Tuesday, 29 May 2012

The curious public reaction to Facebook IPO

You couldn't have missed the public fury over the Facebook IPO, over the last week, even if you not economically inclined !  Facebook was a darling before the IPO - great company, stratospheric valuations, etc etc, which this blogger has been heartily against. But now after the IPO , Facebook is a pariah, it botched up the IPO, lawsuits threatened, etc etc. This time this blogger is completely on the side of Facebook and totally flummoxed by the public reaction.

What is the main charge ?  Facebook's price did not shoot up 10 times after the IPO. Instead it has declined by some 16% or so, over the IPO price, in the first week. The company has committed sacrilege. Really ??

Who are the moaners and bleaters. The punters who bought in the IPO wanting to sell on the first day after listing and make a 5000% profit. Please tell me why the company has any obligations to these greedy leeches ? What economic activity have these speculators done (never mind that in this lot might be Oregon widows who didn't know what they were doing !)? Why should they make any profit at all ? Why should Facebook "ensure" that the stock rises manifold on the date of listing ? It can be argued that Facebook should actually be doing precisely the opposite. After all if the price shoots up after the IPO, the company is shortchanging the original investors who first invested in the company to the benefit of the sharks who want to make a whopping profit in one day. By that yardstick, Facebook has done precisely the right thing.

The second charge is that the IPO price was overvalued. Now do you need a MBA to tell you this ? Of course the company is overvalued like crazy. Everybody knows that. People chose to close their eyes and believe that in a stampede they would make a killing. They've now been trampled. Tough luck. 

The third charge, and a more serious one, is that Facebook let some analysts know that its latest quarter's numbers would be lower than expectations, but didn't inform everybody. This is what is triggering the threats of massive lawsuits.I don't know the facts behind this allegation, but I suspect this is a fig leaf behind which the punters are wanting to hide. As if their stampeding to buy Facebook shares had anything to do with numbers or logic or any sensible model of valuation based on earnings. Would they have behaved any differently if Facebook had said they would earn half of what they did ??

I have zero sympathy for those moaning today, I am actually delighted that they have lost their shirts and would be even more delighted if they lost their underwears too. The right course of action for them is to wait a year or two, and see if Facebook's performance doesn't lift the share price. Fat chance of that happening - this lot has the patience of an ectoplasm !

I am totally with Facebook on this one, even though I am not with them on anything else. That's why I am not updating my timeline !

Monday, 21 May 2012

Never mind Greece, there's a bigger basket case

Its the world's ninth largest economy. Its six times the size of Greece. Its actually bigger than India. And its hopelessly bust . Yet; we aren't hearing much about it. Only because ,  its not a country. Its a state. The State of California. The world's biggest basket case ! This has been a favourite topic of mine having blogged before here and here.

California has a state budget of some $90 bn. And it just projected a deficit of $15 bn. What sort of an economy runs a deficit of 18% of the budget ?? This has been going on for years . And what does that state do - simply borrow . And borrow. And borrow.  And with no hope of ever bridging that gap. If California had its own currency, I would be merrily shorting it. It would be a prime candidate for begging at IMF's door. 

For once you can't blame the political leaders for the mess, although they are the ones being vilified and quartered. The blame must squarely rest on the citizens of California. For they are the ones who have brought this mess upon themselves by indulging in direct democracy.

California is a perfect example of democracy run wild. For decades they have been passing laws through referendums without the level of serious evaluation and trade offs that are necessary for good governance. The infamous Proposition 13 of 1978 drastically limited property tax and imposed a requirement for a two third majority to raise any taxes , making it virtually impossible to do so. Then they passed scores of spending laws like Proposition 98 of 1988 which mandate 40-50% of the general revenue to be spent on education. And Propositions like 117 of 1990 that mandated a minimum spend of $30m on wildlife habitat. Proposition 49 of 2002 increased spending on before and after school programs by some $450m. There are tons of such mandated spending with barely a thought on how they would be funded. They also pass whimsical Propositions that mandate that a chicken must be able to spread its wings and turn a full circle without touching another chicken as I outlined in this post !

The problem is simple. California depends for more than 50% of its income on personal income taxes. These unfortunately fluctuate. Recessions drastically reduce tax revenues. In boom times the revenue increases are spent away and nothing is saved. In hard times, there's a massive hole in the budget. There is zero political will ( read citizen appetite) to do anything about it. Budgets are never passed on time. Fiscal irresponsibility has a new meaning in California that would make Greece blush. California is the perfect example of how not to run an economy.

The puzzling thing is that California is also home to the smartest people in the world.  It is arguably the most intelligent place on earth. And yet ..... 

