Road trip to Shimla

We decided, almost on the spur of the moment, to drive our little one to Shimla and get some respite from the heat and humidity of Delhi. The drive, on the day of a Bharat Bandh, was very nice.

It took us, despite some unscheduled stops - to fix a burst tire, and for a blockade by some mercenary looking, slogan shouting BJP workers - about 10 hours door to door, with the road from Delhi to Ambala being very nice, Ambala to Kalka being pretty bad (but 4 laning is in progress), and again a slow 90km hill climb from Kalka to Shimla.

Shimla was a real pleasure. It was cool and very pleasant, now sunny...

and now foggy:

Now clear,

and suddenly cloudy.

But overall, just very very pretty.

Highly recommended for weekend trips out of Delhi. The drive is quite enjoyable, and the climate uphill (at least in the summer) to die for!

Thanks Megha

for introducing me to Flipkart yesterday. Highly co-incidental that these guys are in the news today!

BANGALORE: Popular belief has it that parents of young Indians with coveted degrees from the Indian Institutes of Management or Technology, quail at the thought of their children giving up a job in a multinational corporation to start a business. However, when Sachin Bansal, a Computer Science Graduate from IIT-Delhi, landed his first posting at global retail major, Amazon, his family was happy but wanted to know when he would launch his own business, so they could look for a bride for him.

“In our community a person with a salaried job is less valued than someone who runs their own business,” says Bansal who quit Amazon after a year to kick start his own e-commerce venture Flipkart.com with fellow IITian Binny Bansal. “As it happened I was married within a few months of starting out on my own,” he says.

That was more than two years ago. Today, Flipkart.com is the country's largest online bookstore, selling more than five lakh books since its inception in end 2007. “We sell a book a minute,” says Bansal who started selling movies, music and games on the portal this fortnight.

It was no cakewalk though. Flipkart could count only family and friends as customers in the initial months. “The first real order came nearly four months after the launch when we were able to source a customer request for the book ‘Leaving Microsoft to Change the World',” says Binny Bansal, who also worked at Amazon for eight months before launching Flipkart.

For one, the two Bansals had to bet on word-of-mouth marketing amongst peers, college mates, friends, blogs and social media networks such as Facebook and Twitter to find new customers as they had to keep their budget tight. “We had spent just about Rs 4 lakh to set up the business in the initial days,” says Sachin.

The partners, who moved to Bangalore with their jobs, would park themselves at the entrance to some of the city’s largest book fairs, distributing flyers to announce the launch of Flipkart. “The bookstore owners were very tolerant, they rarely objected to our presence,” he says.

Thanks to their control on budget, the company broke even in just six months, in March 2008 and the first thing they did was to rent an office and hire a helper. At the end of their first year of operations the business had grown enough for the Bansals to hire a team of six. “We had to sell at lower rates and also make sure that every customer had the order delivered at his doorstep,” says Sachin. They relied on free shipping, discounts and personalised service to build the business.

The sales picked up once Flipkart extended cash-on-delivery system to customers across 25 cities. And soon it was in the radar of venture capital firms. “The online retail business (excluding travel, classifieds, content) is worth at least $150 million and is growing very rapidly,” says Subrata Mitra, partner at private equity firm Accel India, which invested Rs 4 crore in Flipkart.com in mid 2009.

This helped the e-commerce outfit focus more on expanding its reach and increase its offerings built largely around strong regional content. Flipkart, with six million titles and the promise of free shipping across the country, claim to be the largest online bookstore in India. The site also has nearly 20,000 movie titles including English, Hindi, Bengali, Malayalam, Kannada, Tamil, Telugu, Punjabi and Bhojpuri movies and 12,000 music titles in Hindi, English, vernacular and instrumental music. The games catalogue includes games for devices like PS, PS2, PS3, Ii, Xbox and PCs.

But there are others such as Indiaplaza.in, Rediff Books and the web version of offline store Landmark, fighting in the non-travel e-commerce market that industry experts estimate at $100 million in India.

