ART DAVE

Should You Invest in India in 2010?

i think author is misguided by facts taken without looking in depth. that is not to say that indian markets may or may not correct.

to get point by point misguidance of author please contact me. i have more than 3 million usd (of my own-not managing others money)in indian market and have lot of info

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Consumer-Driven Deflation? Not Even Close

great articles.
comment on some comments:
RE:CIRCULATION OR VELOCITY OF MONEY. it is the velocity of money that is causing inflationary of defletionary envournment, and growth etc.
one reason we do not see inflation number is banks are not lending and money velocity not there-thus no growth too. and the reason why banks are not lending is they find themselves in place to lend-credit qualtiy and over leverage in system is the biggest issue. if you listen to majority of economist (in the world who does not want job in white house or other interest) will agree with author. government and people who have vested interest will continue to critisize economists such as the author as many of them want to live off of the good credit usa had built since WW2 and lack political resolve to take correct steps due to re election fears.

SO, IN NUTSHELL-UNTIL PEOLPLE, CORP AND GOVERNMENT IMPROVE THEIR CREDIT QUALITY (LOW DEBT, GOOD INCOME AND BALANCE SHEET), WE WILL STAY IN THIS MESS. IF FEDS AND AUTHORITIES CAN LIKE A GOD, SOLVE ALL THE PROBLEMS OF OUR OVER CONSUMPTION AND LOW SAVINGS BY SIMPLY WRITING THE POLICY, THAN, NO ONE WILL BE GOING TO WORK TOMORROW-AND THEY WILL ALL RATHER OVER CONSUME. THIS IS A 2ND GRADE ECONOMICS-WE DO NOT NEED A STANFORD AND HARWARD ECONOMIST TO FIGURE THIS OUT. WE CAN GET AWAY WITH THIS TYPE OF LIFE STYLE UNTIL OTHERS (FOREIGNERS) WILLING TO LEND US MONEY AND SUPPORT OUR CURRENCY BY LOOKING AT OUR PAST HYSTORY (SINCE WORLD WAR 2). BUT SOMEDAY, IT WILL STOP UNLESS WE TAKE SOLID AND PAINFUL LONG TERM PATH (20 YEARS) TO RECTIFY THE SITUATION.
OUR PROBLEMS ARE VERY DEEP AND STRUCTURAL.
DEBT OF 45 TRILLION (FEDERAL, STATE, INDIVIDUAL, CORP, UN FULFILED AND LIKELY LIABILITY OF PENSION, FDIC, GOVT GURANTEES NOT INCLUDING SOCIAL SECURITY LIABILITY). THAT IS ALMOST 400% OF GDP BASED ON WHEN GDP WAS AT PEAK. I REMEMBER WE CONSIDERED DEBT PROBLEM WHEN IT WAS 10% OF GDP. OUR NOMINAL GDP MAY BE DECLINING IN NON DOLLAR TERMS, SO % CAN EASILY GROW AT A MUCH FASTER RATE WHEN CURRENCY START TO ADJUST.
WE HAVE A DEMOGRAPHICS PROBLEMS. OUR POPULATION IS GETTING OLDER SO, WHERE SOCIAL SECURITY ONCE WAS IN GREEN WILL GO IN RED IN NEXT 5 YEARS. GROWTH AND DEMOGRAPHICS USED TO BE AMERICA'S STRONG POINT WHERE IT BAILED US OUT OF LOT OF EVILS IN THE PAST. THESE ARE LONG TERM TRENDS USED TO WORK FOR US BUT NOW WILL BE WORKING AGAINST US.
OUR YONG POPULATION IN NEXT 20 YEARS (MUCH LARGER -50-70% OF IT IS BLACK AND HISPANIC AND LOWER ECONOMIC SOCIETY) WILL LACK TECHNICAL AND EDUCATIONAL SKILL TO TAKE A JOB THAT IS INCREASINGLY REQUIRING EDUCATION AND TECHNICAL SKILLS. THEY WILL BE IN A POOR ECONOMIC SITUATION TO GET THAT REQUIRED EDUCATION.
AFTER WW2, OUR CORPORATIONS USED TO BE THE LOW COST PRODUCERS WITH EFFICIENCY OF MANAGEMENT EVEN AT A HIGHER LABOR RATE THAN WORLD. ROE, RETURN ON EQUITY AND RETURN ON CAPITAL (A MEASURE OF CORP EFFECTIVENESS OF PROFIT GENERATION WITH CONSTANT CURRENCY) OF OUR COMPANIES WERE THE HIGHEST. THIS MADE AMERICA GREAT AFTER WW2. I WAS COMPARING AGAINST INDIAN COMPANIES (WHERE I HAVE LOT OF INVESTMENTS), AND I FIND AMERICAN COMPANIES LAG VERY BADLY ACROSS ALL SECTORS IN ROE. I COMPARED COMPANIES DOING BUSINESS IN THE SAME LABOR POOL AND THE SAME MARKET. THIS WAS NOT DUE TO HIGH LABOR COST OF AMERICAN WORKER. IT WAS DUE TO MANAGEMENT EFFICIENCY. OUR CORPORATE LAWS FAIL US SO NOW DIRECTORS DO NOT WORK FOR THE BEST PERFORMANCE OF STOCK HOLDERS AND PUBLIC.

