Oh Come on.. this fast is a farce

2011 is truly turning out to be unique. For starters the number 2011 is not only prime but the sum of 11 consecutive prime numbers ending with 211!. Probably this math is behind the uniqueness of the year at least so far.

The year started with governments being toppled and threatened virtually in every country in the oil rich Middle East to Nature inflicted nuclear disaster in Japan, the year seems to be jinxed against those in power. Closer home governments are in jeopardy more than ever. Quite a few governments including the central government are beleaguered with one scam after another all thanks to beauty of what is called corruption though don't know why! since there is nothing negative hence corrupt about it.

The beauty of capitalism, or better described as system of natural liberty (by HH ADAM SMITH), lies in this self interest and the power of masses. Capitalism and not democracy is the true power to the masses albeit it being slow in transitioning the power from one set to another when the incumbents’ time runs out. And capitalism tied together with democracy is possibly the most powerful tool that the masses can ever aspire to have.

Consider the current euphoria on the Indian news channels, Anna Hazare's fast unto death against corruption. While I respect the septuagenarian for voicing his concern and displeasure, I'm tempted to look at it as just another Gandhian gimmick to get eyeballs. In the same vein, I can go the level of applauding Raja for pulling off what he did in a system that is filled with wolves hungry for money. He and his fellow ,so called, corrupt clique are the embodiment of capitalism. They are the classic dark heros of capitalism + democracy as they highlight why this is such a brilliant system, this despite the fact that the 2G scam and the others can be used as the black paint to mar capitalism and democracy and provide credence to an armed communist revolution by whatever name it is called.

Raja is said to have swindled and caused losses worth billions so does the wikileaks mention that the UPA Government survived by paying money but all this is possible only because the masses transferred their power to those involved in heights of corruption. (I'd come to the point of bureaucratic corruption subsequently in the blog). This is where I beg to differ with Mr Hazare. In a social set up where the government has the masses powerless and voiceless, I can agree to such means popularized under the name satyagraha but not in a free democratic country. For all those who claim that India is neither free nor democratic, please wake up. You get to vote every election and it is your fault if you don't. Getting back to Mr Hazare, the answer to the problem isn't buring effigies or fasting like some obstinate child asking for a toy but using the power vested by the system to cleanse it. On a tangential note this seems to have become fad a dangerous one at that, first it was for Telengana, now against corruption, wonder what next. What is even sadder is the so called intelligentsia participating and adding credence to this retrogressive gimmicks and measures.

The answer to the problem lies in ensuring that the people exercise their powers justly. I beg to differ with most and not fault the political parties to hand out cash for votes. If that is what the market demands then the supply will find a way to it and the tougher it gets to meet the demand it will only get costlier to meet it. This applies to cash for votes as well. Stricter rules will make it tougher to reach the money to the people or make less available for the end voter since more palms have to be greased up now which only begets more corruption. Though the rebuttal to the last point is that stricter rules would ensure that things don’t happen, I don’t see that possibility. Irrespective of how strict the rules are supply will meet the demand in one form or other. The system can make it tougher but without the masses supporting, it is only a matter of time the system gets broken. History is replete with such examples, prohibition v/s Al Capone, Germany crippling allied powers V/s Hitler, lack of people power v/s USSR, People v/s Gaddahfi, Power v/s Mubarak, regulations v/s structured trading (SEC ptah) to name a few.

What I find very sad and ironic is that the same people who made the government sit on the chairs of power to rule them are begging for the government to listen to them. This is ridiculous but is something that we historically and mythological-ly seem to be attuned to. Well at least Hinduism is replete with stories of gods giving virtually carte blanche with so called asuras and then begging and grovelling to kill them eventually. In all these cases the fault isn’t with the person who is using or misusing the power but it is of the masses who hand it over to them.

What likes of Mr Hazare, and the scores of so called intelligentsia or whatever, who are against corruption ought to be doing is panning over to the 5 states due for election in the next 2 months and educating the people to vote against corruption and ensure that such elements aren’t allowed to rule us. Failing which we can all fast, which I hear is also good for health if done occasionally, and add a reason to it and feed the news channels. We should also buy TV media shares in the meanwhile since such TRPs are bound to increase their revenue and EPS.

The second beckoning question of corruption in bureaucracy would eliminate itself if the top is cleaner since like water this is a top down flowing concept. The fact that the countries low on corruption have least corrupt politicians may it be Denmark or NZ. In fact 9 of the top 10 least corrupt countries aren’t known for that strict anticorruption laws, the exception being Singapore, which I refuse to see as a country by a police state like the one in V for Vendetta.

