Gokarna - From the Cow's ear!

A place where you can experience everything and nothing, where peace and a blizzard of noise co-exist, something at the turnstile that will always surprise you and bring a smile back to your face. So, drop your guard and let the colors take you over!

Gokarna is a beach town that's on the darshan circuit for devout hindus. However, the town in my mind is just like another religious town in India. I wouldn’t know about this temple but perhaps that might be different (Legend has it that Hanuman dropped a piece of the Sanjivani Parvat that he carried over the skies on his way back from the Himalayas to Lanka). However the true wonder of this town to the travel junkie lies in its beaches. This small town has 5 good beaches to soak in, each of them with a different character of its own!

To add to the wonder, each of these hemispherical beaches is located in a horse shoe mountain range that form part of the western Ghats. So, you can never see the next beach from your current beach and so the further you go the more remote and sparse the beaches get. To get to the next beach you need to trek across the edge of one horseshoe Mountain into another. It is due to this not so easy accessibility that the beaches are perhaps the last bastions of an ‘everything and nothing’ place (Paradise beach is at the extreme end). Where you can find random yoga enthusiasts practicing close to a bunch of saffron clothed hippies dancing to a melodious cacophony of absolutely unheard instruments! All as the local dogs play football with kids and Frisbees soar across passing fellows juggling circus devil sticks.To give Gokarna its rightful name (The cow’s ear), you have lazying happy cows across the beach in search for the next canopy and right spot to doze by. Where do you wish to fit in? choose your spot!

The 4 beaches (I’ll call them the 4 brothers!) in order of accessibility from one to the other are – Kudle Beach, Om Beach, Half Moon Beach and Paradise Beach (Gokarna Beach is the local beach just before Kudle Beach). Each beach is a good 20-30 mins walk from the previous and vastly different in character. We based ourselves at the Kudle beach which in ways along with Om beach is rightly sandwiched to make a trek to both sides of beaches easier. We planned to spend the New Year’s on the beach and reservations though many months in advance were hard to come by. I made a few calls to the beach shacks but they mostly asked me to call back in early December, which when I did only to discover that they were sold out! I frantically googled the other options on the beach and stumbled upon Sunset Café. Not entirely sure about the place but delighted they had an available room (I had initially shortlisted Namaste and Om Shree Ganesh on Om Beach), I made the advance payment and dug myself deep into bed hoping that they don’t end up canceling (due to the peak season, there is no shortage of tourists and you are perhaps only considered serious if you can pay 3x - 4x of the normal rentals. While some may call this extortion, I don’t mind it – if we get bonuses over and above our salaries / charge high fees if a client / customer wants something pronto isn’t it only fair for them to increase rentals during the peak season?

Ohh yes, how did we plan to reach there and head back home? – We booked our train tickets perfectly 2 months in advance exactly at 8:00am when IRCTC opens for reservations and we landed ourselves a WL 4/5 at 8:01 for a 3AC and as a back-up plan at 8:15 at a WL 23/24 for SL! Incredible but I hoped my train luck would not die on me this time. My learning – during festive season book your tickets immediately when the counters open. The train journey from Mangalore to Gokarna is a lovely 4 hour picturesque ride aboard the Matsayagandha Express, this stretch covers half of the Konkan railways and runs parallel to beaches and over the backwaters and through tunnels deep in the mountains.

Reaching Kudle beach (or Om Beach) in the night from the station makes you feel like you’ve come to a safari destination as the car snakes its way through the jungle with strong woody scents with a jungle dog crossing the road. I can’t imagine how people use two wheelers during the night time here (though they do!). Relieved that we had finally arrived at a place (the parking area for Kudle), we were told that the next 100 metres we would be on our own. Excited by having almost reached our destination but weary from the train journey we lifted our bags and made way for the clearing. With a torch in one hand and 2 bags in another, both of us trekked through the highly uneven, at times sandy and at times rocky path heading southwards to the beach. It isn’t at all a bad idea to take a pitstop 5-10 minutes into the descent, you’ll need it. As we walked further and finally reached the end of the path, Hola! there lay beach infront of us but where be Sunset Café? Walk ahead we did. Also, to better appreciate our predicament we had 2 large duffle bags and a large suitcase and beach sand to drag the suitcase by. Not the best of times to have luggage on you (rucksacks – the holy grail for travel!). Sunset café sits smack in the middle of the beach, once we reached the place Prasad (or ‘uncle’ as many call him) greeted us with a big grin and offered us some cold beverages seeing the sweat on our brows. There are only a few rooms here with attached washrooms so we had our fingers crossed on getting one. Uncle obliged and we rejoiced! He did mention that these rooms are quite in demand, I couldn’t appreciate this entirely till into a few days of our stay. For the bachelor or an overt beach junkie the thatched huts could very well be comfy but when you sprout white hair grey and a paunch seems to be the only constant in a sea of variables, some comfort even though basic is bliss in the near wild. Without taking anything away from the rooms, you do need to shed many inhibitions as you stay in any shacks by the beach. This doesn’t have to do with hygiene but with a choice, you can either stay in the duveted hotels overlooking the beach close to the parking area, or stay at the nicey looking Kudle Beach International, or the wayyy pricey Namaste Yoga farm with balconies overlooking the sea, or Jungle Lodges at Om beach, whichever ways we were delighted with our choice of a mud hut at Sunset Café. With lovely country and jazz music humming in the café, rooms where you can hear the roar of the waves and where the first thing in the morning you can see as you open the door is the beach, why would you choose any other place? J

Fresh from a shower and dazzled that we got acco during the season, we were set to have dinner at the Café. I was pleasantly surprised to see a fairly large spread in the Menu – Israeli, Spanish, continental, pizza, pastas and a variety of the season’s catch! A cold beer to down the diner, a day long train journey and the gentle breeze of the sea sent to me to my next destination – the bed! The thing about shacks is that you’re lucky there’s acco by the beach so everything you expect in a hotel is slightly upside down, and as I said before it’s a choice J With a mosquito net over the bed, I think a safe night’s sleep is fairly assured if you have good neighbors! The construct of the shacks give way to inter-room communication at all times of the day and at all places!