POLITICALLY, IT IS MUCH EASIER TO SELL TO AMERICAN PEOPLE THAT "WE DO NOT HAVE A PROBLEM" THAN TO ADDRESS CHALLENGING PROBLEMS. SOME POLITICAL OR EVEN A RELIGIOUS LEADER MUST PUT RIGHT CULTURAL PERSPECTIVE IN THE WAY PEOPLE CHOOSE TO LIVE OFF OVER CONSUMPTION, REFORM OUR CORPORATIONS SO THEY BECOME MORE EFFICIENT IN MANAGEMENT THAN EXECUTIVE COMPENSATION, ENCOURAGE OUR YOUNG CHILDREN TO GET OUT OF DRUGS AND RACIAL DIFFERENCES AND EDUCATE THEM SELVES IN SCIENCES AND TECHNOLOGY SO THEY CAN BE READY FOR JOBS OF TOMORROW . SOME POLITICAL (OR RELIGIOUS LEADER) THAT CAN UNITE ALL AMERICANS DEMOCRATS, REPUBLICANS, BLACK, WHITE, ALL REGIONS, RICH POOR FOR SHARED SACRIFICE FOR OUR COUNTRY AND OUR KIDS. THERE IS NO SOLUTION TO PROBLEMS WITHOUT SACRIFICE. POLITICALLY SACRIFICE IS HARD TO SELL-BUT THERE IS A CHANCE IF IT IS SHARED IN ALL PARTS OF SOCIETY-LIKE WE DID IT IN WORLD WAR 2.

Will a Lackluster Monsoon Season Hurt India’s ETF?

just to focus the problem quantitatively:
17% of india gdp is tied to agriculture currently. less than 10% of gdp in 2011-12 gdp will be tied to agriculture- and not all of it crop orinted. 90% of agriculture land is not directly impacted by rain fall as it is tied to irrigation lines. rain fall will impact price of water ultimately but not necessarily one on one correlation.
much larger impact will be the cost of natural gas from kg (krishna godavari) basin as it reaches fertilizer plants as these plants will be fully operational. the cost of energy differnce between nafta and narural gas is very substantial. some of this difference will be offset by the fact that government is removing subsidy.
so, just by rain fall impact may be negaive by .2 to .5 % maximum on gdp. or 1-2% of agreiculture gdp. even this year positive impact of cheaper fertilizer will be much higher than rain fall.

anyway, rainfall news are largely manupulated by larger number of sugar trading speculators. if indian market were to go down, there are many other reasons that may be the factors that are much larger than rainfall.

Why GM Is Ready for a Rebound

couple of points:
QUALITY: quality of a car is always measured once it is used for 5-7 years. all cars are good for first 50k mile. thus, even if gm makes as good qualtiy as toyota and honda now, it will take at least 5 -7 years before we will know.
WORLD MARKET: when we are dealing in us market qualtiy is very important. however, in next 10 years, us market will be shrining compare to world very rapidly. so, for gm to surivive, they have to make qulaity car for world market. better than 80% of market will be at cars below $5000. and as price increases, market share drops very quickly. gm can not make car now or later below 15k and make profit. so they have long ways to go to survive. companies like tata motors, hundai and many other new comers are already putting all electirc cars in european markets around 6k. i have heard that there are companies that no one has heard names in india that are putting out cars for india/china and world market under 2k all electric. lot of new emerging companies are ready to compete at a cut throat prices.
I DO NOT THINK THE SAME CULTURED GM HAS WHAT IT TAKES TO COMPETE IN THIS NEW WORLD MARKET. GM WILL BE FACING A NEW BANKRUPTCY VERY SOON.

