Patriotism in the time of the swine flu

A funny thing happened to me on the way to work today, as I was waiting for the light to change a 10 year old street kid walked up to my car and offered me a flag and a surgical mask. Unfortunately I wasn't carrying a camera and couldn't record that image for posterity. Nevertheless on this 14th of August as I drove to work I thought of what it means to be an Indian.

Being Indian means learning to accept disparity. Disparity in wealth, education and opportunity. The car I drove would have fed a hundred of those street kids for a year and yet I don't feel the least bit guilty in driving an expensive German car on these potholed Indian streets.

By the grace of god my children can go to decent schools and enjoy a lifestyle free of wants - that street kid on the other hand is busy figuring out how to hustle his next meal, school and classes are way beyond his field of vision. Like most people in my demographic I just shrug and accept this as an accident of fate. This belief in the karmic cycle and the pithy explanation that life's hardships are a by-product of destiny is what makes me an Indian.

While the current pandemic is global and India isn't alone in its spread - I do remember in 1994 we had the dubious honour of being the epicentre of the first plague outbreak since the Middle Ages! And yet communal hygiene is hardly a priority, most of India's Tier II and some Tier I cities still suffer from open drains and insect infested stagnant water. We Indians take pride in the cleanliness of our homes but do not hesitate to litter the open space just beyond our doors!

Perhaps this rant is coloured by the temporary darkness in my mood - inspite of these warts in my country and the deficiencies in the psyche of my countrymen, India is where my heart is and this is where I live. I am an Indian not out of an accident of birth, but because I choose to be.

Its difficult to rationally explain why I love my country but maybe I'm like the wife who forgives the straying husband, not because she feels compelled to stay in the marriage, but because she knows he is a better man.

There goes my life

All he could think about was I'm too young for this.
Got my whole life ahead.
Hell I'm just a kid myself.
How'm I gonna raise one.

Six years ago when my son was born, I remember being consumed by fear. As I looked at his tiny fingers, tiny feet and perfect little body, I could feel my gut tightening .. Good God am I responsible for this human being? A year ago when my daughter was born I could feel the sweat on my brow, the palpitation.... well you get the picture.

But after a while the fear recedes, we are after all programmed to be parents, to nurture our future generation and that basic instinct kicks in after a while. That fear that I first felt has been replaced by a sense of responsibility. This sense of responsibility manifests itself in surprising ways.

To begin with I've found myself being a lot more ethical in my behavior. In any professional (and personal) context if I'm faced with an ethically gray decision - my litmus test has been "would my children be proud of me if I took this course of action?". Becoming a father has made me a more equitable boss, and a more honest businessman.

Its natural to want the best for my children and for my family, but being a father has also led me to want the best for the world that my children would live in. I find myself to be more socially aware and conscious of the kind of life that we lead and its consequences to the world at large. In many ways I'm worried about my legacy.. As my children start to develop their own opinions and express their curiosity, I find myself wanting to shape their character and their knowledge. I want to share with them what I've learnt and what I've experienced, perhaps this too is part of my desire to leave behind a legacy.

I've been a father of one for six years and of two for one in this time I know I've changed and as my children grow up, I too will grow, not just as a father but as a person as well. The burden of being a father? No its just the burden of my life.

There goes my life.
There goes my future, my everything.
Might as well kiss it all good-bye.
There goes my life.......

A couple years of up all night and a few thousand diapers later.
That mistake he thought he made covers up the refrigerator.
Oh yeah..........he loves that little girl.

Momma's waiting to tuck her in,
As she fumbles up those stairs.
She smiles back at him dragging that teddy bear.
Sleep tight, blue eyes and bouncin' curls.

He smiles.....
There goes my life.
There goes my future, my everything.
I love you, daddy good-night.
There goes my life.

Pappu can't dance

My parents called me "Pappu" when I was young. Ever since I attained adulthood I've made sure no-one else calls me by that name anymore. Unfortunately nicknames - like old lovers - have a tendency to catch up, when you least expect them to.