Day I:

830 am, the sun in its rise, arms stretched, combed and a spring in our steps we stepped out after some hearty breakfast (the breakfast fares are excellent options for a full meal). As Sunset Café is smack in the middle of the beach, you get to see a lot of action including the local fisherfolk getting their nets out. They lay their nets sometime in the evening and every morning around 8, they start actually ‘pulling’ the nets ashore. It’s akin to a tug of war! With help from the people around the beach the tug of war goes on for almost 45 minutes till the entire net is onshore. They start the pulling from the centre and to avoid getting the nets entangled they have lay the nets by the beach, only to end up with the fish net at the corner of the beach. As the nets reach the beach, there’s an explosion of curious onlookers - some clicking pictures, some enquiring about the catch and some looking for fish and crabs that they can still be sent back to the sea. Here are a few pics including one where a sting ray is sent back to sea.

Since it was Goood morning time, you will also see folks exercising on the beach, stretching, doing calisthenics, push-ups, crunches, Yoga and people like us lazying around.

Walking through the beach with waves crashes at ankle depth, you will be amazed to see the wonderful little sea creatures brushing by the beach close to your feet, tiny crabs in shells, starfishes and other tiny sea fauna, the early bird is bound to get its catch, literally!

As you walk towards the end of the beach, Bougain Villa, Sea Rock Café, Little Paradise Café, the German Bakery, the Old Pizzeria Place, The Spanish Place, Ayurveda Café, Ganga Café will pass you by. To my mind most of the shacks are variants of one another but for the odd looking hotel – Gokarna International smack next to the shacks. There’s a vibe, an energy, a certain still comfortable laziness that sweeps you by when you stay in a beach shack. Apparently, Sunset Café at Kudle beach, Namaste Café at Om beach and another shack on Paradise beach are owned by three brothers, we met with one of them – Gopala, a happy BJP supporting enthusiast who was delighted that we were perhaps the first folks his shack had welcomed from Gujarat. They mostly get weekend backpackers 

from Bangalore and some folk from Mumbai.

If you decide to explore the other beaches as we did, there are a few travel options (1) Trekking (2) Rickshaw and (3) a boat ride. I strongly recommend the trek, a Rickshaw ride is a faux way to get the next Beach – Om Beach (you have to go uphill to get a rickshaw and once the rickshaw reaches you have to go downhill again – completely not worth the time).  If you plan to make the climb to Om Beach, some wisdom to the parched throat is a coconut seller just as the rocky path begins. Sip in some cool coconut water (pricey!) as you gaze the beach and on your left see some Yoga enthusiasts in exotic postures! One that we saw a few times was a man lying on his back with his legs raised up from the waist. Gradually a lady began to push herself up and settled striking a delicate balance on the man’s soles of his feet!

The trek leads you through a parking stretch, through a mound, an almost visible path and finally over a garden. To know you have arrived, there a fence that has a turnstile type opening and once you reach the end of the garden you have to jimmy yourself through the gate. You will meet hippies, travelers and shack caretakers shuttling crates of booze and drinks between the two beaches.

As I mentioned earlier in the post, Om Beach is a busy beach and expect crowds at the entrance. For some reason people gather at the edges of beaches in India (or is it everywhere?), perhaps that’s because they have walked so much and once you see the beach, you want to let down your worries and drop then & there! J Namasate Café (highly recommended) set at the start of the beach is a good pitstop to down a cold beer and some chips after the trek. There’s a small shop going at Namaste that’s perhaps your best ‘shopping’ bet across the beaches. A must buy is the khadi (hemp) kurtas and multi colored PJs. There are also a few beach hawkers selling beads, khadi clothes and such. But if you plan to shop – you can count on this place for variety. There’s also place next to Ganga Café on Kudle but is much smaller.

The first bit of the beach is slightly uninteresting and you must walk to the second half to get into the action! With folks playing volleyball, guys flying the Frisbee and catching them on a finger to a backhand catch and through the legs to flinging it back, this place is Frisbee country and how! We saw a bunch of folks digging a 10 metre ditch downhill from one of the shacks and opening into the sea, when someone asked around – one of them said – ‘this is to let the water flow’, now while you may wonder which side gravity works but do consider the effect of herbs on these gentlemen and then you will see the answer isn’t one to be reasoned with :)

We then decided to sit on the beach taking in the Sun and watching the waves chase each other. A few minutes into our sojourn, there was a gentle nudge on my knee. As I turned, there was a beach dog tapping a friendly paw on my knee! Not sure how to react, we shooed the dog away only to see that he went a few steps back only to be welcomed by a bunch of hippies sitting behind us, the dog was joined by another and they both spent time socializing with beach folks. I exclaimed to my wife, WOW those canines can communicate! As you will see later in this write-up, the animals on the beach seem to float around in an alternative state of blissfulness by the beach.

Once you have taken in the sights and sounds of Om, and luckily have the Sun on your side it is time to pack-up and move to the next beach – Half Moon beach. This is by far the most interesting of the treks across the beaches. The trek takes a good 30 minutes as you find your way between a tad confusing path in the thicket. A 100 metre stretch in the trek has a splendid view of the Arabian sea as you tread through a narrow muddy path on the edge of the cliff ( you need to be careful and must avoid this path during the rains). You will reach a crossroad during the journey, one of which goes into the woods and the other path leads you to the beach. It’s definitely a good idea to ask fellow travelers for the right turn and yeah do confirm the path once more as well (as we did only to know that we took a wrong ‘advised’ turn!).

