an actuary in a life insurance company.
Last week, the insurance regulator decided to postpone the execution of portability of health insurance policies by three months to October 1, as industry officials sought more clarifications from the regulator.
In a bid to facilitate data sharing among insurance companies, Irda had embarked upon providing a web-based facility for insurers to feed in all relevant details on health insurance policies issued by them. This data would be accessible by the company to which a policyholder wishes to port his policy. "Such a system would enable the new insurer to obtain efficiently data on history of health insurance of the policyholder wishing to port. It is necessary to enable the smooth running of the system," Irda had said.
Posted by Prajna Capital (noreply@blogger.com) on October 07, 2011 12:38 PM· permalink
If you are young, deploy most of investible income in equity instruments
RETIREMENT is not only about taking long walks in the evening, gardening or pursuing your hobbies. Remember that you will be without a job and your children may or may not support you at that time. Therefore, it is very important that you plan for your retirement.
While all of us would like to live a tension-free retirement life, the success of it depends on starting early and investing correctly.
Here is an outline on how to plan for your retirement?
First, decide your retirement age. Then calculate your current monthly expenditure. Now ask yourself if you want to maintain the same lifestyle or are ready to compromise on your current lifestyle during retirement.
This will tell you if you require an equal income or are willing to settle for a lesser income in your retirement days. Adjust the money required with an inflation rate of 4-6 per cent per annum till your retirement life. This will tell you the corpus you need to have to give you the monthly income you require to support you in your retired life. You will need the help of a certified financial planner or can even use the financial calculators available on various financial planning websites to help you do the calculation.
Once you know the corpus you require to provide you with the required income over your retirement period, the next step is to know the investment avenues available to achieve your retirement goal.
Investments should depend on your age, risk profile and the period you have for investments. Balancing the portfolio from time to time is a must. The following are the different investment products you can consider during the investment phase:
Mutual Funds investment through SIP: If you are young and have a long time to reach your retirement age, we suggest you initially deploy most of your investible income in equity instruments and as time proceeds decrease the exposure to them.
Equity investments are the best tools in beating inflation in future. Invest 100 per cent of your corpus in mutual funds through SIP when you are young. Once you reach the age of 50 years, transfer your money from equity investments to debt funds.
PPF and EPF: These are the safest investment instruments and carry a tax free investment rate of 8-8.5 per cent. A PPF account can be opened by any salaried or non-salaried individual in any bank or post offices. You can invest any amount between Rs 500-70,000 to keep a PPF account active.
Remember don't dip into your savings, PPF works best because of its 15 year lock in period. EPF also provides a return of 8.5 per cent and comes with no risk.
New Pension Scheme: This requires a minimum investment of Rs 6,000. It offers two investment options -active choice or auto choice.
In active choice, you can allocate your funds across three fund options equity, fixed income instruments and government securities.
However you can invest a maximum 50 per cent of your portfolio in equities. In auto choice, your funds begin with a maximum equity exposure of 50 per cent.
There are two separate accounts--Tier I is the basic account in which withdrawals are not allowed till the age of 60 years. In Tier II account withdrawals are allowed. You need to have a tier I account to maintain a Tier II account. You can join the NPS by approaching any branch of a bank authorised by the Pension Fund Regulatory & Development Authority as a point of presence.
The list of banks authorised to sell NPS are available on the PFRDA website. NPS has fixed the retirement age at 60 years. Once you are of 60 years, the NPS allows you to withdraw 60 per cent of the accumulated corpus while the remaining 40 per cent is given to you in the form annuities.
Insurance Plans: Not many companies are currently offering Unit Linked Pension plans while the traditional insurance pension plans offer low returns. I would not suggest to look at insurance plans to meet retirement goal as they have poor returns. The best instruments are mutual funds through SIP to maximise returns and minimise risk.
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Also, know how to buy mutual funds online:
Invest in DSP BlackRock Mutual Funds Online
Invest in Reliance Mutual Funds Online
Invest in HDFC Mutual Funds Online
Invest in Sundaram Mutual Funds Online
Invest in Birla Sunlife Mutual Funds Online
Invest in IDFC Mutual Funds Online
Invest in UTI Mutual Funds Online
Invest in SBI Mutual Funds Online
Invest in L&T Mutual Funds Online
Invest in Edelweiss Mutual Funds Online
Posted by Prajna Capital (noreply@blogger.com) on October 07, 2011 10:27 AM· permalink
Your bank tries to sell you fixed deposits with an “Auto renewal” facility where, if you don’t say anything, they will renew your deposit for the same term forward.
Turns out they are using slimy, sleazy tricks to sucker you out of the best interest rate you can get.
Look at HDFC Bank’s interest rate structure;
You were probably told to have an auto renewal deposit for “1 year one day”. But if you notice above, the one year one day period gets you 9%, which is what you’ll get for a deposit that you put on auto-renew last year.
But look carefully and you’ll see that the 1 year 16 day period gets you 0.25% extra! It’s not like the bank is going to get 0.25% extra for the sixteen days – in fact, if you look at the 1 year 17 day onwards, the interest rate is 8.50%, substantially lower than even the 1 year 1 day rate of 9%.
Whisky Tango Bravo Foxtrot.
Let me try and work out how this came about. Initially you were told about this 1 year 1 day “auto renew” deposit. When enough people started putting money into auto-renew, the bank realized that this money was "theirs” anyhow – that with an auto-renew on, you wouldn’t take away your money (most people won’t even remember, that’s why they have the auto-renew on).
So when they wanted more deposits, they needed to attract new customers with higher rates. But at the same time, they didn’t want to pay higher rates to the deposits that were going to stay with them anyway.
The answer: Offer a better rate for “One year + 15 days to 17 days”. Yes, this is exactly what HDFC bank did earlier.
Now the next set of customers might decide that the term of choice was 1 year and 15 days, and set up THEIR deposits to renew at 1 year and 15 days instead.
The bank then realizes it has a bunch of auto-renewing suckers at 1 year 1 day, and another bunch at 1 year 15 days. Even some at 1 year 17 days.
So it decides that the correct procedure forward is to offer the best deal at 1 year 16 days. So all the poor people who auto-renew automatically get a less-than-best deal for their term. The bank does this intentionally – and if you thing 16 days is good, they might come up with a “1 year 20 days” deal tomorrow that’s better than any of the others.
Simply put, if you auto-renew for any period, the banks will find a way to sucker you. Your best option: don’t auto renew; on the day your deposit matures, put the money into the best deal available.
On a bigger note: This is a slimy way to sucker you out of a good deal, since you trusted the bank. You may argue that this is within the bank’s rights, but please note that the banking system is based on honesty and trust (if everyone withdrew their deposits, the system is screwed). If you take away trust, the system is hosed.
Along with differential interest rates for existing versus new loans for the same term, and pre-payment penalties (unnecessary), such actions eat away a little bit of that trust each time. The systemic impact of doing silly mean things like this is that when the time comes that they actually need money, we’ll move our money to the mattresses, and that will hurt a lot more than the small interest they denied us.
Posted by Deepak Shenoy on October 07, 2011 08:49 AM· permalink
You Should Slowly Start Reducing Your Exposure In Equity And Increase Your Holding In Debt
When you are close to retirement, there are many concerns. The critical one is ensuring that the retirement corpus that has been created over the year is safe. But the tricky part is that the portfolio also has to generate enough returns to beat inflation and give regular income.
You have to assess your monthly expenses and see if the pension is good enough to take care of them. If you have to be dependent on returns from the corpus for additional income, it has to be invested in a manner without harming the principal amount. What makes planning for a retired life a lot more difficult is that life expectancy is on the rise. The general tendency of people in this age group is to cut out all the risky asset classes from the portfolio. But being completely conservative is not a good idea, considering that you will have to plan your portfolio with at least 15 to 20 years in mind.
Say, your portfolio is worth 1crore at the age of 49 years with equity constituting about 70 per cent. But as you grow older, the ability to take risk comes down significantly.
The thumb rule is that as you approach retirement your exposure in high-risk asset classes should come down gradually. Every five to seven years you should slowly start reducing your exposure in equity and increase your holding in debt.
Financial advisors say that an exposure of between 10 and 20 per cent in equity is a necessity, even when you are planning your investments for retirement.
When looking at investing in equity mutual funds you should park your money largely in diversified mutual funds. "It is a safer bet. In case of sector funds, one needs to continuously monitor.
And if you are not so sure about pure equity funds, look at balanced or hybrid funds. There are balanced fund options with high exposures to either equity or debt. That is, 7080 per cent in equity or debt, depending on the fund's mandate. Choose the one that suits your needs. If you think there will be a high requirement for funds post retirement, go for the equity option.
However, remember that the taxation for both kinds of funds will be very different. For an equity-based balanced funds, there will be no tax on returns after one year. For debt-based funds, there will be 10 per cent without indexation and 20 per cent with indexation after one year.
But the present circumstances offer interesting options in the debt space. The present high interest rate scenario may offer good options. For instance, a five-year bank fixed deposit will fetch you anywhere 8.25-8.75 per cent annualised returns. Fixed Maturity Plans are also an investment option that should be considered as they give returns as high as nine per cent post tax.
One needs to have the right mix to beat inflation. Say if your portfolio constitutes 80 per cent debt and 20 per cent equity and inflation is around seven per cent. Your debt portfolio will give you returns of between eight per cent and nine per cent but say in the eventuality of the markets dipping, your equity portion takes a hit of 10 per cent or so, you would be still fine because there will not be any capital loss.
Posted by Prajna Capital (noreply@blogger.com) on October 07, 2011 08:02 AM· permalink
Inflation at the Primary Articles level is at 10.84% for the week ended 24 September 2011. PA accounts for about 21% of the overall index. Fuel, which has a 14% weight, showed an inflation of 14.69%. The rest – 65% – is of “Manufactured Goods”, or secondary items whose price data is revealed only once a month.
This continues to remain unacceptably high, although it has moderated from the earlier highs. RBI expects a number of less than 6%. The sudden rise in Nov-Dec last year will likely ensure that headline numbers remain low during that period, even if it’s only temporary.
Posted by Deepak Shenoy on October 07, 2011 08:00 AM· permalink
WHEN insurance companies hand over claim amounts, they insist on giving it to the assigned nominee. He retains the funds, until it can be handed over to the beneficiary or the legal heir. Obviously, the nominee needs to be a trusted individual. But for most customers, filling the space marked 'nominee' is a mere formality. Until the money lands in the hands of one with whom their relationship has soured.
In several instances, customers forget to review or change nominations; a divorced wife, for instance, is still named as nominee. In the man does die, she would then be entitled to receive the discharge from the insurance company, despite not being the legal heir anymore. The presence of a current wife adds to the complications. Though she is legally entitled to the proceeds from her husband's policy claim, she can only hope the ex-wife agrees to transfer the claim amount to her bank account without much fuss.
The insurance company will release the payment to the nominee, unless informed of the complexities well in advance. If there is a will, the issue can be resolved, since a will supersedes any other claim.
IF NO WILL
IT is a rare case, when an insurance company would intervene and take decisions regarding whom the claim amount should be passed on to. When matters get complicated, we usually wait for the civil courts to give their decision.
If there is no will, the claimant could move an interim order against the company, restraining it from releasing the claim amount. He or she would then have to obtain a succession certificate from the court, proving the validity of the legal heir. However, this could easily take eight to nine months before one gets the final order.
Typically, while signing insurance applications, individuals are bound to nominate the person closest to them. The policy proposer needs to take into account the nature of relationships between the nominee and the beneficiary who would be involved in the financial transaction after his death. This is especially true if the relationship in question, is that of the deceased's wife and his mother, a relationship often considered tempestuous.
In the absence of a will, subject to certain conditions, our inheritance laws consider the wife, children and parents as legal heir. Each of them can make a claim to the amount." The absence of a will or succession certificate can make the situation difficult when the nomination remains unchanged. The matter reaches the courts if there are more claimants. "But if there are no rival claimants, the insurance company will get the legal heirs to sign the discharge receipt jointly, after verifying their particulars with the company records.
In fact, the legal heirs also need to specify persons in whose name the cheques can be dispatched.
At times, a minor is named as both nominee and beneficiary. Until the minor turns 18, a guardian nominee needs to safeguard the funds. If the guardian nominee dies, a new name has to be put up to avoid delays. Some insurance companies now offer to hold on to the funds on behalf of the minor. They would offer interest similar to the current rates offered by bank fixed deposits until the child turns 18.
Typically, insurance companies explain the details of a nomination only on inquiry. If the nominee is also the beneficiary, the transfer of the claim amount ought to be hassle free. 
Posted by Prajna Capital (noreply@blogger.com) on October 07, 2011 06:09 AM· permalink
CICI Prudential has launched their new online term plan called “I-Care”, which will replace its old term plan called the “i-Protect” (read iprotect review) This new i-Care term plan has some interesting features like no medical examination till the age of 50 and up to 1.5 crores of sum assured can be taken.
Features of I-Care Term plan
The biggest surprising feature of i-care term plan is that there is no medical examination for customers who are up to 50 yrs old. For all the health related information the company will depend on the declaration made by the customer as there won’t be medical tests applicable. This will make sure that the policy is accepted as soon as possible as there is no medical examination in between. Also there is something called “Policy acceptance” in i-care, which means that once you submit the application online and make the payment, it will be reviewed and finally it will be accepted, after which your insurance coverage will start. Some other features of i-care policy are as follows.
Additional features
- There will be high cover available to those people who have active home loan in their name.
- The premiums once declared will not be increased later, as there is no medical exam later.
Riders in i-care term plan
There is only one rider in i-care term plan just like iProtect had and its accidental death rider. So here are two options one can go for while buying i-care term plan.
iCare Option 1 – Sum Assured
If you take option 1, then you just have a basic sum assured cover which will be paid in case of death. Even if you die in accident you will still get the basic sum assured.
iCare Option 2 – Sum Assured + Accidental Death Benefit
In this option, if one dies due to accident, then the nominee receives extra money equal to sum assured (subject to maximum Rs 50 lacs). This means that; if a person has taken second option with sum assured of 80 lacs, then he will get 80 lacs on death if the death is due to anything other than by way of accident. But if the death is due to accident, then nominee will get Rs 1.3 crores (80 + 50)
Below are the indicative premiums for both the options.
Note : Please make sure you read the terms and conditions properly (mentioned in the 5th and 6th page of the embedded doc above).
Posted by Manish Chauhan on October 07, 2011 05:20 AM· permalink
While thinking of switching policy one must look at new premium, health condition
A sharp 30 per cent fall in term insurance premium, which provides only risk cover and no return on maturity, has been witnessed in the last two years in the face of reduction in solvency margin by insurance regulator to sell term plans and also due to rising competition.
But those who bought term policies at higher rate continue to pay higher premium. Premium in term plans is fixed for the entire tenure of policy and these policies do not have any renewal or maturity benefits.
So, should you renew your existing policies or discontinue old one in favour of new one?
Term or pure insurance products do not have any investment component and do not have any maturity benefits. If the policy-holder outlives the tenure of policy he doesn't get any return on premium.
For example, earlier on a sum assured of Rs 50,00,000 for tenure of 25 years, a 40year-old male would have had to pay annual premium of Rs 32,500. Now, for Rs 50,00,000 sum assured a 40year-old male has to pay only Rs 20,000.
Experts say that you can switch to new policies if age is on your side. But as you grow old, the mortality charges rise. When you think of switching to a new policy you must look at the new premium you would be required to pay. You must also look at your health condition. Any sign of deteriorating health would attract extra loading on the premiums.
Often insurers make customers undergo medical examination before issuing a policy. Mortality table indicates the rates which are to be charged for people of different age groups based on the average probability of a person in that age group expiring.
If a policyholder is covered under a term insurance policy he will be better off continuing his existing policy in case his health status has deteriorated,.
Instead of discontinuing old policy, one can buy new plans at cheaper premium and enhance total life coverage. To enjoy low premium on life cover, one should buy insurance at younger age.
Posted by Prajna Capital (noreply@blogger.com) on October 07, 2011 02:00 AM· permalink
These are derivative instruments traded on the stock exchange. The instrument has no independent value, with the same being 'derived' from the value of the underlying asset. The asset could be securities, commodities or currencies. Its value varies with the value of the underlying asset. The contract or the lot size is fixed. For example, a Nifty futures contract has 50 stocks.
What is a futures contract?
This means you agree to buy or sell the underlying security at a future date. If you buy the contract, you promise to pay the price at a specified time. If you sell it, you must transfer it to the buyer at a specified price in the future.
How can the contract be settled?
The contract will expire on a pre-specified expiry date (for example, it is the last Thursday of the month for equity futures contracts). Upon expiry, the contract must be settled by delivering the underlying asset or cash. You can also roll over the contract to the next month. If you do not wish to hold it till expiry, you can close it mid-way.
What is an options contract?
This gives the buyer the right to buy/sell the underlying asset at a predetermined price, within, or at end of a specified period. He is, however, not obligated to do so. The seller of an option is obligated to settle it when the buyer exercises his right.
What are the types of options?
These are two types of options — call and put. Call is the right but not the obligation to purchase the underlying asset at the specified price by paying a premium. The seller of a call option is obligated to sell the underlying asset at the specified strike price. Put is the right but not the obligation to sell the underlying asset at the specified price by paying a premium. However, the seller is obligated to buy the underlying asset at the specified strike price. Thus, in any options contract, the right to exercise the option is vested with the buyer of the contract. The seller only has the obligation. As the seller bears the obligation, he is paid a price known as the premium.
Should you invest in F&O contracts?
Investing in F&O needs less capital as you are required to pay only a margin money (5-20 per cent of the contract) and take a larger exposure. However, it is meant for high networth individuals.
How are F&O contracts different from each other?
In futures contracts, the buyer and the seller have an unlimited loss or profit potential. The buyer of an option can make unlimited profit and faces limited downside risk. The seller, on the other hand, can make limited profit but faces unlimited downside.
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Also, know how to buy mutual funds online:
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Posted by Prajna Capital (noreply@blogger.com) on October 05, 2011 12:22 PM· permalink
I apologize for the delay.
Quick Update:
If you are a value investor check out my friend Tim Du Toit’s latest Newsletter he has an interesting writeup on Sage.
Handpicked to satisfy your intellectual curiosity!
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Weekly Cartoons:
Via The New Yorker
Most Interesting Reads:
Vaclav Smil: Why Steve Jobs is No Edison - via The American – It takes nothing away from Steve Jobs to say he is no Thomas Edison. You only need to understand what Edison accomplished.
Atul Gawande: Top Singers & Athletes Have Coaches Should you? – via New Yorker- During the first two or three years in practice, your skills seem to improve almost daily. It’s not about hand-eye coördination—you have that down halfway through your residency. As one of my professors once explained, doing surgery is no more physically difficult than writing in cursive. Surgical mastery is about familiarity and judgment. You learn the problems that can occur during a particular procedure or with a particular condition, and you learn how to either prevent or respond to those problems.
Video: Ted Talk – Battling bad science - via Ted- Every day there are news reports of new health advice, but how can you know if they’re right? Doctor and epidemiologist Ben Goldacre shows us, at high speed, the ways evidence can be distorted, from the blindingly obvious nutrition claims to the very subtle tricks of the pharmaceutical industry.
Video: Malcolm Gladwell: The Virtues of Obnoxiousness - via Fora.tv
Protecting Against Low-Probability Disasters: The Role of Worry - via Behavioral Decision Making- We carry out a large monetary stakes insurance experiment with very small probabilities of losses and ambiguous as well as exact probabilities. Many individuals do not want to pay anything for insurance whether the probabilities are given exactly or are ambiguous. Many others, however, are willing to pay surprisingly large amounts. With ambiguity, the percentage of those paying nothing is smaller and the willingness to pay (WTP) of the other individuals larger than with exact probabilities. Comparing elasticities with ambiguity, we find that worry is much more important than subjective probability in determining WTP for insurance. Furthermore, when the ambiguous loss probability is increased by a factor of 1000, it has almost no effect on WTP
Income inequality and the death of culture in New York City - via Orion – During the vaunted 2002–07 economic expansion—the housing-boom bubble that ended in our current calamity, this Great Recession—average income for the One Percenters in New York went up 119 percent. Meanwhile, the number of homeless in the city rose to an all-time high last year—higher even than during the Great Depression—with a record 113,000 men, women, and children, many of them comprising whole families, retreating night after night to municipal shelters. But here’s the most astonishing fact: the One Percenters consist of just 34,000 households, about 90,000 people. Relative to the great mass of New Yorkers—9 million of us—they’re nobody. We could snow them under in a New York minute.
Rick Bookstaber: What can we learn from the policies that spurred the Industrial Revolution? - via RB- Some of the dominant policy issues of today – immigration, energy, the emergence of China – have their analogues in the great Industrial Revolution. The key government policies that laid the foundation for the Industrial Revolution in England include supporting the immigration of skilled workers, allowing for private ownership of farm land, weakening the unions of the day (the guilds), and addressing the energy crisis (in charcoal). And contrary policies in Italy and Spain – countries that were far wealthier and advanced than was pre-Industrial Revolution England – derailed a similar revolution from occurring in continental Europe.
Tim Harford: The honest truth about kickbacks - via TH- It may be better to get 10 per cent of a booming economy than 100 per cent of a stagnating one
Duncan Watts: The Myth of Common Sense: Why The Social World Is Less Obvious Than It Seems - via Freakonomics- Social scientists have struggled with all these questions for generations, and continue to do so. Yet many people feel they could answer these questions themselves—simply by examining their own experience. Unlike for problems in physics and biology, therefore, where we need experts to tell us what is true, when the topic is human or social behavior, we’re all “experts,” so we trust our own opinions at least as much as we trust those of social scientists.
Benford’s Law: using stats to bust an entire nation for naughtiness. - via Bad Science- This week we might bust an entire nation for handing over dodgy economic statistics. But first: why would they bother? Well, it turns out that whole countries have an interest in distorting their accounts, just like companies and individuals. If you’re an Euro member like Greece, for example, you have to comply with various economic criteria, and there’s the risk of sanctions if you miss them.
Ducan Watts: The Perils of Thinking Like an Individual by Duncan Watts - via Leadon Young- The solution is to rely less on common sense and pay more attention to what the evidence tells us. We do, for example, have some evidence about which government policies have and haven’t worked in the aftermath of recessions, just as we have evidence about the lack of impact of top marginal tax rates on economic growth. And if more of the political conversation was devoted to arguing about the economic facts — and where they need to be refined — it might push us do a more effective job of collecting evidence for the future. We possess the tools and technologies to measure more about the world than we could have imagined just a generation ago. It’s time to stop trusting our common sense and start learning what it is that we don’t know.
Delayed gratification – 40 years later. – via Deric Bownds- a followup of the famous “marshmallow experiments” that showed young children who are better at delaying gratification to obtain a greater reward do better latter in life. They were able to test 60 individuals from the original study, now in their mid-40s, and in a subset of these were able to demonstrate stable differences in frontostriatal circuitries that integrate motivational and control processes in low delayers versus high delayers.
Tim Harford- Academics and defending their research - via Tim Harford- Academics are always being asked to demonstrate the “impact” of their research. (Is it like being hit by a rogue cyclist? Or is it more like a pile-driver, or even an asteroid strike?) But while it is not unreasonable to ask whether a particular piece of academic research is useful, the difficulties in answering the question are extraordinary.
Class warfare and public goods - via Physics of Finance- I think this is about the best short description I’ve heard yet of why wealth isn’t created by heroic individuals (a la Ayn Rand’s most potent fantasies). I just wish Elizabeth Warren had been appointed head of the new Bureau of Consumer Protection. Based on the words below, I can see why there was intense opposition from Wall St.
Learning to Accept Envy – via FalkenBlog- Economists are pretty comfortable with simple self-interest, where individuals maximize their own wealth. It’s part of what makes them flint-eyed realists as opposed to naive social philosophers who think the world can be made better by convincing men to be selfless. That is, after being beaten up by utopians who envisaged a society ruled by thinking about society instead of themselves, most now see how selfishness is consistent with a growing economy (the invisible hand, Adam Smith), being nice (reciprocal altruism, see Robert Axelrod or Robert Trivers), and is an efficient way to incent people with relevant information to get them to do the right thing (Friedrich Hayek’s work). Just consider that ants, who sacrifice themselves without pause for the group and work tirelessly for the tribe, are also genocidal maniacs. Our selfishness, paradoxically, makes us wealthy and nice.