“Multi-category retail is the way to make profits in this business, I do not think an online store that sells a single category of products can build traffic, grow sales and be profitable,” says K Vaitheeswaran, co-founder of Indiaplaza.in, an online shopping mall that was set up by a team that built the country's first e-commerce company FabMart over a decade ago.

As consumer demand for new products and services creates more opportunity for young Indians to build businesses of their own, the Bansals’ decision to strike out on their own while still barely a year and a half out of college is paying them rich dividends. “By the end of March 2011 we hope to be a Rs 100 crore company,” says Sachin Bansal for whom enterprise is clearly the calling card of choice.

What's happening?...

...in the World Cup, I mean? Just up from a watching a highly disappointing Brazil - Portugal match which ended in a tame 0-0 draw. The league matches are almost up, and soon we will be talking business - no draws from the next stage, and the men will be separated from the boys.

This World Cup has been unique - both finalists from last year have been kicked out unceremoniously in the first round itself. France after making a mockery of themselves (poor coach Domenech!) and Italy after playing some really un-spectacular football. All my favourite teams have played at least one bad match each - Argentina against Nigeria (though Messi has been spectacular after that match), Brazil against Portugal, Germany had a terrible match against Serbia, England against Slovenia. The only big ticket team which has been playing well consistently so far is the Netherlands.

I have not seen any of Spain's games yet (I hope to correct that at midnight tonight), but so far, I don't think there is any one favourite for lifting the cup. If Messi continues his golden run, then it could be Argentina all the way! Though I'm now rooting for Germany (Brazil are off the top of the charts for now). Fickle me!!

Another book

For a change, I splurged almost a thousand bucks to buy Roger Lowenstein's "The End of Wall Street" when I was in the US (it was not yet available in India, so I had to buy the hardback version from there). Having read and really liked "When Genius Failed", I had high expectations from ol' Rog. However, I was a tad disappointed at the end (which also explains why it took me more than a month to finish this baby - or roughly 15x the usual time).

The book reads like a bland retelling of the furiously moving events in September 2008, when Lehman went bust and the world got into a tailspin. While it goes way back, to 2005-06, to explain the genesis of the problem, it does not offer any new insights into why whatever happened, happened. Most people who read the news (or visited Bloomberg's website) would know all this stuff.

Comparisons are odious, but if I compare this to Michael Lewis's "The Big Short", I would short Mr. Lowenstein and go long Mr. Lewis. As opposed to The Big Short's human interest and genuine freshness of content, The End of Wall Street does not offer either. Nor does the title seem very apt!

Deeply disturbing

I have been following off and on the latest story in international media - the Gulf Coast oil spill, which is releasing approx. 60,000 barrels per day of oil into the ocean. By any metric, this is the largest ever man-made environmental disaster in the history of time. The ocean is a big thing, but I dont think even it can suffer endless degradation.

People say that BP is squarely to blame. To quote a Bloomberg article: "Evidence of BP’s corner-cutting, to the point of intentional negligence and reckless endangerment, is everywhere. According to lawmakers, BP used six instead of the usual 21 centralizers before cementing the well, didn’t test the cement bond, chose a cheaper method to prevent gas from rising unchecked to the surface, and stinted on a backup blowout preventer -- all to “save time/money,” to borrow a phrase from one internal BP e-mail."

My point is not that BP is evil or that no one should make mistakes. Instead it is this - how does one equate environmental disaster on this scale (and boy, is it truly gigantic!) with money? BP says it will keep $20 billion in escrow to pay for damages. How many fish is that worth? How many people who die eating contaminated fish will that compensate for? How many loved ones would you trade for $20 billion? 100? 10? 1?

I think this is a symptom of our times - everything equals money. We are cavalier and depraved when it comes to preserving our ecology. However, I don't think this state of affairs can last very long. Something is going to give. Soon. I just hope it does not happen in my kid's lifetime. Meanwhile I do what little I can to protect the environment near me.