Over the last couple of months - I've been press-ganged to a Latin American Dance class on alternate days. Its an hour long class and most students pick up enough dance steps to be confident in a couple of weeks. I however am unlike most students...

I have been told that my steps remind people of Sunny Deol. I took that as a compliment until a quick look at the mirror disabused me of that notion. My rendition of a "Quick-Quick-Slow" Salsa Step most resembled the Nazi Goose Step. Alas I have been afflicted with two-left feet syndrome coupled with congential tone-deafness.

This Pappu really can't dance.

Things that make you go ..hmmm

Exhibit 1:

On Friday the 13th of March 2009, the Chinese Premier Wen Jibao said:

"President Obama and his new government have adopted a series of measures to deal with the financial crisis. We have expectations as to the effects of these measures. We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried."

Exhibit 2:

On Sunday the 15th of March 2009, the Chairman of the US Federal Reserve's Board of Governor's Ben Bernanke  does the first national interview a Federal Reserve chairman has ever done in 96 years. He says everything is fine and we’ll be back to business as usual by the end of the year. 

Exhibit 3:

On Wednesday the 18th of March 2009, the US Federal Reserve announces the nuclear option that the Fed will now directly buy the long end of the US Treasury Market. The funds to make these purchases are through an accounting entry a.k.a from "thin air" and other such uncharitable locations.

This announcement causes the 3rd biggest one-day cecline on the US dollar

This of course slices through some key technical levels - including a rising trend-line from December 2008 and the 50 day MA.

It does seem obvious that the US Fed is attempting to replace China as the world's buyer of US Treasuries, which is having the effect of ditching the US $.

(Graphs and Table from Bespoke)

"...profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal.."

The Messiah a.k.a Barrack H. Obama had this to say at a press conference in the Oval Office yesterday

"What you're now seeing is ... profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it,"

Here are some other quotes from politicos in the years past:

September 1929
"There is no cause to worry. The high tide of prosperity will continue." -- Andrew W. Mellon, Secretary of the Treasury.

December 5, 1929
"The Government's business is in sound condition." -- Andrew W. Mellon, Secretary of the Treasury

January 13, 1930
"Reports to the Department of Commerce indicate that business is in a satisfactory condition, Secretary Lamont said today."

January 21, 1930
"Definite signs that business and industry have turned the corner from the temporary period of emergency that followed deflation of the speculative market were seen today by President Hoover. The President said the reports to the Cabinet showed the tide of employment had changed in the right direction." - News dispatch from Washington.

May 1, 1930
"While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States - that is, prosperity." - President Hoover

June 29, 1930
"The worst is over without a doubt." - James J. Davis, Secretary of Labor.

September 12, 1930
"We have hit bottom and are on the upswing." - James J. Davis, Secretary of Labor.

June 9, 1931
"The depression has ended." - Dr. Julius Klein, Assistant Secretary of Commerce.

The Great Depression v1.0 of course did not end until the outbreak of the second world war. In the 10 years between 1929 and 1939 the political types came out with similar utterances every 3-6 months. It seems the Great Depression Mark II is following the same script.

Anybody who bases an investment or trading decision on the assurances of a politician deserves to have his capital taken away from him.

Gold – the perfect anchor in stormy markets

This is an article that I wrote as a sample for content management company.

“May you live in interesting times” – it certainly seems as if we have all fallen victim to this ancient Chinese curse. We are living at a time that our children will consider to be an important inflexion point in man's economic and financial history. On the one hand there is the massive deleveraging and destruction of credit that is causing deflation and on the other hand there are the stimulus packages and liquidity infusions being passed by the world’s governments and central banks that point to future inflation.

While deflation has the upper hand the only safe asset is cash, but if inflation were to rear its ugly head once again, cash will be the single worst asset to invest in. Inflation would lead to an increase in price levels and hence a loss of purchasing power. To protect wealth one should hold assets that can preserve or store value in the face of a general rise in prices: Real Estate, commodities such as Metals, Coal, Crude Oil and Precious Metals are excellent choices in this scenario.

However deflation would remove the shield that these assets provide. Faced with the “ice” of present deflation and the “fire” of future inflation many investors have been reaching for Gold as an anchor in these stormy times.

