Tuesday, November 11, 2008
Sub-prime Crisis, Global Meltdown, Real Estate and Investments -A reality check
The article below refers to the same aspect and was posted by an ex-NDDB employee in a list serve.
How
I am not sure if you have seen this earlier. But wonderful analogy. Makes the point very clear.. Just ignore the lack of Wren and Martin in the English. ( after all it's
Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollar as there were only two pieces of 1 dollar coins circulating around.
1) There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar..
2) B decided to purchase the land from A for 1 dollar. So, A and C now each own 1 dollar while B owned a piece of land that is worth 1 dollar.
The net asset of the country = 3 dollar.
3) C thought that since there is only one piece of land in the country and land is is a fixed asset , its value must definitely go up. So, he borrowed 1 dollar from A and together with his own 1 dollar, he bought the land from B for 2 dollar.
A has a loan to C of 1 dollar, so his net asset is 1 dollar.
B sold his land and got 2 dollar, so his net asset is 2 dollar.
C owned the piece of land worth 2 dollar but with his 1 dollar debt to A, his net asset is 1 dollar.
The net asset of the country = 4 dollar.
4) A saw that the land he once owned has risen in value. He regretted selling it. Luckily, he has a 1 dollar loan to C. He then borrowed 2 dollar from B and acquired the land back from C for 3 dollar. The payment is by
2 dollar cash (which he borrowed) and cancellation of the 1 dollar loan to C.
As a result, A now owned a piece of land that is worth 3 dollar. But since he owed B 2 dollar, his net asset is 1 dollar.
B loaned 2 dollar to A. So his net asset is 2 dollar.
C now has the 2 coins. His net asset is also 2 dollar.
The net asset of the country = 5 dollar. A bubble is building up.
(5) B saw that the value of land kept rising. He also wanted to own the land. So he bought the land from A for 4 do llar. The payment is by borrowing
2 dollar from C and cancellation of his 2 dollar loan to A.
As a result, A has got his debt cleared and he got the 2 coins. His net asset is 2 dollar.
B owned a piece of land that is worth 4 dollar but since he has a debt of 2 dollar with C, his net Asset is 2 dollar.
C loaned 2 dollar to B, so his net asset is 2 dollar.
The net asset of the country = 6 dollar. Even though, the country has only one piece of land and 2 Dollar in circulation.
(6) Everybody has made money and everybody felt happy and prosperous.
(7) One day an evil wind blowed. An evil thought came to C's mind. 'Hey, what if the land price stop going up, how could B repay my loan. There is only 2 dollar in circulation, I think after all the land that B owns is worth at most 1 dollar only.'
A also thought the same.
(8) Nobody wanted to buy land anymore. In the end, A owns the 2 dollar coins, his net asset is 2 dollar. B owed C 2 dollar and the land he owned which he thought worth 4 dollar is now 1 dollar. His net asset becomes -1 dollar. C has a loan of 2 dollar to B. But it is a bad debt. Although his net asset is still 2 dollar, his Heart is palpitating.
The net asset of the country = 3 dollar again.
Who has stolen the 3 dollar from the country?
Of course, before the bubble burst B thought his land worth 4 dollar.
Actually, right before the collapse, the net asset of the country was 6 dollar in paper. his net asset is still 2 dollar, his heart is palpitating.
The net asset of the country = 3 dollar again.
(9) B had no choice but to declare bankruptcy. C as to relinquish his 2 dollar bad debt to B but in return he acquired the land which is worth 1 dollar now.
A owns the 2 coins, his net asset is 2 dollar. B is bankrupt, his net asset is 0 dollar. ( B lost everything ) C got no choice but end up with a land worth only 1 dollar (C lost one dollar) The net asset of the country = 3 dollar.
************ ****End of the story******* ********* ********* **
There is however a redistribution of wealth.
A is the winner, B is the loser, C is lucky that he is spared.
A few points worth noting -
(1) When a bubble is building up, the debt of individual in a country to one another is also building up.
(2) This story of the island is a close system whereby there is no other country and hence no foreign debt. The worth of the asset can only be calculated using the island's own currency. Hence, there is no net loss.
(3) An over-dumped system is assumed when the bubble burst, meaning the land's value did not go down to below 1 dollar.