Waca Waca

My closest friends are usually very surprised whenever I mention that I used to play football (and not too badly, I might immodestly add) in my student days. I was a key goal-scorer for my teams, both in IIT as well as IIM. My rather rotund frame does not suggest this in the least (but hey! look at Maradona in his new avatar as coach - the guy is positively fat! Who can think that he was a terror on the field?). However, all this is a preamble to say that for the next few days, I am an obsessed guy - with the FIFA Football World Cup in South Africa.

So far, the highlight of the tournament for me has been Maicon's near impossible goal against North Korea. But I'm sure this will be surpassed easily. Predictions? I don't think Argentina are going to make it to the semi-finals. I have not seen popular favourites Spain play as yet (they open their tournament against Switzerland today), but so far my money is on perennial favourites Germany and Brazil.

And for those who have not heard it yet, here is Shakira shaking her booty in the World Cup theme song:

Tenderness and security

I am always amazed by the wife's immense patience and tenderness in dealing with our child. And I think our daughter understands this quite well too. For her, her mother is the fount of all security, love and tenderness. She is happiest when ensconsed securely within her mother's arms.

Some wise person said - God could not be everywhere, so he made mothers. I think I agree!!

Follow up on Analyst Credibility

Saw the following interesting article on Bloomberg:

Goldman Sachs Hands Clients Losses in ‘Top Trades’

May 19 (Bloomberg) -- Goldman Sachs Group Inc. racked up trading profits for itself every day last quarter. Clients who followed the firm’s investment advice fared far worse.

Seven of the investment bank’s nine “recommended top trades for 2010” have been money losers for investors who adopted the New York-based firm’s advice, according to data compiled by Bloomberg from a Goldman Sachs research note sent yesterday. Clients who used the tips lost 14 percent buying the Polish zloty versus the Japanese yen, 9.4 percent buying Chinese stocks in Hong Kong and 9.8 percent trading the British pound against the New Zealand dollar.

Pretty interesting, I thought. Shows how much the large investment banks follow their own analysts' advice! Clearly, they did not implement the 'top trades' otherwise how would they have made profits EVERY SINGLE DAY in the last quarter. In the same time period, clients following the recommended trades would find themselves in a much worse position. If the chef refuses to eat in his own restaurant, I would rather go hungry than eat there!

Very ordinary

Another book I'm reading right now (though with great difficulty) is called 'The Immortals of Meluha'. Frankly, I bought the book because of its cover.

The premise of the book is very very interesting - it is set in 1900BC and tells the beginning of the story of Shiva, the God of Gods. However, the execution is so pedestrian that it makes me quite sad. It reads like a Bollywood masala movie script, not the insightful, graceful and dignified attempt I had hoped it would be. I could take out Shiva, and put in Shahid Kapoor or some equally frivolous current heartthrob into the story, and nothing would change (Disclaimer: I have read only 25% of the book - like I said, with great difficulty - so it may still redeem itself. However, I doubt it)

I wish it had been a better book!

Michael Lewis does it again

I read 'The Big Short' in a couple of totally engrossed sessions over the weekend. Michael Lewis ( author of Liar's Poker, The New New Thing, Moneyball) has written another masterful, funny and insightful page turner - this time a blow-by-blow account of the great credit crisis of 2008.

The book is fantastic because its central characters are a bunch of oddball, eccentric misfits who saw what no one else could. These guys (the 'good' guys in the book) made tons and tons of money even though they had not set out to do so - all they wanted was to uncover (discover?) the truth. And all of them paid a big price for their success. The book also looks at the guys on the other side - equally smart guys who were 'long' (ie they were buying when the good guys were selling). One notable dude is a Morgan Stanley trader, who was right, but not right enough, and who ended up losing $9 BILLION in a single trade. And in the center of the mayhem, touching all the characters, good or bad, was a particular trader from Deutsche Bank.

