'In the long-run we are all dead' John Maynard Keynes 'Keynes is dead; in either long or short run' Sumeet Kaul

Sunday, April 30, 2006

Don Quixotes of Economics

Who does not like the stock market these days, in fact who does not like any asset class market these days? Commodities, equity, real estate all four look so very pretty.
The liquidity is just as abundant as siddhuisms. B-schools are raking up record revenues as placement fees (yes, they charge recruiters).Every game, every player, all the rockstars are rocking!!

What is this perfect time for? Yes, right answer party time. But there is another right answer, it is the time when doomsayers come out of their shells & forewarn us about a long, painful recession that is about to come. In the recent weeks more than one popular magazine have put on their covers the predictions about the looming economic crisis.

Isn’t it a good thing, those nice chaps are ensuring that the naïve-and-optimistic investors
don’t have to become naïve-and-bankrupt investors. No, it is not.
Why not? Because the basic theme these predictions are based on are that markets are growing way-too fast or that the present Bull Run in all asset classes are too-good-to-be-true. And that Mr.Watson, is an argument no one on baker street, let alone wall street should heed to. I recall first global CEO Shankar Sharma making similar prophecy when sensex was at 7500. He talked of correction & PE values being at their highest levels ever in India. Those unfortunate-and-cautious investors who listened to him rather than Mr. Rakesh Jhunjhunwala (who seemed way too optimistic while talking about sensex levels of 10,000) would tell you more on that.

An investor needs to be prudent but believing in an imminent fall just because markets have been up too long is idiotic.

I am not an expert on stock market (hence markets may just start crashing right after I put this post) and I do believe in the theory of business cycles, but I also believe that you cannot predict the turn of a business cycle. Those who claim to do so are in league with black magic practitioner, technical analysis experts & other crap producing organisms.

The alarm raised about the end of Bull Run is just as meaningful as Don Quixote’s war cry against the windmills calling them monsters

Thursday, March 02, 2006

The Accidental Theorists

In the last class of my engineering degree when our teacher asked us what had we learnt in the last 4 yrs.; I said “sleeping with eyes open”. Wrong, I hadn’t. If I had I wouldn’t have to suffer the torture called MBA in its entire splendor. I guess what I learnt from MBA was a greater degree of tolerance for crap. But even an MBA cudnt prepare me for the onslaught that I have gone through in recent times.

We know about the ‘Algebra of Infinite Justice’, though I simply don’t understand the calculus of why a student of architecture should be awarded a Sahitya Academy Puraskar for a book dealing broadly with international relations. I can tolerate it when Arundati Roy writes crap on international relations, I can still tolerate it when she speaks further crap on India’s large hydroelectric projects.

But I can’t TOLERATE it when she speaks crap on economics. I don’t tolerate crap on economics by anyone.

Here’s the deal if u have anything to do with McDonalds, Coke, Bush, Disney, Security Council, India’s nuclear program, IMF etc. etc. Arundhati hates u. Why? Cauz u represent an American attempt to dominate the world, just like the evil scientists in James Bond movie.

In her speech (with a title ‘Do turkey’s enjoy thanksgiving’) at World Economic Forum, Arundhati Roy gave many seemingly persuasive reasons for hating globalization. She poured out this passion again & again & again. Whenever, anyone gave her a chance to write/speak in anything that people read/see/ignore/tolerate.

Why do people like Arundhati hate globalization, without really having anything much do with it & without ever understanding it all that well. Paul Krugman calls such people “Accidental Theorists” read his book with the same name for details and fun.

I think the answer is Bond, James Bond. Such people live in a world that is just as gloomy & as wonderful as that of James Bond. That is why they need ‘evil scientists’ trying to rule the world a role given to US. They then take on the onerous mantle of James Bond and try to save us from evil.

In the real world we are all evil, except for those who are too weak to be evil.

P.S: I will not be an accidental theorists myself and defend globalization when I don’t understand it all that well (despite having taken about 3 courses in MBA relating to it). But I trust policy makers and Professors at MBA who tell me that by & large globalization is good. What’s bad is relying on markets to do what is your responsibility like reducing poverty, like stopping people like Kenneth Lay etc. etc

Wednesday, November 02, 2005

Crazy and Red Economics

In 1913, James Couzens, Ford's GM back then, convinced Henry Ford to his 5$ a day wage idea. This was about 3 times higher than the industry standard and does sound like a completely idiotic decision at first sight but it had two implications
One, over a long period as Ford's attrition rate dropped its wage bills dropped and its productivity increased tremendously. Making Ford Motors the legend that it is today and increasing the labor productivity of Ford and later USA.
Two, it meant that the labor working in Ford and (again) later in the whole of US now belonged to middle class. Yes, not the lower class but the middle class and continues to be there. An amazing transformation which happened overnight.

In India where an industrial laborer still hasn't found himself included in the middle class, I wonder if he knows the reason.