Decision Making/ Behavioral Economics/Psychology/ Risk/ Sciences:
How Your Brain Reacts To Mistakes Depends On Your Mindset - via APS- “One big difference between people who think intelligence is malleable and those who think intelligence is fixed is how they respond to mistakes,” says Jason S. Moser, of Michigan State University, who collaborated on the new study with Hans S. Schroder, Carrie Heeter, Tim P. Moran, and Yu-Hao Lee. Studies have found that people who think intelligence is malleable say things like, “When the going gets tough, I put in more effort” or “If I make a mistake, I try to learn and figure it out.” On the other hand, people who think that they can’t get smarter will not take opportunities to learn from their mistakes. This can be a problem in school, for example; a student who thinks her intelligence is fixed will think it’s not worth bothering to try harder after she fails a test.
The cognitive consequences of envy: - via Psyc Info- In a series of 4 experiments, we provide evidence that—in addition to having an affective component—envy may also have important consequences for cognitive processing. Our first experiment (N = 69) demonstrated that individuals primed with envy better attended to and more accurately recalled information about fictitious peers than did a control group. Studies 2 (N = 187) and 3 (N = 65) conceptually replicated these results, demonstrating that envy elicited by targets predicts attention and later memory for information about them. We demonstrate that these effects cannot be accounted for by admiration or changes in negative affect or arousal elicited by the targets. Study 4 (N = 152) provides evidence that greater memory for envied—but not neutral—targets leads to diminished perseverance on a difficult anagram task. Findings demonstrate that envy may play an important role in attention and memory systems and deplete limited self-regulatory resources available for acts of volition.
Stanford researchers predict long-term personal finances in the lab - via Finance Professor-Psychology has traditionally held that learning is learning, but neuro-economics takes a different position. Positive emotions like excitement and negative emotions like anxiety, supported by separate brain circuits, seem to motivate gain and loss learning, respectively. Being good at winning money doesn’t necessarily mean you’re good at not losing it..
Importance of understanding Cause Consequence Matching - via Robyn Leboeuf & Mike Norton - This article documents a bias in people’s causal inferences, showing that people nonnormatively consider an event’s consequences when inferring its causes. Across experiments, participants’ inferences about event causes were systematically affected by how similar (in both size and valence) those causes were to event consequences, even when the consequences were objectively uninformative about the causes. For example, people inferred that a product failure (computer crash) had a large cause (widespread computer virus) if it had a large consequence (job loss) but that the identical failure was more likely to have a smaller cause (cooling fan malfunction) if the consequence was small—even though the consequences gave no new information about what caused the crash. This “consequence-cause matching,” which can affect product attitudes, may arise because people are motivated to see the world as predictable and because matching is an accessible schema that helps them to fulfill this motivation.
She just doesn’t look like a philosopher…? Affective influences on the halo effect in impression formation – via EJSP- Can good or bad moods influence people’s tendency to rely on irrelevant information when forming impressions (halo effects)? On the basis of recent work on affect and cognition, this experiment predicted and found that positive affect increased and negative affect eliminated the halo effect. After an autobiographical mood induction (recalling happy or sad past events), participants (N = 246) read a philosophical essay, with an image of the writer attached, showing either an older man or a young woman (halo manipulation). Judgements of the essay and the writer revealed clear mood and halo effects, as well as a significant mood by halo interaction. Positive affect increased halo effects consistent with the more assimilative, constructive processing style it recruits. Negative affect promoting more accommodative and systematic processing style eliminated halo effects. The relevance of these findings for impression formation in everyday situations is considered, and their implications for recent affect-cognition theories are discussed.
Business/ Entrepreneurship/Finance/Investing:
A Short History of the Income Tax – via WSJ-One original sin was the separation of the corporate and personal tax, giving lawyers, accountants and the wealthy a chance to game the system
The Financial Zoo: An Interview with Satyajit Das – Part I – via Value Investing World- It’s amazing how much money you can make just shuffling paper backwards and forwards. Malcolm Gladwell wrote a piece praising John Paulson who made a killing from the subprime disaster as an entrepreneur. But what did he make? What did he leave behind? Paul Volcker, the former chairman of the Federal Reserve, argued: “I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence. US financial services increased its share of value added from 2% to 6.5% but is that a reflection of your financial innovation, or just a reflection of what you’re paid?”
Interesting weekly linkfest from a former derivatives trader – via More Livers Daily
Are Japanese Businesses Worth More Dead Than Alive? – via Jacob Taylor- In 1932, in the midst of a more than an 80% decline in the U.S. stock market, Benjamin Graham wrote an article for Forbes magazine titled, “Is American Business Worth More Dead Than Alive?” In his 3-part series, Graham examined several important issues facing investors at the time, including market sentiment, dividend policies, and company liquidations.
The Eclectic Mix:
Listen to your elders! Study shows old people really DO have more wisdom than youth – via APS- A new study has found adults aged 60 and over are better at strategising their decisions than those in their late teens and early 20s, who tend to focus on instant gratification.
Americans have more than enough education to fill 21st Century jobs. - via RealityBase- Schmitt’s excellent point is that a decline in wages is strong evidence against the argument that there has been a shortage of workers with BAs and MAs. When there have been such shortages in the past, wage levels have risen, but not so in the 21st Century. As I’ve written before, we can’t fix this by increasing the number of people that have higher education—in fact, adding to that existing oversupply will depress their wages further, which is the actual objective of some. Nor can we fix the problem by doubling or tripling the number of people who get Ph.D.s and professional degrees—there is no plausible prospect that all of them could find appropriate employment, and those wages would also be driven into decline by an oversupply.
How Exercise Can Strengthen the Brain – via NYT- Can exercise make the brain more fit? That absorbing question inspired a new study at the University of South Carolina during which scientists assembled mice and assigned half to run for an hour a day on little treadmills, while the rest lounged in their cages without exercising.
Visual Journalism:
America’s Top Cities: Cheapest Real Estate In The World – via Visual.ly – With bad news hitting the real estate market month after month, it’s easy to lose sight of the bigger, global picture. Namely, even though many economists predict that prices may continue to fall, thus expressing a view that U.S. real estate is still overpriced, real estate in America’s top cities is cheap when compared with the rest of the world. Consider this: at an average $1,068 per square foot, Manhattan real estate is prohibitively expensive for most Americans — yet is more than three times cheaper than real estate in Paris, an average $3,287 per square foot.
Posted by Miguel on October 04, 2011 02:08 AM· permalink
Indian Market was down by more than 300 points , Intense selling was seen across all sector , supported by weak cues from global markets mainly european market now . All the sectoral indices were in the negative territory with realty, metals and banks the major under-performing sectors.The European markets opened almost 3 Percent low because of fears of eurozone debt crisis. There are reports that Greece would miss a deficit target set a few months ago.
The 30-share BSE Sensex fell 318.69 points to 16,135.07, and the 50-share NSE Nifty slipped 97.05 points to 4,846.20.
Market down by more than 300 points is a post from: First Blog for Indian Financial Market
Posted by Lalitha on October 03, 2011 09:17 AM· permalink
(I wrote this after my visit to Shanghai and Beijing in May ’10, as part of my MBA program at Duke. I originally circulated it around with friends and other readers with the title “China is at least 2 generations behind the rest”, but that was just needlessly provocative, and incorrect in many respects. Nevertheless, I remain quite a sceptic on China).
Flawed Economics
Firstly, China’s much vaunted economic growth is on very flimsy foundations. Yes, they were 173rd in world GDP rankings in 1978, and #2 today. But,the economic model in place is – keep currency low, have an unlimited supply of labor, and export to the US/Europe (‘capitalist’ nations). They earn dollars, and also have near total capture of all household savings, which are then funnelled back into the economy, mainly to just build infrastructure, and infrastructure only (there are highways in China, where one can drive for hours and see very fewr cars).
The success of this is based on trading with the world’s wealthiest capitalist country through the post-WW2 global trading system, and the US can significantly damage the trade by the stroke of a pen which forces them to revalue (or they close down trade doors, although this is hard for the US to do, given how badly off they are, in their own way). It leads to a ridiculously lop-sided economy, with not much going on (local consumption is almost negligible). The amount of ‘economic waste’ is unbelievable – nearly half of the skyscrapers in Shanghai are absolutely empty.
When, and it’s a question of when, and not if, the crash happens – which could be the collapse of exports, the internal property waste bubble bursting, the GDP will see a very severe contraction – which means lots of unemployment, wealth disappearing, and…
And that brings me to the most vexing part of the Chinese economic story – contrary to what the world thinks, there is a lot of poverty in China, the kind of degrading, dehumanizing type one associates with Africa, India, and South America, and in much larger numbers – 800 million of them. In interior China, people live on 1000-1500 RMB a year, which is about 200 RMB a month, or about a dollar a day.
Politics
The government in control – the communist party, get their legitimacy from the fact that they’re providing growth. Simple as that. So what happens when growth stops? Now, Shanghai and Beijing look grand, clean, and Shanghai in particular, is like downtown Manhattan times 100. Of course, it is all economic waste, since none of the skyscrapers are occupied. No forces of demand or supply, no consumption locally of the product (people can’t afford it).
And the way they’ve made it happen – any slums that were there get cleaned out, people get evicted. Picture that in Mumbai, think of what you could achieve. Nariman Point would be much more impressive. A lot of Shanghainese remarked that Shanghai was designed as a ‘showcase’, as ‘national pride’, and that once you step out, all the cities/towns look as ‘bad’ as any Indian tier-2 city.
Communist rule has destroyed every single institution that is present in a real society – media, government, judiciary, citizens organizations. Private industry cannot flourish – while 70% of China’s GDP is locally produced, it’s actually all government controlled, land is allocated by the government, and all resources/permissions are linked to the government.
The government owns everything, and the destruction of all institutions means that the common people have effectively been stripped of all and any means of rising, or of growing personally. A good example of this is in banking - banks exist, but the decisions on who to lend, where to lend, what to lend – nothing is in their hands. Beijing decides all that.
No media exists. At our hotel, there was a different newspaper for foreigners and for locals. Locals can’t move where they want, they need permits to move within their country.
(There is a broader philosophical issue of what is the point of living like this, but let’s leave that aside for now – as that can be flipped around and asked for India or any other country as well).
Society
This bit is the most ‘flaky’, but again, worth mentioning, it appears that communism has created a disjointed social network. There are lots of people who feel really rootless, with no grounding (although whether this is more inherent is an open question, as Nehru remarked when confronted how cavalier Zhou Enlai seemed with regards to an all out nuclear conflict between countries as large as China and India). You have a vast population that just lives as hawkers, peasants and workers, under tight-fisted control. And then you have a totally disjointed middle-class, which only cares about wealth, cars, apartments, and property. It’s very tangible, when you talk to the people, to see what has happened. By contrast, China, India even Dubai – seem to have a more connected local population.
It’s the combination of all these things – the weak economics, the political backwardness, and the skewed society, which makes me question the China story. And other emerging markets have very major issues and problems (and the less said about the developed markets the better), so its not as if China is in a club of one.
A quick note on the Olympics: it was a manifestation of all that is wrong with the model. The manic national pride and desire for global (mainly Western and Japanese) respect, and a desire to impress other developing nation trade partners made them embark on the thing, with no respect for the true social and economic cost (which would have happened elsewhere). The unlimited labour supply and total control enabled them to mobilize a large workforce to work, kick people out from places where they needed the land, and just pull it off.
(Cross posted on my blog).
Posted by Arjun Swarup on October 03, 2011 04:50 AM· permalink
Do you know how you can use HUF to reduce your overall tax liability? In this article I will give you tips and real life examples on how you can use the concept of HUF and reduce your taxes perfectly legally. Before that let’s understand what HUF is.
The concept of HUF says that apart from individuals there is another separate entity called “Family” which can also have its own assets and liabilities and even regular source of income, which should be taxed separately. For example, if an ancestral residential property is rented out, then the rent arising would be considered as Family’s income and not as income of individual. In real life this rent is shown as income of one individual and he pays the tax on it, however a HUF can be formed and the rent can be shown as the whole family income (HUF) and it can be taxed separately.
Until a few years, many Indians used to keep multiple PAN cards and used to show Income under different PAN cards and used these tricks to avail the benefit of slab rates by showing themselves as different persons. This however is illegal by law and is a punishable offence as one person cannot have more than 1 PAN Card. But, one legal way of obtaining an extra PAN Card is to form an HUF. As the Income of an HUF is taxable in the hands of HUF and not in the hands of any Individuals, a separate PAN Card is issued for an HUF and the benefit of slab rates can be availed on this PAN Card.
Formation of HUF
A false impression amongst people is that HUF needs to be created whereas the truth is that an HUF comes automatically into existence at the time of marriage of an Individual and no formal action needs to be taken for the same. However, in case a person who wants to specifically register for creating an HUF, he can furnish a creation deed on a stamp paper (The Format of Creation Deed can be downloaded from here) .As HUF is governed by the Hindu Law and not by the Income Tax Act, individuals belonging to other religions are not allowed to form HUF except Jain’s and Sikhs who can create HUF even though they are not governed by the Hindu Law. Two entities are extremely important for you to know in HUF are the coparceners and members.
Coparcener is someone who has the right to demand the share of the property of family; coparceners are generally the Karta (Main decision maker of family, usually the Father , but Manmohan Singh had 5 years ago brought an amendement which stated that Females can become Karta & there can be an all female HUF as well), then sons & daughters, grandsons and great grandsons in order of their first right. Wife of the Karta is not a coparcener or even spouse are not coparceners and hence can’t demand/ ask for any share in HUF, they are just merely members of HUF.
Example of Tax Saving by forming an HUF
As discussed above, the main advantage of an HUF derives from the fact that an extra PAN Card is issued for the HUF. We’ll explain this benefit with the help of following example.
Lets say there are 4 members in a family
- Husband – Salary 9 lacs
- Wife – Salary 7 Lacs
- 2 Children without Salary
- Additionally, one ancestral property which fetches them an annual rent of 6 Lacs p.a
Now the Question is – In whose hands should this Rental Income of Rs. 6 Lakhs p.a. be taxed? In real life, the most sought after solution is to show the rent as income of wife or anyone who has no income or less income so that the tax liability is least. But is it the best solution? Let’s see 3 different cases here in which this additional rental income can be shown and how tax can be saved!
Option 1 – If this Rental Income is shown in the hands of the Husband.
Option 2 – If this Rental Income is shown in the hands of the Wife
As this Income is arising to the family as a whole, the Govt has also extended this option of taxing this Income in the hands of the whole Family. Although very few people in India know this fact family income can also be taxed in the hands of the whole family by forming an HUF.
Option 3 – If this Rental Income is shown in the hands of the HUF
The above 3 options clearly indicate that Option 3 is the best option as the least tax would be payable by the family if the Rental Income is taxed in the hands of the HUF. The tax saved by showing this income in the hands of the HUF is Rs. 1,18,000 (i.e. difference between “tax paid if rental income is taxed in the hands of HUF” and the “tax paid if shown in the hands of the wife which is the 2nd best alternative”)
Please Note: For the sake of simplicity, Taxes have been computed without taking into account the “Deductions available under Section 80C” and “Education Cess applicable on the Tax Payable”
Procedure to create HUF
These are the steps to create capital of a HUF.
- First one should open a bank account with the name of Hindu undivided family like “AJAY HUF” with a stamp, ID Proof and the proof of the members of the family of HUF.
- Important :- While opening a Bank Account in the name of HUF – Banks always ask for a rectangular stamp which states the name of the HUF and also the Karta who is signing it. A round stamp is not accepted as per RBI Circular. The same applies at the time of opening of bank account of Sole Proprieter as well.
- Next is to apply for PAN (Permanent Account Number) of the income tax.
- Now transfer money by gifts etc to HUF capital keeping in view the clubbing provisions and tax on gifts under Income tax act, Remember there is no Tax on gifts in kind though they may attract clubbing provisions in some cases.
3 real life tricks of saving taxes through HUF
1. Saving tax by getting gifts
One way of saving tax is by transferring the money received from strangers or family are taken as gifts in name of HUF. So if Ajay starts his HUF called “Ajay HUF” and he is getting some gifts from his father, friends or anyone else, he can ask them to give it to “Ajay HUF” and not Ajay itself. That way the gift will be treated as income/asset of HUF and taxed separately. One important point here, if some stranger is giving gift to HUF, there is a limit of Rs 50,000 on which no tax has to be paid, but actually it can go up to Rs 1.8 lacs as the taxable limit is that much, and if one also has to do investments of 1.2 lacs (total 80c limit), then one can afford to receive up to Rs 3 lacs of gifts in a financial year and there will be no tax liability at all.
2. Assign ancestral properties and wealth to HUF and invest it
If family is going to receive an ancestral property or any wealth, then it’s better to transfer it on HUF name so that whatever earnings happen in future in form of rental income or capital appreciation of assets becomes income of HUF itself and taxed in its own hands. That way the total tax liability of family can be minimized.
3. Use HUF income for expenses and Insurance for Family
As HUF enjoys separate tax benefit under sec 80C, one can use the income of HUF for buying Life & health insurance for family and the permissible deductions can be availed for tax purpose in hands of HUF, so if the total premiums for insurance requirement of family is Rs 50,000 per year, then It can go from HUF income and also the individual can exhaust his 1 lac limit separately via PPF, ELSS and other tax instruments. Also family day to day expenses can be used from HUF income and hence it will leave other members with more disposable income which one can use to service higher EMI’s if required.
Some important Points you should know about HUF
- For creating the HUF one need to get married, there is no need to have child or children for creating the HUF.
- An HUF can recieve any amount in gift from bigger HUF’s (HUF of Father, HUF of Grandfather) or any gifts received by the members of HUF (birthday, marriage, etc.) can be treated as assets of HUF , but stranger can gift HUF, not more than 50000 rupees.
- Daughter also continues to be a Coparcener after her marriage of that family whether she also will be a member of HUF of her husband. So that way daughters can be co-parancers in two HUF’s
- HUF can pay remuneration to the KARTA of family for the interest and expenditure to run the family business.
Be cautious with HUF creation
While all the above points excites people on opening a HUF account immediately and start taking tax benefit, there are some caveats and one has to be little careful. Remember that HUF is a separate entity and represents the whole Family. So once some assets is assigned to HUF, then it becomes part of HUF only and one can be suddenly take money from HUF for personal purpose . If other co-parceners of HUF demand the partition of HUF only then one can get his/her share of the HUF. Otherwise it will not break. Also for taxation point, a lot of people mislead the tax department buy using fake HUF transactions and therefore, HUF is looked with high degree of scepticism.
If the HUF is not formed properly and if the assets are income are fudged for evading tax, it can get you in trouble, therefore it’s highly advisable to hire a good CA and create your HUF in the best possible manner with right advice. There is no harm in paying 10,000-12,000 to a CA if HUF can give you 5-10 times tax savings. It would be a great investment, not an expense!
HUF property cant be mentioned in the WILL
Though HUF is very useful tool but one has to use it very judiciously and thoughtfully. Don’t look for tax benefits only , but practical problems also. Be aware that you cannot make a will out of HUF property. Once transferred to HUF, the assets /property becomes of HUF and you no longer have any individual right on it. To explain with example -
“A”, who has 2 daughters and a son.He long back ago purchased a house in the name of HUF and put that house on rent, so that the Rental income comes to HUF and will not be be added in his or his spouses’s income . But now , he ‘s retired and wants that this property should be transferred to his son after his demise. But this is not possible as that property belongs to HUF. He can’t even write a WILL for HUF property and with the huge rise in Real estate prices, none of daughter is ready to leave her share in it.
Thanks to Manikaran Singhal to add this point
Who should actually go for HUF
HUF will be extremely efficient for those people who have a higher income and high saving rate and some form of ancestral assets which can be marked as “Family Assets”. Evaluate if HUF can really give you that kind of tax advantage or not for people who do not have high salary or who do not have a big enough family. So make sure you can get the maximum out of the HUF and understand the limitations of opening HUF before you go for it.
Can you share how was the article and did it help you in understanding HUF ? Are you going to open a HUF account ?
This article has been authored by CA Karan Batra who blogs on charteredclub.com (Content added by Jagoinvestor with inputs from Karan)
Posted by Manish Chauhan on October 03, 2011 12:14 AM· permalink
Inflation data was released yesterday and the food inflation for the week ended September 17, reached to 9.13 per cent as against 8.84 a week ago.
Food Inflation is a post from: First Blog for Indian Financial Market
Posted by Lalitha on September 30, 2011 03:59 AM· permalink
A swing of 1% up or down is a decent move in the stock market during normal times. In the US and European markets a 3%+ swing is now becoming the norm. If you have been looking at these markets, you will realize that the volatility of these markets has gone up.
The European debt crisis and other issues are causing a surge in the volatility . The Indian market, though not yet impacted to the same extent, is beginning to feel the effects. It is easy to feel dizzy and disoriented by such large daily swings.
The most common reaction to such swings is to look for explanations and the common source for it is usually the news channels. We have the talking heads trying to make sense of it on a daily basis and giving us one silly reason after another after each up or down in the market.
What if there is no explanation
It is quite likely that we do not have any specific reason to explain these wild swings on a daily basis. Almost everyone in the market is equally confused and just reacting to the news flow on a day by day basis.
One option for all of us have is to ignore the daily chatter and get on with our daily lives. I am trying to follow this option. It is not easy, but I am definitely trying hard to ignore the noise as it is easy to get overwhelmed by it and do something silly as a result
Head in the sand?
Does that mean one buries his or her head in the sand and just ignores what is happening around us. I don’t think that’s a smart option either. The line between keeping your eyes open and getting swamped by the noise is however very fine
There are a few scenarios which look more probable every day. It is now an accepted fact that Greece is close to bankruptcy (if not already so) and sooner or later will have to restructure its debt in some shape or form.
It is difficult to figure out the chain of events that will follow from this event.
Will this lead to defaults in other European countries and consequent failure of banks? Will this be a repeat of 2008 and more? There are many opinions, each supported by its own logic and each sounding as plausible as the other
My thought process
I will not add more noise to the mix. My thoughts are good as anyone’ else’s or maybe worse as I don’t have any special macroeconomic skills. As I cannot forecast what is going to happen, the prudent approach is to position myself for the possible storm.
The usual recommendation is to go into cash, hunker down and avoid all equities till it all sorts out. If you have been reading this blog for sometime, you know I will hardly recommend that and will not follow that course of action J
I actually have a very simple plan which I can break it down into a few points
- Keep 25-30% or more cash as part of the portfolio to take advantage of a collapse in the market, if it happens. Ofcourse the market could rise and my returns could suffer.
- Keep analyzing companies and identify some attractive ideas before hand. If the market drops, these companies could be available at cheap prices and I need to only pull the trigger. Ofcourse one needs ample amounts of courage at such times
- Keep 6-9 months surplus cash in form of expenses at hand. If there is a contagion and a loss of job, the last thing one should do is to liquidate your investments to pay the bills.
- Have some popcorn and coca cola ready for the entertainment on CNBC and other channels – need to have a sense of humor during such dark times !
Isn’t it déjà vu ?
It is tempting to think that this is a repeat of 2008 again. The market could collapse and the brave would go riding in with their cash. They may have to wait for 6-9 months and then we would see a sudden turnaround as we saw in 2009. It may turn out that way and then maybe not !
As the saying goes – History does not repeat, but rhymes. We may have a similar crash, but it also quite likely the rebound may not be as quick. The last time around, the central banks and governments released a flood of liquidity which did the trick. This time around the lenders of last resort – the governments are themselves the problem. There is no superman around this time to save the day. As an equity investor one needs to be prepared for the long haul.
One thing which will not change is the reaction of people around us. A lot of people will be shell-shocked and scared. One advantage of writing for 6 odd years is that I can go back to my earlier posts and look at the comments and see the thought process of a lot of people.
You may find some of these posts interesting. Do read the comments (some may be yours too) to see how we looked at the crisis as it was unfolding
Time to get busy – this was after the Lehman bros collapse and markets started dropping. I started getting excited way before the bottom (as always) Buying in bear market –As I spoke about buying into the bear market, a lot of people and their friends were advising otherwise. See – nothing changes ! Analysis: Lakshmi machine works – this is one of my favorite posts. The company sold for close to cash during this period. This is the no.1 textile machinery manufacturer in India. I just could not see this company going bankrupt. Still, a lot of people had doubts. I still hold the stock and will add if the stock drops 15% from current levels ( stock tip J) Don’t catch a falling knife – As prices dropped, everyone felt that it was dangerous to invest till the bottom was reached. There is no bell when the bottom is reached. One knows about the bottom only in hindsight. Another similar post here on NIIT. Hoping for a quick rebound and Bear market to end soon – These posts were meant to be jokes, when I predicted that the bear market will end by April 22nd 2009. Interestingly it did rebound in April – though I was off by a few days. If I have such a flash of inspiration this time too, I will let all of you know when this bear market will end J It was quite a rollercoaster ride then and i expect it be a similar one, this time around too.
