Is it Exploding or Crashing ?????

Well, I would say both !!!!!!

If you are living in today's world, you should be as worried as I am or more. Living in US or India, it should be taking a toll on you. What started as one of the cyclical downturn in US, is now far more than that. As any industry booms, its destined to bust. The same happened with real estate industry in US. After dot com bust, all the money that people had to be invested somewhere. All american citizens or immigrants started investing all their money in real estate. It boomed and it busted.

What happened differently this time ? Its a sequence of events which is most disturbing.

After the sub-prime crisis, the US investment bankers are the worst hit. They are ones who run the show on wall street. Despite of all efforts by the government, the market is not recovering. The reason being the other event of abnormal surge in crude oil prices across the globe. Part of which is credited to the consortium of middle east not ready to increase the production.

What's the solution ? Can we expect something from other side of the globe - India and China. India is having the highest inflation of 13% and growing. Steel, cement and grain prices are touching the ceiling. Crude is taking its toll too. The big indian oil companies are reducing their refining capacity as they losing so much money per barrel. If the trend continues most of these companies might go bankrupt in next two years. Who bears the brunt of all these ? Government, markets and each one of us. The Indian stock market has already sinking to its two-third levels in past few months. China has the same story to tell.

Who and what will pull these markets? First guess - Investment Bankers. Most of them are going through worst of the crisis ever. Everyone knows the Bear-Sterns and Lehman story. Rest of the funds and banks are not too far away. Second guess - Growth Potential of India and China. This one looks very promising but over past few years, the biggest consumer of Chinese products and Indian services has United States which in itself is going through a bad patch.

An interesting instance of this vicious circle came to notice couple of days back. Lehman Bros' stocks are down to one-fourth of 52 week high. The company is fighting tooth and nail to save the entity. They raised the funds of $6B from middle east. Next comes the news, Lehman turns to Indian economy for growth. They plan to invest $1.5B of those funds in Unitech, a construction company in India. On the other side, with exploding inflation, Indian stock market is crashing. Indians are losing money on both sides - the stock market as well as rising commodity prices. Very soon, Indian real estate will also follow a downcycle because of these factors. By now, you would have guessed what happens to the money that Lehman invested.

The question that comes to my mind is that: There is something wrong ???

How come commodity prices are just shooting up so much all at the same time. This can't be real. Nothing changed so much in the world drastically in past four months. There is something artificial which is driving commodity prices.

How much can artificial rigged commodities affect the economies. To take a peek, lets consider living in a world six months down the line. The crude prices crossed the $250 mark last night. With rising fuel costs, people have almost stopped flying. Two US airlines went out of operation and others are bleeding. Sky rocketing steel and cement prices have made houses so much expensive, people can't afford to buy them. The real estate prices continue to fall collapsing many big construction companies. People are seeking alternative to gasoline. Commuting has drastically reduced with so many people working from home. Automobile companies are trying to keep up with new cars running on electricity. Tech companies are cutting their staff as their clients are not making money and are not ready to spend money on the IT infrasture. Banks are cutting jobs to keep themselves in shape. I went to my office this morning. Guess what. My services are no more wanted :(

Isn't that quite a scene of mayhem across the globe. Is that what they call global recession.

Can you see it coming ??? Well, looks a little bit blurred from here. Isn't it ???

The World is Flat or Round. Exploring..

For last few days, I've been reading the book, 'The World is Flat' by Tom Friedman. A very nicely written, intruiging approach to paint overall picture of globalization.

The book starts with a section, which educates the readers, about the factors which have led to flattening of the world. The ten flattening factors/events being:

1. 11/09/89 - Fall of Berlin Wall and Division of USSR - event that led to liberation of people from chains of cummunism and opening the gates of capitalism.


2. 08/09/95 - Netscape IPO - The New age of Connectivity and evolution of Internet, the big leveller for people across the globe.


3. Work Flow Software - The evolution of web-services, platform independent approach towards computer applications and collaboration software which allowed people to work in teams from all over the world.


4. Uploading - aka Open-Source approach of harnessing community power for content development, collaboration and knowledge management.


5. Out-Sourcing - Y2K which started the era of outsourcing exposed the western world to cheaper easter frontiers. This wave started from technology but has now swept across all the industries in the west.