All the guys, the guys who were right as well as the guys who were wrong, made lots of money personally from the momentous events that unfolded. In doing so, some institutions were bankrupted, a few million livelihoods lost, a generation's lifelong savings evaporated and a few fortunes made.

The book raises very important questions - for one, what are we doing today about a system where all gain is private but all loss is public? The answer, unfortunately, is that we are not doing anything. The American financial system (and by corollary, the world) is hostage to what benefits Wall Street (and in particular Goldman Sachs). And secondly, is money really worth more than a few pieces of paper? Michael Lewis, the guy who saw the big picture, and quit Wall Street to fulfil a higher calling, is absolutely the right guy to answer this question. The answer is not surprising, but its quite weird how none of us ever seem to grasp it in our own lives.

However, enough of the moralizing! The book reads like fiction, is a page-turner and is a definite must-read!

Murder: How an industry was systematically killed

The great Government of India has killed the telecom industry with such astounding brutality that it deserves special applause.

A bit of background - the telecom industry is somewhat special - to survive, it needs spectrum, which (like the Reliance D6 gas) is a national resource. A lot of players invested a lot of capital and took huge risks to start the industry from scratch in the 1990s. Just when they reached the end of the long investment cycle (10-15 years later!) and should have sat back to earn their returns, the government of India jumped in and started killing them.

First, in Jan 2008, the (dis)honourable minister for telecom suddenly changed rules midway and said that more operators would be allowed in the industry. This, despite the law saying categorically, that new licenses would NOT be given out. The incumbents, who should have got more spectrum by law, were now told - sorry! you will not get any more. We will give it away (almost for free) to friends and cronies (who by the way are going to make millions of $$s selling this spectrum to the likes of Telenor, Etisalat etc etc, without investing a single rupee of their own. Sorry, correct that - they are going to bribe me, the honourable minister, so that I can get a nice little fund going in my Swiss bank accounts.) Also, I'm going to keep an arbitrary date for consideration of applications for spectrum, so that ONLY my friends get this spectrum AND I'm going to change the rules on which incumbent gets spectrum first.

As a result, Reliance Communications, which by law was last in queue to get spectrum, will now jump to #1 position.

In any other country, this would have led to corruption charges against said minister, and he would have been in jail. But thanks to our strangely perverse country, the minister not only thrives, he actually got a second term in the government of the supposedly 'clean' Mr. Manmohan Singh despite a huge uproar on the blatant theft of revenues that should have accrued to me, the mango man of India.

The result of this was that fly-by-night operators came in, the industry got screwed because of irrational pricing, call quality suffered and investors got punished.

But the honourable minister had only begun. He now says - ha ha! you incumbents - you had the temerity to oppose my despotic theft - I will make you suffer more. So he says, retroactively AGAIN changing the rules - I am now going to arbitrarily decide that spectrum above 6.2 MHz (which I gave you 4-5 years ago for the same price that the new guys got it for) will now be priced at rates determined by the 3G auction (or more than 10-12 times what the new operators paid for their spectrum just last year). I will, perversely enough, not charge anything from the new operators. The losers, not surprisingly, are Bharti, BSNL, Vodafone and Idea. Reliance Communication, not at all surprisingly, totally not affected by this decision.

The incumbents today are large, respected companies not because they bribed thieving ministers and bureaucrats. They have built companies painstakingly, putting to risk large amounts of capital, effort and resources, and believing in the law of the land and principles of justice. To see them being systematically killed is a matter of shame. Strangely, perpetrators of this murder continue to line up their bank balances and enjoy their positions of power. But such is life in our country.

Analyst? With credibility? Ha ha...

I have nothing against research analysts. I have quite a few friends who are research analysts with respected fund houses. A few are very good and I respect their views. However, I would never ever want to become a stock analyst. A vast majority of these guys have no credibility. I would strongly advise the retail investor to strongly disregard analyst views and NEVER ever buy based on analyst recommendations. Trust me - my job gives me access to all the reports ever published, and I read quite a few of them (for a few laughs, and mostly during leisure time).