Posted by Rohit Chauhan (noreply@blogger.com) on September 26, 2011 09:03 PM· permalink
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Posted by Manish Chauhan on September 26, 2011 02:30 AM· permalink
Handpicked to satisfy your intellectual curiosity!
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Weekly Cartoons:
Via New Yorker
Most Important Reads:
The Truth About “Class War” in America - via Truthout- Republicans and conservatives have done us a service by describing federal policies in terms of “class war.” But by applying the term only to Obama’s latest proposals to raise taxes on the rich, they have it all backward and upside down. The last 50 years have indeed seen continuous class warfare in and over federal economic policies. But it was a war waged chiefly by business and conservatives. They won, as we show below, and the mass of middle-income and poor Americans lost. Obama’s modest proposal for tax increases on the rich does not begin a class war. On the contrary, it is a small, modest effort to reduce the other side’s class war victories.
What’s the Best Way to Measure Poverty: Income or Consumption? – via Freakonomics- But income is just one way to measure poverty, and a particularly tricky (and narrow) way at that – so says Notre Dame economist and National Poverty Center research affiliate, James Sullivan, who believes that to measure poverty strictly by income fails to accurately reflect people’s true economic circumstances. Income alone ignores the effects of things like the Earned Income Tax Credit, Medicaid, food stamps, and housing subsidies. From a Notre Dame press release on Sullivan’s recent poverty research:
Income Inequality Produces Indebtedness and Global Imbalances – via Naked Capitalism- The IMF has a passel of articles up on income inequality. “Unequal = Indebted,” by Michael Kumhof and Romain Rancière, focused on macroeconomic effects. It stars with the observation that countries showing a significant increase of income inequality (defined as the share going to the top 5%) have deteriorating current accounts (note these are all advanced economies; they discuss the glaring exception of China later in the article).
Mark Cuban on Reality of Taxes & The Rich: – via Blog Maverick- There is an ongoing refrain from some that any increase in Taxes will have a negative impact on investment and job creation. Not true in 99.99pct of cases. Never has been. Never will be. First the .01% times where it may be true. Potentially, a person could have some amount of money less than what they need to start a company because they paid say 1k dollars more in taxes this year than they did last year. This could happen and I’m sure it has happened. but its the exception that proves the rule. Now the rule… People driven to succeed are driven to succeed. People driven by money are driven by money. People driven to compete, compete. We live in a country that puts an emphasis on achievement. Not just financial achievement. The ability to set goals and achieve them. We celebrate and reward those that accomplish their goals. It is part of the very fabric of what makes this country so amazingly unique. Those of us who are driven by money have a number that we strive for. People like me. (If you want to learn more about people like me, read this). We want to be a millionaire. Once we become a millionaire, some of us want more. Some of us don’t. But once you hit the first number you begin to make decisions in your life about how you might get to the next number or just use what you have to make your life (and possibly the life of others) better.
Poverty In America: A Special Report – via ZeroHedge- America is getting poorer. The U.S. government has just released a bunch of new statistics about poverty in America, and once again this year the news is not good. According to a special report from the U.S. Census Bureau, 46.2 million Americans are now living in poverty. The number of those living in poverty in America has grown by 2.6 million in just the last 12 months, and that is the largest increase that we have ever seen since the U.S. government began calculating poverty figures back in 1959.
What has happened to the labor market in the Great Recession? – via Yale QN- With 14 million people out of work in the U.S., labor markets are receiving a lot of attention. Yale SOM’s Lisa Kahn did groundbreaking work on the impact of graduating into a bad economy. She offers her take on what’s happening now and what to expect.
The Very Important and of Course Blacklisted BIS Paper About the Crisis - via Naked Capitalism – Why would that be? One might surmise that this is a case of censorship. Borio has been a long-standing critic of the Greenspan and later Bernanke thesis that central banks should ignore asset and credit bubbles if prices are stable. He and William White went public (as public as you can go in the BIS) in 2003 with their contention that an international housing bubble was underway and action was warranted. Greenspan and virtually all other right-thinking economists ignored the bubble and other signs of trouble (like a sustained near zero consumer savings rate in the US) and drank the Great Moderation Kool-Aid instead.
Harry Markopolos: How to Spot a Fraud - via Bloomberg- It’s easy. It’s like whack-a-mole. Focus on the manager or the company that is head and shoulders above the rest. Whenever somebody has outstanding performance, Wall Street assumes genius. I assume fraud until genius is proven. Look for the outperformance and investigate there. Compare a money manager’s record vs. others using a similar strategy, or a company’s record against others in the same asset class. If the numbers are too good to be true, they rarely are. A decade ago, there was one energy company head and shoulders above all the others. That was Enron. There was also an insurance company above the rest. That was American International Group. In telecommunications, there was one company above all others. That was WorldCom. They were all accounting frauds.
The Evolution of Cooperation Edge Master Class 2011 – via Edge.Org- I’m a mathematical biologist. What is a mathematical biologist? A mathematical biologist is best described by the following story: There’s a shepherd and a flock of sheep. A man comes by and says, “If I guess the correct number of sheep in your flock, can I have one?” The shepherd says, “All right, try.” So the man looks and says, “Eighty-three.” And the shepherd is completely amazed because it’s right. So the man picks up a sheep and starts to walk away and the shepherd says, “Hang on, if I guess your profession, can I have my sheep back?” And he says, “Please, try.” “You must be a mathematical biologist.” “How did you know?” “Because you picked up my dog.” If you really think about it, the important essence of our field is to get the numbers right.
Steven Pinker On The Disappearance of Violence – via Seth’s Posterous- We believe our world is riddled with terror and war, but we may be living in the most peaceable era in human existence. Why brutality is declining and empathy is on the rise.
How do we get rid of our bad habits? - via Bakadesuyo- the thing I find helps most people is to understand that you can’t refrain from doing something you like. You can, however, change the person you are into the kind of person who doesn’t even like that stuff. Sugar Smacks still taste the same as they did under Carter, but I don’t know anybody who still eats them. Do the same for soda. In medical school a lot of the guys (who went into ortho) went to the gym and would discuss with euphoria how much canned tuna they ate. “There’s 15g of protein and zero fat!” they’d whisper to each other, and they’d sooner eat salamander eyes than lick a Dorito. That was the kind of guys they were. This may not be a reassuring solution to some, but I can promise you that it is the only solution: you have to decide you’re not the kind of person who wastes time on that. Condemning it, banning it, hiding from it– all will lead to failure.
Michael Shermer on Liberty and Science - via Cato- Such stereotypes are so annealed into our culture that everyone understands them enough for comedians and commentators to exploit them. And like many stereotypes, both of them have an element of truth. Here, it is an emphasis on differing moral values, especially those we derive intuitively. In fact, research now overwhelmingly demonstrates that most of our moral decisions are grounded in automatic moral feelings rather than deliberatively rational calculations. We do not reason our way to a moral decision by carefully weighing the evidence for and against; instead, we make intuitive leaps to moral decisions and then after the fact we rationalize our snap decisions with rational reasons. Our moral intuitions—reflected in such conservative-liberal stereotypes—are more emotional than rational. As with most of our beliefs about most things in life, our political beliefs come first, the rationalization of those political beliefs comes second. I suppose this is one reason why I am a libertarian.
The Milo Criterion & Startups - via Ribbon Farm – There is a saying that goes back to Milo of Croton: lift a calf everyday and when you grow up, you can lift a cow. The story goes that Milo, a famous wrestler in ancient Greece, gained his immense strength by lifting a newborn calf one day when he was a boy, and then lifting it every day as it grew. In a few years, he was able to lift the grown cow. The calf grew into a cow at about the rate that Milo grew into a man. A rather freakish man apparently, since grown cows can weigh over 1000 lb. The point is, the calf grew old along with the boy.
Decision Making/ Behavioral Economics/Psychology/ Risk/ Sciences:
Why being relaxed makes us spend too much money -via Wired- The typical casino is an intentionally unpleasant place. The ceiling is low and the sight lines are hidden, producing a claustrophobic effect. The lights are dim and the air is filled with the clatter of randomness, as slot machines spit out coins and sound effects. The floor is a labyrinth of drunk gamblers and card tables, making it all but impossible to navigate. (There are also no clocks, so people have no idea what time it is.)
More Information Cuts Confidence - via Overcoming Bias- Since things with fewer details are seen more in far mode, and since in far mode we are more confident in our theories, we should expect people to be more confident in their classifications of things that have fewer details, and so have a smaller fraction of things left as hard to explain. I’d like to see this tested elsewhere, such as planes seen near or far, or crimes known in little or much detail.
More Winning Hands in Poker = Less Money – via Random Acts of Kurtosis – he most interesting finding in article is that the more hands you win the less money you collect. The likely reason, said Cornell sociology doctoral student Kyle Siler, whose study analyzed 27 million online poker hands, is that the multiple wins are likely for small stakes, and the more you play, the more likely you will eventually be walloped by occasional but significant losses.
The Effects of Sleep Debt on Risk Perception, Risk Attraction and Betting Behavior During a Blackjack Style Gambling Task – via SpringerLink- Gamblers often gamble while experiencing fatigue due to sleep deprivation or cumulative sleep debt. Such fatigue has been shown to make decision makers behave more riskily. The present study aimed to test the role of two cognitive processes, risk perception and risk attraction, in this effect. Two hundred and two participants played twelve hands of a black-jack style card game while either fatigued or reasonably alert. Findings showed that both fatigued and alert participants rated higher risk bets as more risky than lower risk bets, suggesting risk perception was unaffected by fatigue. However, fatigued participants did not rate higher risk bets as less attractive than lower risk bets, and reduced the size of their wager to a lesser extent when objective risk increased. These findings are discussed in relation to the effects of fatigue on motivated tasks and the need for gamblers to be aware of the effects of fatigue.
Being In the “No”: Questions Influence What We Remember - via APS- Hoffman concludes that perhaps everything we see makes its way into our memory, such as billboard ads when driving by or perimeter signage at sport arenas, but we need to know how to ask, and we need to carefully listen to the answer: “I don’t think I remember” does not mean “I remember not!
The Effect of Future Positive Emotions on Consumption – via Jstor- Although positive affect may enhance self-control, some research suggests that this is not always the case. To clarify this relationship, we investigate the role of temporal focus on the effect of specific positive emotions on self-control dilemmas in snack consumption. In four studies, we demonstrate that participants experiencing a future-focused positive emotion (i.e., hopefulness) consume less unhealthy food and have lower preferences for unhealthy snacks than those in a past- or present-focused emotional state (i.e., pride, happiness). We demonstrate the role of temporal focus through its natural occurrence in emotion-induction essays (study 1), chronic temporal focus (study 2), and manipulation of anticipated versus retrospective emotional states (study 3). A fourth study demonstrates that self-control benefits do not arise from future-focused negative emotions (i.e., fear) as they do from future-focused positive emotions. These results suggest that consumers may benefit from adapting the temporal focus of positive emotions to the future.
How can you make others more likely to agree with your choices? - via Bakadesuyo- We focus on an advantage accruing to a policy from just calling it status quo, which is that the mere label makes it look better. When comparing pros and cons of competing policies, labeling one status quo sets it up as the reference point with respect to which pros and cons are potentially either losses or gains. Since “losses loom larger than gains,” pros one has weigh more than pros one does not, while the reverse holds for cons, thereby tilting the overall balance of pros and cons in favor of the policy designated as status quo. Direct evidence for this account is presented by showing that: (a) A policy’s attractiveness increases when it is labeled status quo; (b) A policy’s attractiveness is predictable from its pros and cons; and (c) The magnitude of status quo enhancement is predictable from a quantitative model that measures aversion to potential losses (accruing to having it replaced)
Why laughing feels so good… – via Deric Bownds- Although laughter forms an important part of human non-verbal communication, it has received rather less attention than it deserves in both the experimental and the observational literatures. Relaxed social (Duchenne) laughter is associated with feelings of wellbeing and heightened affect, a proximate explanation for which might be the release of endorphins. We tested this hypothesis in a series of six experimental studies in both the laboratory (watching videos) and naturalistic contexts (watching stage performances), using change in pain threshold as an assay for endorphin release. The results show that pain thresholds are significantly higher after laughter than in the control condition. This pain-tolerance effect is due to laughter itself and not simply due to a change in positive affect. We suggest that laughter, through an endorphin-mediated opiate effect, may play a crucial role in social bonding.
Overconfidence and Bubbles in Experimental Asset Markets – via Kiel- This paper investigates the relationship between market overconfidence and occurrence of stock-price bubbles. Sixty participants traded stocks in ten experimental asset markets. Markets were constructed on the basis of subjects’ overconfidence, measured in pre-experimental sessions. The most overconfident subjects form “overconfident markets”, and the least overconfident subjects “rational markets”. Prices in rational markets tend to track the fundamental asset value more accurately than prices in overconfident markets and are significantly lower and less volatile. Additionally we observe significantly higher bubble measures and trading volume on overconfident markets. Altogether, our data provide evidence that overconfidence has strong effects on prices and trading behavior in experimental asset markets.
Trust, Reciprocity and Rules - via Chapman.edu- In the absence of enforceable contracts, many economic and personal interactions rely on trust and reciprocity. Research shows that although this reliance often works well, sometimes it breaks down. Simple rules mandating minimum standards on reciprocation prevent the most egregious trust violations, but may also undermine behavior that would have otherwise produced higher overall economic welfare. We test the efficacy of exogenously imposed minimum return rules using experimental trust games. We find that rules fail to increase trust and trustworthiness. Thus low minimum standards significantly decrease economic welfare. Although sufficiently restrictive rules restore welfare, trust and trustworthy behavior never returns.
Women More Likely Than Men to See Nuance When Making Decisions - via SciAm- New research suggests gender plays a role in these decisions because men tend to organize the world into distinct categories whereas women see things as more conditional and in shades of gray.
Videos of The Week:
What we learned from 5 million books – via Ted.com- Have you played with Google Labs’ NGram Viewer? It’s an addicting tool that lets you search for words and ideas in a database of 5 million books from across centuries. Erez Lieberman Aiden and Jean-Baptiste Michel show us how it works, and a few of the surprising things we can learn from 500 billion words.
The 6 killer apps of prosperity - via Ted.com- Over the past few centuries, Western cultures have been very good at creating general prosperity for themselves. Historian Niall Ferguson asks: Why the West, and less so the rest? He suggests half a dozen big ideas from Western culture — call them the 6 killer apps — that promote wealth, stability and innovation. And in this new century, he says, these apps are all shareable.
How Time Works, from Cosmology to Cognition- via Paul Kedrosky - Another FQXi video from the recent conference, this time a panel with some of the main speakers. Good stuff.
Business/ Entrepreneurship/Finance/Investing:
The Longform.org Guide to Michael Lewis – via LongForm
Taking advantage of the vast amount of data generated on the internet – via Voxeu-
The internet has reduced dramatically the cost of varying prices, displays, and information provided to consumers. This column discusses how this change enables both passive and active experimentation by retailers, and how this experimentation can be used by economic researchers in a way that takes advantage of the scale and heterogeneity of online markets.
The Eclectic Mix:
Dan Ariely: How to Pay People – via Bloomberg-
Most of the time, when you hire people you don’t want to specify exactly what they are to do and how much they would get paid—you don’t want to say if you do X you will get this much, and if you do Y you will get that much. That type of contract is what we call a complete contract. Creating one is basically impossible, especially with higher-level jobs. If you try to do it, you cause “crowding out.” People focus on everything you’ve included and exclude everything else. What’s left out of the contract tends to drop out of their motivation as well. You are taking away from their judgment and goodwill and teaching them to be like rats in a maze. It’s like the difference between asking someone to help you change a tire and offering them $5 to do it. The moment you introduce money, you change how the person views the exchange. They say, “Oh, this is work. I don’t work for $5. Give me $150 and we can talk.” When I was at MIT, they told us we had to teach 112 points per year. They had a complex formula for how many students and how many hours and so on would translate into teaching points. Basically, MIT was conditioning me to put the least effort into getting the most points. This became the game. I was quite good at it. And I taught very little.
How to Be a Chief Information Officer – via Bloomberg-
For a lot of chief information officers, the best-case scenario is not to be noticed. Why? No. 1, these people are typically responsible for the largest cost center in your organization. No. 2 is that most of the technology budget is for things that were bought in previous years. So the CIO comes from a place of caution and conservatism and ends up moving slowly, while being the face of technology—one of the fastest-moving industries in the world. There are these cosmic pressures like cloud computing services and the rise of consumer technology—smartphones, tablets, and all the rest—that are forcing change in the landscape.
Jonah Lehrer: Is Corporate Research Better? - via Wired-
Of course, any conversation about the differences between academic and corporate research is going to be full of lazy and imprecise generalizations. While the quote above is about the rigors of basic corporate research, the need for profit has proven to be a deeply pernicious bias. (Some of the sloppiest and most cynical clinical trials have been funded by pharmaceutical and medical technology firms.) Let’s also not forget that economic studies reveal that the biotech and pharmaceutical sector are deeply dependent (and often parasitic) on the public funding of basic research. The intellectual freedom of a well-funded academic scientist, able to pursue their curiosity for years at a time, is one of the triumphs of civilization.
Culturomics 2.0 Aims to Predict Future Events – via Miller McCune-
By analyzing tens of millions of news stories, a supercomputer in Tennessee may be able to predict future human events.
Visual Journalism:
United We Buy: Using Patriotism and War to Sell Products – via Sociological Images
Posted by Miguel on September 25, 2011 08:25 PM· permalink
Blast from the past. The Economist talks about the great economic problem of our time. No, not global warming but global jobbing. To understand why these changes are so exciting for some people and so scary for others, a good place to start is the oConomy section on the website of oDesk, one of several booming online marketplaces for freelance workers. In July some 250,000 firms paid some 1.3m registered contractors who ply their trade there for over 1.8m hours of work, nearly twice as many as a year earlier. ODesk, founded in Silicon Valley in 2003, is a “game-changer”, says Gary Swart, its chief executive. His marketplace takes outsourcing, widely adopted by big business over the past decade, to the level of the individual worker. According to Mr Swart, this “labour as a service” suits both employers, who can have workers on tap whenever they need them, and employees, who can earn money without the hassle of working for a big company, or even of leaving home. It is still small, but oDesk shows how globalisation and innovation in information technology, the two big trends that have been under way for some time, are moving the world nearer to a single market for labour. Much of the work on oDesk comes from firms in rich economies and goes to people in developing countries, above all the Philippines and India. Getting a job done through oDesk can bring the cost down to as little as 10% of the usual rate. So the movement of work abroad in search of lower labour costs is no longer confined to manufacturing but now also includes white-collar jobs, from computer programming to copywriting and back-office legal tasks. That is likely to have a big impact on pay rates everywhere. It puts the whole thing into context of the current 2nd dip in USA and Europe. My first contribution to this debate was to predict the above in a paper & implementation of a jobs market in 1997, here: iang.org/papers/task_market.html. Because this used a sort of variation on Ricardian Contracts, and turned the global jobbing market into a financial system, it qualifies as FC. (My second contribution was equally exciting, built in 2009-2010, and I guess someone will overtake it in 14 years as well. If you are in the angel business, you can find out about it sooner...) Oh, and in case you didn't quite understand the oTalk above ... here's some hard econ data: Michael Spence, another Nobel prize-winning economist, in a recent article in Foreign Affairs agrees that technology is hitting jobs in America and other rich countries, but argues that globalisation is the more potent factor. Some 98% of the 27m net new jobs created in America between 1990 and 2008 were in the non-tradable sector of the economy, which remains relatively untouched by globalisation, and especially in government and health care—the first of which, at least, seems unlikely to generate many new jobs in the foreseeable future. At the same time, says Mr Spence, the mix of jobs available to Americans in the tradable sector (including manufacturing) that serves global markets is shifting rapidly, with a growing share of the positions suitable only for skilled and educated people. (Readers will recognise Prof. Spence as the man who wrote the paper that inspired the silver bullets hypothesis.)...
Posted by iang on September 23, 2011 08:52 PM· permalink
There is some good news for all those who would either like to take up a term plan or who are looking to upgrade (increase) their life insurance cover! It is recently disclosed by LIC that Term Plans will be sold online and offline and the premiums will be cheaper than the current rates offered.
I personally never thought that LIC would come up with online term plan because of its dependence on agents’ network for selling its products. But this is a good move from LIC as their share of term plan market is eaten away by private insurers from last few years. At the moment, a person has to pay a very high premium for term plan through LIC. For example, the premium for 25 lacs cover with LIC term plan at the moment is around 7,000 – 8,000, whereas it’s around 3,000-3,500 in companies like ICICI iProtect & Kotak e-preferred.
“We are in the process of designing a pure term product which would be sold through both online and through agents,” LIC’s ED- marketing S Roy Chowdhury. “The rates will be lower than what is charged at the moment,” he added.
LIC uses mortality table 1994-96 at the moment
Do you know why LIC premiums are higher? One of the reasons is that they follow old mortality tables which has older death experience ratio. A lot has changed in last 10-15 yrs and we have much better access to health care and lifestyle, which has changed the number of death. Most of the new companies in Life insurance use the latest mortality data but LIC is still using old data and that’s pushing their premiums. Now LIC is planning to revise the mortality rates based on the last 10-15 yrs of experience and hence the premiums would drop down from its current level.
Note that mortality experience are different for different age groups and classes, so it’s not necessary that mortality rates will go down it might happen that mortality rates for age group 25-35 goes up because of the bad lifestyle and new age ailments (stress, junk food, etc). So keep that point in mind. (9 most asked questions about Term Insurance)
How cheap will be LIC online term plan ?
LIC online term plan will be cheaper than the current term plan they offer but expect it to be 15%-25% lower than current premiums. Do not expect a very steep decrease like 50%-60%, because LIC is a very different ball game than other life insurance companies. LIC has accessed in each corner of India and the new online term plan they will launch will be targeted at a very big group and scattered across various cities. It will be offered online and also offline (through agents).
How will this impact Insurance Industry ?
With whatever little I know I can see that urban class will welcome this move with open heart and a lot of people who trusts LIC like anything and even a lot of people who are not big fan of LIC will wait and watch for this online term plan from LIC and would like to go for it only. This move will lead to more sales of LIC term plans in bigger cities and reduce the term plan selling of different other companies (to some extent).
What do you think about LIC online term plan . Are you going for it ? Are you waiting for it ?
Posted by Manish Chauhan on September 20, 2011 10:49 AM· permalink
Handpicked to satisfy your intellectual curiosity!
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Weekly Cartoons:
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Most Important Reads:
The Cognitive Science of Rationality – via Less Wrong- The last 40 years of cognitive science have taught us a great deal about how our brains produce errors in thinking and decision making, and about how we can overcome those errors. These methods can help us form more accurate beliefs and make better decisions.
Thomas Gilovich Lecture: Will People Believe Anything? The Psychology of Gullibility - via Science Stage- the latest research on experiences such as seeing order in randomness, superstition, and wishful thinking, as well as many other human frailties. Gilovich also discussed how to cultivate more sound reasoning and effective decision-making.
Bahrain Boils Under the Lid of Repression – via NYT-“The situation is a tinderbox, and anything could ignite it at any moment,” said Ali Salman, the general secretary of Al Wefaq, Bahrain’s largest legal opposition group. “If we can’t succeed in bringing democracy to this country, then our country is headed toward violence. Is it in a year or two years? I don’t know. But that’s the reality.”
Yes The Teenage Brain is Different - via National Geographic- H/T LongReads- Moody. Impulsive. Maddening. Why do teenagers act the way they do? Viewed through the eyes of evolution, their most exasperating traits may be the key to success as adults.
The late American jobs machine – via Considering The Evidence- The U.S. labor market is in bad shape. The great recession and its aftermath are the chief culprits, of course, but the sputtering began earlier. In the 1970s, 1980s, and 1990s employment increased so rapidly that our economy was sometimes referred to as the “great American jobs machine.” In the early and mid 2000s that ended. Richard Freeman and William Rodgers were among the first to draw attention to the shift. In 2005, well into the recovery following the 2001 recession, they noted the anemic job growth relative to prior recoveries and wondered if the labor market had changed fundamentally.