Reaching the beach, one gets a sense of ‘Is that it’? But there is a certain quiet charm that Halph moon has! (as a hippie pronounced it).  There are only 2 shacks on this beach but maybe its good that way! As this small hangout is tranquil and a good place to sit on the rocks and watch the crabs have their time in the sun as the waves hit the rocks. There’s a display of some shark / whale skeleton that’s an interesting photo-op. Yes, we saw this hippie reach the peak of a large monolith that sits in the middle of the beach, he sat there for nearly an hour, squatting in the same position (@ high noon, another hour and I thought parts of him might begin to evaporate!). There is a corner shack that provides a good view of the beach, the view is its claim to fame, the food slightly avoidable and pricey. The shack sports some huts for accommodation that sit close to the rocks facing away from the beach, almost all of them have a solitary and spectacular view. A long wait on its benches and you are bound to encounter travelers asking you the way to Paradise, and we like pros said, yes that way. Now, in our day-to-day jobs you don’t really get people asking you the way to Paradise, but hey this is as close to how you get literally speakingJ. Due to the trek, folks who come here are definitely the better accomplished explorers, with a good sun absorption capacity. 

Alas, for us this was the end of our trek with Kudle seeming a good 2 hours away. After downing a cooler, emptying our tanks (courtesy the beer, water and a cooler) we set back to Om and then finally to Kudle. Mid way between Om Beach and Half moon, we accidentally took a path towards the cliff and ended up in a clearing where a couple of backpackers had pitched in a tent, with a campfire going on one side and a lazy hammock flung between two branches by the other! What I love about the trek, is that you bump into a variety of folks, each recognizing the distance the other has walked and sharing notes on how long the trek is and voila! An instant camaraderie is established! This along with the sights and woody scent on the trek makes a worn-out trekker spring back into life at the next twist and bend. We reached back at Sunset café just in time to catch the ‘sunset’ and to take forty winks before heading out for the evening.

There are fairly good dinner options at the Café (and the beach), most have large potions. We settled for a Pizza, noodles and a Banofi pie for dessert at cafe itself (must try). Booze options on the beach are a tad dry – there apparently is some issue with selling hard liquor on the beach, and you need to settle between beer and the standard cocktails. Don’t expect some bomber shots, tequila shots etc.

Walking late in the night on the beach is fairly safe as there are quite a few people taking a stroll and you do have a few cops doing their rounds by just to ensure the odd over the top chap isn’t making a scene.

Sleep – this is something I had a challenge with! you need to be lucky to get the right neighbors. We weren’t and were privy to a saas bahu sounding serial / movie, commentary from a cricket match and to top it off - some unheard really slow music (I’m a music lover – but at 1130pm when you are about to hit the sack, this generally isn’t a favorite). Surprisingly there was no talk – only these strange serials etc at a shack by the beach at midnight (get a life!!!) As travelers, wherever we travel, we make a conscious attempt to be cognizant about the peace of our neighbors at night, and am sure they in turn can avoid the movie and serials for a few nights especially when the tin roof and sound padding is friendly to noise and voice exchange! J

Day II:

We spent the next day lazying at the beach by sipping some coffee. The most interesting hour was watching a couple pitching a tent (Sand bags that hold a large sheet at its corners, the sea breeze keeps the sheet up and the sand bags keep the sheet from flying away). What started as sun bathing as they read turned into a cacophony of sorts. Within a few minutes of setting up the tent, a dog settled into the shade and decided to take a nap. Within some minutes of this, the hawkers decided to squat here in hope that the couple buys some gear. And to top it all and not miss the action, a cow lingering nearby thought to walk by and join this herd. So, with the cow at one corner, a dog at another, hawkers at the fore and the couple in the middle – this became an interesting flock! Finally, the couple decided to pack-up and call it a day, not after giving passersby some moments of laughter. There are many characters you can see around – some that caught my eye - a Noah like looking dude with a large stick and a lady heavily dressed in black flowing robes.

We decided to take a long walk in the evening for one last time, somewhere in-between we saw a lone traveler and a beach dog playing football together. The guy would kick the ball towards the dog and the dog brought it back and so-on. Kids joined in the fun and the dog kept them company. When another canine thought to join in, the football dog spared and turned him away. This is surely the first time we saw such engaging football. As if this were a scene from a long past book, close by a bunch of hippies settled down and played their musical instruments and chanted a song they had written, they were gradually joined by many passersby into what eventually became a large disarranged diaspora knit together with music, sand, peace and the odd herbs J.

To sum up our experience the Beatles number 'Lucy in the sky with diamonds’perfectly describes the beaches of Gokarna– a place where everyone does their own thing, where you breathe in the song of the place, where you let go of your city inhibitions, a place where you might just meet a friendly stranger and a place where you can experience everything and nothing!

What we couldn’t do – Take a boat hopping trip from Kudle to Om to Half Moon to Paradise and back. Take the trek from Half moon beach to Paradise beach (a 30 minutes walk, we heard the beach is worth the trek)

What you should do – Get loads of Sun block if your skin is sensitive to the overhead sun.

So Gooookarna, and have a blast :) :) :)

When you believe the future could be bright when people collide, then please take your right!

While crossing corridors, pavements, getting in and out of the loos, there are those short pangs of silent uncomfortable moments of what I call the ‘left problem’.  In narrow gulleys, walkways or at a door when you and the other person are moving towards a collision projectile, you move to your left to let the other guy through but as it isn’t entirely possible to configure your minds on a possible quick game theory to decipher who will move left or right, well he moves to his right simultaneously and aha no one moves. Flummoxed, he moves to his left so that you both can rush to do each of your businesses but you as the ever courteous dude, move to your right simultaneously, and now when you two are stuck again it’s now your turn to flaunt asterisks! Giving up both of you simultaneously decide to let the other move only to realize, heck he’s not moving!!! With a disgruntled smirk somehow you two manage to find your lefts and rights finally.

