Wednesday, March 19, 2008

Whither Expert??

The bull market frenzy of the 6 months preceding mid-Jan of 2008 has given rise to a new species. In addition to the bulls and bears of the stock market, we had the curious spectacle of the emergence of the 'expert', popularised by the opium distributing CNBCs and NDTVs of this world. This 'expert' needed no skill, experience or achievement. All that was required was 1) an ability to follow the herd superlatively, like it had not been followed before and 2) massive doses of selective amnesia, to be able to forget what was said yesterday, and indeed contradict it with impunity.

Sample this - Mr A (who shall go un-named here) says on January 4 (nifty at ~6,100): the Nifty is poised to touch new highs. If it crosses 6300, the next target is 6700, to be reached within a couple of weeks. So far so good, the guy is entitled to his opinion. The self same Mr A says on Jan 23 (post nifty crash at ~5,000): the nifty is in a major downtrend. The next target for the nifty is 4000, which if violated, the index could go to 3,500. Duh! Dude, maybe you dont get it, but that is like forecasting yesterday today! Your opinion is not merely irrelevant, it is contradictory and self-defeating!!!

There are so many such examples that I could possibly not list out the entire bunch here. Having an honest opinion is fine - you could be wrong, but having an opinion that changes POST facto, based on the trend and what others are saying, is not only stupid, it is unethical. The reason such characters abound is driven by two factors - 1) the desire in our media to create 'celebrities' - we see it on the garish vernacular channels, where it is more in-your-face and 2) the lack of financial maturity in our markets. This is not surprising, given that most of us 'invest' based on tips from friends / colleagues or these 'experts'. Contrast this with developed markets, which, though driven by the same basic emotions of greed and fear, and much more evolved, measured and rational about the state of the economy.

I have hit upon a novel way to make money off these 'experts' advice - I promptly do the opposite of what they tout. Believe me, it works!! What a lot of retail investors dont get is that investing is a serious business, best handled by professionally qualified and experienced individuals. This is what enables the 'expert' to survive, and indeed thrive. I wish our market quickly learns this fact and stops the loss of its hard earned profits!! In the meantime, I look forward to profiting from their babbling prophecies.

Wednesday, March 12, 2008


Consultitis had this nice post on haikus.

A good one repeated here:
Phantom ship moves through
waters hushed in mist. Foghorns
question the darkness.

Here are a couple of my own contributions!

soft clicks of a keyboard
and muted good mornings in cubicles.
sensuous aroma of coffee

bright sunshine and heat
sweat pouring off eyebrows. a quiet songbird chirps
in a silent moment

laid out on a hammock
swayed by the breeze, gazing gently at the sky
epiphany strikes

A (not-so) radical idea

The world is entering (in already in?) a phase of slowing economic growth, if not an outright recession. While classical economists will argue that this is part of normal business cycles, and that it is necessary to curtail excesses built in the boom years of asset price inflation, I think there is somethink different this time around (famous last words?? :-))

Usually, economic recessions are coupled with commodity price recessions. What is different in this recession is that commodities are still not easing at all. Oil climbs everyday to new highs. Metals, gold, foodgrains are still bullish. Part of the reason is the significant dollar weakness, but this alone does not explain the significant price inflation in commodities.

The reason is not too difficult to fathom. China, India and the developing world is using up more and more of basic materials, and this is causing their prices to rise. On top of that, the Indian government is trying to use fiscal measures to stimulate the economy (it desperately wants to keep inflation low in an election year, although by doing this it is curtailing growth in sectors that are really suffering - export dependent sectors for example, which will continue being hit as dollar flows seeking higher debt returns cause appreciation of the Rupee, or realty, or autos). But this post is not about the ills of the lame duck Indian government.

The problem with fiscal measures is that they benefit commodity producers more than they benefit the Indian economy. In an environment where oil and fertilizers are massively subsidized, fiscal measures cause more use of these commodities because of the unnatural price cap. This benefits OPEC - both for oil and fertilizers since natural gas is the biggest raw material in fertilizer production, not India.

How can this situation be balanced? And now we come to the (not so) radical idea - that oil prices in India should be de-regulated. Not only de-regulated, but the subsidy on diesel and keroscene at the cost of petrol should also go. Though this will cause some pain in terms of inflation, the long term benefits will be massive:

  1. Prevention of leakages in fiscal stimuli to the economy
  2. Less waste of taxpayers money, which could be used to fund massive infrastructure build
  3. Environmental benefits, as the normal demand-supply economics curtail use of oil for transport, in polluting diesel generators, and in wastefully inefficient industries
  4. Less congestion on roads, better use of public transport, and saved time from efficient travel
  5. Less dependence on fertilizers and pesticides in farming produce (and therefore better long term health benefits, with lower wasteage in terms of health costs)

To me, it is unclear why the government does not see this long-term solution to a lot of our problems.