Gold has certain characteristics that make it special and different from everything else. All the Gold ever mined in human history, approximately 1,50,000 – 1,60,000 tons is still with us. The supply of Gold is very stable and is around 2% of the total Gold. It takes around 9-10 years for a new Gold mine to come online and then a further 5-7 years for production to hit the market. Thus from exploration to sale Gold from new mines takes about 14-17 years by which time existing Gold mines are in decline. Thus this supply is not very likely to change over time. In fact in recorded human history there has been only one time in which the supply of Gold has increased dramatically, that's when Spain took the Gold of the Incas and Aztecs in the 1600s and flooded Europe with it. Thus if Gold were to be used as money it would be relatively free from increases in supply.

Gold has very little industrial use – other than investment its major use is in jewellery. Gold is almost indestructible and when held as coins or “biscuits” is relatively portable. Gold Markets are very deep and very liquid in fact in Foreign Exchange markets Gold trades like any other currency.

But most importantly when owned without any leverage and in metal form, Gold has no counter-party risk. Like all tangible assets – Gold is no one’s liability and hence when used as a store of wealth is not held hostage to someone’s ability to repay.

Because of these reasons – every prudent investor should own physical Gold as an insurance against unpredictable and “interesting” times.

An American Decline - not a foregone conclusion

It has been my belief, reinforced by the global financial crisis, that the American Century is about to end and the decline of the American Empire about to begin. I have believed that America finds itself where Great Britain was at the end of WWII. Tired and exhausted after fighting multiple wars, its economy ravaged (by war for the British and by a debt fuelled consumption binge in the case of the Americans), its leadership new and untested and a deep malaise affecting all segments of society and popular culture - Pax Americana will end in the same manner that Pax Brittanica did.

I found this article on the Asia Times today:
http://www.atimes.com/atimes/Global_Economy/KB18Dj05.html

The author provides a contrary viewpoint, to paraphrase Mark Twain the rumors of the demise of America have been greatly exaggerated. The article's central premise is that the stable tax revenues that accrue from the world's greatest democracy buttress the US' natural position as an investment safe-haven, this provides a natural source of demand for the US$ and sovereign debt. This demand makes the greenback the world's reserve currency and is the fount of American power.

He argues that other economies such as Germany and Japan have demographic issues that will lead to a decline over time, and China on the other hand is a high risk proposition that may provide higher returns but at the cost of higher volatility - hardly the description of a safe-haven investment.

I don't disagree with his conclusions, but the central premise that American tax revenues are stable, is suspicious in my humble opinion. With a declining economy, falling asset prices, growing unemployment and rising societal acrimony I do not see how tax revenues can remain stable. In fact if you were to pursue the CBO's budgetary projections at: http://www.cbo.gov/ftpdocs/99xx/doc9957/01-07-Outlook.pdf you would see that they agree to a decline in tax revenues in 2009 and then an increase from 2010 onwards. I would wager that the coming global depression will push the rise in tax revenues out for a decade (at least).

With falling tax revenues and hence lower debt service capacity, I do not see how sovereign debt buyers will continue to believe in the credit capability of the US Treasury. Abraham Lincoln once said - You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time. And when you cannot fool the bond market into buying more treasuries - its game over!

A rant on Taxes

Benjamin Franklin is reputed to have said "In this world nothing can be said to be certain, except death and taxes.". I run a (very) small business that develops software to be sold to the construction/infrastructure industry.

What with the prospect of a global depression, the construction industry is not exactly going through a happy phase right now. Consequently the business outlook is exceedingly grim and death" has definitely been on my mind. With "death" so near can "taxes" be very far?

In their infinite wisdom the Income and Excise Tax Departments have come up with a circular stating that all software sold from April 2008 onwards shall be liable to Goods AND Service Tax i.e. software is both a Good as well as a Service. What the Tax Department is saying is that software is both Tangible as well as Intangible, with one deft circular this government department has changed the laws of physics.