In absence of perfect knowledge, these instances of momentary orbital blockage in our paths, repeat themselves only to irritate further. From my past years of these scratchy experiences, I have noted that in case there is a wall on one side both you and the other collision particle tend to stay on the side of the wall and many a times not venture on the open side. Similarly while walking on the pavement; both people tend to stick to the side where the pavement bars are. But all this just adds to the dilemma of the ‘left problem’ as there should be one simple fit it all rule we can apply.

Some of us wouldn't mind these moments, in case the other person were one of those interesting ones you have been lately spotting in the neighborhood / office and generously looking at his / her facebook profile, but if you had a disgruntled boss of yours or say someone you really have been wanting to avoid, then these occurrences slowly tend to enhance pre-decimal points (left hand side of the decimal!) to your already achieved degree of frustration!

Or is the left problem even more deep rooted in our psyche, say the case of overtaking on our roads, the rule is to overtake from the left, ohhhh overtake from the right? – that’s just for those non street smart folks. Take the instance of our roads, having a white line dividing the lanes. My left is clear and so is his, but he chooses to come on the side of my left because, his left in an unseasoned patch. At such instances I reminiscence and wonder if tying a friendship band on my brakes would make them work promisingly slightly better.

Is there an answer to fundamentally solve this collision confusion? – say always give a right of way to the lady?, but that poses another challenge, what if two women face each other is a ‘pheley aap’ standoff? If they were sisters in arms, then it would amicable solved, but if they were slightly on the darker side of each other’s mental cortex, the first set of carbon based life forms who would interact with either woman should be advised to buy a bucket of popcorn well in advance for the upcoming monologue with the 'pehley aap' confrontation only being the introduction, what would follow is almost certainly perhaps a life history of the combatant, and finally resulting into you deciding why our dearest Chidu is still not too bad, in comparison!

If they were guys, after probably attempts to solve this big waste of time, splitting a few mouthfuls of profane words and large eyeball popping glances the two would pass! Don’t tell me you haven’t encountered this on our roads.

But is there any amicable respite to this mentally saturating but simple irritant?

Yes! Perhaps a device or an app that hurls abuses when you waiver from your true left or rewards you with mushy words when you have walked the right path, all closely ingrained to (a) our promotions, (b) our credit scores, (c) bank balances and (d) love life!

Till such an app is invented and installed, pray we remember ‘your left is your fundamental ‘right’' and and so is mine’. 

It is only when you believe the future could be bright when people collide, then please take your right!

Cheers

Exhaustive writeup on History and Analysis of Crude

Hi Guys!

Have not been able to come up with new posts this month though am working on one! In the meantime, I've located a pretty write-up on the history and anlaysis of crude oil right from the time it was discovered in Texas, ( that's why it is called 'West Texas Intermediate') to the gulf wars and till recent times. This exhaustive write-up has details and numerous charts on crude supply, rig counts and price & production movements due to geo-political happenings. It's a good read for those interested in Crude.

http://www.wtrg.com/prices.htm

Happy Reading!!!

Laissez faire ou pas? – The lessons of Laissez Faire

While I had strongly criticized the previous package of purchasing bonds directly from financial institutions as this would effectively tantamount to bailing out the shareholders i.e. saving them first and then, the economy from the mistakes that the shareholders themselves were responsible for, the new package of investing through equity / preferential instruments in the banking companies is a far sensible and effective mechanism, and is being increasingly accepted world over.

It may prima-facie appear appalling to allow, to the champions of free markets to whom Nobel prizes awarded, but we must understand that this appears essential if any effort by the government is to bear meaningful success. With control on the banks and in turn on the Banks’ lending functions, the government will be in a better position to direct liquidity to the real economy - to the masses / affected sectors as against the current hoarding being done by banks. In effect this forced lending would restart the now collapsed lending activity. Also, by owning the banks the government would be in a better position to control the tax payer monies utilized for these banks than it would have been in case it bought the securities. More than over $ 10 trillion have been injected in the world debt markets and these figures show no signs of abating. Furthermore, this model has worked previously in a European country where the government recapitalized the banks. But, that model had an extra offshoot that led to its success. Banks were forced to come out with all losses in their books, subsequent to which a triage of the banks which could survive was done and only those recapitalized. A similar triage must be done in the current scenario. This triage fulfills the intention of the TARP as the weaker banks / institutions that cannot function despite a capital infusion due to their weak structure and heavy investment in complex failing securities should be allowed to close down as irrespective of there being or not being a recapitalization these banks would have failed. So, only those that stand a chance to survive this crisis should be bailed out through recapitalization.

Also, the financial institutions prior to recapitalization should be subject to a quick but thorough due-diligence of their books and their rusted portfolios be written off. Only when the government knows the extent of the rotten parts can it sufficiently take a call on recapitalization. If the elephants were to be brought in the boardroom at every quarter end then the government would have to resort to recapitalizing banks on a regular basis and thus leading to more confusions world over let alone the increased cost that the government will have to bear! So, post the due-diligence those banks that can function with additional support should be bailed out and the ones that cannot should be left to go under.
The current predicament is best understood by studying Hyman Minsky’s theory on financial market fragility and on speculative investment bubbles endogenous to financial markets. Minsky claimed that in prosperous times, when corporate cash flow rise beyond what is needed to pay off debt, a speculative euphoria develops, and soon thereafter debts exceed what borrowers can pay off from their incoming revenues, which in turn produces a financial crisis. As a result of such speculative borrowing bubbles, banks and lenders tighten credit availability, even to companies that can afford loans, and the economy subsequently contracts. Minsky identifies hedge, speculative, and Ponzi finance as distinct income-debt relations for economic units. He asserts that if hedge financing dominates, then the economy may well be an equilibrium-seeking and containing system: conversely, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a "deviation-amplifying" system. Thus, he suggests that over periods of prolonged prosperity, capitalist economies tend to move from a financial structure dominated by hedge finance (stable) to a structure that increasingly emphasizes speculative and Ponzi finance (unstable).

So Mr. Bernanke & Co. does the current scenario sound familiar? Are we at the Ponzi stage now? Unfortunately, it seems so!