Sample this. I choose this at random - this is, in my view, a representative example of what analyst views are worth. Disclaimer: I do not have anything against these particular fund houses, just used here as examples. All of them are as good or as bad. Take a sugar company called Shree Renuka Sugars ('SRS'). The business is cyclic, and totally commoditized. Everyone knows that commodity cycles turn with great regularity. If sugar is scarce today, it will be in plenty tomorrow (and vice versa).

In a report dated Jan 18, 2010, Morgan Stanley recommended Overweight on SRS, with a target price of INR 125 (adjusted for bonus). In a short period of 3 months, the price target was reduced to INR 70 (or a downward movement of 45%). This was primarily because the stock corrected by approx 45% during this period! The world did not change in this 3 month period, and the outlook on sugar should have been known as recently as 3 months before!

Ditto Merrill Lynch. As recently as Feb 11, they said BUY with a price target of INR 173. In 2 months, the price target suddenly became INR 80 (or 50% of the one before). Talk about volatility!

Or Credit Suisse. They take the cake. They went from INR 128 to INR 58 in a similar period of time.

Credibility, anyone?? Why should anyone believe these jokers? It is not my case to trivialize the important work analysts do. However, there is something called perspective! And something called balance. And foresight. Just moving target prices around because the stock moves in that direction does not a credible analyst make! When will this change. Dot-com, Enron, Lehman - nothing has changed analyst behaviour so far. I wonder what will!

Elina

The reason for my vastly reduced blog posts these days:

Volatility? Whew!!!

Interesting times for markets globally, to say the least!

• Tiny, inconsequential Greece re-engages with history books, with a government soon about to go bankrupt, a striking and rioting public that seems spectacularly dense and insular, and overall an enactment of the theatre of the absurd. Repercussions include a 1,000 point drop in the mother of all equity market indices, the mighty Dow Jones - in about 15 minutes, and while the media goes to town with the usual cliches - never happened before, six sigma event, yada yada yada - my take is that these days six sigma events happen every six months. Poor Spain and gluttonous Portugal have to suffer for the Grecian's fun. Lesson: In the party, get drunk while you can. If you are still sober when it ends, you may be left cleaning someone else's puke!!

• The Sage of Omaha puts his 40-year reputation on the line as he defends the newest villian of the times. Move over Osama bin Laden, Goldman Sachs is here. 2 idiots who got screwed are crying foul at Goldman's mercenary ways, but I think they are more to blame than they let on. Caveat Emptor, anyone? They forgot the golden rule - Goldman Sachs will screw you when it can.

• Meanwhile, the Conservatives seem set to gain a majority in the UK (though not a government, apparently). Traders troop in to work at midnight in the financial district of London. The Tories promise to implement what I think is the solution to the whole 3 year old debt-fuelled crisis - cut the UK government deficit and apply brakes to government spending. For the sake of Britain's economic future, I hope they get their shot at fiscal prudence.

• And here in India, Reliance Industries emerges unscathed from its bruising courtroom battle with kid brother ADAG controlled companies - I think the outcome is very rational and fair and square in the national interest - natural gas found in India's territory cannot be divided between individuals. It belongs to the mango man (the aam-aadmi) and should be priced for the benefit of said mango man. So sorry, Mr Anil Ambani - you cannot make umpty zillion rupees buying my gas for cheap (disclosure - I own RIL shares)

What does one make of all this? My opinion (could be in-famous last words) - ignore all the noise. Buy the dips and hold emerging market (Indian) equities for the next 5 years. While one may or may not make a packet, one will surely be spared watching the value of painstakingly hoarded cash erode due to inflation. And keep at least 10% of the portfolio in gold. It remains the only hedge against global insanity

Too smart for our own good?

An experiment that shows that too much smartness could be counter-productive! I think this is also the reason that good businesses are not built solely by numbers and analytics, but by that indefinable thing called the instinct or gut-feel or intuition.