This has the immediate impact of applying a 4% Valued Added Tax (V.A.T) AND a 12.36% Service Tax on any product that we sell. Thus increasing the cost of our product by 16.36%. One esteemed cash-strapped customer has flatly declared that he won't pay and that we will have to pay the additional 12.36% tax from our meagre margin.

There's a point where doing the business costs more than not doing the business, and the margin simply cannot be made up in volume. As a result, small independent business owners like myself are simply closing in favor of doing something else. Something easier and more profitable.

Zeitgeist

A sign of the times.

http://www.speroforum.com/a/18056/A-Lesbian-marriage-is-over-in-Massachusetts

Two lesbians who were instrumental in a landmark Court decision- that led to the recognition of same-sex in marriage by a US state have separated. Note the timelines, they were married in May 2004 at the height of the economic boom and asset bull market, and as the market turned so did their marriage.

Social mores and cultural trends reflect the political and economic events of its times. The German philosopher Hegel popularized this notion of "Zeitgeist" as the spirit of an era. The 90's and early '00s were an era of excess, real-estate prices always increased and social conventions rivaled credit and underwriting standards in their permissiveness. All that has changed in this age of the credit crunch, as cash becomes king and liquidity becomes tight look to social attitudes towards marriage and sexuality to become increasingly rigid and inflexible.

China Oh China

The Roubini monitor posted a tidbit from a Chinese Official. According to official figures they've lost about 35 million jobs so far. Given that their labor force is about 450 million. That would put their unemployment rate at about 7.8%.

I think the 2006 India unemployment rate (2006 is the last year for which official figures are available) was about 7.3%. China's unemployment rate in 2006 was 4%. So assuming the same rate of jobless-ness - that would put India's unemployment rate at 14%?

Corporate Social Responsibility

Corporate Social Responsibility is quite becoming the term d'jour in Indian Business circles. During the Republic Day Weekend - my son entered a drawing contest/camp where our kids (who are socially "advantaged") interacted with a bunch of kids who are socially dis-advantaged. Unfortunately these kids came (presumably from their homes or social activity center) after three-quarters of the camp was over - but thats besides the point.

A couple of years ago while I was in business school I read a book called "When Corporations rule the world" by David Korten. It's quite the anti-globalization, anti-privatization tome. But I remember one interesting point that he had noted. Corporate Social Responsibility is dictated by the laws of profit. If a corporate leader chooses to do the 'right' thing vs. the profitable thing, and therefore causes its market value to drop he/she will be fired.

Even assuming that a corporation is able to temporarily persuade its shareholders of the long-term benefits of the "social justice motive". In a global economy those corporations that drink the kool-aid of social justice and sacrifice profit, will be driven out of business by their international competitors.

In India many people point to a company called Fabindia as an example of an organization that practices social justice and shares the benefits of its growth with the community of weavers, artisans and farmers that it sources its products from. As a devoted Fabindia customer I can say that the social justice and inclusive development aspect of its business model is NOT what attracts me to its products.

The fact that a major chunk of the 400 Rupee shirt that I bought will make its way to a weaver makes me feel good about myself but that happens AFTER I have spent the 400 Rupees. If the shirt were to be priced at 4000 or even 1000 Rupees I would not have bought it. Even if an expensive shirt might have meant increased earnings for the weaver and his family.

We consumers buy Chinese products because they are good enough and they're cheaper than comparable American/European/Indian products. Consumers practice morality with their wallets. In a world where money is a scarce economic good people will inevitably spend their money where they perceive the highest value to themselves. Most people do not feel rich enough to change the world by paying more than we have to for the goods that we consume.

Organizations that trumpet corporate social responsibility and social justice as being central to their mission are doing their shareholders and themselves a disservice. An approach that relies on corporate and individual social responsibility to change the world - is doomed to failure. This approach will run up against a wall of individual self-interest and stall there.

Luck By Chance

The wife and I saw the latest Farhan Akhtar vehicle "Luck By Chance". While a decent movie, with excellent character development, the theme of bollywood takes a look inside bollywood left me a little cold.