CULTURE AND MANAGEMENT: gm does not have management who is qulaified to compete and manufacutre car. government could have pulled management from top companies who produce low price cars. they have experience and management style to compete in this cut throat enviournent. we can make cars in usa market for $5-6k all electric cars (which goes 150 miles on single charge) using american labor. tata motors is doing this using western european labor which is not much cheaper than us. and yet they are maintaining 25% margin. in indian makets, they are putting cars below $2k. as american consumer is dealing with over leveraged balance sheet, these cars can be purchsed without any debts and very inexpensive to operate.
this is not only possible but it is already happening around the world. we are just blinded by various union interest, political interest groups who are more worried about getting elected than doing the right thing.

Implications of the Slump in Corporate India's Interest Coverage Ratio

whatever is in the article is in the news for at least 3-4 quarters. and that is why sensex dropped from 21000 to 8000. although problems in articles are very real, but most of those are already in the market. market may go up and down as other factors take hold off market.
the other point is how do these probelms compare with the same problems in other countries?
i do not have numbers but my guess is india has lot less of problems mentioned in the article than other countries.

Where Are the Land Mines Hidden?

AS MANY VIEWERS COMMENTED THAT THERE ARE LOT OF NON HIDDEN MINES THAT WE HAVE NOT WORRIED ABOUT SO FAR.

HOWEVER, THE MAJOR FACTOR THAT MARKETS HAVE NOT TALKED OR WORRIED ABOUT IS SOCIAL SECURITY. I AM SURPRISED THAT SOCIAL SECURITY ADMINISTARITON IS ABOUT TO GO NEGATIVE AND NO ONE ON STREET HAS TALKED ABOUT. THIS IS A LONG TERM TREND WE HAVE NOT WORRIED ABOUT TO THE EXTENT THAT WE SHOULD HAVE

WITH DECLINING PAYROLL, AND POPULATION GETTING OLDER AT THE FASTEST RATE, THIS PROBLEM HAS A POTENTIAL OF EXPLODING AT MUCH BIGGER AND FASTER WAY THAN HOUSING MARKET, DEFICITS, BANKING AND HEALTH CARE PROBLEMS COMBINED. BUT IF THIS PROBLEM IS TO SURFACE NEXT YEAR (WHICH IT WILL) SINCE SHORT FALL HAS TO BE MADE UP SOMEWHERE, THE TIMING CAN NOT BE WORST. AND OUR POLITICIANS HAVE OVER YEARS DEMONSTRATED THAT THEY CAN NOT TAKE STEPS THAT ARE UNPOPULAR.

SORRY TO RAIN ON PARADE OF RECOVERY, BUT UGLY TRUTH IS TOO BIG TO IGNORE.

The U.S. Housing Market's Very Sobering News

i think the housing market is in long term decline.
question is when will it reover? i have a rule. never say never. but this is an exception. i do believe the housing market will "NEVER" recover. my reasons are very fundaments abcs of economics:

