Ethics-My 0.02

There were 2 incidents, which i won't forget my rest of life from my school days. 1) My stunt of dropout from 3rd grade to favor of work in a cattle (just kidding) 2) one of my classmate burnt my other classmate's books in order to beat him to get top rank. The class rooms across india were literally considered next to religious places, there was no 'drought' of ethics preach, even then my classmate acted unethical way to beat competition. I wondering sometimes why some become unethical but some follows ethical even though they all came from similar society set up and same level schooling etc. The rewards and recognitions also some times shows soft corner to some one plays unethical way, for example, the classmate who burnt other's book did manage to get top rank.

I think ethics is blanket term, we can't expect one have to follow open ended ethics rather we have to define ethics based on context and business success. For example, a car shop may not expect their sales man have to follow 100% ethics including telling lie is big unethical, but they can follow zero tolerance towards a sales man who stolen car parts. Just imagine, Bob joined car shop but he has ethics that he won't tell lie (assume the job paying good salary, he lives next to the car shop blah blah so he joined but one disadvantage is in car sales he have to tell lies). Here are some ideas to Bob to succeed in his career.

1. Identify the moments where a sales man have to lie more - Ask help from co- worker to fill up the gap. When customers ready to close the deal is, most anxious moment and they ask lot of "silly" questions which may need some lies, ask some one to answer those questions.

2. Frankly tell customers about your ethics principles, who knows most of the customers liked your honest and they want to work with a honest sales man.

3. Be with the flow, read more information about cars, some times you have to tell lie because you don't know the answers. Customers won't like the answers, "i will get back to you" or "i don't know". The information and depth to details is key to avoid unnecessary lies.

4. Join with likely minded co-workers even though it is hard to find 100% true speaking sales man, but the close you get is better you be friend with. The point is, never feel left alone.

Return on Subscription

Return on investment is most obsessive term in business world. Everyone and every where business managers develops return on investment strategy to win their ideas from top management. It make lot of sense for decision makers,venture capitalists and investment gurus, they need to know what they are investing, how much, what are their return and so on.

Here is an interesting story,a divisional manager at India's well known BPO organization,they are working for a famous telemarketing company based on U.S. Their main job is to call as many as U.S customers to tell them about various new products. Their performance is measured by how many calls they made for any given day. The manager noticed that one side(West facing) of office employes making more phone call than other side(East facing). Both the sides has same level of people, their skills and everything matched but East facing side of employes make less call than West facing side. After several rounds of research, my friend found that there is big clock on the side of high productive employees side, so he decides to buy a clock at other side also.

He wrote an email to top management to ask permission to buy a clock which costs approximately Rs 1000/- ($20). But the decision maker asked him what are the ROI points to spend money for a clock now? All he knows is, there is something with the clock that makes the difference but he doesn't know the reasons. So he dropped the plan but he hired a contractor to monitor carefully on both side of the employees. He set a date to submit the report stragery. Finally the contractor submitted the report, which has many knee jerk reaction findings. intitution

1. Most of the employees of the firm are young and they don't have habit of wearing a watch.
2. All PCs in the firm are set as U.S Eastern time,hence the employees rely on the clock to find local Indian time.
3. The low productive side employees since they don't have a clock at their side, they always uses their mobile to check the time.
4. When they check the time,they are also noticing some text messages and some missed calls.
5. They are spending some time with texting back and call back to missed calls before getting to work.

The divisional manager was happy that his intuition was perfect but he spent Rs 10,000 (~$200) to find out reasons for Return on Investment.Now he sent the email with his ROI points to buy the clock, within 5 mins he got the permission to buy the clock.

The above story is the reality that we are facing nowadays, if we want to know ROI for each and everything,we might end up spending more. But business world is not going to change any time soon. Now we are at level 3 of Return on Investment, that is Return on Subscription. What is ROS? I subscribed for WSJ for last 5 years, how do i measure my return on my subscription? Is it valid for me to find return on a service? I googled the term ROS and Return on Subscription but none were returned useful information. I thought then ROS is already measured within ROI so ROS is a nut idea.But after several thinking and reading i think i'm right, we have to measure our return of our subscription.

For example, i'm a big fan of Quicken Software , I spend yearly $70 to upgrade to next version. How do i measure my ROS for this? My thinking is, i carefully review Quicken software's feature sets, Are they providing me more and more features on each upgrade? When i bought my first Quicken on 2002 it doesn't support online transaction download, now it provides it since i feel very satisfied with my upgrades. But they didn't change anything core within software. The service and purpose remains the same but more and more features on each release made me justify my subscription. What if they didn't provide any features on each release, because Quicken 2002 is more than enough to manage my home,personal expense, why they bother about spending their resource to upgrade Quicken on every release. As i said, Return on Subscription is real, customers always checks it and if there is no upgrade, there is no sale, no profit.