The evolution of data products: The data that drives products is shifting from overt to covert. - via Oreily Radar- In “What is Data Science?,” I started to talk about the nature of data products. Since then, we’ve seen a lot of exciting new products, most of which involve data analysis to an extent that we couldn’t have imagined a few years ago. But that begs some important questions: What happens when data becomes a product, specifically, a consumer product? Where are data products headed? As computer engineers and data scientists, we tend to revel in the cool new ways we can work with data. But to the consumer, as long as the products are about the data, our job isn’t finished. Proud as we may be about what we’ve accomplished, the products aren’t about the data; they’re about enabling their users to do whatever they want, which most often has little to do with data.
Taleb: People Kept Telling Me I Was an Idiot - via Farnam St - There’s something called action bias. People think that doing something is necessary. Like in medicine and a lot of places. Like every time I have an MBA—except those from Wharton, because they know what’s going on!—they tell me, “Give me something actionable.” And when I was telling them, “Don’t sell out-of-the-money options,” when I give them negative advice, they don’t think it’s actionable. So they say, “Tell me what to do.” All these guys are bust. They don’t understand: you live long by not dying, you win in chess by not losing—by letting the other person lose. So negative investment is not a sissy strategy. It is an active one
The Dark Side of the Placebo Effect: When Intense Belief Kills – via The Atlantic & H/T LongReads- While people of all cultures experience sleep paralysis in similar ways, the specific form and intensity it takes varies from one group to the next
Charles Mackay’s Own Extraordinary Delusions & the railway mania - Odlyzko – Mackay’s story provides another example of a renowned expert on bubbles who decides that “this time is different.” His moves through a sequence of delusions help explain the length and damage of the Railway Mania. He was a free market and technology enthusiast, and faced many issues that are important today, such as government ownership or regulation, interconnection, standardization, structural separation, and analogs to net neutrality. A crushing national debt and high unemployment in an economy pulling out of a deep depression (and in perceived danger of falling into another one) were very important in shaping attitudes towards railway expansion. The analogies and contrasts between Mackay’s time and ours are instructive.
Saving Europe with sovereign equity – via Interfluidity- One way to think about the European financial crisis is that it is a matter of capital structure. Countries like the United States and Great Britain are equity-financed, while countries like Greece, France, and Germany are debt-financed. [1] There is no question that some European countries have very real problems. But there is also no question that no matter how badly a country may be arranged, nations cannot be “liquidated”. A “bankrupt” state must be reorganized. If Greece were a firm, a bankruptcy court would not sell critical assets at fire-sale prices, as Greece’s creditors sometimes idiotically demand. Instead, a bankruptcy court would convert debt claims that are unpayable, or whose payment would impair the long-term value of the enterprise, into equity claims whose value would depend upon restoring the underlying enterprise to health.
Evolution of Narcissism: Why We’re Overconfident, and Why It Works – via Farnam St- Overconfidence might have another benefit, at least for men. “Men tend to exhibit more false optimism than women, a trait that can help in their two traditional evolutionary roles: fighting rivals and courting women.”
Futures Impossible : a new methodology to study world events - via Boing Boing- To a decision-maker in business or government, simply describing such impossible future scenarios is not helpful in the absence of a methodology for detecting, understanding, and mitigating their practical effects. What is needed is a deeper grid that can be used as an overlay to highlight radical discontinuities in technology, geopolitics, social behavior or economic patterns. We believe that such a tool needs to be developed if we want to survive the new realities where worldviews collide at an accelerated pace.
Milton Friedman’s grand illusion – via Physics of Finance- Three years ago I wrote an Op-Ed for the New York Times on the need for radical change in the way economists model whole economies. Today’s General Equilibrium models — and their slightly more sophisticated cousins, Dynamic Stochastic General Equilibrium models — make assumptions with no basis in reality. For example, there is no financial sector in these model economies. They generally assume that the diversity of behaviour of all an economy’s many firms and consumers can be ignored and simply included as the average behaviour of a few “representative” agents.
Everything thing you wanted to know about think tanks – via BBC- The guiding idea at the heart of today’s political system is freedom of choice. The belief that if you apply the ideals of the free market to all sorts of areas in society, people will be liberated from the dead hand of government. The wants and desires of individuals then become the primary motor of society.
Defining Evil- via Chronicle of Higher Ed- Evil is all too often analyzed at too high a level of abstraction. If theologians tell us that evil is what human beings do in the absence of God, they face the difficult tasks of defining God’s essence. Philosophers who conceptualize evil as a disturbance in the natural order of the universe must wrestle with the nature of the universe, not to mention the meaning of order. Contemporary neuroscientists who view evil as a product of faulty hard-wiring in our brains do not always know what is taking place in our minds. There are times and places when discussions of the theology or the metaphysics of evil are appropriate. But there are also times when they can get in the way of knowing what to do when we are confronted with terrorists who fly planes into buildings or enforcers of ethnic solidarity who rape and kill those whose land they covet.
What marks the transition from novice to expert? – via Bakadesuyo- We predict and find a shift from positive to negative feedback as people gain expertise. We document this shift in a variety of domains including feedback on language acquisition, pursuit of environmental causes, and use of consumer products. Across these domains, novices sought and responded to positive feedback, and experts sought and responded to negative feedback. We examine a motivational account for the shift in feedback: positive feedback increased novices’ commitment and negative feedback increased experts’ sense that they were making insufficient progress.
Think video games make you smarter? Not so fast… - via Invisible Gorilla Blog- Walter Boot, Daniel Blakely and I have a new paper that just appeared in Frontiers in Psychology this week (link) that argues for similarly serious flaws in many of the studies underlying the popular notion that playing action video games enhances cognitive abilities. The flaws are sometimes more subtle, but they’re remarkably common: None of the existing studies include all the gold-standard controls necessary to draw a firm conclusion about the benefits of gaming on cognition. When coupled with publication biases that exclude failures to replicate from the published literature, these flaws raise doubts about the mere existence of a benefit.
Decision Making/ Behavioral Economics/Psychology/ Risk/ Sciences:
Revisions and Regret: The Cost of Changing your Mind – via Wiley- Decision reversals often imply improved decisions. Yet, people show a strong resistance against changing their minds. These are well-established findings, which suggest that changed decisions carry a subjective cost, perhaps by being more strongly regretted. Three studies were conducted to explore participants’ regret when making reversible decisions and to test the hypothesis that changing one’s mind will increase post-outcome regret. The first two studies employed the Ultimatum game and the Trust game. The third study used a variant of the Monty Hall problem. All games were conducted by individual participants playing interactively against a computer. The outcomes were designed to capture a common characteristic of real-life decisions: they varied from rather negative to fairly positive, and for every outcome, it was possible to imagine both more and less profitable outcomes. In all experiments, those who changed their minds reported much stronger post-outcome regret than those who did not change, even if the final outcomes were equally good (Experiments 2 and 3) or better (Experiment 1).This finding was not because of individual differences with respect to gender, tendency to regret, or tendency to maximize. Previous studies have found that those who change from a correct to wrong option regret more than those who select a wrong option directly. This study indicates that this finding is a special case of a more general phenomenon: changing one’s mind seems to come with a cost, even when one ends up with favorable outcomes.
Time on the Brain: How You Are Always Living In the Past, and Other Quirks of Perception – via SciAm- I always knew we humans have a rather tenuous grip on the concept of time, but I never realized quite how tenuous it was until a couple of weeks ago, when I attended a conference on the nature of time organized by the Foundational Questions Institute. This meeting, even more than FQXi’s previous efforts, was a mashup of different disciplines: fundamental physics, philosophy, neuroscience, complexity theory. Crossing academic disciplines may be overrated, as physicist-blogger Sabine Hossenfelder has pointed out, but it sure is fun. Like Sabine, I spend my days thinking about planets, dark matter, black holes—they have become mundane to me. But brains—now there’s something exotic. So I sat rapt during the neuroscientists’ talks as they described how our minds perceive the past, present, and future. “Perceive” maybe isn’t strong enough a word: our minds construct the past, present, and future, and sometimes get it badly wrong.
The Psychology of Pleasure: Interview With Paul Bloom - via Why We Reason- I stole this example from Yale psychologist Paul Bloom, author of How Pleasure Works to reinforce a point I made a few posts ago: how you taste something strongly depends on what you believe you are tasting (this is the example I used: people enjoy wine more when it comes from a $90 bottle than a $10 bottle even when the wine is the same).
Is chance in the map or the territory? - via Rationally Speaking- My broader aim is therefore to argue that “chance” is always and everywhere subjective — a result of the limitations of minds — rather than objective in the sense of actually existing in the outside world.
15 Years of Cutting-Edge Thinking on Understanding the Mind – via Brain Pickings- For the past 15 years, literary-agent-turned-crusader-of-human-progress John Brockman has been a remarkable curator of curiosity, long before either “curator” or “curiosity” was a frivolously tossed around buzzword. His Edge.org has become an epicenter of bleeding-edge insight across science, technology and beyond, hosting conversations with some of our era’s greatest thinkers (and, once a year, asking them some big questions). Last month marked the release of The Mind, the first volume in The Best of Edge Series, presenting eighteen provocative, landmark pieces — essays, interviews, transcribed talks — from the Edge archive. The anthology reads like a who’s who of Brain Pickings favorites across psychology, evolutionary biology, social science, technology, and more. And, perhaps equally interestingly, the tome — most of the materials in which are available for free online — is an implicit manifesto for the enduring power of books as curatorial capsules of ideas. Brockman writes in the book’s introduction:
Videos of The Week:
Why We Should Hire The Hackers- TED.com – Despite multibillion-dollar investments in cybersecurity, one of its root problems has been largely ignored: who are the people who write malicious code? Underworld investigator Misha Glenny profiles several convicted coders from around the world and reaches a startling conclusion.
Richard Dawkins on his new book “The Magic of Reality” – via Value Investing World
Welcome to the genomic revolution – via Value Investing World- In this accessible talk from TEDxBoston, Richard Resnick shows how cheap and fast genome sequencing is about to turn health care (and insurance, and politics) upside down.
Business/ Entrepreneurship/Finance/Investing
Between Errors of Optimism and Pessimism – Observations on the Real Estate Cycle in the United States and China – By Edward Chancellor – via Value Investing World
Let’s Face It, The British Tax System Is So complicated, Even the Taxman Can’t Cope - via The Independent Online- Up to now, however, it has been analysing the fiscal world as it is, rather than as it might be. That has changed with the new Mirrlees Review of the British taxation system, the most thorough look for a generation at how we raise tax revenues.
Insurers using computer modelling to identify ‘risky clients’ via social media – via Institute of Hazard Risk & Resilience- Terry McClure, who is studying for an MA in Risk, Health and Public Policy, explains how some insurance companies are using computer modelling and information about people’s lifestyle choices found on the internet to evaluate health-related risks. This could largely affect whether some people are able to receive life insurance coverage in the future. This form of ‘predictive modelling’ could also disproportionately affect poor people who may be perceived as a riskier clientele and denied coverage.
The Bulletproof Palestinian Stock Exchange - via Business Week- The Palestine Exchange, known as the PEX, had rented a hotel nearby for employees who live outside the city. Hijaz, who oversees relationships with companies listed on the exchange, would go the week without seeing his wife or children, returning to his home only on weekends. Commuting every day through the multiple Israeli military checkpoints would have been impossible. “We were challenging the occupation at that time for national reasons and to work. At the end, you have to work. For your family, you have to earn money,” Hijaz says over coffee in the bright, glass-enclosed conference room of the bourse’s headquarters in Nablus.
How Fast Can China Go? - via LongForm- On the railways of China and a trip aboard its latest spectacle, a $32 billion line carrying passengers between Shanghai and Beijing at 170 MPH.
Satyajit Das: ‘Financial TV is pornography’ – via Globe & Mail- Financial TV is pornography—sleazy, intrusive, seeking to titillate, and shock. During a crisis, these programs can be compulsive. Once, pornographic scripts had a passing interest in improbable plot and implausible dialogue. In the Coen brothers’ film The Big Lebowski, Jackie Treehorn bemoans falling standards in adult entertainment. Competition from cheap amateur pornographic films means that professionals can no longer afford the extra investment in story, production value, and feeling. Financial TV never bothered with plot, dialogue, or production values, focusing only on the action.
The Silicon Valley: Bubble Boys – via LongForm- In Silicon Valley, up all night coding in the dorms with the aspiring Mark Zuckerbergs of tomorrow.
How home prices helped kill the first tech boom – via Reuters - The reason, you’ve no doubt already guessed, was housing costs. From 1997 to 2000, average earnings in the Silicon Valley area increased by nearly 40%. But from 1997 through the end of 2000, home prices in San Francisco nearly doubled, according to the Case-Shiller index of home prices. As fast as compensation was rising, it wasn’t keeping up with housing costs. And so even as the demand for skilled workers in Silicon Valley soared, residents trickled away to other locations. That made for a too-tight labor market, and that, in turn, squeezed out entrepreneurs. And what did that mean for the American economy? The workers that moved elsewhere didn’t give up working. They found employment in other metropolitan areas, many of which developed thriving tech sectors. Those sectors weren’t fallow fields for new firm creation; entrepreneurship rates, remember, were higher nationally than in the Bay Area. But what the economics of metropolitan geography tell us is that many small collections of firms will often be less productive and less innovative than fewer, larger firm clusters. The forces that repelled workers from Silicon Valley, which was the intellectual heart of the country’s tech industry, reduced the potential economic impact of the tech boom. And in a not unimportant side effect, it reduced national productivity and total compensation in the economy.
The Eclectic Mix:
Take a Nap! Change Your Life – via KK Stream- Napping is a evolutionarily habit that still works wonders today. I can get by with several hours less sleep per night by adding a 20-minute nap in the afternoon. But I work at home where napping is easily done. The point of this book is to persuade you that the benefits of napping, scientifically derived, are so great you should do everything you can to make napping a habit whatever your schedule. As this concise guide makes clear the benefits to nappers are significant: smarter, more productive, healthier. For those who have tried napping without success, this book offers several different methods to try. It is hard to imagine the siesta returning in full force in the workplace, but it should be resurrected in some fashion. Start here. This is the best practical book on naps yet.
What the mob can teach your business – via Economist - Mafia-mastermind-turned-author Louis Ferrante used his time in prison to turn his life around. He now applies his knowledge of Mafia organization skills to business. Ferrante spoke on Thursday at The Economist’s Human Potential summit in New York City. Austin Kleon captures his message here.
The power of small batches – via Lessons Learned- Toyota discovered that small batches made their factories more efficient. In contrast, in the Lean Startup the goal is not to produce more stuff efficiently. It is to— as quickly as possible— learn how to build a sustainable business. Think back to the example of envelope stuffing. What if it turns out that the customer doesn’t want the product we’re building? Although this is never good news for an entrepreneur, finding out sooner is much better than finding out later. Working in small batches ensures that a startup can minimize the expenditure of time, money, and effort that ultimately turns out to have been wasted.
Freedom to Riot: On the Evolution of Collective Violence - via SciAM- From London to the Middle East riots have shaken political stability. Are the answers to be found in human nature?
Studying True Grit - via Information Processing- The next project with my colleague Jim Schombert is to see whether student personality inventories increase our ability to predict college GPA. In previous work we found a .4 or so correlation between SAT score and upper division in-major GPA. (Other studies, which focus on freshman GPA, typically find lower correlations but this is partly because academically stronger freshmen usually take harder courses. At the upper division level, majors typically have to take certain core courses, so there is more uniformity.) The correlation is somewhat higher (.5 to .6) if we use a z score derived from high school GPA and SAT. We think GPA is a proxy for conscientiousness, or what is referred to below as grit. But there is too much grade inflation in high school these days, and GPA depends both on work ethic and cognitive ability. So we’d like to see how well personality variables work. Optimistically, I think we can do better than correlations of .6, which is pretty impressive for social science.
Visual Journalism:
Megalist of US Social Indicators – via Global Sociology
Posted by Miguel on September 18, 2011 08:17 PM· permalink
I wrote about maharastra seamless a few weeks back. The initial part of the analysis is here. The rest of the analysis follows
Competitive analysis
There are several companies in the steel tubes and pipes space. Some of the key companies in this space are Welspun corp, PSL, APL Apollo tubes etc.
Welspun corp is one the biggest companies in this space with a total capacity of around 1.5 MMT (3 times Maharastra seamless) which is slated to rise to around 2 MMT. The company is into LSAW, MSAW (higher dia pipes), ERW and seamless pipes. The company has maintained its ROE numbers at around the 20% levels. The company has also maintained its net margin levels at around 6-8% levels which is much lesser than MSL (at around 9-10%).
PSL is one of the largest HSAW pipe makers with a installed capacity of around 1.8 MMT. The company is expanding capacity by 75000 MT in 2012. The company also has a presence in the middle east (UAE) and US. The company has maintained an ROE of around 15% with a net margin of around 3% in the last few years. The company however has a high debt equity ratio of around 1.6.
MSL seems to have better financials than the other companies in the same sector. The company has an operating margin which is higher than the other companies in the sector by atleast 4-5% which has led to a better ROC and higher cash flows. This higher operating margin seems to be the result of better pricing and lower overheads.
Management quality checklist
- Management compensation: Management compensation seems to be reasonable. The MD made less than 0.5% of net profit in 2011 which is on the lower side for promoter led companies
- Capital allocation record: The capital allocation record is a mixed bag. The company has consistently maintained a high gross margin on its product and thus been able to generate a high return on capital and good cash flows. These cash flows have been used to pay off debt and is also being used for capacity expansion (horizontal and vertical). At the same time the company raised money through an FCCB offer in 2005, which was not utilized by the company. I would give some benefit of doubt to the company on this point as they have been trying to expand into a billet plant (Which is the RM for ERW pipes) and have not been able to make progress due to land acquisition issues.
- Shareholder communication: Seems adequate. The management provides adequate information about the business and has quarterly presentations about the same on its website. In addition the company conducts quarterly conference calls and shares the transcripts on its website
- Accounting practice: Seems adequate and in line with the standards. Nothing stands out
- Conflict of interest: There were no related party transactions which seem to be out of line. However the management has lent out around 177 Crs to a company (highlighted by the auditors) in 2011 which is a point of concern.
Valuation
The company sells at around 7-8 times core earnings. One needs to exclude the impact of excess cash and non –core income (income from deposits and other sources) to arrive at the core earnings which were around 300 Crs last year. A normalized margin of around 14 % (rough average of last 5-6 years excluding impact of non core icome) gives an approximate net profit of around 270-290 Crs.
If you exclude the excess cash on the books, the company is selling at around 7-8 times earnings.
The other companies in the same sector sell at around the same valuation. If one considers that maharastra seamless has superior financials, then one can make a case for a premium. The company is also selling on the lower side of its historical valuations, which has ranged between 5 to 20 times earnings.
In summary the company appears to be undervalued on various measures. At the same time, I still have doubts on the sustainability of the margins. In view of the capacity expansion in the industry and higher level of competition (due to dumping from china), it is quite likely the margins would trend downwards.
Conclusion
This is an industry with a limited number of players in india and with low levels of competitive advantage. The main competitive advantage comes from economies of scale and client relationships (takes time to become an approved supplier for the major O&G companies). In addition, there is a lot of competition from the Chinese companies in the same space and this has led to price pressure in india.
At the same time, the user companies of oil and gas, power utilities and water supplies are growing and is likely to result in robust demand over the medium and long term. We thus have two opposing trends (growth in topline and pressure on margins) and it is difficult (for me) to understand how this will impact profits eventually.
I have the company on a watch list for the time being and 10% drop in the price would be a good point for me to start a small position.
Posted by Rohit Chauhan (noreply@blogger.com) on September 17, 2011 09:24 PM· permalink
I just found this UC Berkeley course on Behavioral Economics via The Do It Your Self Scholar blog. You guys will enjoy listening to this, I’m sure of it.
Excerpt: (Via The DIY Scholar)
What happens when a bunch of psychologists try to investigate the assumptions about human behavior that underlie the discipline of economics? You get Behavioral Economics, a fascinating mix of economics and psychology explored in the new UC Berkeley class Economics 119 Psychology and Economics (iTunes audio, iTunes video, YouTube), taught by Daniel Acland.
Click Here To Access: UC Berkeley’s Free Online Course on Behavioral Economics
Posted by Miguel on September 17, 2011 03:33 PM· permalink
How to redeem your mutual funds investment? A lot of people who invest in mutual funds often do not know what the procedure to redeem these mutual funds is. I redeemed some of my ELSS mutual funds which I had bought some years back from an agent, so I thought why not let everyone know what is the simple procedure for redeeming the mutual funds.
Process of redemption if have bought Mutual funds from an agent (offline)
f you have bought the mutual funds from an agent or from the AMC directly, then you will have to fill up the redemption form. This form is available from the mutual funds AMC office (you can get its office address from internet). You will have to go to their office in person. You can also go to the nearest CAMS office and fill up the redemption form directly from there. It’s much convenient to visit CAMS office and directly redeem more than one mutual funds in one go (this is what I did in my case).
The redemption form is very easy to fill and all you need to put is your name, folio number (make sure you put correct folio number, else it will create issue later) and the number of units (exact number or ALL) you want to redeem. Just give this form to the CAMS processing assistant and they will put up your request.
Important Points
1. NAV Applicable: If you give your redemption request before 3:00 pm, the same day closing NAV will be applicable, else you will get next day NAV. So make sure you do the redemption well before 3:00 pm if you want same day NAV.
2. Bank accounts: Where will you get the money when you redeem the mutual funds? You will get the proceeds in your same account which is registered with your AMC (which you used to pay at the time of buying). If that account is not active, then there are few run around like you will have to attach the cancelled cheque of your new bank account or copy of pass-book etc and if you don’t have that, then a declaration from the bank and sign of some bank manager etc. So this can be a little frustrating if you are in urgent need of money. In my case my old account was active so it was pretty easy for me.
3. CAMS do not handle all the AMC’s redemption: CAMS do not handle each and every Mutual funds transaction. It can happen that you will have to go to the AMC office itself for redemption. Like in my case I had to go to Sundaram AMC office to redeem my Sundaram Tax Saver proceeds. So check with CAMS which all mutual funds they handle, you can shoot an email to your city CAMS (their emails and addresses are there on CAMS website
4. How much time it takes to get money? : It generally takes 3-4 working days to get the money credited in your account. But in my case I got it in next 2 days itself. So if you redeem the funds on Monday or Tuesday, you can safely assume that you will get the money by the weekend. But if you have weekend falling in between, then it can take some time.
Process of redemption if have bought Mutual funds online
If you bought your mutual funds from your demat account or some online brokers or if you activated your online account after buying from agent, then you can redeem your mutual funds online itself just by following the procedure mentioned by your online account.
Did you activated your online account with the AMC ?
If not, I would suggest you to do it, so that you can take the redemption action as and when required. What was your redemption of mutual funds experience? What point’s people should keep in mind while redeeming? Do you think with the recent downfall in markets, a lot of people would like to redeem their mutual funds or equity holdings?
Posted by Manish Chauhan on September 15, 2011 12:23 PM· permalink
One of the most common advice on investing is to be patient. I read this early on and always wondered what it meant? In my early days of investing, I thought I was missing something profound and did not get what the writer had to say. Overtime I have come to realize that a lot of people, who write that investors should be patient, are completely clueless about it themselves.
What does being patient mean? Should I wait 1 day, 1month, 1 year or 10 years before I buy or sell the stock?
Does it mean I should be patient for the results? Is 1 year being patient enough?
There is no universal definition
I personally think that there is no universal definition of patience. This is something, one has to figure out for oneself. It depends on your investing philosophy, temperament and goals.
A day trader is being patient when he waits for more than a couple of hours, whereas for an investor like me that is the blink of an eye. There is nothing wrong with what the day trader is doing as it works for him.
I would say that being patient has two components – time one should be able wait before buying a stock and the second piece is the time before selling the stock or getting the expected returns.
Patience in buying
Why should one wait before pulling the trigger ? If you are a long term investor and the company has a bright future, then should you not just buy the stock as a small difference in valuation will work itself out over the long term.