1. in usa we have proped up housing market for last 40 years. the biggest subsidy (to the tune up 20-50% value) depending which decade you look at through tax breaks. i do not care what kind of comodity you have when you have this type of subsidy over this long period, the comodity will be in over supply. tell me which other assett class have been offer this large of subsidy for this long period of time?
2.not only the price of home was subsidized, but the cost of ownership was subsidized through the government guranttees to lenders who were giving money to buy homes. lenders were given government gurantee that if the borrowers defaulted, their funds were gurnateed irrespective of borrower's ability to pay. so, lenders all over the world considered the risk in these mortgages same as us treasury bill without paying proper attention to risk associated with loans due value and credit worthyness of borrower. in 1980 and 90s due to fall of russia, declining western europe economy, rise of china as a manufacturing giant, there was no other avenue left to invest all the world's wealth but in the world but usa tresaury and offcourse home mortgages (gurnateed by usa). in 2000s, these mortgages were colledraized, and same funds were lent over and over again through isnurance gurantees. homeoners will poor balance sheets, savings, took out money from homes like bank atm and refinancing same mortgages over and over again. again, huge subsidy for american home ownership as assett class.
3.TO FIND OUT WHEN WILL HOUSING MARKET STABALIZE? MY ECONOMICS IS VERY SIMPLE-2nd grade economics. AND I AM SURPRISED THAT NO ONE IS TALKING ABOUT THIS. CAPITAL JUST LIKE LABOR WILL HAVE TO FREELY FLOW TO HOUSING BEFORE HOUSING MARKET WILL RECOVER. IF IN INDIA AND CHINA PEOPLE ARE PAYING 9-11% INTEREST ON LOANS WHERE THE LOAN TO VALUE RATIO (LTV) IS 60%. SO, TWO THINGS HAVE TO OPEN BEFORE CAPITAL WILL MOVE FREELY TO US HOUSING MARKET WITHOUT US GOVT SUBSIDY. INTERST RATE HAVE TO BE 10% AND PEOPLE HAVE TO SAVE 40% (60% LTV) OF DOWN PAYMENT. AT 80% LTV, LOAN SHOULD BE MARKED AT CLOSE TO 18-25% (USING RISK SCENERIO USED SAME FROM MORTAGE INSURANCE INDUSTRY).
CURRENT HOMEOWNER STARAPPED FOR CASH WILL NEVER HAVE 40% DOWN PAYMENT AND ABILITY TO PAY AT 11% IS ALMOST NON EXISITANT AT THIS TIME. ALSO, RISK FACTOR FOR LOANS ARE VERY HIGH IN USA (SUCH OTHER DEBT, EMPLOYMENT MARKET AND DEMOGRAPHICS) COMPARE TO CHINA AND INDIA AND I AM SURE THAT LENDER WILL FIGURE IN HUGE RISK PRIMIUM FOR USA MARKET. I CAN CERTAINLY SAY THAT 10% EASILY CAN BE 14-15% WITH ONLY LOANS AVAILABLE WILL BE AT 60% LTV.
i know our political leaders will not want to admit to this and try to have temporary measures (such as governent buying back mortgages from borrowed or printed money and cash and further tax benifits) but eventually, we have to face up to the fact of all our wong doing for 40 years. these temprary measures only will delay and possibly make pain worse over long time.

these secenerio probabbly will not exist in our life time in usa. thus, answer is "NEVER" for housing recovery.

I AM SORRY TO HAVE THIS VIEW. NOT WHAT MOST PEOPLE OR I LIKE TO HEAR AND SPECIALLY FROM A REAL ESTATE DEVELPORE WHO MADE MONEY ALL LIFE IN REAL ESTATE DEVELOPMENT AND FINANCE.

Putting Deficits into Perspective

one more factor not considered in the analysis in not well covered. that is the factor of

1.currency and
2. to whome the government debt is owed.

1. CURRENCY: currency is considered this analysis indirectly in inflation. if us dollar declines, the inflation will increase. so, authomatically debt will grow. however, unique thing about us dollar is that this currency is perceived to be superior currency of past decade and lot of funds and specially foreging funds have moved into us dollar keeping currency from declining at a rate which it should. in the event that extra oridnary amounts of borrowing occurs by us government, and rest of world appetite will die and usa will see large depreciation in currency to make up for depreciation we have not seen in last 5 years. the effect may be similar to overvalued stock going down in value at a faster rate than market it should to compensate for the past. resulting inflation and deficit spiral will be harder to control. this leads to my second point:
2: TO WHOME DEBT IS OWED.
large percentage of usa debt is owed to foreigners. thus, payment of interest goes out of the country and has little impact in wealth builging or income of citizens of the country. as opposed to couuntry (such as india, 95% debt is owed to country's own citizen). so when government pays interest, most of the money remains in economy. lot of middle and lower middle income people rely on interest income as a way for building wealth, income and consumption. this is feasible if country has large internal savings rate (in india 35% vs in usa 5-7%).
the other factor is that when debt is largely internal, negative impact of large debt also has an opposite impact that is increase in income of holder of debts which are citizens of their own country. debt is some time inevitable (such as world wide recession/deflation that creates extremely slow growth and government stimulus is required) but if debt is owed to your citizen, at least it also has a silvelining as mentioned above. that is not to say government debt can be increased carelessly but when required in careful manner can be good if it is owed to your own citizens.