A Job - A Career - New IT Social Work

When I ride bus and train to work, i have to travel almost 60 miles, i have to pass several business during my ride, most of them are small business. I wonder how are they managing their income/expense and tax and many things, as any one assumed everything manual. They are not IT or progressive haters, they are brilliant, risk taking and growth oriented hard working people. I can spot 50 business with in 60 miles of ride means how many small business are here at U.S.A. There would be millions, most of them are not IT enabled. I envisioned a global community, bunch of developers, working as team to solve these kind of small business using completely open source at nominal rate. It started 2-3 years ago but it didn't scale up because of several reasons, the main one would be greediness of some people and lack of project management and competition from big IT service companies.

Here we are now, global level IT market saturated at salary level, big companies like IBM, Accenture and TCS can't serve this small business, they are very interested in long term contracting with big companies. IT open source developers are quit their ambition of serving small business because they joined with some companies as full timers or consulting through big companies. The main reason for developers quitting is A) small business won't provide enough documentation B) there process is very tough and ambiguous because of prolong manual process C) they can't give very fancy work place and attractive rate.

The above reasons are just some excuse to avoid those small business, the main reason is one could not think through the process complete and lack of transformation knowledge of actual process to design to code. Here after this world can't silver spoon feed each and everything to developers, they may not get 300 page documents, they may not get a skeleton of code to fill up, they may not get release support etc. If you are a developer with more than 10 years of experience you have to know all "how to's" from processes to design to code to code migration to production server.

There are millions of small business looking for these kind of all-in-one developers to change their process. All we need is some social sense to help others and self-learning thrust. If we do this ,future of IT definitely provide endless chance to every body who are really a veteran developer.

End of Iron Curtain: Start of Free Market… Sort of…

I was 15 years old when Berlin wall dismantled and I was not very keen to follow the events. Those protests eventually ended “socialist” era to make a new way to start free market, capitalist era. But out of curiosity I asked to my dad and other elders that, so the communists going to out of our area also, no more strikes, so my friend’s dad can go back to factories which was closed for years etc…etc. None were provided a clear cut answer and unfortunately communists able to survive in our area, I would say it become stronger in 2 states. After end of iron curtain, communists started thinking about a new perspective of their philosophy, they become capitalist orientated may be lessons learned from modern China which is good for all of us.

20 years later after end of iron curtain, fall of Soviet Union, and free markets, are we well off with this system? Is this world become a better place to live? What are the advantages? Obviously this world become a flat, trade and investment flowing across nations, there is no border for goods movements, new inventions, new products discovered and the role of governments become less but private company’s role become bigger, rich people become richer and poverty rate of some countries were reduced, all are happy, smiling, everything is colorful.

If I stop this post now, definitely I’m looking only the glass half full, there are something missing.

• Aren’t we putting all eggs into one bucket? For example, India the whole economy depends on 5 richer people, what will happen if they decide to disinvestment from India?
• Aren’t we polluting our earth faster than before?
• One cell company controlled almost 4% of GDP of a country. What will happen if they show 4 continues quarter’s loss and decided to lay off people?
• Do we know how to survive without working for 1-2 years? Are we teaching our kids how to farm a land and make it useful for cultivation?
• What will happen if the same happening happens in Detroit to all of our other cities?

But there are always some flaws with all the system, the system we have now is excellent one but as long as we all are honest and utilizing the system how it should work then no issues. Go Free Market.

The Hitchhiker's Guide(1) to the Liquidation

As I said before, nowadays making money is very easy, if you aren’t then government gives you some [Just Kidding]. The point is, comparatively with earlier generations, because of global economy and free trade and so many things make money available to everybody now. As long as, we have a decent education with IQ over 100 can get a decent salaried job for most of the people in this world [An idealist statement though]. Now we have money and how to manage it and how to spend it wisely and what to buy and what to avoid and where to invest and how to liquidate and rebuild the wealth is big questions. A common average human doesn’t know that hence we need a intelligent MBA grads to manage our wealth. The last decade’s extraordinary demand for a top notch business school MBA grades also because of we don’t know how to manage our own money. The downturn and economical instability also because of us, each individual doesn’t know how to manage it properly. All money going to one direction for a long time and then stops is the main reason for recessions, in other words we are putting all of our eggs into one box and let other’s decide what to do with that with the pool of money.

As far as I know people loosing money because they don’t know how to build a wealth and then liquidate it wisely at correct time and rebuild it. We average human tend to become greedy when we involve with money, we try to emotionally attached with it, and we don’t know how to treat money as a commodity and work with it as professional manner. In capitalism, liquidate an old business and rebuild a new a business is common one. I’m not here talking about a compulsory liquidation or some sort business related. Just how we manage our portfolio and how to sell stocks, assets, or other investments at right time to rebuild our wealth.

130 Years ago my great-great grandfather bought some land for Rs 200.00.Now the land value is Rs 2 million (9999% growth). Are we a good investor? I would say no, Indian stock market soars from index 1 to index 17,000(19999%) with in the same period of time because Indian stock market was created on around the same period when my great-great grandfather bought the land. Either my great grandfather or my grandfather should have been sold some of the land (liquidate) to reinvest with stocks. Imaging my inheritance amount would be Rs 200 Million [I’m not greedy just proving my point]. Let’s see how to liquidate and some important points at next post.