Of Red Socks!

This cataclysm and financial ignominy is despite the presence of supposedly austere and punishing regulations a la SOX, Basel, SEC rules coupled with the “Free Capital Market” theories propounded by armies and armies of men. These so called benchmark regulations have failed miserably to serve their intended purposes! Free markets sans effective capital and trade regulations is but a whitewash as when things are doing well they appear to be going fantabulously well but when things go bad it feels as though suddenly there are no rails amidst the descent of the rollercoaster journey! While “free markets” is almost always the destination of all economic philosophy and we all wish that there exist free markets so that the best man wins, but is this beneficial to the end user? Is this beneficial to the economies world over?
While I am not presenting a case for socialism, I am pressing for increased regulation wherever capital related aspects are invovled as money is highly fungible and whose speed of movement of which is second only to light!
SOX, Basel and other policies have not worked because of the “laissez faire” of capital involved. So, despite coming out with more regulations, the problems will not stop unless we stem the issue at its root. When ‘SOX’ was introduced we thought that it would save the investors at large and was the guardian of the Investing public as the senior management was to certify the risk framework of their company in their personal capacity. While regulatory laws might have allowed Banks / Investments Banks to borrow and leverage at levels as high as 35:1 (Lehman) but then shouldn’t the senior management had reassessed whether they had the wherewithal to address such a huge leverage while signing the SOX compliance? It is akin to building a ship, certifying it to be sea-worthy and then gracefully releasing the ship to the open seas as though it were a citadel of sorts, only to let the passengers drown in mid sea!

European Banks use the risk weightage of the Basel norms, and justify their high leverage by pointing to the high quality of their assets (including quite a lot of sovereign debt) When the major European banks were rescued by the governments, the creditworthiness of the governments themselves may be tainted. So the 0 risk weightage assigned by banks to government debt may be a potential time bomb as was evidenced last week when even government debt could get tainted in a crisis aka Iceland.

Of Libor the great!

The Libor which is set each day in London covers financial contracts valued at $360 trillion -- or $53,500 for each person worldwide. Now, you expect a rate that covers such an enormous figure to be trustworthy right? Wrong! The Libor was an overstated mechanism that was controlled by 16 major banks that used to mutually decide on the Libor rates daily for different periods and varying currencies. In April this year there Libor took the worst blow there was to and along with it so did the leading banks world over. While the Libor was set at a particular rate by the consenting banks, this rate was actually lower than the rate the rate that these banks themselves used to borrow for the respective tenures! So in effect these banks were showing an incorrect picture to the world financial markets and furthermore by showing lower rates they themselves could eventually try to borrow at rates set by themselves!!! What an orchestra! That is why major commercial banks now are lending at their own risk adjusted rates and not the Libor.
We must remember that the effectiveness of any policy or regulation is to be judged not by the successes it delivers but more so by the failures that they have prevented, full stop!

Of Recovery – Hope against hope Hopen.

Despite what people say about the future of the economy and markets, when in crisis people vote with their money and if we see the markets world over be it BRICs or the developed markets (I wonder if we should still use the term developed?)
Consider the UK, where the combined assets of the big five banks is four times GDP. A recapitalisation equal to 1% of their assets would cost the government an increase in debt equal to 4% of GDP and a 5% recapitalisation would cost 20%of GDP. You can’t expect economies with major issues in their borrowings being over 3-4 times of GDP to just “switch” back on track!

There is both blood and bodies on the floor now. A 2.8% fall in US Industrial Production in September as against 1% in August, the largest since December 1974. Singapore’s economy sank 6.3 % in the quarter ended September 30th after a 5.7% contraction in the previous quarter. Malaysian government report released on October 11th showed industrial output grew in August at the slowest pace in 16 months. Brazil’s slowing down, India’s IIP at 1%.

Pain is rampant through systems from the poles to the eqautor but the world has to bear for all the success that the world has gloated in. Every transaction has a winner and a loser for status quo to exist, but last year when the markets world over went up there appeared only winners – commodities, equity markets, debt name it! But where were the losers? Alas, we have been finding them these days after their long hibernation. The fact is that people now want ‘Return of their Money rather than Return on Money”.

Yes, our own country is no exception. Even the bank credit week on week is declining and so is the manufacturing inflation which unlike the food inflation is not that erratic. Once a reduction in manufacturing inflation sets in as it has today, it continues to fall! That’s at a macro level but even at a micro level leading Indian companies are conveniently flouting laid accounting norms that even are even mandatory by law! The impacts of this àThe biggest company in the refining sector’s first quarter net would have been lower by close to a fourth. Kar Lo duniya muthi mai’s net profit would have been lower by two thirds; and India’s finest international Airline’s net profit in comparable terms would have reduced from a Rs.100 to a – Rs.600!
But the fact remains that we are resilient economy and so these anomalies do not warrant much attention from the Indian regulatory authorities! Yes, this seems to be the answer as there is hardly anything being done on this blatant fact that almost everyone in the accounting community is aware of! The SAT and the SEBI seem to have divergent views on almost every matter that confronts them. Is it a show of strength of who’s stronger between the two? Beats me!

Of Money and its policies!

Now it is all too clear that Monetary policy effectiveness is best judged in hindsight. While we all raised eyebrows on the hawkish stance taken by the RBI (including myself too!), it is only now that we are learning to appreciate the RBI’s moves. The Fed’s record is something we all know now.

And there are those that rose to the occasion and embraced capital convertibility. But they were in for a total shocker! The Latin American and the South East Asian crisis are the best examples that demonstrate the malice of complete capital account convertibility without any control and the wide spread domino effect it causes on countries. In times of crisis money will flow the fingers of the economy the harder you hold it! So, instead of these adventures though this may sound boring but isn’t prevention better than cure? All say Aye!!!

Of too much dark gold and glitter!