The pluses were the smartly written dialog and excellent screenplay. Farhan and Konkona as the Bollywood strugglers willing to do what it takes (aka "compromise") to get ahead were solid without being exceptional. Some great cameos from Anurag Kashyap, Rishi Kapoor, Juhi Chawla amd Hrithik Roshan. A bunch of Bollywood superstars had walk-on parts so that may have been interesting for those who look out for such things.

Personally I thought it OK for the multiplex crowd and decent "time-pass" if nothing else.

Catching Wild Pigs...

An investment advisor - who shall remain nameless - came to see me last week. His take on the Global Financial Meltdown.

• "It's basically over."
• "Every country is coming up with new stimulus plans and bailouts."
• "These bailouts will resolve all issues and turn the market."
• "This is an excellent opportunity to catch the market at its bottom."

When he talked about how the bailouts will make everything better, I found myself remembering a story about catching wild pigs ....

You catch wild pigs by finding a suitable place in the woods and putting corn on the ground. The pigs find it and begin to come every day to eat the free corn. When they are used to coming every day, you put a fence down on one side of the place where they are used to coming. When they get used to the fence, they begin to eat the corn again and you put up another side of the fence. They get used to that and start to eat again. You continue until you have all four sides of the fence up with a gate in the last side. The pigs, who are used to the free corn, start to come through the gate to eat, you slam the gate on them and catch the whole herd.

Suddenly the wild pigs have lost their freedom. They run around and around inside the fence, but they are caught. Soon they go back to eating the free corn. They are so used to it that they have forgotten how to forage in the woods for themselves, so they accept their captivity.

That is exactly what is happening all over the world and especially in the western economies. The governments keep pushing its citizens toward socialism and keeps spreading the free corn out in the form of new stimulus programs and bailouts. While we continually lose our freedoms -- just a little at a time.

A rumor.....

I have an account with Citibank, that I have in the past used to buy mutual funds park some cash etc. From time to time their "Relationship Manager" will come calling and try and sell me some more mutual funds.

On his latest visit he mentioned an interesting tid-bit. The banks are all buying the long-end of the T-Bill (India Gilt) and not the short-end. I thought that was interesting because its contrary to what the banks are "expected" to be doing.

One of the easiest ways for Banks to earn money is to play the spread i.e. acquire funds at the short-end and lend out funds at the long-end. Thus their goal is to have a steep yield curve - with an upward slope, anything else and they make less profits than they normally would.

By buying the long-end they are increasing the price of the bond (higher demand) and depressing the yield, this flattens the yield curve and reduces the profits banks would make by playing the spread.

So why are they doing it? Are they expecting Deflation in the future and hence lower interest rates, and in so doing locking in the current "relatively" high yields.

Britain is bankrupt

That's a monthly chart of the British Pound (GBP) against the US$. Notice the Waterfall-like fall from 200 to 140. It's currently at pretty strong support going back to the lows in 2001 and 1993. I expect this support to hold .. for now. When this support breaks, and it SHALL, its goodbye and goodnight.

The British government has taken on the liabilities of its banking system. RBS alone has liabilities of £1.8 trillion, three times the annual government spending, against assets of £1.9 trillion. While RBS is notionally solvent, the true value of its assets is considerably worse.

Meanwhile National Debt is approximately 630 Billion GBP and GDP is approximately £1.4 trillion. The total Debt load is thus conservatively 100% of its GDP. Niall Ferguson in his excellent book "Empire" showed that the UK has in the past consistently carried and serviced Crown Debts between 2-3 times its GDP. Unfortunately in those days, Great Britain was the world's paramount superpower and the Sterling was the reserve currency of the world.

In attempting to fight deflation and unleash a storm of liquidity the BoE governor Mervyn King has said "Despite those big cuts, there remains a risk that inflation will fall below 2 percent," ..... "It is sensible for the Monetary Policy Committee to prepare for the possibility -- and I stress that we are not there yet -- that it may need to move beyond the conventional instrument". Translation: Rate Cuts are doing F%$@-all to solve the crisis, we must start monetizing government paper.

I had thought Russia would be first major economy to default, it looks like I was wrong. That honour might be bestowed upon M/S King and Brown. Welcome to Reykjavik on the Thames.