Overall Lokpal or Ashokpal or any pal wouldn’t be the answer the situation but ensuring that the power of vote isn’t misused or shorted by the masses. Till the time we have this in place we can fast like kids refusing to have spinach but once we are famished even bitter spinach would be heavenly.

And as for me, I’m perfectly happy greasing off the odd traffic cop 100 bucks and not change my registration since it is much cheaper that way than paying 10K+ rupees of road tax+ 2K for greasing the official. It works out cheaper and interestingly turns out to be a classic example of classical, Keynesian, Smithsonian economics of demand supply curve.

The mighty dollar

The concept of balance of trade is absurd says Adam Smith and he couldn’t be more true today. Once upon a time there was a farmer Mr A, a corn producer in the age old barter system of trading. Mr A was selling lesser value of corn than the value of other commodities he was buying. Seeing this people who were selling to Mr A produced the corn as well and gift it to Mr A, so that he can sell it back to them at his own terms. This should sound absurd, as why should someone produce something and gift it to someone only to buy it back at a disadvantage? Interestingly this is how the finance world seems to function. The US of A runs a trade deficit with every economically powerful or emerging powerhouse. But till date it continues to be the economic super power dictating terms to every other country in the world not because it can produce more but because the credit card reigns supreme.

The US recorded a 0.6% growth rate in FY ’07-’08 3^rd quarter, the household income increased by 0.3% which is less than its prevailing inflation rate of around 2%. Any country with such a statistic would be off to the drawing board of saving more but not the US. It’s spending actually increased by 0.2%. It is managing to spend more and more even though it doesn’t increase its earnings more.

Ironically it’s the world that is ensuring that the US is spending more, though it doesn’t add much to the world in terms of its own production. It’s like the case of our corn producer mentioned earlier. For any other country with such a trade deficit the currency of the country would be battered in the forex market since no one would prefer to have it but that isn’t applicable for the US.

Here is my 2 cents on how would this be possible. US being US and the birth place of credit card is a master at spending. Thanks to its phenomenal progress economically it created enough wealth to be the world’s largest buyer, almost as big as the buying proportions of all other countries put together. With such a buying power, the countries of the world had an amazing market to tap, especially add certain markets where the US produce could be matched and even bested in the market offerings like cars. This adds to the importance of the US markets; because if the US consumers don’t buy then these countries that export to the US do not have a market though they have a product that is customized for the market. And if your companies go down the economy is heading on the one way street making itself a fantastic object of case study on why it cracked like the SE asian “tigers” were in most B-schools across the globe.

Let us consider a country like Japan, an industrial giant, with an export oriented economy and a savings rate of 45+%. The country is the best example of beating the US at its own game. The best selling cars, consumer electronics, gaming console in the US are from the Japanese manufacturers. If the US decides not to spend, the Jap economy would crash and would have so much of surplus Yen that it would lose its value in the Japan. I’m not sure if this would be called by a relatively good term called recession as now the country should be called bankrupt for the future.

The other way that US became important is by the outsourcing that it is involved with. Irrespective of the furore that is seen today, US companies have been outsourcing since considerable amount of time. Premium companies like Nike have long stopped manufacturing in the US ad have shifted to cheaper pastures like Thailand and other Far East countries. If the US consumers stop spending, Nike would stop spending on the production activities and there goes another industry on its journey to the bottom of the earth.

Another outsourcing that drives the economies is at the service level, the likes of call centres, BPOs, KPOs etc. For the US companies involved in these the major advantage is that of cost savings. Very few other economies have the scale to support such an industry across the globe from the pacific rim islands to the shores of the far east. Once the economy goes bust the services wouldn’t be consumed in subsequent years, and there goes bust another set of industries and countries based on the industry. Thus effectively the US has ensured itself of being a superpower by not having superior technologies or markets or wealth but by ensuring that it spends and spends more than anyone can.

Being the engine that drives the current world, US have achieved a unique status of the most preferred borrower to the point that it dictates the terms of its borrowings. It’s like you and I dictating the terms of the home loan including that of the interest rates and the payment options. Being the major consumer the US dollar is the mode of payment and any dip in the value of the dollar against the local currency would hit the exporters. If the value of the local currency appreciates the producer receives lesser in his local currency than he did earlier. This results in reduced real profits for the company in the local currency. Reduced profits results in 3 major things, firstly lesser spending by the company, next lesser taxes to the government from the company and thirdly lesser salary t its employees. All three would ultimately lead to decrease in the economic growth. There could be couple of classic arguments against Uncle Sam being the “Atlas” of the world economy. Hence reduced spending by the US should and would affect only those countries that are export oriented and not the ones like India that have a good local demand.