Jobless Recovery

Are we heading to a jobless recovery? From Krugman to Joe Biden everybody thinks the same. Actually the last job report was a scary and it overturned all the predictions and met all threshold. But a point to remember is, job market is a trailing economic indicator, it would take some time to stabilize the condition. Based on previous recessions 1981-82, 1991-92 and 2001-2002, when economy turning around it would start sending mixed signals.

The recovery may not be uniform as we like, because the medications prescribed for economy would start show it signs at different times from different places. For example, investors always positive thinkers since they buy in all from Fed reserve and treasury's assessments and start buying stocks hence sock markets going north but employers are causally optimistic about future business hence we are seeing a lousy unemployment report. It is pool of people thinking differently and some sees half empty and some sees half full. But the truth is, we are not going to live like this forever, people have to come out and start buying stuff, economy going to recover like the previous one. But timing is the matter now.

I think President Obama's stimulus plan going to be in full effect from September and gas price again easing and people come back from summer vacation, back to school, long term investment decisions all going to happen on late Summer. The first 6 months are not good for markets as well as any recovery since i think the 2nd half would be better for all of us. Good news is we already in 2nd half.

Source:

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/02/AR2009070200354.html

http://abcnews.go.com/ThisWeek/Politics/story?id=7966402&page=1

http://blogs.abcnews.com/george/2009/07/biden-we-misread-the-economy-.html

End of Recession?

As per my view, recession ends when oil price jumped to $45, we are not seeing price cooling off and second indication is gold price spiked above $900 and third indication is consistent home price/sales upward trend and forth indication is stock market keep on climbing north plus today’s important last hour bull ride. We are exactly at bottom and market positioned itself to stabilize and ready for right side of U within next couple of months. Now major worry is inflation and oil price, one of prediction is oil price would touch to $300 with in a year, that’s roughly $8.00 per gallon. This prediction should not happen but never know.

It was a excellent job of President Obama and his team, President Obama said at yesterday’s 60 mins that “Now--there's a potential silver-- silver lining, which may be that things are so accelerated now, the modern economy is so intertwined and-- and wired, that things happen really fast-- for ill, but things may recover faster than they have in the past.” that is exactly right, now we need more help to par with growth of economy.

But there are some caveats though, the final version is work in progress and people try to make it perfect and perfect as a result imperfect one would emerge. The best part of the plan is, private investors and banks going to decide the price and government will not interfere with the process hence we can expect a transparent price determination of toxic assets. For example, $100 worth of mortgage can be sell to $85 or $86, there is no one price for all bad assets. The remaining matters are too economical for me to comprehend but some banks that are already write down their assets are best place to capitalize the moment as per top economists.

Source:
http://www.huffingtonpost.com/2009/03/22/obama-60-minutes-intervie_n_177854.html
http://online.wsj.com/article/SB123776536222709061.html?mod=mktw
http://online.wsj.com/article/SB123784599683118241.html

Bigger Expectations

All eyes are towards Wall Street, how it is going to trade tomorrow and coming days are crucial for these gloomy economic times. Today’s Fed Reserve chairman Ben Bernanke’s optimistic interview he was very positive than before, he reaffirmed the recession could end in 2009, which is good news and all investors are closely watching this development. Actually now part of new tactics from Obama administration is, top officials are coming out and spreading positive news around media, which is good and they have to do it.

One more good news is, from OPEC that they are going to keep the output. The stability of oil price is really important during the pre-recovery period. Everybody thought OPEC going to cut production, but they exercised common sense at these tough times.

There are two key events changes the fundamentals of recession, A) stability of retail sales B) blame game and pointing finger started. Why these are really important, retail sales is really important because people start spending means they are now came out of recession mood and more importantly Obama’s big stimulus package start doing it’s magic now. The blame game towards CNBC and Jim Cramer is really good sign also. During last stage of earlier 2001-2003 recession, final moments, there were huge blame games started swirled around and lot of lawsuit filed at end of it. Now we just started it and will go on until this fall with wave of lawsuits.

Ok…again it is wait and see.

Bull Ride

Definitely bulls are out there but hid to come out because of continuous sober news from recession hit market place. Yesterday’s a simple memo from top bank official made the bulls out of hidden places. The bull market extended to world markets and today also. So the million dollar question is, are we out of woods? In my opinion, no we are not yet. Still some companies want to cut cost during Q2 and Q3 of 2009 and housing market is not finding enough buyers to stabilize market and foreclosure not yet completely done.

The top level, first line of investment professionals are out of woods for now, this is exactly happen when we are at bottom or close to bottom. First indication was, oil price didn’t touch psychological barrier of below $30 and bullish FOREX dollar value and gold price/U.S Treasury bond value up. These all are indication of bullish mood slowly returning to market. U.S employer’s cut almost 4.4 million jobs, if we use 20 jobs save 1 million calculations, U.S companies going to save $220 billions in coming quarter plus the various cost cutting could save other $200 billions. So future earning per share going to improve a lot, stocks will look like lot of cheaper and it will be viable option than Oil, Gold, and Treasury bond investment. We are all set for prolong bullish market from Q3 2009 and overall economy from Q1 2010.