Indian Economy: The Road Ahead Looks Tougher than Expected

REGARDING STIMULUS PACKAGE: OFF COUSRSE IT IS BETTER FOR GOVERNMENT TO HAVE LOT OF RESERVE CASH AND LOWER DEFICIT TO HAVE EXCESS MONEY TO LOWER TAXES WITH. HOWVER, INDIAN ECONONY STARTED OPENING UP AT LEAST 10-15 YEARS AFTER CHINA. INDIA HAS SIGNIFICANT RESERVE COMPARED TO IT HAD 10 YEARS AGO BUT NOT NEARLY AS MUCH AS CHINA DOES.
HOWEVER, INDIA HAS AN ADVANTAGE IN THAT THEY CAN STIMULATE ECONOMY MUCH MORE EFFECTIVLY SINCE ITS CORPORATE STRUCTURE IS VERY COST EFFECTIVE. FOR INSTANCE, RBI HAS ISSUED 100 BILLION USD BOND FOR INFRASTRUCURE. MOST OF THESE INFRASTRUCUTRE BONDS WILL BE AVAILABLE THROUGH PROJECT THAT ARE BOT METHODS, WHERE PRIVATE ENTERPIRSE WILL DECIDE, BUILD AND OPERATE THOSE INFASTRUCTURE ASSETTS.
CHINA AND EVEN USA, DOES NOT HAVE THESE TYPE OF ORGANIZATION. BULK OF THE STIMULATION WILL BE WASTED IN GOVERNMENT BURACRACY AND BRIDGES TO NO WHERE. THE COST OF GOVERNMENT PROJECTS IN USA ARE MUCH HIGHER THAN THE SAME PROJECTS DONE IN PRIVATE SECORE AND WASTEFUL AND VERY TINY % OF ACTUAL SPENDING WILL END UP STIMULATING THE ECONOMY.
THIS IS WHERE MY PREVIOUS ARGUMENT COMES IN HANDY. CHINA AND USA ECONOMY IS SO WASTEFUL (DUE TO LOW ROE/ROC) SUCH THAT VERY SMALL PART OF STIMULS WILL RESULT IN ECONOMIC BENIFIT AND RESULTING INFLATION WILL BE MUCH HIGHER THAN THE BENIFIT.
THUS, REVIVING ECONMY REQUIRES GOOD ECONOMIC BASE (EFFFICIENT ECONOMY -ROE AND ROC TO BE OVER 20%). THE STIULUS WILL ONLY BE EFFECTIVE IF IT IS SPENT IN A SYSTEM WHICH GENERATES MORE GDP COMPARE TO INFALTION. EVERY TIME GDP IS GENERATED IN INDIA, DOWN STREAM GDP IS MUCH HIGHER. SUCH AS WHEN POWER PLANT IS GENERATED WITH 1 BILLION DOLLAR WILL GENERATE MUCH MORE GDP DOWN STREAM THAN 1 BILLION OF RETAIL SALES ARE GENERATED. BECAUSE US ECONOMY SATURATED, DOWN STREAM GENRATION IS NOT POSSIBLE UNLESS US IS THE LOW COST PRODUCER. WITH CHINA, DOWN STREAM DEMANDS ARE NOT SUSTANABLE AS IT IS IN INDIA SINCE CHINA HAS BUILD ITS ECONOMY ONLY ON EXPORT MODEL. IT IS NOT EASY TO GENERATE INTERNAL DEMAND THAT CAN BE SUSTAINABLE. TO GENEARATE INTERNAL DEMAND, CHINA WILL HAVE TO DEVELOPE AND EDUCATE THEIR RURAL AREAS, PROVIDE THEM WITH SKILLS AND INFRASTRUCTURE THAT WILL CREATE MARKETABLE SKILLS AND THAT CAN SUSTAIN DEMANDS. EVEN THOUGH, THEY HAVE DEVELOPE FEW URBANS ARES, 80-90% OF CHINA ARE MUCH FURTHER BEHIND THAN INDIA IN THAT RESPECT. ALTHOUGH, THEY HAVE STARTED IN RECENT TIMES, IT WILL TAKE THE 10-12 YEARS BEFORE SIGNIFICANT RESULT CAN COME. EVEN S KOREA, SINGAPORE, TAIWAN TOOK 5-7 YEARS BUT THEY WERE MUCH SMALLER COUNTRY AND CHINA WILL TAKE MUCH MORE TIME