The above statement would be true if you knew the future of the company perfectly. As most of us don’t know the future precisely, it makes sense to have a margin of safety built into the purchase price. There are no hard and fast rules here, but I generally prefer to buy a stock at a 50% discount to fair value. If I have a high level of conviction, then I may drop the discount a bit , but I will never buy it close to fair value.
A lot of times, the company may be selling at or above its fair value. The future would be bright and everyone one and his milkman would be buying the stock. In such times, it makes sense to wait .
As it usually happens, something in the environment changes such as a slowdown in the industry and the market will abandon the stock. It is during such times that one has to have the courage of his or her convictions to buy the stock. The wait is sometimes short, but usually is long, often extending into years
Patience in selling
Let’s say you have been patient in buying the stock. Once you have purchased the stock, you want the stock to rise rapidly to validate your brilliance. I don’t know about you, but I get this urge all the time. However the world does not owe me anything ! If the industry is going through some short term pain, then it likely to take time for things to work out and the stock to realize its fair value.
I have found that 2-3 years is a good time for things to work out and if the market still does not see the light, then there is a strong possibility that you are wrong in your assessment.
So have you perfected it ?
The tone of the post would suggest that I am the perfect investor, who is supremely patient and is able to buy and sell with complete rationality. I wish I was!
I go through the same emotions as everyone else. If I find an attractive idea, I have to really hold myself back from rushing into it. To satisfy this urge, I create a small position and ensure that the itch is scratched.
I think I am far more patient on the sell side. This is usually a plus, but it has been curse too. I have been patient to the point of being stubborn in changing my view of the company. I have often persisted with a company for far too long and ignored the lack of performance. This flaw has usually resulted in an opportunity loss (where my capital was tied up in a low return idea).
How about now ?
So we come to point of the current market situation. In view of the high inflation, issues in Europe, US debt, corruption, my dog’s constipation (ok I don’t have a dog !) and all other issues, does it not make sense to be patient ?
As one of my friends was saying the other day – should you not wait till all this uncertainty clears up ? If you have been reading my blog for sometime, you know my answer - The future is never clear !!! It is clear only in hindsight. I personally do not believe on waiting for a specific level of the market, before buying specific stocks.
I am being patient on the price of specific stocks. I am currently 30-35% in cash and tracking and analyzing companies everyday. If the price falls below my target price, I start buying the stock.
If the market crashes for some reason and I get a lot of bargains, then I will get aggressive. If nothing happens, I will keep waiting and hopefully be patient.
Posted by Rohit Chauhan (noreply@blogger.com) on September 12, 2011 02:01 PM· permalink
Handpicked to satisfy your intellectual curiosity!
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Weekly Cartoons:
Sent via our reader Peter from XKCD
Oh no…students leverage while others deleverage – via EconomPic
Most Important Reads:
Daniel Kahneman: Master Class – The Marvels and the Flaws of Intuitive Thinking & His Book Thinking Fast Thinking Slow-via Edge.org- It turns out there is something else we’re awfully good at. We’re good at taking an agent and assigning characteristics to that agent, and remembering that this agent has these certain habits, and it does these things. If you want to learn about System 1 and System 2, or about Type 1 and Type 2 operations, really the same, think of it as System 1 and 2. it will develop a personality. There are certain things that it likes doing, that it’s able to do, and there are certain things it just cannot do, and you will get that image. It’s completely crazy.
A New Way to Think About Psychological Change – via Tim Wilson @ Brain Pickings- social psychologist Timothy Wilson reveals insights from three decades of empirical evidence indicating that what is true of culture is also true of individuals: Our experience of the world is shaped by our interpretations of it, the stories we tell ourselves, and these stories can often become so distorted and destructive that they completely hinder our ability to live balanced, purposeful, happy lives, so the key to personal transformation is story transformation.
The Responsibility of Intellectuals, Redux Using Privilege to Challenge the State - By Noam Chomsky via Boston Review- The concept of intellectuals in the modern sense gained prominence with the 1898 “Manifesto of the Intellectuals” produced by the Dreyfusards who, inspired by Emile Zola’s open letter of protest to France’s president, condemned both the framing of French artillery officer Alfred Dreyfus on charges of treason and the subsequent military cover-up. The Dreyfusards’ stance conveys the image of intellectuals as defenders of justice, confronting power with courage and integrity. But they were hardly seen that way at the time. A minority of the educated classes, the Dreyfusards were bitterly condemned in the mainstream of intellectual life, in particular by prominent figures among “the immortals of the strongly anti-Dreyfusard Académie Française,” Steven Lukes writes. To the novelist, politician, and anti-Dreyfusard leader Maurice Barrès, Dreyfusards were “anarchists of the lecture-platform.” To another of these immortals, Ferdinand Brunetière, the very word “intellectual” signified “one of the most ridiculous eccentricities of our time—I mean the pretension of raising writers, scientists, professors and philologists to the rank of supermen,” who dare to “treat our generals as idiots, our social institutions as absurd and our traditions as unhealthy.”
The Limping Middle Class – via Robert b Reich @ NYT- THE 5 percent of Americans with the highest incomes now account for 37 percent of all consumer purchases, according to the latest research from Moody’s Analytics. That should come as no surprise. Our society has become more and more unequal.
Back to School: Free Resources for Lifelong Learners Everywhere - via OpenCulture- With Labor Day behind us, it’s officially time to head back to school. That applies not just to kids, but to you. No matter what your age, no matter where you live, no matter what your prior level of education, you can continue deepening your knowledge in areas old and new. And it has never been easier. All you need is a computer or smart phone, an internet connection, some free time, and our free educational media collections. They’re available 24/7 and constantly updated:
Quantum minds: Why we think like quarks – via New Scientist- It may sound preposterous to imagine that the mathematics of quantum theory has something to say about the nature of human thinking. This is not to say there is anything quantum going on in the brain, only that “quantum” mathematics really isn’t owned by physics at all, and turns out to be better than classical mathematics in capturing the fuzzy and flexible ways that humans use ideas. “People often follow a different way of thinking than the one dictated by classical logic,” says Aerts. “The mathematics of quantum theory turns out to describe this quite well.” It’s a finding that has kicked off a burgeoning field known as “quantum interaction”, which explores how quantum theory can be useful in areas having nothing to do with physics, ranging from human language and cognition to biology and economics. And it’s already drawing researchers to major conferences.
Huge Collection of Neuro Economics Research- via Cell Press H/T Deric Bownds
Interesting Behavioral Finance Symposium: Speakers Zweig & Odean -via UTC H/T Dustin
A More Progressive Tax System Makes People Happier - via APS - On average, residents of the nations with the most progressive taxation evaluated their own lives as closer to “the best possible.” They also reported having more satisfying experiences and fewer discomfiting ones than respondents living in nations with less progressive taxes. That happiness, Oishi says, was “explained by a greater degree of satisfaction with the public goods, such as housing, education, and public transportation.”
Why We Desire But Reject Creative Ideas - via Freakonomics- People often reject creative ideas even when espousing creativity as a desired goal. To explain this paradox, we propose that people can hold a bias against creativity that is not necessarily overt, and which is activated when people experience a motivation to reduce uncertainty. In two studies, we measure and manipulate uncertainty using different methods including: discrete uncertainty feelings, and an uncertainty reduction prime. The results of both studies demonstrated a negative bias toward creativity (relative to practicality) when participants experienced uncertainty. Furthermore, the bias against creativity interfered with participants’ ability to recognize a creative idea. These results reveal a concealed barrier that creative actors may face as they attempt to gain acceptance for their novel ideas.
How the most celebrated faculty member on a prestigious journalism faculty is getting screwed- via Chicago Magazine- It wasn’t the first time David Protess and his investigative reporting class had grabbed headlines. Three years earlier, he and his students had captured national attention by helping exonerate the Ford Heights Four—four men wrongfully convicted of murder, two of whom were on death row. The Porter case, however, launched him and his program into the academic and journalistic stratosphere. George Ryan, then the governor of Illinois, cited Protess’s work as the driving force behind his imposition of a first-of-its-kind death penalty moratorium. “Innocence projects,” patterned on Protess’s own at Medill, sprang up across the country, filled with students and lawyers whose idealistic fervor was inspired by the Medill professor and what his class had accomplished.
Jonah Lehrer On Will Power - via Frontal Cortex – The marshmallow test needs no introduction. Walter Mischel’s ingenious experiment – first conducted in 1968 – has entered the pop culture canon. The study has even spawned an adorable series of YouTube imitations, such as this clip featuring little kids wrestling with temptation
Jonah Lehrer: The Neuroscience of Groupon – via Frontal Cortex- What does this have to do with Groupon and online retailers? This snapshot of the “neural predictors of purchase decisions” reveals that there are two basic ways to influence consumer behavior. The first method involves increasing the activity of the NAcc, ramping up our desire for the item. (Marketing is one big ode to the dopamine reward pathway.) Consider the interior of a Costco warehouse. It’s no accident that the most covetous items are put in the most prominent places. A row of high-definition televisions surrounds the entrance. The fancy jewelry, Rolex watches, iPods and other luxury items are conspicuously placed along the corridors with the heaviest foot traffic. And then there are the free samples of food, liberally distributed throughout the store. The goal of the retailer is to constantly prime the pleasure centers of the brain, to keep us lusting after things we don’t really need. Even though we probably won’t buy the Rolex, just looking at the fancy watch makes us more likely to buy something else.
What’s the connection between curiosity and happiness?- via Bakadesuyo- We found that on days when they are more curious, people high in trait curiosity reported more frequent growth-oriented behaviors, and greater presence of meaning, search for meaning, and life satisfaction. Greater trait curiosity and greater curiosity on a given day also predicted greater persistence of meaning in life from one day into the next. People with greater trait curiosity reported more frequent hedonistic events but they were associated with less pleasure compared to the experiences of people with less trait curiosity. The benefits of hedonistic events did not last beyond the day of their occurrence.
The Importance of Predicting Your Own Behavior- via Overcoming Bias- Consider personal prediction markets, which predict what you will do in the future, such as whether you will lose weight, get married, get an A, get promoted, etc. By allowing your associates to participate in such markets, you could let them (anonymously) tell you what they really think about what you will do. Looking often at the predictions of such markets, and asking yourself if those predictions are wrong, could help you to live up to your far ideals about what you should and will do with your life.
Your Brain on Politics: The Cognitive Neuroscience of Liberals and Conservatives- via Rogue Neuron – Does brain structure determine your beliefs, or do your beliefs change your brain structure? What about those who switch parties at some point? How do they fit in to this model? We’ll be discussing all of this. It’s a complicated issue with lots of variables in play, so we’re going to take a pretty deep look into this topic from all angles, so we can draw the most accurate conclusions.”
The Efficient Market Hypothesis is just a case of using the theory when it fits the data, and ignoring the data when it doesn’t fit the theory. – via Physics of Finance- The EMH runs into trouble in the form of many exceptions to market unpredictability, so-called “anomalies,” such as those identified by Andrew Lo of MIT. His 1990 book A Non-random Walk Down Wall St., written with Craig MacKinlay, documented a number of persisting patterns in market movements. For example, he and colleagues found in a study of price movements over a period of 25 years that the present returns of lower valued stocks were significantly correlated with the past returns of higher valued stocks. This means that by looking at what has happened recently to higher priced stocks, investors can in principle predict with some success what will happen to the future prices of cheaper stocks. This clearly contradicts the efficient market hypothesis.
The True Cost of Multi-tasking - via What Makes Them Click - Task switching, not multi-tasking – A while ago I wrote a post about multi-tasking, and the research at Stanford that shows that even younger people aren’t good at multi-tasking. But the term multi-tasking is actually a misnomer. People can’t actually do more than one task at a time. Instead we switch tasks. So the term that is used in the research is “task switching”.
Myth of the Modern Religious War- via John Tures @ Miller McCune- While religion is a popular motif for describing national or international strife, a closer look suggests that’s really just a veneer for less spiritual issues.
Dissonant Debt: Why Do Students take on so much debt – via There are Free Lunches - People like to keep their beliefs consistent with one another. In earlier posts we have shown how this preference affects gang membership, fidelity in marriage[2] and church-going[3]. The same applies to the student loan: if the students believe that their studies are valuable and worthwhile, it is perfectly consistent that they see an outsized student loan as acceptable. Indeed, the higher the debt, the greater value the student is likely to attach to the education. Any other conclusion would provoke uncomfortable feelings of cognitive dissonance.
Psychology’s Treacherous Trio: Confirmation Bias, Cognitive Dissonance, and Motivated Reasoning – via Why We Reason- he question is: why do humans remain so steadfast to their beliefs, sometimes even in the face of overwhelming opposing evidence?
Decision Making/ Behavioral Economics/Psychology/ Risk/ Sciences:
Are human beings are essentialists. That is our beliefs about an object change how we experience it ? - via Leadon Young- Why do we like an original painting better than a forgery? In this video, psychologist Paul Bloom argues that human beings are essentialists — that our beliefs about the history of an object change how we experience it, not simply as an illusion, but as a deep feature of what pleasure (and pain) is
Why Is Average IQ Higher in Some Places?- via Sciam - Being smart is the most expensive thing we do. Not in terms of money, but in a currency that is vital to all living things: energy. One study found that newborn humans spend close to 90 percent of their calories on building and running their brains. (Even as adults, our brains consume as much as a quarter of our energy.) If, during childhood, when the brain is being built, some unexpected energy cost comes along, the brain will suffer. Infectious disease is a factor that may rob large amounts of energy away from a developing brain. This was our hypothesis, anyway, when my colleagues, Corey Fincher and Randy Thornhill, and I published a paper on the global diversity of human intelligence.
What motivates us more than most anything else? - via Bakadesuyo- The researchers call this the ‘illusory goal progress’ effect and shows that our perception of how close we are to achieving something can be easily manipulated by shifting the goal posts.
Presentation: How to Properly Run FMRI presentations
The Effect of Language on Economic Behavior via Keith Chen- Languages differ dramatically in how much they require their speakers to mark the timing of events when speaking. In this paper I test the hypothesis that being required to speak differently about future events (what linguists call strongly grammaticalized future-time reference) leads speakers to treat the future as more distant, and to take fewer future-oriented actions. Consistent with this hypothesis I find that in every major region of the world, speakers of strong-FTR languages save less per year, holdless retirement wealth, smoke more, are more likely to be obese, and suffer from worse long-run health. This holds true even after extensive controls that compare only demographically similar individuals born and living in the same country. While not dispositive, the evidence does not seem to support the most obvious forms of common causation. Implications of these findings for theories of intertemporal choice are discussed.
The anatomy of a 1930 epidemic that wasn’t:- via Long Form.org- Was parrot fever really something to worry about? Reading the newspaper, it was hard to say. “not contagious in man,” the Times announced. “Highly contagious,” the Washington Post said. Who knew? Nobody had ever heard of it before. It lurked in American homes. It came from afar. It was invisible. It might kill you. It made a very good story. In the late hours of January 8th, editors at the Los Angeles Times decided to put it on the front page: “two women and man in Annapolis believed to have ‘parrot fever.’”
How your emotions can cost you money – via LeadonYoung- If you haven’t been feeling emotional about money lately, you must have an excellent yoga instructor. There have been the rolling freak-outs about unemployment, the debt, and European defaults; meanwhile, investors seem to be inflating a bubble in tech.
The Long-Term Implications of Attention for School Success among Low-Income Children -via Razza, Martin, & Gunn – This study examined the longitudinal associations between sustained attention in preschool and children’s school success in later elementary school within a low-income sample (N = 2,403). Specifically, two facets of sustained attention (focused attention and lack of impulsivity) at age 5 were explored as independent predictors of children’s academic and behavioral competence across eight measures at age 9. Overall, the pattern of results indicates specificity between the facets of attention and school success, such that focused attention was primarily predictive of academic outcomes while impulsivity was mainly predictive of behavioral outcomes. Both facets of attention predicted teacher ratings of children’s academic skills and approaches to learning, which suggests that they jointly influence outcomes that span both domains of school success. Patterns of association were similar for children above and below the poverty line. Implications of these findings for interventions targeting school readiness and success among at-risk children are discussed.
Tastes, Castes, and Culture:The Influence of Society on Preferences – via Fehr & Hoff – Economists have traditionally treated preferences as exogenously given. Preferences are assumed to be influenced by neither beliefs nor the constraints people face. As a consequence, changes in behaviour are explained exclusively in terms of changes in the set of feasible alternatives. Here we argue that the opposition to explaining behavioural changes in terms of preference changes is ill-founded, that the psychological properties of preferencesrender them susceptible to direct social influences, and that the impact of “society” on preferences is likely to have important economic and social consequences.
Seeing Isn’t Believing – via APS- “Attention is the way our minds connect with things in the environment, enabling us to see, remember, and interact with those things,” says Liverence. “We tend to think that attention clarifies what’s out there. But it also distorts.”
The Stability of Big-Five Personality Traits- via Clark & Shurer- We use a large, nationally-representative sample of working-age adults to demonstrate that personality (as measured by the Big Five) is stable over a four-year period. Average personality changes are small and do not vary substantially across age groups. Intraindividual personality change is generally unrelated to experiencing adverse life events and is unlikely to be economically meaningful. Like other non-cognitive traits, personality can be modeled as a stable input into many economic decisions.
Belief in Luck or in Skill: Which Locks People into Gambling? – via Kun Zhou, Hui Tang, Yue Sun, Gui-Hai Huang, Li-Lin Rao, Zhu-Yuan Liang and Shu Li -According to the social axioms framework, people’s beliefs about how the world functions (i.e., internal or external locus of control) are related to their social behaviors. Previous researchers have attempted to relate locus of control to gambling behavior, but the results have not been clear-cut. The present study speculated that the effects of perceived control (i.e., belief in luck and belief in skill) on gambling behavior are domain-specific and vary with the type of gambling. A total of 306 adult Macau residents ranging in age from 18 to 65 with casino gambling experience were recruited by going door to door. Empirical data on gambling frequency and perceived control relating to 13 types of gambling were collected. Our results demonstrated that the effects of belief in luck or skill on gambling behavior varied across different gambling categories. Specifically, for football lottery, Chinese lottery, and baccarat, it was not belief in skill but rather belief in luck that was a positive significant predictor of gambling frequency. Only for slot machines and stud poker did belief in skill significantly predict gambling frequency. For the remaining eight gambling categories, neither belief in luck nor belief in skill could predict gambling frequency. Our findings indicate that neither internal nor external locus of control can consistently explain people’s gambling behaviors. Instead, which factor plays a greater role in a person’s gambling behavior is dependent on the gambling type. Therefore, the finding that not all gambles are created equal might be a promising avenue for further research and treatment approaches.
The Nature of Risk Preferences:Evidence from Insurance Choices - via Molinari-We use data on households deductible choices in auto and home insurance to estimate a structural model of risky choice that incorporates “standard” risk aversion(concave utility over …nal wealth), loss aversion, and nonlinear probability weighting. Our estimates indicate that nonlinear probability weighting plays the most important role in explaining the data. More speci…cally, we …nd that standard risk aversion is small, loss aversion is nonexistent, and nonlinear probability weighting is large. Whenwe estimate restricted models, we …nd that nonlinear probability weighting alone can better explain the data than standard risk aversion alone, loss aversion alone, and standard risk aversion and loss aversion combined. Our main …ndings are robust to a variety of modeling assumptions.
Videos of The Week:
Unintended consequences - via Ted.com- Every new invention changes the world — in ways both intentional and unexpected. Historian Edward Tenner tells stories that illustrate the under-appreciated gap between our ability to innovate and our ability to foresee the consequences.
The Archive Team: Backing up the digital era – via LongNow – One of our favorite rogue digital archivists, Jason Scott, has just posted a video of his talk at DefCon 19 about The Archive Team exploits. This is perhaps the most eloquent (and freely peppered with profanity) explanations of the problems inherent with preserving our digital cultural heritage. He also describes in a fair amount of detail what he and The Archive Team have been doing to help remedy the problem.
Debt: The First 5,000 Years- via Paul Kerdosky
How The Romans Used Laptops and Tablets – via Tomstandage
Business/ Entrepreneurship/Finance/ Investing:
Lets Face It The UK & USA are fu***d – The Non-Scenic Route to the Place We’re Going Anyway – via Longform- A decade-long slowdown would accelerate this shift in global wealth and power and would be a grim thing to live through, but from a world-historical perspective it might not be a game-changer: it might just be the non-scenic route to the place we’re going anyway.
JP Morgan explains the euro crisis with lego- via Felix Simon
Are Traders Dumber than Drooling Dogs? - via PsyFi Blog- Given the ebb and flow of investor sentiment, often for no other apparent reason than the ring of the opening and closing bells of the market, it’s terribly tempting to compare traders to the salivating dogs from Pavlov’s famous experiment. The dogs, of course, were trained to salivate at the ring of a bell in the expectation of a good meal.
Commissions, Kickbacks, and Consumers: Brokers responding to financial incentives can benefit consumers – via Kellogg- Commissions from suppliers are common in the sales world. Brokers rely on them for a substantial portion of their income, allowing them to charge clients less for their services. But these under-the-table deals between supplier and broker can also leave a sour taste in clients’ mouths. A good product, consumers might think, should be able to sell itself on its own merits without needing the supplier to grease the palm of the broker. Kickbacks hidden from clients seem even more unsavory. To the common consumer, kickbacks seem to game the system. But the reality may be quite the opposite, according to research by Marco Ottaviani, a professor of management and strategy at the Kellogg School of Management, and Roman Inderst, a professor at Frankfurt University in Germany.
A Surprising Secret to Netflix’s Runaway Success - via Kellogg - Achal Bassamboo, an associate professor of managerial economics and decision science at Kellogg School of Management, along with co-authors Sunil Kumar, a professor at the University of Chicago, and Ramandeep Randhawa, an assistant professor at the University of Southern California, uncovered one of the counterintuitive secrets to Netflix’s success by modeling the behavior of Netflix subscribers who want to rent the latest hit movie. Their core discovery is that Netflix’s unique model means that the service has to stock far fewer discs than it would if it imposed late fees on customers. In fact, they found that the longer Netflix allows customers to keep discs, the more profitable the company could be. It is hardly a coincidence that the best answer to the problem of how long a customer should keep a disc—forever—is exactly what Netflix’s model encourages.
What caused the recession of 1937-38? – via Voxeu- The swift policy response to the recent financial crisis helped the world economy avoid a replay of the Great Depression of 1929-32. But can we avoid a replay of 1937-38? With the world economy weakening once again, this column addresses the question with a renewed urgency and comes up with an oft-overlooked explanation – the Treasury Department’s decision to sterilise all gold inflows starting in December 1936.
The Eclectic Mix:
One Path to Better Jobs: More Density in Cities - via Ryan Avent @ NY Times- How great are the benefits of density? Economists studying cities routinely find that after controlling for other variables, workers in denser places earn higher wages and are more productive. Some studies suggest that doubling density raises productivity by around 6 percent while others peg the impact at up to 28 percent. Some economists have concluded that more than half the variation in output per worker across the United States can be explained by density alone; density explains more of the productivity gap across states than education levels or industry concentrations or tax policies.
Fiction vs Non Fiction or Fiction With Non Fiction - via Timesonline - If you accept this minimal commitment to the idea of learning from fiction, you ought, I reckon, to have some interest in the following questions: Is the practice of fiction one we can reasonably expect to give us the insight we hope for? Are serious fiction writers well equipped to give us that insight? Finally and most radically, is what I’m supposed to be learning consistent with or supported by the best science? These are hard questions, and my answers will be little more than provocations. But they ought to be asked by anyone who feels indebted to literature for any of their beliefs, skills or sensitivities
Civil conflict correlates with climate change. - via Deric Bownds- It has been proposed that changes in global climate have been responsible for episodes of widespread violence and even the collapse of civilizations. Yet previous studies have not shown that violence can be attributed to the global climate, only that random weather events might be correlated with conflict in some cases. Here we directly associate planetary-scale climate changes with global patterns of civil conflict by examining the dominant interannual mode of the modern climate, the El Niño/Southern Oscillation (ENSO). Historians have argued that ENSO may have driven global patterns of civil conflict in the distant past11, a hypothesis that we extend to the modern era and test quantitatively. Using data from 1950 to 2004, we show that the probability of new civil conflicts arising throughout the tropics doubles during El Niño years relative to La Niña years. This result, which indicates that ENSO may have had a role in 21% of all civil conflicts since 1950, is the first demonstration that the stability of modern societies relates strongly to the global climate.