But as Warren Buffet said don’t believe technical nowadays, it is very hard to plot future graph and predict this market. Jon Stewart taking direct hit with Jim Cramer about his predictions. But if we believe the same business contraction and expansion cycle pattern repeated 18 times since 1872 including 2 great world wars and great depression, what is difference at this time?

Source:

http://online.wsj.com/article/SB123676922949993593.html

http://www.cnbc.com/id/29592831

http://www.huffingtonpost.com/2009/03/10/jon-stewart-slams-jim-cra_n_173738.html

Recession: Why this severe?

As per basic of investments, if person A lost x amount of money, person B gained the same x amount. The money stays in economy, and person B might reinvest the money for some other purpose, this is called money rotation (my own lay-man term). What happened now is, people lost money on real estate and no body else gained it, the money just evaporated. Lending institute is the one dodging the bullet by writing down bad loans. One question may arise why lending institute is selling at low price now, and can they wait some more time to sell it higher price? But holding a foreclosed asset is high expense than selling it 20-25% price down.

A rough estimation is, an average lending institute holds 90% of home loan value on foreclosed houses. 1 million houses were already foreclosed and almost 6 million will be foreclose with in next year. On each house for sake of argument say lending institute losing $100k, so that equal to 7,000,000 X 100,000 = 700,000,000,000/-, which itself is $700 Billion. So far government gave about $165 Billion as bail out money, which may not enough to cover even legal fees which lending institute accrued over foreclosed houses. So we can’t expect them to loan more to public right now.

The so called money rotation is just frozen to small industries, car loans, student loans and all kinds of loan, so now we are going through a non money flow time as a result catastrophically job loss and severe recession. This is exactly happen in Japan from 1990 to 1999, they had unrecoverable prolong recession for almost a decade and economy again rebounded after digital, plasma TV inventions. But U.S.A is not a Japan, they are the largest consumers and producers in world, U.S.A’s GDP is 13 Trillion and world can’t afford to prolong recession in U.S.A. 

We have to make smart decisions now, yesterday’s Microsoft’s decision to open a retail shops across America is smart one like wise we need to some top tier companies have to spend some money for wise investments. McDonald already planned to open more stores are the best examples of smart decisions at this recession time. This is good time of making long term investments, many millionaires came out of this kind of market. This with government tax cut, spending make economy flourishes again by this year end.

I end my recession series here…

Happy Valentine’s Day…

Source:

http://en.wikipedia.org/wiki/Japanese_asset_price_bubble

http://en.wikipedia.org/wiki/Foreclosure

http://www.huffingtonpost.com/2009/02/13/microsoft-retail-stores-t_n_166651.html

What went wrong?

There are so many blame game swirls around here about who is responsible for this recession? Each recession is unique and we can’t blame some particular industry or group of people or a single entity for failure. This recession is really a combination of many things, it is very hard to pin point why and what went wrong? But we can concentrate on who lost most from this recession.

• Developed nation’s unemployment rate should not go above 5%, but now U.S.A unemployment rate is 7.6% and some places unemployment rate is above 10%, which is unacceptable.
• As usual, undocumented workers and some legal immigrates are more affected in terms of jobs and they were returned or forced to return to their home country, which is unrecoverable. As per Chicago Tribune report, there are some 367K undocumented workers forced to return and volunteer return may be close to 1 million.
• As of legal immigrates, most of them are degree holders returned to their home country and joined various local companies. For example, IBM laid off some 4,000 people and offered them a job in Argentina, Brazil, China, Czech Republic, Hungary, India, Mexico, Poland, Romania, Slovakia, Slovenia, South Africa, Turkey, and United Arab Emirates. Good for those emerging markets, they need more talent people, and recession is good time for them to get good resource. It is same as last recession.

Most of media blaming people’s greedy for this mess. But I don’t agree with them because we are at capitalist era and making more and more money without breaking any law and buying more stuffs are basic for capitalist. There is no limit for the money and commericalism, all of us at least want to buy or explore the following

• Decent home at prime location.
• Send kids to good school and any Ivy League college.
• Benz/BMW cars.
• Hawaii trip .
• High end 150 inch plasma TV.
• Home theater.
• $5000 super bowl game.
• Gold and diamond watch, jewelry.
• Fun trip to Las Vegas/Disney world.
• Europe/Asia/world tour.
• Cruise from Florida to Norway.
• Last but not the least donation to charity.

We are progressively developing and there is no end of is, again this is fundamental of capitalism. The whole economy is moving because of this spending and our eagerness/greediness to explore, experience new technology and world.