Maybe intelligence is no insurance against stupidity !

Sunday, 13 May 2012

A matter of grave import to the nation

The Hon'ble Supreme Court of India is a very esteemed body and is concerned with matters of grave constitutional importance, on which hinges the future of this nation of 1.2 billion people.  Therefore when this august body makes a ruling, we should take it very seriously and comply. It also goes without saying that the Supreme Court only rules on extremely weighty matters and does not lend itself to trivialisation. It is therefore very clear that the removal of sun films from car windows is one of the most important and pressing of issues that confronts India today.

The Supreme Court has ruled, after intense deliberation, and careful consideration of legal issues that pasting a sun film on your car window is illegal. That it has devoted its valuable time to this, while it is suffering from a massive backlog of cases is enough evidence that this is an extremely grave matter. A very concerned citizen of India, Mr  Avishek Goenka (it is completely untrue,  that the aforesaid gentleman is an old f@*$, of the qualities I alluded to in this post) filed a Public Interest Litigation that sun films on car windows was an important reason for rape, dacoity, murder and a host of heinous crimes . The Hon'ble Supreme Court agreed. From now on , thou shall ride a car with sun films on the windows at your peril.The implication of this judgement is obviously that as soon as sun films are removed, the incidence of dacoity, rape, etc etc shall drastically fall. Please monitor the statistics in the next few months to see this dramatic fall.

The police in each state is getting ready to diligently implement this critical matter of public policy. They shall now treat sun film violations on par with catching those driving without a license, driving on the wrong side of the road, driving without any lights at all, five people riding a two wheeler, parking in the middle of the road etc etc. These matters already receive the highest attention from the police, so much so that these problems are largely licked ; they will now have the time to tackle sun film.

The Hon'ble Supreme Court did not mention this, but we can speculate that the corollary effect on public health also influenced its opinion on the matter. We are somewhat concerned that Vitamin D deficiency is at an unacceptably high level in India. Exposure to sunlight, especially the intense summer sun that we are blessed with, is really a significant aid to the health of the nation. With no sun films on car windows, my vitamin balance will be strengthened by the absorption of more sunlight.

A byproduct of this move shall also be to enhance public morality. Activities of an amorous nature, carried out in the confines of a car will now be visible to the, umm,  naked eye and therefore act as an effective deterrent.

I shall also compliment Mr Avishek Goenka on services to the nation and exhort him to continue to strive for further reducing dacoity , rape, etc,. Considering that a significant proportion of such crimes are done indoors, its time to turn the attention to buildings. It is deplorable that building windows are tinted and the view blocked by curtains. I am exhorting Mr Avishek Goenka to move the Hon'ble Supreme Court to also deliberate upon the legality or otherwise of curtains. (Reflections, please note).  After winning this, Mr Goenka is also exhorted to move the Hon'ble Supreme Court to ban the wearing of sunglasses so that potential rapists who are ogling at women with the intention of committing rape can be more easily found out.

I am extremely happy to be living in a land where the institutions are so concerned about my welfare and safety. I shall now feel much safer on Indian roads knowing that policemen are on the look out for sun film offenders. I commend and applaud all those who have diligently framed this public policy. Jai Hind.

Friday, 11 May 2012

Oh no; Not again

This blogger is rather vain about his English. And yet he was completely flummoxed when he spotted the headline "JP Morgan loses $2bn in egregious error" . He has to sheepishly admit that he did not know the meaning of the word "egregious" and had to look it up in a dictionary :( Trust a banker to come up with an unintelligible world - at least unintelligible to one "master" of English :). It sums up the problem neatly. The financial world has gone so bonkers in dreaming up structures of incredible and ununderstandable complexity that we cannot sit by and watch this go on anymore.

JP Morgan is a well respected bank. Its governance is top class. It should be one of the models of all that is good about the financial sector. In  Jamie Dimon, it has one of the finest Chief Executives in the world. It has superb risk management systems, strengthened even more in the wake of the financial crisis of 3 years ago. And what happens - it manages to lose $2bn in  one quarter on credit derivatives trading. An "egregious error".

This casino has gone gone berserk and has to stop. Enough is enough. Here is this blogger's remedy which is an extreme extension of the Volcker Rule.

  • Commercial banking must be made a boring business. No proprietary trading. List of what they can do is made boringly small and strictly regulated by a super Ramamritham. All bankers have to come to work wearing only a panchakacham (man) or madisar (woman) - the logic being that anybody dressed like this can't be a punter.
 