One classic example that I love to loathe about is of the failure of self regulation resulting in falling prices is that of the crude gang lords and their hubris. Be it the Gulf, Russia, Latin American Countries – all of them acquired a sense of jubilation following crude reaching $148 with a short in the arm from I Bankers predicting $ 175 and $ 200 targets (Oil was leveraged 13 times i.e only one barrel delivered for every 13 barrels traded). Where these countries went wrong is that they allowed crude prices to go to a level where the whole world started asking “should we trust these guys’ who simply want to gloat in other’s money and for oil prices to hit circuits?” While the crude boys made merry in their newly designed 7 star hotels and palaces the world economy bore the cost of their lavishness and hence this hurt everyone’s margins including you and me. Now this decline in operating profits and the credit squeeze has exacerbated the once rosy scenario of the crude boys because once the world slows down so will demand for the dark matter! More so, with slowdown sentiments even production cuts have not caused crude to rise as it used to only a couple of months back. The game theory has been lost by the Crude boys as they have now all to much breached that limit in price terms that people world over are seriously beginning to look at alternative energy, while de leveraging from crude may certainly take some time to come the fact is that crude may now play lesser weight age than it once did. Strategically, if the price was kept at such a stage where the world could grow and not really look back at the price of crude then we would have seen a far better picture over the long term than we will see now and so the oil producers would have shared their wealth with the world. But Hubris is the name of the game; the colour of money is green and its greed never ending! I recently saw on TV that a certain country spent $ 7 million (35 crores) only in designing the layout for a property exhibition, further on display were buildings and figures that posed challenges to even geometry itself! I just wonder considering the current crisis world over there might not be too many a people to invest in trapezium and constellation shaped buildings. So, while they have enjoyed short term benefits of over a $ 1 trillion dollar reserves, over the longer terms I am not too sure of their predicament. So, an ineffective self regulatory policy by the OPEC is now turning into a vicious circle for them and it is only a matter of time that Oil reaches $50 1/3rd of its all time highs.

So Mesdames et Messieurs we all can and will surely hope that the world economy is back and kicking and we wake another day to switch on the tube and hope to see a smiling Ben Bernake and the governors of the Central Banks world over having a vacation in the Bahamas. We can hope or can we? I end by quoting from the Matrix…

COUNCILLOR HAMANN: Commander, just one more question. Has there been word from the Nebuchadnezzar?
LOCK: None, and at this point there's no reason to expect that there ever will be.
COUNCILLOR HAMANN: Perhaps. But we can hope.
LOCK: I'm afraid hope is an indulgence I don't have time for.

* Keep Blogging!!! Do drop your views on what you think about free markets / regulations. Lets fight it out! Do let me know if you have advice on anything mentioned here!

God’s New Address – The US treasury department!

If Shakespeare were alive and had recently met Henry Paulson, the question that he might have posed would have been – To $700 Billion or not to $ 700 Billion ?

On September 26th, 166 American economists including 3 Nobel Prize winners asked Bush not to go ahead with his “Golden Men” team’s brilliant $ 700 Billion package calling his plan a “subsidy” for business. Robert Lucas, a 1995 Nobel Prize winner and a University of Chicago economist says ``It doesn't seem to me that a lot decisions that we're going to have to live with for a long time have to be made by Friday.'' So is this $ 700 Billion something good?

Before pondering on this you must remember, its not only the 300 million US citizens only that will be impacted but rather the ripples will be felt by 6 Billion people across the globe not by this act but rather the outcomes from his actions

The US gave almost $ 150 billion of refunds to tax payers in February this year hoping to revive the economy and for all that what Bush Junior got were a couple of months where sales of Wal-Mart picked up. After that? You guessed it right! More freebies! The $ 200 Billion of Fannie and Freddie Mac guarantees, the $ 75 Billion AIG loan and still no change! The recent $280 Billion that was just given a few weeks back, where has that gone? The big banks have swallowed all of it in their coffers to prop up balance sheets but this has not reached the real economy, so why would $700 Billion dollars which is just the total of the all the above figures stand to be any different? You don’t give checks to people who are going to use this money to stock it up in their lockers to feel good about themselves and especially not to those who articulated the entire epic so far which is turning out to be more dramatic than even the Mahabharata!

Bankruptcies are something that we need to learn to live with. It isn’t like this hasn’t happened before. In 1907 US I banks went bankrupt, Wall Street was cleaned up and subsequently the US became the 20th Century King of the Jungle. In 1966 almost all the financial companies went bankrupt in Japan, the Japanese then cleaned up the system and Japan became the world’s best growth economy for the next 20 years! In 1990s the Japanese propped up banks and, they did not let their banks fail, this led to the creation of zombie banks and major problems for Japan which still haunts it. The same happened in the 1970’s in the US and this was a lost decade for the US with high inflation rates and troubles galore. Even, the dot com burst, all this happened but the world did not end! When capitalism goes awry you can’t bring in socialism all of a sudden, bankruptcies teach the capitalists to respect the markets and accept their failures with humility. So, this current performance is just desperation as the US doesn’t have any bullets left after shooting in the dark.

Till some time before the current banking fanfare Ben Bernake himself like Greenspan was a proponent of ‘the markets will set everything right themselves’ and that “interference is to be avoided”. But what can one say about their credibility after a U-Turn like this? If you or I had done that in a company after signing term sheets for investing Billions of dollars in a project, then making happy faces and drinking wine over it and tomorrow, you or I came and said hmm lets forget the Billions hmm lets look at this. Maybe even God would not have mercy on us then! But we are not Ben Bernake or Greenspan who can afford to sleep over and forget what they said because hey it’s your and my money that they are talking about, so a million a billion or something more what’s the difference?

These guys who are passing the resolution have got everything wrong! And we keep trusting them even more! The language in the proposed new law says that it would exempt the secretary’s decisions from review by any court or administrative agency, Blasphemy; finally we get God’s address – the US Treasury Department!