Sourced from here:

The Trouble with Humans: Why rats and pigeons might make better investors than people do

"Psychologists have long known that if rats or pigeons knew what the NASDAQ is, they might be better investors than most humans are. That's because, in some ways, animals are better than people at predicting random events. If, for instance, you set up two lights in a laboratory and flash them in a random sequence, humans will persistently try to predict which of the two lights will flash next. Stranger still, they'll keep trying even when you tell them that the flashing of the lights is purely random. Let's say you flash a green light 80% of the time and a red one 20% of the time but keep the exact sequences random. (A run of 20 flashes could look something like this: GGGGRGGGGGGGRRGGGGGR.) In guessing which light will flash next, the best strategy is simply to predict green every time, since you stand an 80% chance of being right. That's what rats or pigeons generally do in a similar experiment that rewards them with a crumb of food whenever they correctly guess the next outcome".

But humans are apparently convinced that they're smart enough to predict each upcoming result even in a process they've been told is random. On average, this misguided confidence leads people to get the right answer in this experiment on only 68% of their tries. In other words, it's precisely our higher intelligence that leads us to score lower on this kind of task than rats and pigeons do.

Karthik calling Karthik

is a good movie. Not romantic, not horror, not even very thrilling. Dark, foreboding and realistic. And very very spooky - I've been having nightmares last two nights on account of this movie.

Farhan acts well, especially in the climax, when the mystery gets revealed. Deepika looks lovely as usual, and the few other characters are all quite real. The movie is probably one that wont be remembered for long as anything special, but I kind of admire the people who made it, since it represents something different from the run of the mill kind of stuff we are accustomed to seeing. The songs are also good, and do not jar in the least.

Recommended as a watch for a taste of something different.

Dork

Finished reading Dork (authored by Domain Maximus) over the weekend.

Immensely entertaining for the first 85% of the book. While I thought the last 15% was a bit abrupt, I think overall it is a fantastic effort.

By the way, inner sources say the book is derived from largely true life incidents in the author's short year at a "leading mid-market consulting firm". I can totally identify with it :-)

Someone is finally talking sense

I have a young cousin who wants to get into IIM. She believes that an MBA (or PGDM, to be precise) from any of the IIMs will set her up for multi$$$ moolah.

This is obviously not true. Who is to blame? Fair and square, I think our popular media is the culprit. They print grotesque, inaccurate and non-comparable salaries year after year after year on the front pages of newspapers. It has become a given, a vulgar and obscene race to bigger and bigger material scores - speak to a layperson, and they will ask "Beta, you are from IIM? Oh you must be earning crores". If one tries to talk sense to this person, and explain how things really are, the reaction most likely is "Hmmm. This dude was probably near the bottom of his class. The Economic Times / Times of India / Jhumri Talaiya Khabrein cannot be wrong"

Anyhow, I was mightily pleased to read the following article. I hope it encourages other institutes to speak up and let the truth be known:

IIM-A has denied a front-page report in The Economic Times which said a recruiter made a Rs 1.44 crore-plus salary offer at final placements currently on at the school.

“Sure, no one’s talking yet. But ET has learnt that Deutsche Bank, which had set the upper ceiling in 2008 by offering a Rs 1.44-crore package, has broken that record this year”, said the ET report.

In a blog link sent by student media co-ordinator Rohan Desai, the school said (Desai also urged that we put-up the link on our blog to reach a wider audience):

“We would like to clarify in interest of the entire community that this is incorrect. Also, converting dollar salaries to rupee terms does not portray the correct picture and hence we provide the average dollar salary separately in our press releases.

We felt compelled to communicate this clarification because we believe it has the potential of driving aspiring students into making misinformed decisions and also gives incorrect signals about the economy.

IIMA over the last few years has chosen not to disclose the highest salary offered as we believe salaries are just one component of the jobs offered and also because the highest salary is in no way representative of the recruitment scenario.”