6. Off-Shoring - Moving the expensive work done in US and Europe to the lands in India and China at a cheaper cost and gaining price advantage.


7. Supply-Chaining - Though Wal-Mart is always painted as Supply Chain champion bringing the its advantages to the common people, yet all the companies are synchronizing their operations through supply chain to bring out operational efficiency.


8. In-sourcing - process of diversifying in the areas sorrouding your expertise. It can be best illustrated with UPS example in which they transformed themselves from a carrier to logistics company which helps companies in managing their logistics operation.


9. In-Forming - Nothing more and Nothing less than Google can explain it. Google has brought the information revolution making same info available to everyone.


10. The Steroids - Small Gadgets like Cell-Phone and PDAs are shrinking the world and bringing to your fingertips at every moment.

Insight:

DOT COM BUST - Boon or Bane : With the growth of Internet and dot com companies, companies started investing heavily on infrastructure. Connectivity was crucial for this growth. Companies like Worldcom and Global Crossing set up fiber-optic networks across the globe connecting the sleeping asian tigers to western bigwigs. With overinvestment and bubble in the technology sector, it was set to crash. When the doomsday came, these infrastructure companies went bankrupt along with many other companies which had made investment for future. Those companies are no more. Their investments, which were later resold to other companies at penny prices, became the backbone of the business in the years to come. This not only became a big leveller for all the countries, but also provided immense opportunity for countries like India and China which had huge human capital sitting at home ready to work.

The Triple Convergence: Why it happened at the new Millenium ??

1. Emergence of Web platforms and Investment in Fiber Optics Connectvity.


2. Opening of three big economies in 90's - India, China and Russia.
   
3. Companies of the West searching for next level of Operational Efficiency.

For guys who want to read this book online: Download here

P.S. - With due respect for Friedman, I'm not giving this link to promote piracy. Just using few of the above flatteners , to make it available to thousands of people living India and China as $30 is still a big deal in many parts of the world :)

will continue writing as I sail through the river of thoughts .....

Is Automobile Credit Crisis in Future Waiting....

Over the past one year, we have seen the housing mortgage crises afftecting US economy badly. It has eroded 25% of the US housing market capital, made big investment banks go almost bankcrupt and much more. Not only in US but it has also effected credit market elsewhere in the world. Have you wondered why we could not see this ? Well don't wonder now as hindsight is always clearer.

Can we think of any credit crisis in future ??? Can we see it coming ???

I don't know if I'm thinking in the right direction. Its a long shot as foresight is much harder. Everybody is worried about Crude and Gas Prices. Have you ever imagined what if Crude actually goes past $200 or may be $250 in a year. With Obama coming to white house, the tax breaks for oil companies would be gone. The gas prices will hover around $7-$8. With a economy already in a bad shape, will people be able to afford such highly priced fuel? Yes, for sometime ofcourse. What happens next.


The Big Bang !! Alternate sources to fuel !! May be electricity or Fuel Cells !! Nobody is going to drive the existing automobiles. Not because they dont want to but becuase they can't afford to drive.

What happens to automobiles on mortgage or loans. People will start doing the same what they did with their houses. They will start to default. It makes sense to default as the rate of interest of the loans is high, the gas prices will be high and an automobile is a depreciating asset.

Who will take the loss ?? What happpens Next ??

The automobile companies or banks confiscate the vehicles. The cars go back either to manufacturer or the financial institution. Its will be difficult for all of them to sell those vehicles again. Who's going to buy them ? Now the main question - Where do they get their money from ?? Is it credit crisis for the bank or Manufacturer ??? Who will be worst affected ?? How much will Automobile loans rate of interest shoot up ?

The other side of the story can be - with Middle Eastern countries increasing the production, the crude prices might go down. Alternate sources fuel are also big threats for such countries as they do not have anything other than oil to support their economy. With US economy comes out of the current recession soon and with commodities market cooling down , things might get better again. Another reasoning to this not happening in near future so sharply can be that automobiles are not as big liability as houses are. The automobile liability is usually around one-fifth of the housing liability. So people can bear with the existing vehicles for a time being or start using public tranport or gradually start moving over to other sources of fuels. I don't know if this will actually happen but its a big possibility.

Neither I can't dare to close my eyes on it and nor should you !!

will catch you guys later again ....