Yes, you may say and rightly argue what Keynes says here “When the facts change, I change my mind. What do you do, sir?" But the facts had changed ergo 2000 when money was being served as a 7 course buffet to people who didn’t even have jobs. Moreover, Greenspan didn’t prick the dot com bubble in the making even when he knew that there was something grossly incorrect in the US and famously talked about “irrational exuberance”. He plucked the interest rates when things got totally out of hand, while he could have raised interest rates or raised margin requirements to try to reduce the amount of stocks being bought on loan and allow the dot com to fizzle out slowly he did not. On a second thought, maybe the Fed did not interfere with the stock markets then because we all save the best for the last and that piece de resistance is now finally showing itself. A change when the exuberance was mounting might have saved the colossal damage but we honor these men by giving them Knight hoods. That’s how we work! When running for president in 1999, Senator John McCain said he would keep Greenspan at the Fed — no matter what: "If Mr. Greenspan should happen to die, God forbid, I would do like they did in the movie Weekend at Bernie's. I would prop him up and put a pair of dark glasses on him and keep him as long as we could." Would we think the same today? There is no taking away from the fact that he was darn intelligent but maybe we praise others at times because we know only so much as meets the eye.

The former Fed Governor is praised for reducing inflation. But hey! Inflation was not low because of great productivity gains or similar happy feeling matters, it was because China, India and other developing economies exported deflation to the developed economies keeping prices close to a MacDonald Chicken-Burger!

You have had the Fed saying time and again that they want a stronger dollar since over a year. Gibberish!! Yes they want it and what do they get by that? Yes it helps Americans to beautifully consume more oil but what about their production? If the dollar strengthens then God Bless America’s Production.

Washington Mutual is now under Chapter 11 bankruptcy with JP Morgan buying its assets. Of the $230 billion in loans secured by real estate at the end of the second quarter, $16.9 billion were sub-prime mortgages. Washington Mutual, which ranked sixth among U.S. mortgage companies last year, was the 11th-biggest sub-prime lender in 2006, according to Inside Mortgage Finance. So the Bottom-line is, there are still 10 more!

Yes there might be hundreds of firms that would go bankrupt but isn’t this what capitalism is all about? People who have done the right things survive and the flamboyant losers eat humble pie. Even if you had invested in the financial stocks and their bonds you ought to have thought of the risks before investing. The current $ 700 Billion supposed to be bail-out is simply like putting band aid on a terminally ill patient.

While the dollar should have in all logic massively depreciated following what happened in the US (just think what would have happened if this had happened in India), it appreciated till about some time back. Strange? Well that’s the world we live in! despite all the technical charts and theories of Japanese Candlesticks and other exotic names, eventually it’s a human that trades world over and not machines

In most probability the $700 Billion band aid will get through, but who will finance it? The Sheikhs and men behind the opaque Chinese Walls, they have to, they don’t have any other option! Why? Read on...

Despite the brouhaha by the Arabs about debasing from the dollar to other currencies, the fact of the matter is even if they receive in Euros or in Gold or in Yuan(some day) they would still have to pay in dollars for what they purchase globally so like it or not as much as they move away the globally depreciating dollar, will only haunt them more in the future. Also moving away from the dollar to the Euro will depreciate the dollar more and make their imports even more expensive (we all know the 20% + inflation rates prevailing in the Gulf). So, the Arabs have will have to be party to the $ 700 Billion credit line to the US. Ditto for China. With the post Olympic slowdown effect being felt in the Chinese economy coupled with the fact that Chinese stocks have been the worst performers globally, imagine the effect on that economy which depends on US purchases from nuts and bolts all the way to complex gadgets and to being lenders of last resort for saving banks in the US. If the dollar was to depreciate and the Yuan appreciate then the Great Walls may not be all that strong after all. The Chinese are more interested in their economy growing at 9% plus rates and so have to keep the Yuan at a competitive level against the USD. But the big question is for how long will these two handhold the dollar?

So, in the short term I believe it is among a host of factors the above that have strongly contributed to the strengthening of the dollar, but long term the dollar would go down and more. Also, add the fact that you never know what the great US does, as it did in August 1971 when it abandoned the convertibility of the dollar. This unilateral action ended the exchange rates regime that had been negotiated by states at Bretton Woods and shocked the world from the equator to the poles and back! So, I suspect depreciation either willfully or due to market forces would be one of the solutions in the long run to help the 300 million self proclaimed ‘masters of the Universe’ get their house in Order.

I end by quoting what Marc Faber said in June 2008 and is now a big hit in the forwarding community ''The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala. If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it will help the American economy. The only way to keep that money here at home is to spend it on *********** and beer, since these are the only products still produced in US. I've been doing my part."

If you haven’t yet found out what the asterisks are google it! ;-)

My next write up would be where to invest in these turbulent markets…Keep watching this space! Do post your suggestions / comments on the write-ups!

Should you be scared if you have invested in Indian Banks?

There has been ample talk doing the rounds about Indian Banks’ holdings in foreign securities viz ICICI Bank’s holding of $80 million investment in Lehman, SBI’s holding of $170 million in Freddie Mac and Fannie Mae coupled with a $17 million exposure to Lehman Brothers and the Rs 400 crore worth loans to DSP Merrill Lynch Capital, but is there merit to these arguments? Many questions persist as to whether ICICI, SBI and other major Indian Banks may have other investment holdings overseas and if so then how much? Exhibit 1 is an extract from ICICI Bank’s 2007 – 2008 audited financials which will surely provide some clarity to this scenario.

After looking at the details in Exhibit 1 it is abundantly clear that ICICI certainly has significant investments and advances made overseas, apart from the Lehman amount of $80 Million which in INR stands at Rs.368 crores (1 USD = Rs.46). This represents a measly 1.68% of the total Investments of the overseas’ others’ portion, what the Bank must do at the earliest to alleviate investor fears is to elaborate where exactly does it hold its other Rs.22,372 crores investments classified as ‘others’.