  • Commercial banks continue to enjoy the implicit sovereign guarantee. They are not allowed to become too big. After a certain size, they have to break up into two; somewhat like an amoeba.
  • This is a free world. So the downright crazy casino is allowed; but at only two places in the world - Las Vegas and Macau. If Europe makes too much noise, Monaco can also be let in.
  • Any idiot who enters any of these three places is required to sign a pledge that he clearly understands that he is committing suicide. Before he starts punting, he has to get a license, which will only be granted after he spends one night in the ward meant for the dangerously criminally insane.
  • No bail outs for the punters in these three cities. If they lose their shirt , or something worse, it is their funeral. The state may helpfully construct a 100 floor tower with a fast lift to the top so that those who want jump off are easily facilitated.
Period. No more discussions or engagement with the financial community.

PS : If you are still wondering what "egregious" means, Dictionary.com defines it as " extraordinary in some bad way; glaring; flagrant"

Thursday, 10 May 2012

Pranabda ko gussa kyon aata hai

Statutory Warning - This post has language which may be offensive to some. Reader discretion is advised !

Why is the  Finance Minister  an angry old man  - approximate translation of the title of this post for non Indians. He is one of the most mature and level headed politicians in India. And yet, these days, he is behaving like an "old f&*% with that perpetual scowl on his face" - you can see zillions of this category in any apartment owners' association in India. Either he has gone a bit batty or has let Ramamritham loose - both of which are awful developments for India

I am referring to their collective antics relating to the tax laws in India. The Vodafone story is now well known and is the subject of an earlier post of mine. Pranabda is simply being extremely churlish and petty in pursuing this. I continue to be amazed that they are going after Vodafone (which was the buyer in this transaction and made no capital gain) rather than the seller, Hutchison Telecom, which is really the company they should go after. If Ramamritham has any b*&@$, he should take on China.

But they haven't stopped there. They are loudly defending the retrospective changes they have brought into the Income Tax law . In this process, they are also overriding bilateral tax treaties with many countries. Nonsense regarding sovereignty and the right of Parliament to enact any law it pleases is being spewed. They are seeking to impose GAAR (General Anti Avoidance Rules). In layman's language, GAAR  simply means that you as a tax payer have to prove your innocence (the taxman is simply going to assume that you are guilty). Fantastic. Grrrr.

I can understand the pressing need to raise revenue - given that they are spending money like water on doles and giveaways and simply borrowing their way to nirvana. Even grant for a minute that curtailing expenditure is a non option (wow).  But is this the way to raise money ?

Only 35m Indians pay Income Tax. That's 3% of the population. Is really 97% of India poor ? How about getting some more people to pay instead of screwing those who do ?? Just look at the fantastic (and mostly ill gotten) wealth in property most of which is in suitcases. How about tightening the noose on those. Even today you can earn Rs 10000000000 crores as "agricultural income" and not pay any income tax at all. Why not tax that ?

The relationship between the taxman and taxpayer is one of extreme confrontation in India - anybody who has been at the receiving end of attention from Ramamritham knows this. Laws are draconian and the concept of guilty until proven innocent is well engrained. Dispute resolution in a sensible way is non existent - everything is confrontation. With the latest scowl on Pranabda's face, its only going to get worse.

When will we ever learn that making laws simple and fair , keeping tax rates reasonable and letting economic activity boom is the surest way for governments to increase revenues. Pranabda knows all this - he is a wise and extremely experienced minister. And yet, look at what he has become.

Will the Pranabda of old resurface please ?

For a more level headed and saner piece on this issue, read here.

Tuesday, 8 May 2012

A cross post

Should we worry about India's economy ? Yes says Sriram, a friend and a most prolific and versatile blogger. He makes two or three posts a day  and has wide and original views on a number of issues.  On India's economy, he says

"Less than a fortnight into the hundred days in India, the more I observed, the more I wondered whether India's economic "success" story was more hype than real.  That line of thinking morphed into to this column in which I wrote that "the economic health of India is not looking good."

Every day, evidence seemed to pile on to further reinforce the impression that India could run into some serious economic troubles really soon.  I was particularly concerned that the country was not paying enough attention to the long-term requirements of
resources, energy, and infrastructure."

You can read his full post here.

Yes there's much to worry and despair about. We have made some progress, but make disproportionate noise about it. The real tragedy is that India is capable of so much more - Oh what a huge unfulfilled potential there is. With this much poverty around, its a crime to let potential go unfulfilled.

Sunday, 6 May 2012

Excuse me, which way is it to Omaha ?

Where on earth is Omaha ?? I must confess I had to look it up on a map. God - its in the middle of nowhere. Who on earth wants to go to Nebraska anyway. Well, this weekend, all roads lead to Omaha, if you are a certain type who likes to make money. For its the annual jamboree of Berkshire Hathway, and one old man named Warren Buffett.