I changed my mind

After having studied the S&P chart in more detail and looked at the damage to the XLF, I have decided to dump my long Big Caps, long Nasdaq 100, long Oil & Gas and long Semi positions at the open. I am opening a new short position on Small Caps. I will be keeping my long Agriculture and long Crude.

I fully expect to buy them back cheaper, possibly later today. I will probably close the short small caps position later today.

I got creamed

OK I admit it.. I got creamed by the market today. All the broad indexes fell by about 5%+ today. The S&P is now at 805. My invested capital fell by about 10% and my total capital by about 6%. I have four choices now:

1: Close out all long positions and move to cash.
2: Close out all long positions and go short.
3: Open a new short position for a hedge and if we go lower from here dump my longs and increase the hedge, if we go higher and break 820-ish on the S&P on volume then remove the short hedge.
4: Do nothing, wait and see what today (the 21st) brings.

Here's what I think is happening. We are in the middle of a Presidential rally - that will probably peter out at 950-ish. I was expecting 1050 last week, but after today's decline I don't see the market breaking the high of January 6th.

The problem is where is the bottom of the current move downward. If it's here or 790-ish, it makes sense to sweat it out. On the other hand it could very well be around 740-ish. In which case I should go with 1 or 2.

I am long from 850 and I could bear a drawdown to 790 - but anything more would be stupid. So here's what I am going to do if we break today on volume I will dump all my longs and be on cash.

So for today it's #4.

The more things change...

The more they remain the same. On my way to work, the local radio had interrupted its program of non-stop Bollywood music (of the kiss me- kiss me fare) to talk about Barack Obama's inauguration.

As the 44th president of the US, his story, eloquence and the fact that we are a relatively pro-American country has caught the attention of the ordinary Indian. The expectation seems to be that he is the messiah come to deliver America and the world from:
1: Financial Meltdown
2: Terrorism
3: Over-reliance on Petroleum
4: Environmental Degradation

Being the messiah may just be too heavy a cross for one man to bear. But even if he were Jesus/Buddha/Gandhi/ML King/FDR/Abe Lincoln re-incarnated, the simple truth is that human nature NEVER changes. The same mistakes that we committed in the 1930s we are condemned to commit again.

The roaring 20s brought about a generation of people used to easy money and booming markets. They learnt their mistakes, suffered pain and put in place a host of regulations and safety nets. But once that generation passed away society has gone about making the same mistakes again.

Just like the 20s we have created another easy money bubble and re-priced risky assets. And just like the 20s this bubble will have the same outcome - for the simple fact that human nature is STILL the same.

We will go through the same deflationary spiral that we did in the thirties. And this deflationary spiral will be followed by hyperinflation as the establishment desperately tries to control the force of nature by printing money. This hyperinflation will create a class of people who will be wiped out. With nothing left to lose this class will take upon themselves to unseat the existing powers and put in place a new system of governance. This might be Fascism or Socialism reincarnated, or it might be some other -ism. Regardless the world will be a different place once the trough of this cycle is reached.

To think that one man, even if he is the most powerful man on this planet, can stop human nature from running it's course is wishful thinking of the first order.

Stocks Update

On Friday (16/1) I closed out all my short positions and went long. I expect the current rally in the S&P to top out around 980-1000 ish. At which point I will go short in force.

I am currently in the following positions:

1: Long Crude
2: Long Oil and Energy Index
3: Long Nasdaq 100
4: Long Big Caps (A proxy for the Dow 30)
5: Long Semi-Conductors, the SOX index
6: Long Agriculture Index
7: 40% Cash

For the record the short-gold stock was a loss, the short financials, short real estate and short small caps were all profitable.

The rise and continued rise of the dollar

I am watching the US$ like a hawk




Notice the US$ reach the 50-day MA. If it breaks that its very bullish for the $ and bad for commodities and stocks. For the record I am short Gold and short stocks. On a longer term basis it just closed above its 200-week MA. See the Weekly chart.

2009 For you

This seems to be the season for 2009 predictions, so for the first time I decided to put mine out there.