But how soon we want to do all is matters. For example, if we want to buy a 150 inch plasma TV for $10,000, A) spend 5-6 months to save at least $5,000 and get credit for remaining $5,000 B) buy it as soon as possible get all by credit. The first (A) way is wise one, we are utilizing our future money at same time spending some from our own saving. We have to decide when we want to go world tour, at the age of 25 or 45. If we go at 45 we can spend some money from our saving and get some credit if necessary.

It is all depends on our decision making. I think lack of clear decision making is the main reason for this recession, starting from individuals to financial industry to Wall Street to Main Street.

Source:

http://www.chicagotribune.com/news/nationworld/chi-deportees-09-feb09,0,5333975.story

http://money.cnn.com/2009/02/05/news/companies/ibm_jobs/

U.S Stimulus Package

Finally a balanced version of stimulus package going to approved by lawmakers from both the houses. The final version is very balance, 35% in forms of tax cut and remaining 65% towards spending, mainly construction. My first wish list, redo all Chicago area roads, too many pot holes, too large also. The hope is as soon as this Stimulus becomes law, Caterpillar Inc would rescind most of 22,000 layoff which announced recently. This will be applying to all over country, some companies want to rehire some layoff people as soon as this becomes law, most of the spending towards rebuilding and most of 3.6 Million layoffs were from construction, manufacturing industry. They can easily find a job from this spending. First time home buyers are getting almost 15% tax credit, definitely it is going to help real estate also. Here is a chart of job losses from this recession, just compare with previous one, it is mother of all recession so far, and 3-4 months ago it looked like another 2001 recession, but still they are close. This is why we need a stimulus as soon as possible.

 Source : http://www.huffingtonpost.com/2009/02/06/job-loss-chart-what-36-mi_n_164828.html

One of my personal wish list also included in this stimulus, that is, digitalize all medical records to reduce paper work. When i started my career in U.S at Silicon Valley the start up Neoforma had an ambitious goal to support healthcare industry to reduce paperwork. So we know how much paper work involved in health care industry. We successfully helped healthcare industry from fax based ordering system to online that was a revolution at that time. I’m glad that i found an excellent article from 2001 archive CNN Money regarding this matter.

The stimulus package is huge and massive in size, i wonder how come Mr. Obama’s team gets assembled this much detailed package very soon and introduced in both the chambers. The green initiatives are great and it increases awareness of saving energy all over country and even world. But we need an innovation based projects also, which are lacking here, anyway innovation always come from private sector not necessary from government.

Here are highlights of this massive Stimulus package, please note it is not from final version.

• $32 billion Funding for "smart electricity grid" to reduce waste
  
• $20 billion  Renewable energy tax cuts and a tax credit for research and development on energy-related work, and a multiyear extension of renewable energy production tax credit

Smart electricity grid is much needed infrastructure change now. Energy related work is definitely helps to lower oil consumptions. 

• $6 billion High-speed Internet access for rural and underserved areas.
  

Good for Web 2.0 startups.

• $32 billion Transportation projects
  
• $31 billion  Construction and repair of federal buildings and other public infrastructure
  
• $19 billion Water projects
  
• $10 billion Rail and mass transit projects
  

 I think we need more rail and mass transit projects. 

Source:

http://news.yahoo.com/s/ap/20090211/ap_on_go_co/congress_stimulus

http://money.cnn.com/magazines/fortune/fortune_archive/2001/11/19/316359/index.htm

http://online.wsj.com/article/SB123202946622485595.html

http://www.huffingtonpost.com/2009/02/06/job-loss-chart-what-36-mi_n_164828.html

Recession/0.5 Depression 2008-09: Explained in my words

In software engineering, we have “trail and error” to fix an issue, we don’t know the solution for a problem but merely provide a code change and hoping that would fix the issue. If not, then try again. We are in same mode for current recession also. Mr. Obama’s stimulus package definitely going to help economy to flourish but how long. It was very unfortunate that world leaders not coming together to fix the fundamental financial architecture break down.

We have to first understand what caused this issue.

1. Joe planning to buy a house in San Jose, CA.
2. He walks into a bank for a loan at value of $800,000/.
3. Bank determines that Joe has some issue with credit history hence he will not eligible for prime rate.
4. Even though Bank gives mortgage loan to Joe at sub prime rate @ 3.5 Adjustable Rate Mortgage.
5. Bank then sells this mortgage to big investment firms like Lehman Bros, Bear Sterns etc.
6. This investment firms bundle up all this loans and sells all over world. This is called Mortgage backed securities (MBS). 
7. Among investors, MBS are safe heaven bet, since it backed by a real asset and historically house price never went down other than great depression period.
8. So technically Joe bought his home with John’s investment from Russia, and Gupta bought a home at Delhi with George’s investment from Chicago.
9. When one buy a MBS he/she thinks that he is investing to a real estate, low risk, high return on investment etc. No body never ever thought that we are moving towards 1930 great depression days.
10. At same time investment firms bought insurance for this high risk mortgages.

Now who is accountable for mortgage that Joe got it from Bank, the mortgage was sold and it is not under Bank’s radar and investment firm’s radar, some one across the border holding it. The actors are loosely coupled here and Joe is single point of failure. The well proven business flow was just reused for sub prime market without any research and analysis.