Indian Economy: The Road Ahead Looks Tougher than Expected

I THINK THE AUTHOR OF THESE ARTICLE ALONG WITH MOST OF EXPERTS HAVE TOTALLY FAULTY ANALYSIS.
INDIAN ECONOMY IS A TRULY AN UNIQUE SITUATION IN INVESTMENT WORLD. WHENVER, THIS GOLBAL BUBBLE THAT STARTED WITH HIGHLY SUBSIDIZED (THROUGH TAX BREAK FOR 50 YEARS FOLLOWED BY FNMA GURANTEES BY US GOVT ON FINANCING) WITH US HOUSING WILL BUST ALONG WITH BUBBLE RECKLESS SPENDING OF US CONSUMER, THERE WILL BE A NEW WORLD LEADER THAT WILL EMERGE. MUCH THE SAME WAY USA EMERGED AS A LEADER AFTER WORLD WAR 2. PARRLALLEL WITH USA POST WORLD WAR 2 AND INDIA TODAY IS DRAMATIC. POST WORLD WAR 2, BRITAN AND WESTERN EUROPE WAS IN A HUGE DEBT MUCH THE SAME WAY US AND WESTERN EUROPE IS TODAY. USA AT THE TIME WAS THE LOW COST PRODUCER WITH ROE AND ROC (RETURN ON EQUITY AND RETURN OF CAPITAL) WAS THE HIGHEST IN EVERY INDUSTRY MUCH THE SAME WAY INDIA IS TODAY. USA POST WW2 HAD LOWEST DEBT COMPARE TO PEARS. BELIEVE IT OR NOT, INDIA HAS MUCH LOWER DEBT COMPARE TO USA AND WEST EUROPE. AND MOST OF THE DEBT IS INTERNAL AS OPPOSE TO CURRENT USA IS EXTERNA. SAME SCENERIO EXISITED IN FAVOR OF USA POST WW2. USA POST WW2 HAD THE MOST EDUCATED WORK FORCE (SPECIALLY ALL GERMAN AND RUSSIAN SCIENTIST MOVED TO USA). THE SAME EXISIT FOR INDIA.
CHINA ON THE HAND LOT OF US DOLLARS AS RESERVE. THEY WILL SOON FIND OUT THAT IF THEY SELL OR USE LOT OF THESE DOLLARS, DOLLARS WILL DECLINE SUBSTANTIALLY. SO, EXACTLY AFTER THIS DECLINE WE ALL BE SURPRISED HOW MANY DOLLARS THEY HAVE. AND OFFCORSE, FLOW OF CAPITAL WHICH THIS AUTHORS TALKS ABOUT, THAT THERE WILL NOT BE QUESITONS WHEN CAPITAL WHEN ALLOWED TO FLOW FREELY, WILL ALWAYS FLOW TO MOST EFFICIENT ECONOMY-I.E. THE ECONOMY WITH HIGHEST ROE AND ROC. WHICH INDIAN COMPANIES HAVE ONE OF THE HIGHEST ROE AND ROC.
USA HAS ALWAY MAINTAINED HIGHEST LIVING STARNDARDS BECAUSE CAPITAL WAS EFFICIENTLY DEPLOYED AND IT WAS EVIDANT WITH ROE/ROC. NOW INDIA HAS THAT ADVANTAGE. EVERY MAJOR INDUSTRY, INDIAN COMPANY IS LEADER IN ROE/ROC. OIL, REFINING OR E&P, METALS, MINING, ALTERNATE ENERGY WIND GENRATION, AIRLINES, AUTO, AUTO PARTS AND EVEN SUCH AS AUTOANCIALRY, IT; YOU WILL FIND ARE THE LOWEST COST PRODUCERS AND GIVING BETTER ROE/ROC.