An irony here is that the schedule VI provides for detailing the nature and name of companies and instruments in which the investments has been made for companies but this is no so for Banks. However, if this disclosure requirement was to be made to the investments made by banks then this entire fiasco prevailing could have been avoided and investor’s loss’s contained.
One should also take note that the advances made outside India by ICICI stand at a staggering Rs.67,500 crores. This stands at thrice the value of its overseas others’ investments! While it would certainly not be correct to deduce from the above that ICICI has investments in the bankrupt companies, however the investor must be informed in these uncertain times the details of where Rs.89,700 crores investments have been made! The credit crisis has not ended and it is now that the Fed has agreed to buyout the bad loans made by both international and US based banks that the skeletons from the closet are coming out at a much faster pace to access the Fed’s cash bonanza while exchanging their holdings of the CDOs and Sub-prime. The list of financial entities includes not only other US banks and offshore trusts but even Banks from nations as far and possibly remotely connected to all of this as Iceland (Kaupthing Bank) and Ireland (Allied Irish) let alone the Fortises and Santanders! The Fed which is already doing a great help to these financial institutions by lending almost a $1 trillion in short term loans to Banks and also will in most certainty not be as generous when it comes to buying these assets, it certainly would not buy at their book value as if it would do so it would only be another case of “Socialization of losses and privatization gains” as quoted by Alan Greenspan recently following the Fannie and Freddie debacle. Considering the cost to the tax payer and the government taking an enormous risk through this buyback expect a huge discount to the underlying value of the security. Now, what returns would ICICI bank’s Rs.89,700 crores stand to gain against this scenario? Anyone’s guess! Ditto for the other banks as shown in Exhibit 2 (Consolidated Figures)

For a better perspective on the percentage of losses possible it would be interesting to take note of eClerx Services Limited here. This company had Lehman as one of its major customers in the BFSI domain. On October 6th 2008, Eclerx lodged a disclosure with the NSE that “one of company's clients had filed a petition under Chapter 11 of the Bankruptcy Act in a New York court. The Company has now accepted a Cure amount of USD 561,340 proposed by the acquiring entity of the Company's previous client as full and final payment against the receivables of approximately a million dollars.”
Now all this is when we look at the asset side of the Balance Sheet but now looking to the liabilities portion ICICI Bank like other Indian Banks has borrowed massively from overseas markets so that they can play a well orchestrated game to borrow cheap and earn a tidy return by loaning the same in the Indian Domestic market at far higher rates. So far so good till around a few months back. But, things are ‘a changing’. In the past weeks central banks have released liquidity of almost a$1 trillion to assuage the liquidity crisis; moreover the LIBOR USD / EURO / GBP have reached record highs of over 6% compared to under 3% rates a month ago and still are showing no material signs of abating. So, what is the effect of this on Indian Banks? I am not an optimist here. Why? The $ 280 Billion central bank money giving spree and all the monies thereafter hasn’t really transcended in real effect to the economy but has been horded by the Banks to fund their requirements and replete their capital base. Also, the sacrosanct LIBOR is also taking a major blow of sorts as global banks are now negotiating to lend at their real risk adjusted cost of funds and not at LIBOR rates, simply put hence forth all contracts will bear a greater interest than before and following this the spreads of Indian Banks will come pressure, so game over? Well, maybe not yet but effectively we will be importing the sub-prime effects in our Banks and in our finances albeit the ripple effect will be felt in a few months and not immediately. If Indian Banks were to de-hedge from their foreign borrowings to India originated borrowings let alone the present liquidity crisis they would need to raise a colossal Rs.123,000 crores just for the 6 Banks as displayed in the table below that shows the foreign borrowings of leading Indian Banks per their 2007 – 2008 financials in Exhibit 3 (Consolidated Figures)

So, should you be scared? I think I would! While I am not passing an opinion on the solvency of Indian Banks which I believe are adequately capitalised, I do have concerns on the aggresive stance of certain banks' assets and liability positions which could cause strains on their profit and loss account

* Disclamer - The views mentioned in this blog are my personal views. These views are neither endorsed by / supported by nor are they the views of anyone else / any other organisation. Kindly take your decisions on an informed basis, only after going through the financials of companies at your end and then consulting your financial advisor.

Dada's Quiz! Week 1

hOw mANy kNOW U?

Q 1 Recently a Mumbai based coaching classes received a FDI , a first of its kind in India? Which firm received the FDI, which firm invested (organisation and country) and what amount?

Q 2 Which firm owns the job portal Naukri.com? and it has recently launched two new portals, name them?

Q 3 In one of the largest acquisition by a Indian health care company, Apollo Health Street (AHS), recently bought which overseas firm and for what amount?

Q 4 The Montreal protocol and the Kyoto protocol are defined under different aegis of the United Nations. Name them?

Q 5 The Citigroup in India, has come out with a unique ATM facility for lower income class and rural customers in India, what is it?

Q 6 On passing of a new competition bill in 2007 what is set to replace the MRTPC (Monopolies and restrictive trade practices commission)

Q 7 The legend behind this toy originated when in 1902, an American president on a hunting trip refused to shoot an old – she bear, who had been cornered. This was made famous by a cartoon in Washington Post, which inspired a novelty store owner to come up with this toy. Which and why was it named so? (nice one)

Q 8 The name of this search engine was inspired by a poem written more than 800 years ago during the reign of the Song Dynasty, and which literally means hundreds of times. Which?

Q 9 Which was the first wholly Indian made commercial and who sang the Jingle for it? (nice one)

Q 10 Which Brand's logo, in the form that it appears on its products, always weighs 0.38 grams and it is the surest sign of the authenticity of the product? (Super one)


A new quiz would be put up every week and the answers of the old quiz will be posted as comments on the date of upload of the new quiz.

flurry awayw with answers by creating a comment to this...


Dwaitin Dave
Final Year PGDM, Global Business
NMIMS, Mumbai