I'll start with the Economics first.

1: S&P500 will print a 5-handle this year. After a spring rally, the downtrend should resume in earnest in the summer.
2: SENSEX will touch 4000, the timing should be similar to the S&P's low.
3: This year people will stop talking about recession and downturn. They'll start talking about a depression instead.
4: US unemployment (official) figures will touch 10%.
5: There will be a currency crisis, but unlike most people I do not think the US$ will collapse (at least not this year). I think the currency crisis will be in Euroland or with the GBP.
6: India's IT industry will end 2009 in a much worse state than 2008. I fully expect the top 10 companies to layoff 50% of their staff.
7: Foreclosure and Repossession will make their appearance in general desi vocabulary.

Domestic (India) Politics.

1: No national party will win a clear majority. There will be a coalition government (and I'll hedge my bets here) probably led by the Congress and supported by a host of ne'er-do-wells.
2: Mayawati will NOT be the next Prime Minister. But she could very well be in the Union Cabinet.
3: Rahul Gandhi will NOT be the next Prime Minister. I suspect he will not have a very public role in the next government either.
4: Amar Singh and Mulayam will be marginalized by the congress in favor of Mayawati.
5: NCP will fare badly in Maharashtra. There will be a 3 way-split between the NCP, Congress and BJP-SS in Maharashtra. MNS will make its way to Parliament.

US Politics

1: Obama will lose his way and from the great "black" hope he will become one of many who over-promised and under-delivered.
2: There will be an undercurrent of rising resentment against the government. While nothing will be overt but 2010 might be the year that the American system of government changed to something else.

International Affairs

1: Pakistan will collapse, the mullahs supported by the Army will take over the government. Pakistani society will enter the dark ages.
2: Iraq will be peaceful, Palestine will not be.
3: The Indian Army will be overtly deployed in Afghanistan. First as advisors and then slowly to replace the NATO and US forces who will withdraw by year-end.
4: 2009 will NOT see an overt conflict between nation-states in South Asia, but 2010 will be another matter.

I'll come back same time, next year and see how I did.

Current Stock Positions

These are my current open positions

1: Short Gold - Rationale I am expecting Gold to fall to 790-800 is per ounce as the USD starts rising. Expected timeframe 2-3 months.

2: Short Real Estate, Short Financials, Short Russell 2000 - these are my chosen vehicles for the short-side plays of 2009. I expect the bear rally to take a hiatus till next week 19/1/2009 - ish. The S&P should retrace to 820-830ish. I will then close these short positions and go long.

3: Cash - approx: 20% of portfolio.

SAY you SAY ME - The Auditors

The SAY (Satyam) saga just keeps getting better and better. The CFO claims that the inflated cash balances were handled directly by Raju and he was told to keep his nose out of the business. In the meantime there have been calls for PwC's hide.

PwC of course is the hapless group of auditors who audited Bernie Madoff's feed fund the Fairfield Greenwich Group and now have this sordid tale to add to their list of accomplishments. However I "think" (with an emphasis on the word think) that PwC may not be complicit in this particular case. Here is what I think happened.

1: Raju pledges his SAY shares for a margin loan.
2: Raju takes the margin money and pumps it back into SAY's accounts. Thus the bank balances now show inflated amounts.
3: Raju inflates the Revenue numbers which tie in with actual cash in the bank.
4: The bank's provide valid statements showing cash balances.
5: PwC certifies the cash/bank balances.
6: Raju then siphons off the bank balances and uses it for his nefarious purposes.
7: Raju proceeds to repeat steps 1 through 6 every quarter, each time pledging more and more of his shares. Until
A: He runs out of shares to pledge.
B: Is unable to raise cash any other way, and with quarter-ending coming up is desperate to show that he has money in the bank.
C: He comes up with an ingenious idea, utilize the cash (he is supposed to have) to buy other assets. Since he happens to be the seller he has no problem being paid in fictional cash. The auditor now receives a bank statement showing reduced balances and certifies the same. The cash flow statement shows an outgo due to a financing activity and all is well.
D: Scheme C - collapses and the rest is history.