Indian labor laws mean that the labor that is hired today can't be fired unless he or the company itself is dead. Hence 0% labor getting fired and 0%attrition and zero incentive for you to have any labor friendly policies beyond the ones prescribed by govt. regulations. Plus, the huge labor surplus means that this becomes an unstated axiom of doing business in India. There is no way that within the present labor laws the Indian industrial workman will ever touch the middle class strata.
Indian political parties (communists in particular) see businessmen as fundamentally evil who would not take any step benefiting a labor class even if it makes business sense. In fact they (communist parties) believe that places where the practice of treating labor like God (read the IT sector) is in place also needs their intervention to ensure the labor is not exploited! They are trying to set up unions (which have been remarkably successful in India in ensuring that labor stays where it is i.e. poor and largely unemployed) in IT companies.

As I said in my earlier post an idea doesn't need to be good for it to be popular, Communism is the best example of that.

Tuesday, November 01, 2005

Louder than logic

Why is rhetoric always louder than logic?
Recently I read 'Blink' which says something in context. It is not the quality of an idea, which makes it popular. An idea, a philosophy etc. may be adopted by many, despite being wrong, evil or downright stupid.
It is probably understandable that people in general are moved and driven by such ideas (in fact to understand it better read' the tipping point'). It is tragic that often those who wear the mantle of being the experts, the intellect of the society state opinions expressed as obvious truisms when actually they are pure and unadulterated rhetoric.
Weren't the dot coms of 1999,2000 amazing ideas which will change the world according to many intelligent people(some with MBA degrees from IIM A, Harvard, Stanford etc) . Wasn't Enron one of the most admired companies in World according to Fortune, a year before bankruptcy.
The lesson from these is that an argument backed by logic which needs least 'quantity' ( not just no. but overall how big or small these assumptions are) of assumptions are safer to go with than opinion of 'Experts' .
This is precisely why people like Dhirubhai Ambani, Richard Branson etc., without a MBA degree have been so much more successful than many others with one. Because, logic is more powerful than 'expert opinion' and that's what they are driven/guided by.

Tuesday, September 06, 2005

Aishwaria Vs. Samara

Comparing the two throws interesting results. While one of them is a teenager who died some 30 years ago, other is a 30 year old for whom many teenagers will die! Samara Morgan has ensured a box office collection of $360 million worldwide (from 2 movies) for its producers while Aishwaria Rai has mustered less than $150 million.

This comparison tells us something interesting-: The importance of going Global. Original Japanese movie ringo in which Samara featured had far less collections than Aishwaria movies, till someone in L.A thought of importing her to U.S and then exporting her to Britain.

Hence while most of us prefer the face of 30 year old damsel in question, it is the ugly teenage ghost who is minting more money. Aishwaria will probably leave Samara behind soon( not true for many other Miss Worlds in Bolywood) but only because she has gone global.

Indian IT industry has achieved the scale it has because since inception it was always focused on foreign markets . A lesson for many beautiful ladies of Indian corporate world sitting happy on peanuts.

Monday, August 29, 2005

What is wrong with Google

Fairy tales in b-school tell about an organization, so beautiful, so sweet, so perfect it could do no wrong. Its employees wander about in corridors embellished with psychedelic& hip paintings, greeting each other with mirthfulness and sincerity unheard of in a world full of organizational politics. Whose products delight customers in manner and degree sex fails to. Whose returns to shareholders are not matched by anyone in market. Google comes close to this description.

Last statement is probably an understatement for all I have seen of Google, it has exceeded this description in more than one ways. I personally think voice quality of Google talk is superior to that of intercom telephones in our rooms. 280$ stock price a year after its supposedly overpriced IPO at 85$. Those who know Google, do pray to get in ( I for example).

All this without an army of MBA's (Oooh that hurt a lot of egos in)

What is then wrong with Google ??

Most of its revenue are coming from ads on the search result page, not from the fancy products like Desktop Search, Google Earth etc. It has developed. It fails to realize it was a web company it is now a products company. It presently has a capability to sell its products, something it is not doing so far. Probably because it is too happy right now to understand that its products are not increasing its revenues in any way. It is wasting shareholder's money on a hobby. Shareholders are not complaining, but with a return close to 200 % a year who will.

Friday, August 26, 2005

Creativity an error

I remember a middle aged, middle class looking person asking me at one of the Qutab Institutional Area streets, what i thought of IIPM. I was not sure what to tell him, I acted MBAish and gave a non-committal, little-substance answer.

British poets of 19th century rarely wrote what they felt, they were conscious of being judged by the public and the fear of judgment meant that their poetry was not a work of art but science of intellectual vaccumness, which they disguised as wise insight. Our lives at b-school suffer from the same disease. We follow success hoping to recreate it by doing exactly like they way 'they' do/did it. Success is not a formula or equation but an event like any other, interlinked with many others not all of which are under our control. But at the assembly line of managers, creativity will keep on getting rejected as defect in the process. Just like the British poets.