These MBS was backed by credit default swaps (CDS) which is insurance like contracts to cover bonds in case of defaults. Usually CDS covers only very low risk bonds such as municipal bonds, government bonds etc, but again due to the confidence about real estate, CDS started covering MBS also. Unfortunately CDS is not regulated, hence it can be traded in secondary market, it is like today XYZ hedge fund holding contract and tomorrow it can be ABC hedge fund. The price for CDS determine based on investor’s confidence about outcomes. 

So now the stage set for Banks and investment firms, what all bank need to do is give mortgage loan to Joes, Johns and sell it to investment firms and investment firms buy a insurance from AIG and convert mortgage into MBS and sell it to open world market. MBS was now held by some one in earth, AIG now convert these insurance into CDS and was held by some hedge fund, nothing was regulated because CDS mainly traded at various places like London, Berlin and New York, we don’t have a global policy to control it.

This is how we do real estate business for 15-20 years it was greatly worked and smoothly integrated. What went wrong now is mainly, easy money flow and uncontrollable global economy. What we need is greater global co-ordination and greater technology to forecast risk and mitigate it.

Source:

http://www.slate.com/id/2186801/

http://www.fool.com/investing/general/2008/09/17/aigs-failure-is-so-much-bigger-than-enron.aspx

http://www.time.com/time/business/article/0,8599,1723152,00.html

http://www.investopedia.com/terms/l/lcdx.asp

http://www2.standardandpoors.com/spf/pdf/index/SP_CreditDefaultSwap_FAQ.pdf

Ouch!!! Headline Hurts

Again today morning flashing headline was 533,000 jobs vanished in November month alone. And the revised job report for September, October also very deep. As soon as flash news showed in CNBC, as usual some of us pressed panic button and affected with negative emotions. This event is not new to us, we are experiencing this since 2007 summer. As I said before, don’t jump into conclusions by reading headlines. Yes, we are in trouble right now, and all government’s engine started fire to resolve it. Patience will prevail.  

Even though employers cut job for last one year, unemployment rate was holding up between 5% - 7%, I agree that anything above 5% is not good for developed nation like U.S, but because most of the people left job market to find an alternatives, some left for long vacation to explore the world. A piece of advise is this is good time to go back to school and enhance our skills. 

Here are the points I have here to justify that we are not in deep recession as media hyping. 

1. Last month job report suggests that we had job cuts ranging from mining industry to jet engine manufacturing. It is the clear indication that we are having a domino effect, that is, employers fear that credit market is frozen so they have to cut some expense to preserve cash. If that is the only reason, what will happen if government unfreeze credit market, will they hire all back? http://www.nytimes.com/2008/12/06/business/economy/06jobs.html?partner=rss&emc=rss

2. I was under impression that this job report only includes adults, but after reading detailed report i found out that this includes teenagers also. Obviously they all went back to school, and the unemployment rate for teenagers is 20.4%, most of the cut come from temporary jobs. So before getting jump into conclusions, have this in mind and read detailed report. http://www.bls.gov/news.release/empsit.nr0.htm

3. “Statisticalphobia”, I don’t know how to coin this but we are now affected by this new kind of phobia, all the numbered were compared with 30 years ago, 35 years ago and so on. 2-3 weeks ago, Steelers game ends with the score 11-10 and headline was, this is first time a football game ends with 11-10. why bragging about it? Steelers won and game ended, that’s all. The same happened now also, some one in press ran a query to found out when employer shed 533,000 jobs last time to hype about it. I like comparing situations but not this far apart. 35 years ago, German was not a single country, there was no European Union, USSR and U.S had cold wars, Larry didn’t invent Oracle database, Gates was at school and most of the web 2.0 CEOs and I was not even born ;-).http://news.yahoo.com/s/ap/20081205/ap_on_bi_ge/financial_meltdown 

4.CNN.com, I believe they are most negative hype news organization, they just appended all negative things (as a year, as a month) into one and reported in there front page. See the headline…

“Lost: 1.9 million jobs

The 2008 tally soars after payrolls shrink by 533,000 in November, the biggest one-month decline in nearly 34 years. Unemployment soars to 6.7%.” 

 See the choice of words double “soars”, and just took all 2008 job lost in to account, we have one more report pending for 2008 as whole year. Why can’t they account for since 2000 or 1990, this is called manipulation of data to substantiate some specific objective.

I’m happy that most of the investors agree with me, they didn’t take media’s hype seriously, because market was not crashed today,matter of fact all indexs went up. As always market was already predicated this and now calm bull investors are busy with bargain shopping for both stocks and Christmas gifts for their dear ones.

Recession: Really??

It looks like people are really spending money freely, and malls are again packed with foot traffic. Are we hyping about this recession? I think say last 6-8 years we have a tendency to hype negative news, especially after Sep 11, 2001, I think now also we are hyping about this recession. As per comscore, this year cyber Monday was second heaviest sales on record. May be NBER come back probably on December 2009 to declare that we are not in recession since December 2008, because it took one year to find out that we are at recession since December 2007.  