(4) When the bubble burst, the fellow with cash is the winner. The fellows having the land or extending loan to others are the loser. The asset could shrink or in worst case, they go bankrupt.
(5) If there is another citizen D either holding a dollar or another piece of land but refrain to take part in the game. At the end of the day, he will neither win nor lose. But he will see the value of his money or land go up and down like a see saw.
(6) When the bubble was in the growing phase, everybody made money.
(7) If you are smart and know that you are living in a growing bubble, it is worthwhile to borrow money (like A ) and take part in the game. But you must know when you should change everything back to cash.
(8) Instead of land, the above applies to stocks as well.
(9) The actual worth of land or stocks depend largely on psychology.
Do forward it to your friends wherever you can to spread the knowledge. You will surely be remembered for Good.
Sunday, November 9, 2008
BARACK OBAMA
Full video and text: Barack Obama's victory speech
http://www.timesonline.co.uk/tol/news/world/us_and_americas/us_elections/article5086178.ece
Article on the digital marketing mix used by Barack Obama.
http://digital.afaqs.com/perl/digital/news/index.html?sid=22572Al Ries on Obama's Campaign Strategy in Advertising Age
http://adage.com/columns/article?article_id=132237
Friday, November 7, 2008
Obama's Digital Marketing Strategy
http://digital.afaqs.com/perl/digital/news/index.html?sid=22572
A very useful article on Obama's digital marketing strategy. Click on the link or visit afaqs.com and look for the Guest Article by VijaySankaran of Urja Communications dated 7th November 2008
A very useful article on Obama's digital marketing strategy. Click on the link or visit afaqs.com and look for the Guest Article by VijaySankaran of Urja Communications dated 7th November 2008
Thursday, November 6, 2008
LIGHT AT THE END OF THE TUNNEL
Light at the end of the tunnel
* PWC’s Sivarama Krishnan’s take on the economy is that ,there is enough liquidity with individuals and banks and that given the cautious sentiment , there is none being put to use, either as loans or as investments.
*The argument is that this “meltdown” and “crunch” for
*Given that the fundamentals of the economy are robust (agriculture, industry), the industry belief is that the GDP growth rates would be at least 6% by the next fiscal. In the medium term therefore, there would be revival of demand for project finance. (50% of companies are looking at cheaper sources of funds for the medium term).
*Innovative methods like public deposits as also forming JV’s(40%) are being considered. Acquiring of competitors is likely to happen as the “consolidation’ phase happens and the “shakeouts” throw up the weak players.
*This seems to be true. While Foreign Institutional Investors have pulled out $12 billion from the Indian bourses this year, Foreign Direct Investment to
* The Oman State General Reserve Government Fund has picked up 24.5% in the 2500 acre
The land acquisition price was reported to be Rs 40 lakh an acre.
*Struggling
*
*However Tata Motors shut down its plants for 3 days to reduce build up of inventories and while blue collar workers ended up with a reduced pay for the period, white collar was not paid at all.
* Production has been reduced in all auto plants and this includes Ashok Leyland (26% reduction), Eicher (38%, in response to a slide in sales of 55%), Mahindra‘s figures are not available.
Consumer Durables have had a good season it seems. The season (sept –oct)
Accounts for 25% of annual sales. Apparently the growth was 50% over the same period last year. This could partly be because last year, Diwali was in November and this year it has come to be counted with the October sales.
The disbursements to Government employees was made prior to Diwali and with the revisions and arrears, there was sufficient liquidity to drive off take this year.
LG claims a 50% growth with LCD TV’s leading the pack. Samsung has had a 35% growth trajectory, here too LCD TVs is the driver. Refridgerators and Washing Machines are next in row. For Godrej, it was washing machines.
*Incidentally these Durable Mfrs have not used any discount schemes and most schemes offered were at the retail level. This probably explains why the primary sales to retailers is being slowed down this quarter. There is likely to be an inventory pile up with the retailer in the next two months!!!
THE BOTTOM LINE IS THAT THERE IS LIGHT AT THE END OF THE TUNNEL IN THE MEDIUM TERM.
*Swaminathan Aiyar’s column this Sunday in TOI is a worthwhile read as also Shashi Tharoor’s take on Obama’s chances. To complete the list , add Shoba De on “Fashion” the movie, very incisive, intelligent and insightful.
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