How Small Wins Unleash Creativity – via Carmen Nobel @ HBS- “We found that of all the events that characterized the best inner work life days, by far the most prominent was making progress,” Amabile says. “And of all the events that characterized the worst days, by far the most prominent was setbacks—feeling like you’ve lost ground on a project. As a pair, progress and setbacks are the main differentiators of the best and worst days.”
Biodefence since 9/11: The price of protection - via Nature News- Since the anthrax attacks in 2001, some $60 billion has been spent on biodefence in the United States. But the money has not bought quite what was hoped.
The Institutional Revolution – via Peter Klein- In The Institutional Revolution, Douglas W. Allen offers a thought-provoking account of another, quieter revolution that took place at the end of the eighteenth century and allowed for the full exploitation of the many new technological innovations. Fundamental to this shift were dramatic changes in institutions, or the rules that govern society, which reflected significant improvements in the ability to measure performance—whether of government officials, laborers, or naval officers—thereby reducing the role of nature and the hazards of variance in daily affairs. Along the way, Allen provides readers with a fascinating explanation of the critical roles played by seemingly bizarre institutions, from dueling to the purchase of one’s rank in the British Army.
Lessons from Sherlock Holmes: Confidence Is Good; Overconfidence, Not So Much - via SciAm-Confidence in ourselves and in our skills allows us to push our limits, achieve more than we otherwise would, try even in those borderline cases where a less confident person would bow out. But is there such a thing as being too confident, a flip side to this driver of success? Absolutely. It’s called overconfidence: when confidence trumps accuracy. In other words, we become more confident of our abilities, or of our abilities as compared with others’, than would be wise given the circumstances and the reality. And this surplus of belief in ourselves can lead to some not so pleasant results.
Weekly Infographics:
Just How Massive Is Google Anyways - via Bayesian Heresy
Where in the World Are American Jobs – via Infographic Showcase
Posted by Miguel on September 11, 2011 07:43 PM· permalink
This is fantastic! I rarely get so excited but I’m a huge fan of Daniel Kahneman. Edge.org just released a masterclass from this summer it covers his latest book and thoughts on intuition, decision making, and much more.
Click Here To Access Video & Transcript via Edge.Org
Excerpts from Transcript (via Edge.org)
We focused on flaws of intuition and of intuitive thinking, and I can tell you how it began. It began with a conversation about whether people are good intuitive statisticians or not. There was a claim at the University of Michigan by some people with whom Amos had studied, that people are good intuitive statisticians. I was teaching statistics at the time, and I was convinced that this was completely false. Not only because my students were not good intuitive statisticians, but because I knew I wasn’t. My intuitions about things were quite poor, in fact, and this has remained one of the mysteries, and it’s one of the things that I’d like to talk about today — what are the difficulties of statistical thinking, and why is it so difficult.
If you want to understand intuition, it is very useful to understand perception, because so many of the rules that apply to perception apply as well to intuitive thinking. Intuitive thinking is quite different from perception. Intuitive thinking has language. Intuitive thinking has a lot of world knowledge organized in different ways than mere perception. But some very basic characteristics that we’ll talk about of perception are extended almost directly into intuitive thinking.
Type 1 is automatic, effortless, often unconscious, and associatively coherent, and I’ll talk about that. And Type 2 is controlled, effortful, usually conscious, tends to be logically coherent, rule-governed. Perception and intuition are Type 1— it’s a rough and crude characterization. Practiced skill is Type 1, that’s essential, the thing that we know how to do like driving, or speaking, or understanding language and so on, they’re Type 1. That makes them automatic and largely effortless, and essentially impossible to control.
Type 2 is more controlled, slower, is more deliberate, and as Mike Gazzaniga was saying yesterday, Type 2 is who we think we are. I would say that, if one made a film on this, Type 2 would be a secondary character who thinks that he is the hero because that’s who we think we are, but in fact, it’s Type 1 that does most of the work, and it’s most of the work that is completely hidden from us.
Brilliant Thoughts (via Edge.org)
System 1 is one character, and System 2 is another character, and they battle it out. They each have their own preferences, and their own ways of doing things. I will apologize ahead of time for why I’m doing this, because I don’t believe that there are systems in the brain, systems in the sense of interacting parts and so on. But it turns out that our memory and our minds are shaped in such a way that certain operations are a lot easier for us than others.
A book that I read recently that I recommend is Moonwalking with Einstein. In that book Joshua Foer described how in one year he turned himself into the memory champion of the United States using techniques that have been around since the Greeks. The point that he makes is quite straightforward. We are very, very bad at remembering lists. We are very, very good at remembering routes. We can remember routes; we don’t remember lists. If you arrange a list along your route, you’re going to remember the list, and that’s basically the idea.
It turns out there is something else we’re awfully good at. We’re good at taking an agent and assigning characteristics to that agent, and remembering that this agent has these certain habits, and it does these things. If you want to learn about System 1 and System 2, or about Type 1 and Type 2 operations, really the same, think of it as System 1 and 2. it will develop a personality. There are certain things that it likes doing, that it’s able to do, and there are certain things it just cannot do, and you will get that image. It’s completely crazy. There is no such thing as these two characters but at the same time, I find it enormously useful. And it’s quite funny, I’m losing friends over this. People will tell me, you’re bringing psychology backward 50 years, because the idea of having little people in the mind is supposed to be a grave sin. I accept it’s a grave sin. But it really helps you when you think of those characters in the mind with their own characteristics. So I’ll give you a few examples.
System 1 infers and invents causes and intentions. And that, again, is something that happens automatically.
…
And the jumping to conclusions is immediate, and very small samples, and furthermore from unreliable information. You can give details and say this information is probably not reliable, and unless it is rejected as a lie, people will draw full inferences from it. What you see is all there is. Now, that will very often create a flaw. It will create overconfidence. The confidence that people have in their beliefs is not a measure of the quality of evidence, it is not a judgment of the quality of the evidence but it is a judgment of the coherence of the story that the mind has managed to construct.
Click Here To Access Video & Transcript via Edge.Org
Posted by Miguel on September 10, 2011 05:36 PM· permalink
The European Central Bank says it spent euro13.3 billion ($18.7 billion) last week ending sep 4 purchasing government bonds in an attempt to keep the continent's debt crisis from pushing Italy and Spain into financial collapse.
Via Salon.com
Now the total amount of purchases by ECB amounts to 130 billion euros. With 22bil, 14 bil, 6 bil, 13.3 bil in four weeks it has now spent 55 bil euros (increasing the amount spent by 70%) in a matter of four weeks. Note that ECB started buying bonds in the market around 13 months ago!
At this rate the bailout fund of 440 bil euros will get exhausted in 28 weeks!! not counting the collateral that it needs to hold and the fact the bond yields are still rising even with purchases. If adjusted the money will last for only few months.
Posted by Ranjit kumar (noreply@blogger.com) on September 10, 2011 05:49 AM· permalink
Credit-default swaps on Greek government debt surged to a record, signaling a 91 percent chance the nation will fail to meet debt commitments, after its economy shrank more than previously reported.
Five-year contracts on the country’s sovereign bonds jumped 196 basis points to 3,001 basis points, at 3:45 p.m. in London, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
Via Bloomberg
Does that remaining 9% really matter especially with today's fractional reserve systems used by financial institutions all over the world not only Greece.
Posted by Ranjit kumar (noreply@blogger.com) on September 08, 2011 06:12 PM· permalink
The Swiss National Bank devalued the franc, pledging to buy "unlimited quantities" of foreign currencies to force down its value. The SNB warned that it would no longer allow one Swiss franc to be worth more than €0.83 – equivalent to SFr1.20 to the euro – having watched the two currencies move closer to parity as Switzerland became a "safe haven" from the ravages of the eurozone crisis.
Via Guardian
Another safe heaven lost. Gold is slowly becoming the safest asset against currency devaluations and money printing all over the world.
Posted by Ranjit kumar (noreply@blogger.com) on September 08, 2011 06:05 PM· permalink
Do you feel disappointed when the SIP you need to start for a particular goal is very high and out of your limit at the moment? It happens a lot of time, but there is a clear solution to this.
What is increasing SIP ?
When we say “SIP”, it generally means constant SIP, which does not increase every year. This leads to SIP amount being very high at times and does not look realistic and at times and such high investment can trigger affordability issue. However there is a clear solution for this, which is used by financial planners and that’s called “Increasing SIP”, where one starts the SIP with a lower amount and then gradually increases them year on year. This looks more realistic as one’s income also increase overtime and ability to invest increases. We see this situation a lot while working with our clients under financial coaching program.
Let me show you the example : Ajay wanted to accumulate 5,00,00,000 (5 crores) for his retirement which is 25 yrs away. When he calculates the SIP amount, its coming around Rs 31,000 (assuming 12% returns from equity). Now it’s not possible for Ajay to invest Rs 31,000 every month, as it’s a very high amount. Rather he is fine if he can start with a small amount today and then increase it every year as his income would also increase with time. This is called as Increasing SIP model. If Ajay is ready to increase his SIPs by 10% every year, then he has to start with just Rs. 13,500. This amount is much more convenient for Ajay to arrange, rather than Rs 31,000 per month. (test all this with this calculator)
Increasing SIP vs Constant SIP – Which is better ?
At the first look, a general conclusion which comes into mind is that Increasing SIP is better than Constant SIP because it is much convenient and looks logical that investment should rise as the income increases. But there are different angles through which both the options can be looked at. Let’s look at two important points one by one.
1. Investment required in case of Increasing and Constant SIP
One of the most important factor one can judge both the situation is the amount of investment needed. If we take the above example we just discussed, one would need to start SIP of 31,000 per month to accumulate 5,00,00,000 in 25 yrs assuming 12% return. Now this amount will be constant throughout the all 25 yrs.
Where as one can choose to start his SIP with Rs 13,500 and then increase it by 8% per year, but in this increasing SIP model, his SIP amount would reach 50,000 in 18th year and 85,000 in 25th year, which might look very big in numbers, but years from now, it would be worth a small amount considering the purchasing power of money and the annual income one earns. So don’t get surprised by numbers.
One should opt for increasing SIP, when his situation really does not allow him to invest a big amount and he is very sure that he would be able to increase his investments in tune with his salary increase. Truly speaking I am in favour of Constant SIP if one’s situation permits because that way you are investing more in the start of your life and that would help you keep your SIP in check later on in life. Imagine after many years in life, you have to just invest the same amount where as your Income has risen 3X. Isn’t it a big relief and freedom to do whatever you want from your money at that time. Imagine your salary is Rs 50,000 per month and you do SIP of 10,000 and even after 10 yrs, when your salary has risen to say 1.5 lacs per month and you are still doing SIP of Rs 10,000 only. I would choose to pay a little more today and then get into that kind of situation.
Most of the people who are not able to go for constant SIP, because of high SIP amount is because they are very late in investments and now their goals are near and they have less time for compounding. These people have high expenses already in life. Had they started long back when they started earning they could be in a better situation now. Below is the table which shows the Increasing and Constant SIP amounts required for the example discussed above and shows you the ratio of increasing and constant sip. You can see how it started with 44%, but rose to 203% later after 25 yrs.
Conclusion
One should start his SIP’s early so that he can keep his SIP’s constant through-out the tenure. If you are late, then your SIP amount will be very high and will look unrealistic and then you will have to increase your SIP’s in future if you want to reach the goals.
2. How the corpus will grow in case of Increasing and Constant SIP
The other major thing to look is how your over all corpuses would grow in both the cases. Note that in constant SIP and increasing SIP, the final corpus is getting accumulated and they reach the same point at end, but incase of Constant SIP, the overall Corpus is always higher than the increasing SIP and it’s because you are investing higher amount in the start and that way the compounding factor is in your favour. See the chart below which shows, how the gap between the two narrows down at the end of the tenure and both the cases lead to same corpus.
If you look at the table below, you will see that the maximum difference between the two is 36,00,000 in 17-18th year and after that the difference starts coming down (not so clear in table , you need to calculate it) . As you are starting with lower amounts in increasing SIP, the overall corpus is obviously going to be less, but it’s very much above 50% all the time, so if you are saving for long term, you should be interested in the final corpus.
Note that the example and charts above are assuming a 25 yr old tenure and equity returns of 12%. The numbers would change depending on tenure and the equity return, but the overall conclusions discussed above remains same. For a shorter tenure like 4-5 yrs, the constant SIP and increasing SIP won’t differ a lot; it would be a small number.
So which form of SIP you personally like and why? Kindly share your thoughts in comments section, so that we can discuss on it
Start your SIP in the Action month
If you not yet started your SIP’s just because you don’t have money. Don’t worry! You can start your SIP’s with lower amount and later increase it once you salary increases. Use the form given below this article to register for action month and complete your pending tasks.
Posted by Manish Chauhan on September 08, 2011 12:00 PM· permalink
Handpicked to satisfy your intellectual curiosity!
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Weekly Cartoons:
Via Glasbergen
Most Important Reads:
Self Control = Destiny: Steven Pinker- The Sugary Secret of Self-Control – via NYT- Ever since Adam and Eve ate the apple, Ulysses had himself tied to the mast, the grasshopper sang while the ant stored food and St. Augustine prayed “Lord make me chaste — but not yet,” individuals have struggled with self-control. In today’s world this virtue is all the more vital, because now that we have largely tamed the scourges of nature, most of our troubles are self-inflicted. We eat, drink, smoke and gamble too much, max out our credit cards, fall into dangerous liaisons and become addicted to heroin, cocaine and e-mail.
Half of Americans have a sugary drink daily - via CDC- Health officials say half of Americans drink a soda or sugary beverage each day – and some are downing an awful lot.
The Great Bank Robbery: Nassim Nicholas Taleb and Mark Spitznagel – via Project Sydicate - For the American economy – and for many other developed economies – the elephant in the room is the amount of money paid to bankers over the last five years. In the United States, the sum stands at an astounding $2.2 trillion for banks that have filings with the US Securities and Exchange Commission. Extrapolating over the coming decade, the numbers would approach $5 trillion, an amount vastly larger than what both President Barack Obama’s administration and his Republican opponents seem willing to cut from further government deficits.
Christakis Speaks to Harvard Freshmen about Social Networks - via Situationist- Harvard College freshmen got their first taste Aug. 26 of the world of ideas awaiting them over the next four years in a talk by Professor Nicholas Christakis, who argued that human social networks have the power to spread obesity — or happiness — like contagion.
Tastes, Castes, and Culture: The Influence of Society on Preferences – via World Bank - Economists have traditionally treated preference as exogenously given. Preferences are assumed to be influenced by neither beliefs nor the constraints people face. As a consequence, changes in behaviour are explained exclusively in terms of changes in the set of feasible alternatives. Here the authors argue that theopposition to explaining behavioural changes in terms of preference changes is ill-founded, that the psychological properties of preferences render them susceptible to direct social influences, and that the impact of “society” on preferences is likely to have important economic and social consequences.
Steve Keen: Behavioral Finance Lectures – via Value Investing World- Steve Keen is lecturing on Behavioral Finance at the University of Western Sydney this semester. He’s recording all of his lectures and posting them online. The second, expanded edition of his book (Debunking Economics – Revised and Expanded Edition: The Naked Emperor Dethroned?) comes out in October. Below are links to his posts and lectures that he’s put up so far. I’ll add new links to this post as they become available.
Ten Things Everyone Should Know About Time- via Discover - “Time” is the most used noun in the English language, yet it remains a mystery. We’ve just completed an amazingly intense and rewarding multidisciplinary conference on the nature of time, and my brain is swimming with ideas and new questions. Rather than trying a summary (the talks will be online soon), here’s my stab at a top ten list partly inspired by our discussions: the things everyone should know about time. [Update: all of these are things I think are true, after quite a bit of deliberation. Not everyone agrees, although of course they should.]
Does the Socratic method really help people learn? - via Bakadesuyo- Socratic questioning is demonstrated in a number of coach–coachee dialogues with accompanying commentary. Finally, it is emphasized that asking good Socratic questions is indispensable to the practice of effective coaching.
More Biases: The Influence of Units vs Numbers – via JSTOR- Quantitative changes may be conveyed to consumers using small units (e.g., change in delivery time from 7 to 21 days) or large units (1–3 weeks). Numerosity research suggests that changes are magnified by small (vs. large) units because a change from 7 to 21 (vs. 1–3) seems larger. We introduce a reverse effect that we term unitosity: changes are magnified by large (vs. small) units because a change of weeks (vs. days) seems larger. We show that numerosity reverses to unitosity when relative salience shifts from numbers to units (study 1). Then, arguing that numbers (units) represent a low-level (high-level) construal of quantities, we show this reversal when mind-set shifts from concrete to abstract (studies 2–4). These results emerge for several quantities—height of buildings, time of maturity of financial instruments, weight of nutrients, and length of tables—and have significant implications for theory and practice.
Everything You Need to Know About Complexity - via Arxiv – The term complexity derives etymologically from the Latin plexus, which means interwoven. Intuitively, this implies that something complex is composed by elements that are difficult to separate. This difficulty arises from the relevant interactions that take place between components. This lack of separability is at odds with the classical scientific method – which has been used since the times of Galileo, Newton, Descartes, and Laplace – and has also influenced philosophy and engineering. In recent decades, the scientific study of complexity and complex systems has proposed a paradigm shift in science and philosophy, proposing novel methods that take into account relevant interactions.
Five Differences Between Ecological and Economic Networks – via Arxiv – Ecological and economic networks have many similarities and are often compared. However, the comparison is often more apt as metaphor than a direct equivalence. In this paper, five key differences are explained which should inform any analysis which compares the two.
Robert Cialdini and the Weapons of Influence - via Psyfi Blog- “Well here, again, Cialdini does a magnificent job at this, and you’re all going to be given a copy of Cialdini’s book. And if you have half as much sense as I think you do, you will immediately order copies for all of your children and several of your friends. You will never make a better investment.”; Charlie Munger on The Psychology of Human Misjudgement.
How stupid people make fools of us all - via Mind Our Decisions - People are so familiar with survival of the fittest, we often forget there are situations that favor the weakest.
Decision Making/ Behavioral Economics/Psychology/ Risk/ Sciences:
Conformity is mostly automatic..so we’re sheep? Scientists find they can control how people react to group pressure. – via Leadon Young
In practice, Correlation Implies Causation – via Falkenblog- Of course, everyone knows the cliche that correlation does not imply causation, but in practice any correlation that fits into a narrative is seen as evidence of that theory. This NBER paper by Currie and Tekin argues foreclosures lead to a variety of bad health outcomes–sort of like the symptoms of chronic fatigue syndrome. It’s a joke, but sure got a lot of play over the past few days because it’s so darn helpful to some people. See the attached graph, which underlies their findings. The NBER, like the American Economic Association, is a pretty official, bureaucratic, PC trade institution that wants to be relevant and respected.
How where you live affects the life you prefer. Or not. – via SciAm- One might expect to see people prefer dimensions that reflect the country they live in. For example, people who live in safe countries might value safety because it is an ingrained cultural norm – so they rank it higher. Alternatively, one might expect to see people prefer dimensions that their country is lacking. For example, people who live in countries with poor access to healthcare might prioritize health – so they rank it higher. So which is it – do your ideas of the better life emerge because or despite of the country you live in? Turns , the data shows neither pattern consistently.
Does Fear of embarrassment control us? – via Stats Blog- The person you are talking to has food in their teeth. Do you tell them or ignore it to avoid a potentially uncomfortable situation? According to new research, whether you say something or not may be associated with your own feelings regarding embarrassment.The study was small, consisting of only 84 college students. Participants received the opportunity to help an experimenter by pointing out she had ink on her face. Some were told that the experimenter had an interview to go to following the experiment, while others were not. Some participants shared the room with the experimenter and someone else in the study, while others had one-on-one interaction.
People Think The “Typical” Member Of A Group Looks Like Them – via Aps- What does a typical European face look like according to Europeans? It all depends on which European you ask. Germans think the typical European looks more German; Portuguese people think the typical European looks more Portuguese. That’s the conclusion of a new study which will be published in an upcoming issue of Psychological Science, a journal of the Association for Psychological Science. The results shed light on how people think about groups they belong to.
Business/ Entrepreneurship/Finance/ Investing:
Jason Zweig – Flash Tax: Why Levies on High-Speed Trading Won’t Work - via WSJ- Last month, French President Nicolas Sarkozy and German Chancellor Angela Merkel proposed placing a transaction tax on European financial markets—in hopes of raising desperately needed revenue and perhaps reining in speculators and high-speed traders. That day, the shares of publicly traded stock exchanges such as NYSE Euronext and Nasdaq OMX Group dropped by up to 11%, although they later recovered.
Financial Complexity, Part 1 - via Aleph Blog- The intellectual origins of the global financial crisis (GFC) can be traced back to blind spots emanating from within conventional financial theory. These blind spots are distorted reflections of the perfect market assumptions underpinning the canonical theories of financial economics: modern portfolio theory; the Modigliani and Miller capital structure irrelevancy principle; the capital asset pricing model and, perhaps most importantly, the efficient market hypothesis. In the decades leading up to the GFC, these assumptions were transformed from empirically (con)testable propositions into the central articles of faith of the ideology of modern finance: the foundations of a widely held belief in the self-correcting nature of markets and their consequent optimality as mechanisms for the allocation of society’s resources. This ideology, in turn, exerted a profound influence on how we regulate financial markets and institutions.
Can too much capital be risky? – via Jayanth Varma- An IMF working paper by Perotti, Ratnovski and Vlahu (PRV) published earlier this month argues that higher bank capital may not only fail to reduce risk taking, but may have an unintended effect of enabling banks to take more tail risk without the fear of breaching the minimal capital ratio in non-tail risky project realizations. PRV argue that the traditional minimum capital requirement must be supplemented with a maximum capital requirement (realistically, in the form of special attention devoted to banks with particularly high capital) in order to assure that they are not taking tail risk.
The God Clause and the Reinsurance Industry - via Business Week- Consumers don’t tend to know what reinsurance is because it never touches them directly. Reinsurers, massively capitalized and often named after the places where they were founded—Cologne Re, Hannover Re, Munich Re, Swiss Re—make their living thinking about the things that almost never happen and are devastating when they do. But even reinsurers can be surprised. And the insurers who make up their market put them on the hook for everything, for all the risks that stretch the limits of imagination. This is what the industry casually refers to as the “God clause”: Reinsurers are ultimately responsible for every new thing that God can come up with. As losses grew this decade, year by year, reinsurers have been working to figure out what they can do to make the God clause smaller, to reduce their exposure. They have billions of dollars at stake. They are very good at thinking about the world to come.
Capitalism – What Comes Next? – via Thought Economics- In this exclusive interview, we speak to Nobel Prize Winning Economist, Edmund Phelps (Director of the Columbia University Center on Capitalism & Society and the McVickar Professor of Political Economy at Columbia University). We look at the story of modern capitalism, the benefits it has brought, and the challenges it has created. We explore the ‘post crisis’ economy, the role of government in society, the relationship between capitalism and conflict, the role of oil in our society and look at what needs to be done to ‘fix’ our global economy, and the science of economics itself.
Paul Graham: The Patent Pledge – Y Comb – I’ve never been 100% sure whether patents help or hinder technological progress. When I was a kid I thought they helped. I thought they protected inventors from having their ideas stolen by big companies. Maybe that was truer in the past, when more things were physical. But regardless of whether patents are in general a good thing, there do seem to be bad ways of using them. And since bad uses of patents seem to be increasing, there is an increasing call for patent reform. The problem with patent reform is that it has to go through the government. That tends to be slow. But recently I realized we can also attack the problem downstream. As well as pinching off the stream of patents at the point where they’re issued, we may in some cases be able to pinch it off at the point where they’re used.
The Eclectic Mix:
Visual Complexity: Mapping Patterns for the Information Age – via Brain Pickings- Data visualization is a running theme of visual literacy here, and Manuel Lima has been one of its biggest advocates since 2005 when, shortly after graduating from the Parson School of Design, he launched VisualComplexity — an ambitious portal for the visualization of complex networks across a multitude of disciplines, from biology to history to the social web. This month marks the highly anticipated release of Visual Complexity: Mapping Patterns of Information — a rigorously researched, beautifully designed, thoughtfully curated anthology of the world’s most compelling work at the intersection of these two relatively nascent yet increasingly powerful techno-cultural phenomena, network science and information visualization.