I really don't understand why anybody wants to go to that blessed event. I mean, can there be any excuse for wanting to go to Nebraska ?? For God's sake ! To listen to words of wisdom from the "Oracle of Omaha" ?? Please, spare me the thought. Warren Buffett is no sage. In any case, if the multitude that go there even care to listen to him, they wouldn't be going there in the first place. For after all, he has been saying for donkeys years , don't listen to self proclaimed sages. Don't go on tips and hunches. Do research. Invest for the long term , etc etc. Everybody goes there to get tips on investing. They haven't understood what he has been trying to tell them - don't listen to tips. Whoever said that there was a surfeit of brains in the investing community.

But I want to go to Omaha !! I wish I was there this weekend. But not to listen to the old man. Or even have the free ice cream they dish out. I want to be there for a far more important reason. I want to have a chance to challenge Ariel Hsing to a game of table tennis.



You see, Warren Buffett is an amateur table tennis (ping pong, if you prefer) player. Typical of him, he spotted a talent in Ariel Hsing, when she was 9 years old. He brought her to his annual jamboree and then challenged anybody to beat her - the winner gets a box of candy. In the six or seven years, nobody has beaten her. She is now 16 and has made the London bound US Olympic Table Tennis team. In one of those years, she thrashed Bill Gates, who is an amateur player himself - one of the few occasions when Bill Gates has been thrashed in anything. Buffett even joked that Bill Gates' manhood has taken a severe beating losing to a pre teen !!

So, attendees to the Berkshire Hathway AGM can challenge Ariel to a game. Well, I have some claims to playing a decent standard of table tennis. I rather fancy my chances. Of course, I would chivalrously lose in the end, but after giving the lovely lady a bit of a running !!

Unfortunately Bangalore to Omaha is a fair way, although the opportunity to play with a lovely lady must move a man to trek to the moon. In my younger days, sure.  Alas, with the advent of years ....... I shall therefore pass the opportunity to Gils, who is not far away - he having recently shifted to an equally obscure and godforsaken place, rather close to Omaha !

As for Ariel, good luck in London, young lady. The US team, as indeed many other teams, is entirely made of ethnic Chinese. They will soldier bravely, but really have little chance against the real thing -  China. Which other country can afford to drop the current World No 1 man and woman from their team ?? That's exactly what China has done. Perhaps not that surprising, when they also have the No2, No3, No4 and No5 !!

Tuesday, 1 May 2012

Cry for me, Argentina

Its time to change Andrew Lloyd Webber's famous song in Evita. There's no option, but to cry for Argentina. How else can you react to the awful move by Cristina Fernandez, Argentina's President, to nationalise YPF, two weeks ago ?

YPF, Argentina's largest oil and gas company is 57% owned by Repsol, the Spanish oil giant. Ms Fernandez's grouse against Repsol is that it is not investing in increasing production in YPF. This is partly true, but the real reason why YPF is not expanding production is that her government has artificially kept petroleum product prices low . No company is going to invest for very little profit. So the good lady has decided to nationalise the company. No doubt, a pittance would be paid to Repsol, well below the market value of its shares in YPF. This is daylight robbery, of the kind Ramamritham (of Vodafone fame) would feel proud.

Is this any way to treat your largest foreign investor ? Spain and the EU are up in arms and threatening a fight. Spanish companies have significant investments in Argentina, united by a common language, of course. Argentina can kiss good bye to any foreign investor from now on. Already it is an international economic pariah having defaulted on its sovereign debt in 2001. However much you hate international finance, you need investors for any economic activity.

Does any serious country nationalise anything these days ? Is there any more proof needed that nationalisation and state control of industry does not work ?

An interesting by line is the parallel with Indian politics. Cristina Fernandez is a Rabri Devi. Her husband Nestor Kirchner was the strongman of Argentina. When the constitution limited him for a consecutive presidential term in 2007, he installed his wife as President and , well ...... The plan was that he would return back in 2011 as President. Unfortunately, God willed otherwise and he died. So, the lady continues.

The worrying thing is that what this lady is doing might be read, and emulated, by another lady who's running another Eastern state in India. Thankfully, the latter lady apparently does not read any newspapers other than those that only write about her greatness. She certainly doesn't read this blog and there is little risk that the Argentinian precedent will be known to her. But still ,.........

The real worry is that Ramamritham has learnt about this move in the opposite corner of the world. You see, the problem with Ramamritham is that he reads widely, maybe even this blog !! The real worry is that he will take a leaf out of Ms Fernandez's book.

Andrew Lloyd Webber will have to produce another musical then. "Sonia" the musical, will feature the hit song, Cry for me, India !

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