While the purpose of this blog is not to run-down competition, and we have never done that,Mint understands why students, and teachers, wish to project b-schools as more than just places where students turn into crorepatis. While salary figures are indicative of the economy, we stick to the official version released at the end of the placement season.

Placements can be covered in other ways. This is one of the reasons why the writer of this blog was allowed to live on-campus during placement week in 2007 at a time when there was a media black-out.

Pronab Da zindabad!!

In my humble opinion, the Union budget 2010-11 has its head and heart firmly in place.

For one, the budget does the right thing by reducing direct taxation and increasing indirect taxation. This increases compliance, because the poor overtaxed salaried guy (aside - this is not anecdotal - India has one of the highest personal and corporate tax regimes globally. Scandinavian and developed countries have higher overall tax rates, but they more than compensate in the form of social security benefits. Most Asian countries have tax rates closer to 16-20%. Not surprisingly, compliance is abysmal - close to a pathetic 12-15% from the figures I remember seeing most recently) gets relief; and the smirking tax-stealing business guy pays up more indirectly for all the conspicuous consumption. Reduced direct taxation also stimulates the economy by incentivizing greater consumption - we are a unique country which does not depend on exports for growth, and we should try our damnedest to keep it that way.

Secondly, the budget signals a return to fiscal prudence by targeting a lower fiscal deficit (through lower 'non-productive' non-plan expenditure) and makes a case for transparent and proper reporting of the deficit. No more hiding subsidies 'below the line' by issuing oil bonds and all other kinds of instruments designed to win votes today but burden our children and grandchildren for all time. Additionally, the budget firmly puts disinvestment as a revenue source. Less government is good government.

For all the hoo-haa the short sighted scaremongers in the BJP and the perennially stick-up-my-ass communists are making about petrol price hikes, I think it is a good thing. Petrol prices need to be deregulated - normal laws of economics (demand drops on rising prices) need to be allowed to work. For the economy as well as for the environment.

If anything, the budget should have firmly introduced fuel price decontrol, the direct tax code as well as the GST tax regime. But overall, I look at the budget as a glass slightly more than half-full.

And the hypocritical opposition can shout themselves hoarse.

Kenyes versus ... (err... who is on the other side?)

While our day to day lives are relatively humdrum and routine, we are in the midst of a ferocious worldwide war. The (small) problem is that there is no other side in the war.

The war against the biggest recession globally in the last 60 odd years is being fought as per the principles of John Maynard Keynes, who famously advocated massive deficit spending to work one's way out of a recession. In tandem, central banks globally are printing massive amounts of currency, increasing government spending and increasing government roles in business. The general theory is that debt will be inflated away, savers will be punished, currencies depreciated, and consumers incentivised to 'shop till they drop'.

I'm no expert, but somehow I don't see why this should work. The reason for the recession (as I see it) was too much debt and excessive leverage, leading to asset price inflation in US residential homes. When the bubble burst, people's wealth (equity in their homes) was wiped out, leading to reduced spending, de-growth, mass unemployment, and further wealth erosion - a vicious cycle started. The risk in Keynesian medicine is that it stokes the very fires that led to the problem - artificial floors to asset prices could lead to massive stagflation if consumption does not respond to fiscal stimulus.

Maybe I am old fashioned, but I think it is better to take the bitter medicine today (like Paul Volcker advocated in 1971-72 by massively raising inflation rates. The economy staggered for 3-4 years, but inflation was gone for good, and the next 20 years of excellent growth followed in the US). The problem is that everyone these days is a Keynesian. Where are the monetarists, the Volckers? How will we know who wins this fight if there is no other example to counter the recession? Where is the alter-ego to 'helicopter' Ben Bernanke?

I think (fear) we will keep seeing events like Dubai / Greece / Portugal for the next few years, where nations with excessive debt will keep being unable to pay off their dues. And the Keynesians will declare themselves winners, whether they win or lose.