As of Stock market, it is going up and down like bi-polar disorder, with in minute’s changes from south to north. But clearly unemployment rate is soaring(mainly construction, manufacturing, finance) and house price is keep on plummeting, since both of these affecting people directly plus usual media’s negative hype, we are feeling more recession pain than reality. Sometimes I feel that this is the way it should be, we have to have some discipline with spending habit and reality check. In other words, people flying high 30000 feet above earth and thinking that is normal. But after coming down to earth (reality), feeling depressed and recession and all pain.  

Greatest example is Google,where free 3 times food, free dental, free medical,free massage, free car wash, 20% free time for thinking, free laundry, free movie tickets, free weekend games ticket, free yoga, free meditation, free internet, free phone connection and free gas. Now the name of recession Google going to cut all and people is going to scream and complain about recession. I don’t know for how long they want to enjoy free stuff in a public traded company and high capitalist country and 97% of revenue still come from online ads. It is laughable and illogic. 

But as a country this negative hype is not good. It creates reverse brain drain and reverse migrations. For example, during last recession in Silicon Valley, the same negative hype created some panic with in immigrants and they just left the country to Canada, Australia and to their own country. The major benedictory of this is India, because after the last recession, India boomed a lot because of available experienced returned Information Technology man power with fresh pool of youngsters. But this phenomenon was not well studied or documented. 

TGIF-No-SGIF

“Thank god it’s Friday” is famous and happy phrase but not now, for bull investor it is “Save god it’s Friday” from bears.  All bear investors hibernating in first 4 days of week and collecting all information (I don’t know where are they storing information, but bull know source and why) and dumping stock like right, center and left on Friday. This Friday’s sell offs are very well coordinated, bears coordinated from all over world, it was happening very early in the morning. Most of the sell off are out of panic and with panic these bears loosing logic and thinking power, just take all news as literals and getting more panic.

So for a smart bull it is good time to jump on, I don’t think so, this is tempting to jump in. Very low P/E ratio, major indexes lost almost 20% on average this month alone, all panic sellers are done with their selling (still they are out??), in other words bears are gone for permanent hibernating. All reliable technical indicators, fundamentals and theory, are showing to return to the market. For example, Google is selling at 21 P/E which is unbelievable and highly attractive now.  

We are having following positive factors.

• positive GDP growth so far (which is why we are not officially recession yet),
• very low oil price (comparison wise now oil $2.78 per gallon is almost free),
• second stimulus package (hopefully)
• narrow timeline to election (find some concrete answer about who will be next president)
• positive existing home sales(just starting to turn as green)
• ASEN influx of $80 Billion into market
• Dollar value increasing against all other currencies. (Especially Indian rupees now Rs 50 per dollar first time in history, hence most of my Indian friends tempted to go back India, but Indian government don’t want to us to come because they can’t handle more population…just kidding).

The sole issue now is, some banks are run out of money to lend again to consumers. The money rotation stagnates and people unable to borrow money.  But I think it will time to reenergize credit market again, the $700 Billion bail out package would take some time to come into main stage. But real remedy should be government buying unsold house from buyers and hold it for sometime or help them to refinance toxic mortgages.  

But here I want to follow blatantly the 2000-2002 market pattern, which is S & P index fell to 700-750 points with economy was deep recession. We are not there yet at the current situation. Now S & P holding at 870 points, still 170 points to go, which is right time to jump in with aggressively towards stocks not mutual funds or ETFs?

What about us?

As usual today morning wake up, had a wonderful breakfast and browsed emails, news sites and started watching Longhorn Vs Sooners football game. Just after noon i asked my wife and kids about plans for lunch, she fired back, “what the hell you are thinking?” “Do you know what is going on outside? It seems that great depression is back, next 10 years it will be recession?”…”But you seems like nothing happened and enjoying and watching football, I don’t know how people are going to survive”….As a gourmand, i was really shocked because my lunch is getting delayed. She started worrying about overall market condition and i noticed since last week she was little upset and i tested with her peers also, everybody seems to me upset because of too much reading about market meltdown and Opera Winfrey talk shows. For me everything going as predicted and i am always following http://ibloggergeek.blogspot.com/2006/11/dont-enjoy-at-success-time.html

Market was already dead and we are waiting for its new avatar. It is not in our control and it is not great depression as per record we are not yet recession stage. After i experienced first recession in U.S (2000 – 2001) at Silicon Valley, here are the things are always I followed.