Why Some Body Fat is More Dangerous – via BioSpace- Researchers have discovered biological indicators that help explain why some obese people develop chronic diseases such as diabetes and heart disease, and others do not. The researchers looked specifically at the body fat of people with metabolic syndrome—a condition characterized by increased blood pressure, high fasting blood-sugar levels, excess abdominal fat, and abnormal cholesterol levels. They found the fat cells released biomarkers associated with insulin resistance and chronic inflammation, conditions often leading to diabetes and cardiovascular disease.
CIA shifts focus to killing targets – via Washington Post- In the decade since the Sept. 11, 2001, attacks, the agency has undergone a fundamental transformation. Although the CIA continues to gather intelligence and furnish analysis on a vast array of subjects, its focus and resources are increasingly centered on the cold counterterrorism objective of finding targets to capture or kill.
Portugal’s jobless graduates flee to Africa and Brazil - via BBC- Thousands of young unemployed professionals are escaping Portugal’s crippling economic crisis by finding jobs in former colonies, such as Brazil and Angola. The reversal of traditional migration patterns is fuelling talk of a “lost generation”.
Monoculture: How Our Era’s Dominant Story Shapes Our Lives – via Brain Pickings- That’s exactly what F. S. Michaels explores in Monoculture: How One Story Is Changing Everything — a provocative investigation of the dominant story of our time and how it’s shaping six key areas of our lives: our work, our relationships with others and the natural world, our education, our physical and mental health, our communities, and our creativity.
Have Social Networks Crossed Tipping Points - via Harvard – For the first time, half of all adults in the United States said they used a social networking site, according to a survey released on Friday by the Pew Research Center.
Countries at risk of paying the greatest economic costs for disasters - via Institute for Risk & Hazard- A new report has ranked 196 countries according to their levels of economic risk to natural disasters. Published by Maplecroft, a private risk research firm based in Bath, UK, the report ranks countries according to their economic exposure to hazards, including earthquakes, tsunamis, volcanoes and landslides, along with other factors such as socioeconomic resilience. While the results certainly provide some depth in understanding countries that are most economically vulnerable to hazards, the impact of disasters can hardly be expressed in economic terms alone. Data for the report (from 2005-2010) was derived from the World Bank, International Monetary Fund and the Central Intelligence Agency in the US, according to AFP. Here are the top eleven countries classified as ‘extreme’ and ‘high’ risk’ of paying the greatest economic costs for disasters:
Statisticians as a tribe - via Flowing Data – Peter Curran for BBC Radio 4 puts the tribe of statisticians under the anthropological microscope. At the Royal Statistical Society Awards and Summer Reception, Curran interviews a number of statisticians on what they do and what statistics is really about. I mainly post this though for the part where he whispers about what he is seeing as if he were in a jungle studying a tribe of monkeys. Cracked me up.
Videos of The Week:
Steve Jobs On Starting With The Customer Experience - via Brad Feld – The punch line happens early when he says “you’ve got to start with the customer experience and work backwards for the technology.” It’s five minutes long and worth watching, if only to see how incredibly durable Jobs’ philosophy has been over the past 15 years.
Ted Talk – Can we make things that make themselves? – via TED.com- MIT researcher Skylar Tibbits works on self-assembly — the idea that instead of building something (a chair, a skyscraper), we can create materials that build themselves, much the way a strand of DNA zips itself together. It’s a big concept at early stages; Tibbits shows us three in-the-lab projects that hint at what a self-assembling future might look like.
Vinod Khosla says get rid of experts and invent the future you want – via Venture Beat- He said entrepreneurs will catch a lot of criticism for ignoring the experts and yet they should plow forward anyway. Khosla, founder of venture firm Khosla Ventures, is one of the most successful venture capitalists of our time, having invested in companies such as Cerent, Juniper Networks, and Corvis. Yet his attitude is pretty anti-establishment when it comes to independent thinking, which he believes is essential for entrepreneurship.
Infographics:
Flow of Money into Bernie Madoff’s Funds – via Visually
The American Debt Crisis Infographic - via Infographic Showcase
10 Recession Proof Careers - via Online Grad Programs
Posted by Miguel on September 04, 2011 06:17 PM· permalink
Talks over new bailout funds for Greece were suspended Friday amid disagreements over how to fill a government-deficit gap that once again is veering off track, raising doubts about the country's future access to finance and triggering renewed nervousness in financial markets across Europe.
The suspension pushed yields on Greek government debt to levels indicating that investors see a default by Athens soon as a near certainty: Interest rates on one-year paper blew out past 70% and two-year yields rose close to 50%.
Via Wall Street Journal
Debt forgiveness annoucement is now just a formality.
Posted by Ranjit kumar (noreply@blogger.com) on September 03, 2011 12:40 PM· permalink
The shadows lengthened over troubled education firm Everonn Education Ltd on Friday after chairman Jamshed J. Irani resigned days after the arrest of co-founder and managing director (MD) P. Kishore in an alleged bribery and tax evasion case by the Central Bureau of Investigation (CBI).
Via Livemint
Usually such investigations lead to larger troubles within. Better safe than to be sorry latter.
Posted by Ranjit kumar (noreply@blogger.com) on September 03, 2011 04:48 AM· permalink
Bowing to the pressure from various corners on what it can do and cannot do, ECB may have stopped its bond purchases as yields of Italy and Spain started rising beyond their usual 5% yield last couple of weeks. The current yields on 10 year bonds are as follows
Italy - 5.28%
Spain - 5.12%
Greece two yields has now skyrocketed to 47% while 10 year bond is trading at 18%
Interesting times ahead in the next couple of weeks
Posted by Ranjit kumar (noreply@blogger.com) on September 02, 2011 07:55 PM· permalink
IMF is worried about its priority creditor status
"The use of collateral, a concession to win Finland’s backing for 109 billion euros ($155 billion) of loans pledged by euro leaders in July, would deny the IMF priority creditor status and violate Greek bondholders’
Via Bloomberg.com
The trigger point for euro crisis may come up on 07th Sep when Germany votes on the rescue fund.
Posted by Ranjit kumar (noreply@blogger.com) on September 02, 2011 05:48 PM· permalink
I have a constant struggle in my mind – Do I pay for quality (overpay?) or do I buy cheap stuff, which may turn out to be a value trap.
The ideal situation would be to get a high quality stock at a cheap price. But then if wishes were horses!, I would be a good looking billionaire with my own private island J.
So let’s look at my current dilemma
Akzo nobel
Akzo nobel is a global company in the business of decorative and auto paints and other industrial chemicals. The company acquired ICI plc a few years back and thus got the Indian business of ICI with the acquisition.
ICI paints (atleast in the late 90s) was a company with good brands and was fairly aggressive in the paints business. At one point, they even tried to acquire asian paints by buying out the stake of one of the promoters.
ICI paints is one of the oldest paint companies in India and is fairly strong in geographical pockets (West Bengal) and in specific products (premium paints). The company has however not been able to capitalize on its strength in the past and did not seem to have a focused strategy. The new management however seems to be developing a focused strategy of introducing new products, expanding distribution and spending on brand building.
The paints business is a very profitable business with very high entry barrier (I saw this first hand when I was working in the industry). As a result, most of the companies in this business have enjoyed above average growth and high returns on capital
Akzo nobel india has a Return on capital of 100%+ (excluding excess cash on the books) and has been able to grow the topline and profit by 30% in the last 5 years . In addition the company has been shedding the non-core businesses and freeing up capital. The company is also investing in manpower, its brands and expanding its distribution.
My hesitation in investing is the valuation. If one excludes cash, the company is selling at around 18-19 times earnings. On a comparative basis, the company is cheaper than other paint companies such as asian paints (around 30 times earnings). However I don’t believe much in comparative valuations and find the current valuation a bit high compared to the prospects.
Techno fab engineering
Technofab engineering is in the EPC space and is involved in various turnkey engineering projects in industries such as power, industrial and oil & gas.
The company came out with an IPO in 2010 at a price of around 235 per share. The stock currently sells at around 142 / share (selling below the IPO price does not mean it is a bargain!)
The company has been in this business from 1970s. The company has grown its topline and profit by more than 30% per annum in the last five years (which means that in the past the business barely grew). The company clocked a turnover of around 290 Cr in 2011 and has around 900 Crs open order book (almost 3 yr visibility)
In addition to the above, the company has around 100 Crs of cash on the books (some of it due to the IPO) which will be invested in expanding capacity to manage the higher order volumes. The company is thus selling at around 2 times earnings, has shown 30% growth in the recent past and delivered a 30%+ return on capital during this period.
The company looks like a complete bargain?
I am not so sure. The EPC industry is characterized by moderate to low entry barriers, high levels of competition (from the likes of L&T and others) and high working capital needs. In addition it is also a very cyclical industry with drop in margins and cash flows during the down cycle.
The dilemma
So the dilemma is whether to invest in an above average business which may be fully priced or in an average business which is very attractively priced.
There is no obvious answer in the above case and it depends on each individual’s mindset. I have invested in technofab types of businesses in the past with decent, though unspectacular results. In contrast if I am able to invest in a good business at decent prices , then the returns are fantastic
I have not made up my mind yet and have no position in either stock. I plan to dig deeper into Technofab engineering to get a better picture of the industry.
It is quite likely that I will just file away these companies and watch them till either the price is better (in case of akzo noble) or the business quality improves (in case of technofab engineering).
Posted by Rohit Chauhan (noreply@blogger.com) on September 01, 2011 09:33 PM· permalink
The central government's fiscal deficit surged more than two-fold to Rs 2.2 lakh crore during the first four months of the current fiscal, on account of low revenue realisation and higher expenditure.
Fiscal deficit, the gap between overall expenditure and receipts, in the first four months of the financial year is almost 55% of the Budget estimate of Rs 4.12 lakh crore for 2011-12, as per the latest data of the Controller General of Accounts (CGA).
Via Moneycontrol
When you have very high expectations about what you can achieve, you tend to fall into much deeper s*!t. Another example above.
Posted by Ranjit kumar (noreply@blogger.com) on September 01, 2011 07:23 PM· permalink
Happy to be back from San Francisco. I met some wonderful people (particularly from the Dominican Republic,).
Also if you are an investor take a look at my friend MarketFolly’s newsletter he just released the latest issue.
Handpicked to satisfy your intellectual curiosity!
If you like this roundup or plan on linking to it (or from it) kindly include a reference to SimoleonSense thanks. Please do not repost this entire linkfest.
Have a recommendation? email us at wr[at]simoleonsense[dot]com
*Legal Disclaimer: I link to content created by others. If you believe I have violated your copyright (and prefer that thousands of intelligent readers avoid reading your material) please let me know and I will take down the reference.
Weekly Cartoons:
Via Glasbergen-
Interesting Videos:
Negroponte & Tim Berners Lee on the Web - via MIT- Berners-Lee asks for involvement from technology literate citizens in addressing issues of access equity (only 25% of the world is connected to the web). He views this as a matter of “human rights,” given the way the web is integrated into government, business and culture. The web now has 1011 pages, about the same number as neurons in the brain, and Berners-Lee would like to formalize a “science to study this thing, to understand how information propagates across it,” he says. “Humanity is connected by technology,” and “we have a duty to think about the protocols that affect it.”
On the nature of genius, trading and hindsight – Phil Maymin on his paper “Markets are Efficient if and only if P = NP,” - via MoneyScience-
Most Important Reads:
Why Are Finland’s Schools Successful? – via Smithsonian- Ninety-three percent of Finns graduate from academic or vocational high schools, 17.5 percentage points higher than the United States, and 66 percent go on to higher education, the highest rate in the European Union. Yet Finland spends about 30 percent less per student than the United States.
Lets face it– in life its all about who you know- via HBS- An old adage says that it’s not what you know, it’s whom you know. But outsiders can take heart: even for those who don’t belong to a high-power social network, there’s power in simply keeping track of who went to school with whom.
David Brooks on Happiness - via NYT- I can’t resist concluding this column with some kernels of consumption advice accumulated by the prominent scholars Elizabeth W. Dunn, Daniel T. Gilbert and Timothy D. Wilson. Surveying the vast literature of happiness research, they suggest: Buy experiences instead of things; buy many small pleasures instead of a few big ones; pay now for things you can look forward to and enjoy later.
Economic Inequality Is Linked To Biased Self-Perception – via PsychScience- Pretty much everybody thinks they’re better than average. But in some cultures, people are more self-aggrandizing than in others. Until now, national differences in “self-enhancement” have been chalked up to an East-West individualism-versus-collectivism divide. In the West, where people value independence, personal success, and uniqueness, psychologists have said, self-inflation is more rampant. In the East, where interdependence, harmony, and belonging are valued, modesty prevails.
A Presentation On How to read academic research (beginner’s guide)-Russell James
Riot control: How can we stop newspapers distorting science?- via Guardian- Recent news stories reported a study that supposedly linked rioting to low levels of a brain chemical. The scientists behind the research put the record straight
What is Debt? – An Interview with Economic Anthropologist David Graeber – via Naked Capitalism- Let’s begin. Most economists claim that money was invented to replace the barter system. But you’ve found something quite different, am I correct?
You are driven to create and form groups and then believe others are wrong just because they are others. - via You are Not So Smart- In a political debate you feel like the other side just doesn’t get your point of view, and if they could only see things with your clarity, they would understand and fall naturally in line with what you believe. They must not understand, because if they did they wouldn’t think the things they think. By contrast, you believe you totally get their point of view and you reject it. You see it in all its detail and understand it for what it is – stupid. You don’t need to hear them elaborate. So, each side believes they understand the other side better than the other side understands both their opponents and themselves.
Honey Money: The Power of Erotic Capital by Catherine Hakim – via Guardian- In a typically razor-sharp exchange of dialogue which establishes – yet again – that The Simpsons provides the most coruscating illumination of contemporary mores, Lisa says to her grade school teacher that “Good looks don’t really matter”, to which Ms Hoover replies: “Nonsense, that’s just something ugly people tell their children.” Stripping away the layers of irony from this statement we can reveal the central premise of Catherine Hakim’s book, which is that not only do looks matter, but that they should matter a great deal more. Furthermore, the people who tell young people – and in particular young women – that their beauty and sex appeal are of little importance are themselves ugly, if not physically then at least morally. For, as Hakim sees it, it is an “unholy alliance” of wannabe patriarchs, religious fundamentalists and radical feminists who have – in Anglo-Saxon countries especially – acted to devalue what she terms “erotic capital”. In Hakim’s estimation, for all young women, and in particular those who are without other benefits – financial, intellectual, situational – an entirely legitimate form of self-advancement should consist in their getting the best out of – if you’ll forgive the pun – their assets.
On Rushes and Riches: The “Wild West” Era for Internet Domain Names Is Over as Efficient Markets for This “Virtual Land” Have Emerged - Via SciAm- The initial registration process for internet domain names is organized in exactly the same land rush way. Early birds creamed off the finest names year after year, paying just a low nominal fee. With currently more than 200 million registered domains, the internet landscape looks like the United States in the 20th century: almost all the nice spots are taken. Late-comers have to buy their way in when looking for a catchy name for a new online venture.
Influence—Framing Effects, Default Effects, and Trust – via Cognition & Culture- Framing effects and default effects are often seen as examples of inconsistent preferences and are usually explained in purely intrapersonal cognitive terms. We argue that these effects can be explained in rational, social terms, at least in part. First, frames and defaults are usually generated by another social entity (e.g., a speaker, a policymaker). Second, speakers and policymakers tend to select frames and defaults in ways that convey choice-relevant information to decision makers (e.g., listeners). As a result, when listeners respond “inconsistently” to different frames and defaults, it need not indicate inconsistent preferences. In line with this social approach, we show that framing and default effects are decreased (and default effects might even reverse) when the source of a frame or default is distrusted. Viewing framing and default effects from a social, rational perspective leads to a deeper understanding of these phenomena and suggests novel predictions about when they will and will not occur outside the laboratory.
The Local-Global Flip, or, “The Lanier Effect”- via Edge.org- We tend to now be courting the seedier side of capitalism more than the dignified side of capitalism. There tend to be a lot of ambulance chasers, and snake oil salespeople who become our customers. Not all. There are some stories that are very positive. There’s the occasional person who builds a career by blogging, or getting on YouTube, or who can build a small business by selling ads on some of these services. Those people exist, but there’s a Horatio Alger quality where there just aren’t enough of them to create a middle class. They create a false hope rather than a real trend. And it’s plain as day that that’s the truth, that there aren’t hoards and hoards of these people, but just tokens.
Why Africa Is Leaving Europe Behind – via VC Circle- Today, by contrast they can point to improved economic figures, a reviving middle class and arguably, in places, more effective social control. Even Lagos – much rougher, larger, poorer and unequal than London – has never witnessed looting on the scale that took place in the former capital of empire last week, although inhabitants of the Nigerian mega-city have certainly competed when it comes to arson.
What’s an engineer’s worst nightmare? - via New Yorker- To realize that the supports he designed for a skyscraper like Citicorp Center are flawed—and hurricane season is approaching.
Brain imaging studies report more positive findings than their numbers can support. This is fishy. - via Bad Science- While the authorities are distracted by mass disorder, we can do some statistics. You’ll have seen plenty of news stories telling you that one part of the brain is bigger, or smaller, in people with a particular mental health problem, or even a specific job. These are generally based on real, published scientific research. But how reliable are the studies?
Your Emotions Are What You Eat: How Your Diet Can Reduce Anxiety – via There Are Free Lunches- “Emotions are biochemical storms in the body and brain,” she says. “The healthier your biochemistry, of course, the better the emotional and also the cognitive forecast.” Psychological issues have physiological underpinnings, she says, not the other way around. Nor are they a result of outside issues.
Life paths, life events, and personality trait change at the transition to university life. - via PsycNet- This longitudinal study examined the relation between continuity and change in the Big Five personality traits and life events. Approximately 2,000 German students were tracked from high school to university or to vocational training or work, with 3 assessments over 4 years. Life events were reported retrospectively at the 2nd and 3rd assessment. Latent curve analyses were used to assess change in personality traits, revealing 3 main findings. First, mean-level changes in the Big Five factors over the 4 years were in line with the maturity principle, indicating increasing psychological maturity from adolescence to young adulthood. Second, personality development was characterized by substantive individual differences relating to the life path followed; participants on a more vocationally oriented path showed higher increases in conscientiousness and lower increases in agreeableness than their peers at university. Third, initial level and change in the Big Five factors (especially Neuroticism and Extraversion) were linked to the occurrence of aggregated as well as single positive and negative life events. The analyses suggest that individual differences in personality development are associated with life transitions and individual life experiences.
When Power Makes Us Cruel – via Boston.com – When power makes us cruel Although absolute power is supposed to corrupt absolutely, a recent experiment suggests that power without status is the most corrupting. In the experiment, students were told they would be interacting with a fellow student in a business exercise and were randomly assigned to either a high-status “Idea Producer” role or low-status “Worker” role. They were then told that they and their partner would also be entered in a raffle after the study, but, regardless of role, each student had to select at least one task (from a list of 10, some more demeaning than others) for their partner to do to be entered in the raffle. Some of the students could make this selection without reciprocal consequences (i.e., high power), while others faced potential retaliation (i.e., low power). Students assigned to the low-status role but who were subsequently granted power selected the most demeaning tasks for their partners.
A History of Bayes’ Theorem – via Less Wrong- Sometime during the 1740s, the Reverend Thomas Bayes made the ingenious discovery that bears his name but then mysteriously abandoned it. It was rediscovered independently by a different and far more renowned man, Pierre Simon Laplace, who gave it its modern mathematical form and scientific application — and then moved on to other methods. Although Bayes’ rule drew the attention of the greatest statisticians of the twentieth century, some of them vilified both the method and its adherents, crushed it, and declared it dead. Yet at the same time, it solved practical questions that were unanswerable by any other means: the defenders of Captain Dreyfus used it to demonstrate his innocence; insurance actuaries used it to set rates; Alan Turing used it to decode the German Enigma cipher and arguably save the Allies from losing the Second World War; the U.S. Navy used it to search for a missing H-bomb and to locate Soviet subs; RAND Corporation used it to assess the likelihood of a nuclear accident; and Harvard and Chicago researchers used it to verify the authorship of the Federalist Papers. In discovering its value for science, many supporters underwent a near-religious conversion yet had to conceal their use of Bayes’ rule and pretend they employed something else. It was not until the twenty-first century that the method lost its stigma and was widely and enthusiastically embraced
Decision Making/ Behavioral Economics/Psychology/ Risk/ Sciences:
Super Size Me: Product Size as a Signal of Status- via Jstor- This research proposes that consumers’ preference for supersized food and drinks may have roots in the status-signaling value of larger options. An initial experiment found that consumers view larger-sized options within a set as having greater status. Because low-power consumers desire status, we manipulated power to test our core propositions. Whether induced in the lab or in the field, states of powerlessness led individuals to disproportionately choose larger food options from an assortment. Furthermore, this preference for larger-sized options was enhanced when consumption was public, reversed when the size-to-status relationship was negative (i.e., smaller was equated with greater status), and mediated by consumers’ need for status. This research demonstrates that choosing a product on the basis of its relative size allows consumers to signal status, illustrates the consequences of such a choice for consumers’ food consumption, and highlights the central role of a product category’s size-to-status relationship in driving consumer choice.
The Halo Effect: How It Polishes Apple’s and Buffett’s Image - via Zweig- In both cases, what psychologists have christened the “halo effect” was at work. In this quirk of the human mind, one powerful impression spills over onto our other judgments of a situation. The effect was first documented in the U.S. Army decades ago, when soldiers who earned high scores from commanders for one quality (such as neatness) also got high marks for entirely unrelated qualities (such as loyalty and physical strength).
Why Do Voters Dismantle Checks and Balances?- via NBER- Voters often dismantle constitutional checks and balances on the executive. If such checks and balances limit presidential abuses of power and rents, why do voters support their removal? We argue that by reducing politician rents, checks and balances also make it cheaper to bribe or influence politicians through non-electoral means. In weakly-institutionalized polities where such non-electoral influences, particularly by the better organized elite, are a major concern, voters may prefer a political system without checks and balances as a way of insulating politicians from these influences. When they do so, they are effectively accepting a certain amount of politician (presidential) rents in return for redistribution. We show that checks and balances are less likely to emerge when (equilibrium) politician rents are low; when the elite are better organized and are more likely to be able to influence or bribe politicians; and when inequality and potential taxes are high (which makes redistribution more valuable to the majority). We show that the main intuition, that checks and balances, by making politicians “cheaper to bribe,” are potentially costly to the majority, is valid under different ways of modeling the form of checks and balances.
Wanna stay in love? Stop Mentally Adapting – via Jonah Lehrer - Psychological adaptation also explains why the first bite of chocolate cake is better than the second, and the second is better than the third. It explains why the first time you use that new iPhone you’re pretty excited, but before long it will just be another thing in your pocket. And then, a few weeks after that, you’ll start complaining that your phone (your phone!) can only hold 10,000 songs or that it downloads streaming videos from Netflix so slowly. The delight has vanished, replaced by the usual dissatisfaction. This is because our brain is designed to be ungrateful, every pleasure a fleeting thing.
Anger Gives You a Creative Boost - via SciAm- A bit of fury helps you think outside of the box
Can “living in the present” be a bad thing? – via Bakadesuyo- The results indicate that present-biased individuals are more likely to have credit card debt, and have significantly higher amounts of credit card debt…
Overpredicting and Underprofiting in Pricing Decisions – via Wiley- This research examines sellers’ price-setting behavior and discovers a naturally occurring mismatch between sellers and buyers: Sellers who make a price decision often consider alternative prices and engage in the joint evaluation mode, whereas buyers who make a purchase decision see only the finally set price and are in the single evaluation mode. This mismatch in evaluation modes leads sellers to overpredict buyers’ price sensitivity and underprice their products. However, these effects apply only to products unfamiliar to buyers and without salient reference prices and can be alleviated if sellers are encouraged to mimic single evaluation when making pricing decisions.
How Word of Mouth Influences Story Tellers- via Jstor- Consumers frequently tell stories about consumption experiences through word of mouth (WOM). These WOM stories may be told traditionally, through spoken, face-to-face conversation, or nontraditionally, through written online reviews or other electronic channels. Past research has focused on how traditional and nontraditional WOM influences listeners and firms. This research instead addresses how specific linguistic content in nontraditional WOM influences the storyteller. The current article focuses on explaining language content, through which storytellers reason about why experiences happened or why experiences were liked or disliked. Four studies examine how and why explaining language influences storytellers’ evaluations of and intentions to repeat, recommend, and retell stories about their experiences. Compared to nonexplaining language, explaining language influences storytellers by increasing their understanding of consumption experiences. Understanding dampens storytellers’ evaluations of and intentions toward positive and negative hedonic experiences but polarizes storytellers’ evaluations of and intentions toward positive and negative utilitarian experiences.