1. At least 6 months worth of expense money at bank saving/money market account.

2. This is the time all media outlets goes negative, don’t watch too many news channels and talk shows.

3. Regular exercise and drink less coffee keeps our mood very stable.

4. Go outside and talk with friends and relatives, but strictly no economy.

5. Watch football, baseball, college football etc and etc.

For more tips please visit http://ibloggergeek.blogspot.com/2008/04/2008-not-good-so-far-but-how-to-beat-it.html

As per my predication, this issue may not resolve within next 1 week, there is no juju also to resolve this issue. It may go up to first half of next year. We are going to witness an ugly holiday season and plummeting stock market, but stock market wise all are done, everybody sold and there is no stock left for selling unless more of average Joes pulling 401K out. But things will turn around slowly after election. I think the big psychology boost come from next administration’s stance on Iraq war. Based on current projections, Obama leading over McCain with considerable points. So now election is key to boost the investor’s confidence and moreover by the time the bail out package $700 Billion started working in favor of us.

But my wife is 100% right, if we are happy and positive without knowing what is going on outside is deleterious. Even though we are not associated with stock markets also very risky. Because money is the key and it’s reside place should be solid, if the place is shaky then everybody is shaky. The student loan, car loan are really important, we don't want to see drop out college kid and ghost motor city. All over the world investors, who are always positive like ready to sell sky if it falls down, are tremulous. then what about us?

Bail out Cubs and Sox, time is running out

Bail out bill was successful at this time, 57 lawmakers changed their position within 3 days. It was great example of democracy where majority always win, if not first time, second time it will. Another miracle happened with in 3 days is, Wachovia is now hot bank, 2 of them fighting for it, just 3 days ago it was other sinking bank. Just 3 days, Wachovia value increased as much as 750%, and expansion minded Wells Fargo successfully crossed Mississippi river to conquer east coast(other than some small acquisitions). Actually Wells Fargo has 25% spring effect (infrastructure, technology) to absorb any sudden growth. So they made a bold acquisition bid to Wachovia, and they refused to take bail out money also. This is real Wild Wild West. Citi just started discussing about how to integrate Wachovia with them and confused with back and forth bail out bill, in mean time Wellsfargo announced it's actions to integrate with Wachovia and debt reduction plans. So the market is still alive and we(investors) are just overreacting.

I didn’t know that stock market also blow hot and cold for some time consistently. One day it was down 700 points very next day it was up 400 points. Everything was out of sync and not fit in normal pattern. All the events makes me think that both Main and Wall Street was full of overreaction and hysteria break down. It was sad to say that, this all are indicating that USA’s dominance of world finance market also moribund. Because so far USA market was soo resilient and self-adjusting to lead all other markets, now it also lost its cool with emotions, panic and spontaneous reactions. Something got to be done to bring back it’s glory. And American people also lost their confidence with Wall Street.

Cubs and Sox are really playing bad at play offs. Someone have to bail out them, please.

Source :
http://online.wsj.com/article/SB122303190029501925.html
http://online.wsj.com/article/SB122304922742602533.html

Are you ready to share?

This is what president Bush asked people today at his prime time speech. I read some where,  that capitalist don’t want to share anything with others but they want to share evenly their debt and stress with others. That’s exactly happening now in this nation. 2 top administration executives were grilled by lawmakers. Paulson and Bernanke are pressing important bail out plan to pass in Congress. Actually I think lawmakers using this time to impose more strict laws. Paulson keep on sending message to lawmakers about economy imbroglio now. But lawmakers keep on adding supererogatory regulations.

CEO pay is point of discussion now. I think CEO pay is internal to a company. Government’s intervention of top executive’s pay is not good for business, which is not even done in communist China or other socialist countries. But this time the CEO salary cap applied to bail out companies, not all.

Source:

http://money.cnn.com/2008/09/24/news/economy/paulson_frank/index.htm?cnn=yes

http://www.marketwatch.com/news/story/treasurys-rise-rescue-package-faces/story.aspx?guid={98FA256F-4B8D-4130-AB7C-A8429459CDE9}

Zig Zag Pattern

Last 5-6 days stock market pattern is zig zag, extreme roller coaster ride. This is good for day traders and retail traders. Security exchange commission banned short sell on finance stocks, which should be done soon after Lehman's constructive destruction as TSC's John Berlau put it. But this action from SEC was too late, and that itself pushing stock price down further. Today oil price spiked $25, and it was a record for oil trade. It clearly indicates that all investors are nervous and don't know how to react with this uncertainty time. Who ever sold stock on last Monday because of short seller's induce, realized about their stupidity on last Friday because market leveled on Friday. The same would repeat now this week.

Today's reaction because of Congress leader's 44 page response to Paulson's 3 page $700 Billion bail out plan. Nobody knows it is just a politics or congress want to protect tax payers. Any way congress has this week end to pass some bail out plan. For investors, 2-3 day think time is not acceptable, they want to always react negatively now, or they want to pass a bail out plan within 2 hours.

So many predictions are out there about A) when can market turn green, B) when can we see end of tunnel C) will this mild recession so far turn into great depression etc. But this point of time it is anybody's guess. I think rather than predicting something unproductive like what government does with toxic mortgage after 3 years or 1930 great depression coming etc, just allow some time to congress and senate pass bail out plan, and lets see how economy is self adjusting. I believe all hands on the deck, around the world some positive activities going on to clear this mess sooner than later.