When to delay the presentation of alternative information – via JSTOR- Delaying the presentation of some favorable information about an alternative (e.g., a product, service, brand, store, or cause) until after consumers have completed their pre-choice screening can increase that alternative’s choice share. While such a delay reduces the alternative’s chance of surviving the screening, it can actually increase its probability of ultimately being chosen. Evidence from five experiments demonstrates this preference-enhancing effect of the delayed presentation of favorable information, and it illustrates the underlying preference dynamics across decision stages associated with such a delay. The findings also indicate that this preference-enhancing effect is driven by a combination of two mental mechanisms—a shift in the decision weights of attribute dimensions (rendering dimensions on which a delay occurs more influential across all alternatives) and an overall preference boost for the alternative about which information is delayed.
Personality and obesity across the adult life span. – via PsycNet- Personality traits contribute to health outcomes, in part through their association with major controllable risk factors, such as obesity. Body weight, in turn, reflects our behaviors and lifestyle and contributes to the way we perceive ourselves and others. In this study, the authors use data from a large (N = 1,988) longitudinal study that spanned more than 50 years to examine how personality traits are associated with multiple measures of adiposity and with fluctuations in body mass index (BMI). Using 14,531 anthropometric assessments, the authors modeled the trajectory of BMI across adulthood and tested whether personality predicted its rate of change. Measured concurrently, participants higher on Neuroticism or Extraversion or lower on Conscientiousness had higher BMI; these associations replicated across body fat, waist, and hip circumference. The strongest association was found for the impulsivity facet: Participants who scored in the top 10% of impulsivity weighed, on average, 11Kg more than those in the bottom 10%. Longitudinally, high Neuroticism and low Conscientiousness, and the facets of these traits related to difficulty with impulse control, were associated with weight fluctuations, measured as the variability in weight over time. Finally, low Agreeableness and impulsivity-related traits predicted a greater increase in BMI across the adult life span. BMI was mostly unrelated to change in personality traits. Personality traits are defined by cognitive, emotional, and behavioral patterns that likely contribute to unhealthy weight and difficulties with weight management. Such associations may elucidate the role of personality traits in disease progression and may help to design more effective interventions.
Business/ Entrepreneurship/Finance/ Investing:
Conglomerates and Industry Distress – via Oxford Journals- Focusing on economic distress episodes in an industry, we estimate the effect of conglomeration on resource allocation. Distressed segments have higher sales growth, higher cash flow, and higher expenditure on research and development than single-segment firms. This is especially true for segments with high past performance, for unrated firms, and in competitive industries. Single-segment firms increase cash holding, and the diversification discount reduces during industry distress. Firms with high past performance acquire their industry counterparts, and firms with low past performance exit the distressed industry. Industries more prone to distress have greater conglomeration. Overall, conglomeration enables segments to avoid financial constraints during industry distress.
Why McDonald’s wins in any economy – via CNN Money- Thanks to Jim Skinner’s no-nonsense leadership, the global restaurant juggernaut is doing better than ever.
Torture in Bahrain Becomes Routine With Help From Nokia Siemens – via Bloomberg- The spy gear in Bahrain was sold by Siemens AG (SIE), and maintained by Nokia Siemens Networks and NSN’s divested unit, Trovicor GmbH, according to two people whose positions at the companies gave them direct knowledge of the installations. Both requested anonymity because they have signed nondisclosure agreements. The sale and maintenance contracts were also confirmed by Ben Roome, a Nokia Siemens spokesman based in Farnborough, England.
Time TO Heavily Tax Banker Bonuses- via Voxeu- As we approach three years since the fall of Lehman Brothers, the incentives that led the financial sector to take on too much risk still exist. This column argues that they will remain so long as governments continue to provide an implicit guarantee that banks will be bailed out. To tackle this, the authors dare to propose a tax on bonuses.
The Eclectic Mix:
How to Turn a Continent into A Subprime CDO - via Triple Crisis- The European sovereign debt crisis is little more than a huge ‘bait and switch’ perpetrated on the publics of Europe, by their governments, on behalf of their banks. We need to remember that what we refer to today as the ‘European Sovereign Debt Crisis’ began as a private sector financial crisis back in 2008, when ‘too big to fail banks,’ writing deep out of the money options on taxpayers, quite unexpectedly (to some) blew up. Fearing a financial Armageddon, governments transformed private bank debt into public debt via bailouts, lost revenues, lower growth, higher transfers, and yawning deficits. The unavoidable result across the European continent was a massive increase in government debt. While painting this as a story of fiscal irresponsibility has some plausibility in the Greek case, it simply isn’t true for anyone else. The Irish and the Spanish, I and S in the eponymous ‘PIGS’ were, for example, considered ‘best in neoliberal class’ in terms of debts and deficits until the crisis hit. Public debt is a consequence of the financial crisis, not its cause.
Infographics:
Know your risks – via Visualy
Sugar & Childhood Obesity in America- via Visualy
Posted by Miguel on August 31, 2011 03:12 AM· permalink
Do you hold a LIC policy? If the answer is “No”, people like you are rare. But almost each and every person usually has few LIC policies which were sold to them by an uncle or aunty few years back and most of the people have no idea about what they have bought. Most of the investors in LIC policies just take things for granted and keep dragging the policies assuming it would be the best thing in their financial life. In this article my aim is to give you a 360 degree view of these policies and talk about few aspects which will help you in understanding how these policies work and you can evaluate yourself if “good” or “bad”.
Moneyback Plans or Non-Moneyback Plans
A lot of policies pay you on a periodic basis like at the end of 4th, 8th and 12th year, and then finally at the end of the maturity period. These policies are Money back policies, the example can be Jeevan Surabhi or Komal Jeevan. A lot people get attracted to these plans because they get money “many” times in between and it looks attractive to them, but the premiums are generally higher for these policies.
Then there are policies which do not pay you back periodically but only pays you at the end of the maturity period. They are generally termed as normal Endowment plans. Some examples are Jeevan Anand and Jeevan Tarang (review)
Bonus & Additions to your Policy
The biggest confusion I see is generally in Bonus declared by LIC. One thing which investors in these policies don’t know and don’t care for to find out is that there are different kinds of bonuses in these policies and they are calculated differently. Let’s see them one by one.
1. Simple Reversionary Bonuses
Generally when we say “Bonus”, it is this “Simple Reversionary Bonus”, which is declared per thousand of the Sum Assured on annual basis at the end of each financial year. This bonus is declared today, but is paid at the end of maturity period only or on death, whichever is earlier. So for example if you hold a policy of Rs 10,00,000 Sum assured and the bonus for this year is Rs 60 per thousand SA, then your bonus amount is Rs 60,000 for this year, but you will only get it at maturity (after many many years) or on death, but by then it’s worth would be much lesser than today (this 60,000 today and 60,000 after 20 yrs).
A very important point to note here is that, if you surrender the policy, you don’t get the actual accrued bonus because it’s the future value, you will only get its reduced amount in today’s term and its very less. Also note that you are eligible to get reduced Accrued Bonus only if your policy has completed 5 premium paying terms. (This thread on our forum discusses Jeevan Anand in good detail)
2) Final Additional Bonus
There is another kind of bonus which is generally called as “FAB” or Final Additional Bonus and it’s paid to those policies which are of a longer duration and has run for more than 15 yrs (The premiums are paid for all 15 yrs). This is generally a token of appreciation for being with the policy for long duration. The FAB is generally not paid for policies which have “Guaranteed Additions” (explained below). Here is an indicative list of FAB.
3. Loyalty Additions
This is again a bonus which is declared for being loyal to the Insurer (Here: LIC) and completing a longer tenure. Generally it’s declared at the end of the policy, but for some policies it might be applicable after completion of 5 or 10 yrs. For example – In Jeevan Saral, the policy holders will earn such additions after a minimum of ten policy years have been completed. This is usually an amount declared per thousand of sum assured depending on the corporation’s performance. Loyalty additions are totally non-guaranteed.
4. Guaranteed Additions
For a lot of policies there is a term mentioned like “Guaranteed Additions”. These are assured sums which are given to policyholders for a specific period at start or end of some event along with the sum assured at the end of the term. Like for example, , Jeevan Shree-1 policy provides for the Guaranteed Additions at the rate of Rs. 50/- per thousand Sum Assured for each completed year for first five years of the policy. The Guaranteed Additions are payable along with the Basic Sum Assured at the time of claim.
Surrender Value
Most of the people who buy any Traditional Policies from LIC or any pvt companies’ don’t think a bit about terms and conditions on exiting the policy much before maturity. A general assumption is that they will at least get their paid premiums back with sum interest. I have seen so many cases like that where people are literally shocked to hear that they will get peanuts or nothing from their policy if they choose not to continue the policy. Surrendering of the policy works this way -
You will not get anything back if you stop your policy without paying for 3 years. Almost every traditional policy attains minimum surrender value after the policy has run for 3 yrs.
After 3 yrs, if you surrender your LIC policy, still you will only get a small fraction of your total paid premiums that too excluding first year premiums. So suppose you have a policy which has Sum assured of 10,00,000 for 20 yrs term with Rs 50,000 premium per year. If you have decided to surrender your policy after paying 5 premiums (you paid 2,50,000 in 5 yrs i.e. Rs 50,000 each year), then you will get around 30%-40% of 4 premiums paid (first year premiums are excluded), hence the total would work out to be only Rs 60,000 – Rs 80,000 only + proportionately reduced amount of accrued bonus if any (only because you completed 5 yrs, else you will not get this also).
A very important point to Note :A lot of people do not like to close their LIC policies after paying for 1-2 premiums because they will not get anything back for the 1-2 premiums already paid. They think that they will surrender the policy after completing 3 yrs, so that they will get at least something back. This is total emotional decision and not mathematical, because if you do maths you will see that surrendering the policy after 3 yrs is the worst decision if you have already realised that you should not continue with the policy. For example, if you are paying Rs 10,000 premium per year and completed 2 yrs, you paid Rs 20,000, If you close this policy now, you will lose all money (Rs 20,000), but you can save Rs 10,000 as third premium. If you choose to complete 3 yrs and then surrender, then you have paid Rs 30,000 and you will get back 30% of 2 premiums (first year premium not included), so you get back Rs 7,000 (loss of 23,000 as you paid 30,000 and got back 7,000). Do the math if you completed 1 yr only yourself, its more worst!
Note that surrender value is nothing but your future maturity value reduced to today’s value, so if the maturity value is Rs 10,000 after 20 yrs and if you want it before LIC will pay you the Net present value as per today’s term.
Paid up Policy
A lot of times when you have completed 3 yrs of policy, you might not want to get your money back immediately, in which case you can made your policy paid up (just stop paying premium and it becomes Paid up). When you do this, you can stop paying further premiums but you will get your total premiums paid + accrued bonus any at the end of the maturity period. This might work out better sometimes compared to surrendering if you were going to invest the proceeds in some debt instrument.
Charges for providing Insurance covers
A lot of agents advertise these policies under the head “Free Insurance Cover“, But all the policies charge premium or charges for providing Insurance cover and it’s called “Mortality Charges”, these are the same charges which are there in Term plans and ULIP’s, but may be in a different way, so nothing is free, some part of premium goes in covering you and rest of it is invested in Debt instruments which can give you assured returns at the end of the maturity.
Loan on your Policy
You can also get loans at the time of crisis on your LIC policies, but the maximum loan amount available under the policy is 90% of the Surrender Value of the policy (85% in case of paid up policies) including cash value of bonus. The rate of interest charged on loans is at 9% to be paid half-yearly.
Is there any other terms and conditions which you dont understand in your LIC policies ? We can all help you understand it in comments section .
Are you looking for surrendering your Policies ?
By now you must have got a good understanding of your LIC policies and how they work. You can find out the return of your policies using the IRR method taught in this article. If you feel that you want to continue your Policies then well and good. But if you feel that you want to close your policies, then you can really complete this task in our ongoing Action Month on this blog. Just register yourself in action month, you can also win a lot of prizes for completing your pending tasks. See the Action Month article Here
Conclusion
Each and every part of financial life should be clear to you. If you don’t understand something probably you should not have it. So it’s always better to understand and learn about what you hold. So you should know how your policies work and you should find out if it’s worth continuing or not.
Posted by Manish Chauhan on August 30, 2011 11:14 AM· permalink
The European Central Bank says it spent euro6.65 billion ($9.64 billion) last week purchasing government bonds in an attempt to keep the continent's debt crisis from pushing Italy and Spain into financial collapse.
Via Salon.com
Now the total amount of purchases by ECB amounts to 116 billion euros. With 22bil second week, 14 bil third week, 6 bil fourth week of August it has now spent 42 bil euros (increasing the amount spent by 70%) in a matter of three weeks. Note that ECB started buying bonds in the market around 13 months ago!
Posted by Ranjit kumar (noreply@blogger.com) on August 29, 2011 06:34 PM· permalink
Raoul Ruparel of Open Europe told The Telegraph: "The activation of the so-called ELA (Emergency Liquidity Assistance) looks to be the last stand for Greek banks and suggests they are running alarmingly short of quality collateral usually used to obtain funding."
He added: "This kicks off another huge round of nearly worthless assets being shifted from the books of private banks onto books backed by taxpayers. Combined with the purchases of Spanish and Italian bonds, the already questionable balance sheet of the euro system is looking increasingly risky."
Via Telegraph
Looks like Greek situation is getting excited again after the second bailout in July 2011
Posted by Ranjit kumar (noreply@blogger.com) on August 27, 2011 07:18 PM· permalink
Russia's central bank will offer gold-backed loans for up to 90 days at an interest rate of 7 percent, it said in a statement on Friday, expanding its lending facilities for dealing with any future liquidity crunch in the banking system.
Via Reuters
Gold is gaining importance day by day
Posted by Ranjit kumar (noreply@blogger.com) on August 27, 2011 06:56 PM· permalink
26-Aug : A clarification
In the post below, i spoke about investing in the index either via a systematic investment plan or through some simple rule set ( such as buy below a PE of 12 and sell above 20).
I did not imply that one should be investing in the index now !. I am surely not investing in the index now as it is not as cheap as i would like it to be.
However if you want to avoid all this mumbo jumbo, the best option is to use a systematic investment plan and invest in a mutual fund or index fund on a regular basis.
Finally, remember to switch off the finance channels on TV to avoid derailing a sensible long term plan.
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I have a little extra spring in my steps these days! Let me share a small personal story. As a kid growing up, diwali was a great time for me. Being a north Indian, sweets are a big part of diwali. We would visit our grandparents during diwali, and I had complete freedom to eat as much sweets or mithai as I wanted to. I have always had a sweet tooth and I still recall a month of pure bliss during diwali. Barfi, gulab jamun, pedas …mmmmm!
I feel like it is diwali or almost diwali these days. I don’t mean in the literal sense, but everyday I look at the market and find my favorite barfis and pedas available for less and less J
But it is such a bad time!
I think all of us know the million reasons why one should not invest money and stay away from market. US is in a mess, Europe is a disaster waiting to happen, India is overheating …blah blah blah.
One cannot open the papers or watch a channel without someone trying to predict a disaster sometime soon. Where were these idiots in the beginning of the year when the index was at 20000 levels? If they could not see six months out then, how are they able to see six months out now?
The truth is that, it is never a good time to invest. There always is some problem somewhere. It could be macro problems such as now or industry/ company specific issues such as in the infrastructure or IT industry. By the way, the right time to sell would be before the market realizes that there is a problem in the industry and not after it has been priced in. If risk avoidance is the goal, then the only way to invest is in bank deposits. Even in the case of bank deposits, one faces the inflation risk. So in effect, one cannot escape risk. The only thing an investor can do is take intelligent risks for which one is compensated (much like an insurance company)
What is an intelligent risk?
An intelligent risk is one for which one gets the appropriate return adjusted for the risk. The main component for intelligent risk taking is diversification and pricing. You do not overpay for it and you diversify. This is much like an insurance company.
The unsaid part in the above is that one knows what one is doing. No amount of diversification or price can save you from ignorance.
Why not wait till it all clears up
Unless you have some crystal ball to look into the future, it is futile to try to predict the turning point (if you do have a crystal ball, why waste it on the stock market anyway).
Majority of the investors are typically late in knowing when the tide has turned and then there is a mad rush into stocks (remember April 2009 when the index jumped by 10%+ in a day !)
If like me you cannot predict the turning or don’t care to, then a good time to buy is when the prices are low. It is quite possible that things could turn worse before they get better and you may get a better opportunity. However trying to pick the bottom or the top is a fool’s game and I would prefer to pick up stocks which are cheap enough and then just stick with them.
So what to buy?
The first question to ask yourself is this – Do I have the stomach to withstand large swings in the stock prices and considerable paper losses for sometime? It is quite possible that all this may take some time to clear up and could test your patience.
The second critical point is whether you need the money in the medium term. If you need the money in the next five years, then don’t put that money into the stock market. A large drop will scare you and you may exit the market at the wrong time.
The perceived risk in the stock market is high during bear markets, but the actual risk is lower. Everyone was scared in March 2009 – so the perceived risk was high. But if you invested during that period, you made good returns.
If you are short on time and cannot do the research, then you can do what I have done in the past – Invest in an index fund. As I have said in the past, investing in an index is a good option for a lot of investors, especially if you not have the time and interest in analyzing stocks. You can use a simple rule set like mine or do some fancy math to figure the right time to buy. I was short on time during the first quarter of 2009 and felt the market was fairly cheap. To take advantage of the undervaluation, I invested quite a bit in index funds to take advantage of the low valuations.
If however you have the time and inclination to analyze stocks, then beaten up sectors which do not have a structural issue is a good place to start. I think infrastructure and capital good is a place to search for bargains. The IT industry on the other hand has structural issue and I will not invest in any company unless it is really really cheap.
My mouth has started watering these days and if the market continues to drop, it would be an early diwali feast for me J
Posted by Rohit Chauhan (noreply@blogger.com) on August 26, 2011 04:31 PM· permalink
I am not an expert in euro finance by a wide margin. But I know one thing. Forget the debt for a second: the current uncompetitiveness of Greece, Ireland, Portugal, Spain, and Italy did not occur quickly. It took 10 long and obvious years. They had to work at it. The cure was always going to cause a lot of pain and threaten the well-being of the euro - Jeremy Grantham
Full Letter
Posted by Ranjit kumar (noreply@blogger.com) on August 25, 2011 05:42 PM· permalink
Although i seemed to have got it right this time when i was reasonably clear that we hit the top in Nov 2010 courtesy the following article i have written on 26th June 2011 - i did not happen to make a ruppee in the market using this? My money is not where my mouth is in this case - a lesson learnt.
Did we peak in Nov 2010?
Posted by Ranjit kumar (noreply@blogger.com) on August 25, 2011 04:58 PM· permalink
The Reserve Bank today warned of difficult days ahead, saying inflation will remain at elevated levels for some more time while the economic growth rate will moderate in the current fiscal.
Via Moneycontrol
Although RBI has been wrong a number of times as i have quoted here the above seems to be real scenario playing out currently unless there is a crisis or a semi crisis.
Posted by Ranjit kumar (noreply@blogger.com) on August 25, 2011 04:54 PM· permalink
Anna is not a name it is a mammoth movement in itself. He has created a wave and has impacted thinking of every common man. Me and Manish in one of our discussions saw something and thought of sharing how you can bring “ANNA MAGIC” in your financial life. We are not going to discuss any political or country level corruption; we are addressing your habits of casualness and procrastination of being corrupt, it is a slow poison that can damage or corrupt your financial life.
Image Source
Ask yourself how corrupt is your financial life? Or How Corrupt you are with your personal finance promises and commitments? Where do you sell yourself cheap in your financial life? (We procrastinate on concepts and take things casually; at time we don’t pay to get the right advice)- Today let’s be honest and face it. We all start almost in the same fashion:- Going to college, getting a job and start earning and still, we all live a different kind of financial life. We all have the same core foundation & aspects of financial life what is different is how we live our financial life.
Let’s invest our time and energy in removing the internal corruption of our financial life. To have ‘more’ you need to become ‘more’ and so we are asking you to be the stand that ‘Anna’ in your financial life. This may not change the world but it will surely change your world if you practice these things in your financial life. One request don’t deviate from the topic we are very clear this is not at all about Anna or Indian politics it is purely about your financial life.
1. Be a leader in your financial life
You can either live a corrupt Financial Life or as a leader choose to live a Non- corrupt Financial Life. The moment you start holding financial products in your financial life which are not on purpose your financial life starts getting corrupt. If you lose things with a “chalta hai” attitude your financial life starts getting corrupt in that moment itself. Don’t follow blindly to what you see and what your friends invest in. Don’t be a follower of ‘hot tips’ and schemes of making fast buck (remember Speak Asia) . Take a rock solid stand to remove all non-purpose products from your financial life. Your financial life is a clear reflection of how corrupt or non-corrupt you are.
2. Be a creator
You can create and pass your wealth-pal bill now . If your financial life is in your hands than what are you waiting for, if you are the driver of your financial life than what are you waiting for? Get one thing very clearly that your wealth-pal Bill is in your hands, it needs your signature and alignment. The bill can get your financial life back on track and will keep you focused all the time. Here you are the standing committee as you need to take a stand for your financial life to be great.
3. Be accountable
Make yourself accountable for the financial life you have. Make yourself accountable for the income level you are having. Make yourself accountable for your current financial position that you are having. Being accountable is the third pillar of designing and living a great financial life. If you have a low say-do ratio you are living a corrupt financial life. If you maintain a high say-do ratio you start having more power in the way you live your financial life. You start getting more confident about your investments and more committed with your financial goals. Make yourself accountable for. See the above three areas as a “Law” and implement it as a law in your financial life religiously and see the changes that happen in your financial world.
The action month is on. (readers on email can fill up the form here). More than 1050 (till the moment) different tasks are going to be completed by hundreds of participants and they are choosing to remove all the corruption “laziness” and “casualness” from their financial life. If you want to choose the movement you don’t need to go to ramlila maidan you can join the movement by filling in the below form and let the magic of being Anna begin. This article is also dedicated to one of our client who is a stand like Anna for bringing change in peoples financial life.
This article is written by Article written by Nandish Desai
Posted by Manish Chauhan on August 25, 2011 07:39 AM· permalink
Dear Readers,
I will be in San Francisco Aug 25-29 (this weekend) to attend Dan Ariely’s Startup-Onomics.
If you are interested in meeting up. I would enjoy getting to know you over a cup of coffee/drink/etc.
email me at: Miguel [at] simoleonsense [dot] com
Best Regards,
Miguel Barbosa
Founder of SimoleonSense.com
P.S. Every time I travel I meet the most interesting readers. So I’m rather excited to hear from you.
Posted by Miguel on August 24, 2011 09:06 PM· permalink
Moody's Investors Service today lowered the Government of Japan's rating to Aa3 from Aa2, concluding the rating review that began on May 31. The outlook is stable.
The rating downgrade is prompted by large budget deficits and the build-up in Japanese government debt since the 2009 global recession. Several factors make it difficult for Japan to slow the growth of debt-to-GDP and thus drive this rating action.
Via Moodys
Aa2 is equivalent to the rating AA in terms of S&P
AAA: Moody judges obligations rated AAA to be the highest quality, with the "smallest degree of risk".
AA (AA1, AA2, AA3): Moody judges obligations rated AA to be high quality, with "very low credit risk", but "their susceptibility to long-term risks appears somewhat greater". (AA+, AA and AA- in S&P)
A (A1, A2, A3): Moody judges obligations rated A as "upper-medium grade", subject to "low credit risk", but that have elements "present that suggest a susceptibility to impairment over the long term". (A+, A and A- in S&P)
Via wikipedia
Posted by Ranjit kumar (noreply@blogger.com) on August 24, 2011 07:00 PM· permalink
ECB has again intervened in the markets last to buy 14 billion Euros worth of bonds of Italy and Spain. Its combined total buying since last is now 110 billion euros. This is the reason why Spain and Italy's bond yields are consistently at 5% while Portugal and Ireland's yields are consistently at 10%.
Via fxstreet
Earlier post: ECB buys 96 billion euros worth of bonds
Posted by Ranjit kumar (noreply@blogger.com) on August 22, 2011 05:41 PM· permalink