Interesting and appears very logical but the increase in consumerism in India is driven by the US. The Indian companies that are thriving today thanks to the renowned consumerism weren’t this good a decade ago. Bajaj Auto an indigenous motorcycle manufacturer in India has its share rising some 753% since March ’01 till Feb 15 ’08 thanks to its 50+% market share cumulatively in the segments it services. This interestingly coincides with the Indian growth story beginning and it what drove the growth…. Services sector. Considering that IT and ITES was the driver for the service sector and the major clients of the IT sector are in the US the dependence on US economy becomes obvious even for a relatively insulated economy like India.

By way of comparison, the gross revenues from IT services was in 2004-05 about 20% higher than the GDP generated in India's construction sector and almost three times as much as the GDP in mining and in electricity, gas and water supply. gross revenues from IT services exceeded 12% of GDP generated in India's services sector as a whole, which accounts for more than 50% of the nation's GDP. Having said this, the major contributor to this revenue growth in the IT sector is US and a recession in the US would hence slowdown the growth story. It is already evident from the sub-8% growth estimates for this fiscal year dropping form 9+% estimates for the last.

Overall the world will catch cold whenever US sneezes and this is bound to remain the situation till another economy or region comes up to guzzle and gorge to the level that US does on any product and considering the intertwining of the economies as of today such a consumer might take decades to rise and dethrone the USD.

bond math of bond

The fixed income securities world stands tall on the support of 2 pillars, the interest and the principle. While the principal is more of a dormant participant to the fury and the pleasure of the FIS, interest is the main actor. The same interest that is taught in the schools starting as what we call the simple interest and then compounding itself in to a compound interest.

I=PNR/100 the simple equation for SI, then comes
A=P(1+r/100)n for compound interest.
The n here denoting the frequency of compounding.
Here the variable r is the rate of interest for the period. Hence for a 10% pa bond paying half yearly the r would be 10/2 and the eqn would become

A=P(1+r%/n)^n
As the frequency of compounding becomes lesser and lesser the value of n increases, hence for a bond that is compounded instantaneously n-> infinity (∞).
Applying these limits to the above equation we get

A =P ltn->∞ (1+r/n)^n
A = P e^(rn) is the equation for comtinuous compounding
Equating the previous 2 eqns

e (rcn) = ltn->∞ (1+r/n)^n

(rc)= n ln (1+r/n)
Where rc is the rate of continuous compounding.

Hence comparison of 2 bonds of varying payment frequency is done by comparing the rc value which is a obviously a direct measure since the rates compared are the instantaneous compounding rates.


Never knew bond math could be so simple to calculate, but simple or not it is simply fascinating.

Hope my journey in to this fascinating field of bond math continues…

Math again...

Mathematics.. one word that is fundamental to life, if I may say so, but peculiarly a rather long word for something this fundamental. A word that could havoc terror on me just by its mention with the noun wxam along with it, especially from 8 grade when I shifted to a new school in the heart of the city where 90% is below average. Inspite of all this I always felt math to be a wonderful subject and saw it more as a beautiful rich land that needs to be conquered, more like Steve Waugh's final frontier of winning a test sereis in India against India. It didnt help much that I had amazing skills of making my paper look like a make of WW II cryptic message communicated in numbers and graphs. Adding to the woes were the audacity that I had against the math teachers for that matter any teacher but for a 1 or 2. With such an attitude the teachers felt obligated not to help me much in math, this aggravated in the 11th and 12th grade where I enjoyed a great love hate relationship with the math teacher resulting in my scores resembling a tan Q graph in the second quadrant. It was a period when I was probably made of anti matter of Midas in maths. Everything I did went wrong. The rules of integration that were very logical and applicable made themselves illogical and not world acceptable certainly not for my classmates and especially the math teacher. Such phenomenal rendezvous with math ensured that I hate the class and the exam though deep down I wanted to love it, and make it my darling.

Then came what was called Engineering college where I am very confident that I managed to engineer absolutely nothing. As they call it, engineering was a perfect educational masturbation for me. Me being what I am did a wonderful job of masturbating for the whole 4 years learning pretty much little but for how to use the jargons and manage to score above 67% which ensured that I was considered as somewhere between above average to good student. What helped this best was the pale competition that I had overall, which helped me in being in the top 15 or 20 in the class. This Im sure would have been the average if not the below average in the grading restricted to the part of the class that masturbated on engineering since a section of the class appeared more interested in actual masturbation or alcohol or those innumerable things that life has to offer other than being serious in studies. Interestingly I managed to score tops in any practical exams, which on the retrospect I think should be attributed to my decent communication skills and ability to think and talk on my feet rather than do the hard work of digesting the concept and making a true research in it. This suited most since here was a guy who could talk something that bordered on making sense and could communicate it better, actually better than the questioner. This certainly not because of my superior knowledge of the particular field in engineering but more because of the superior English that 14 years of English medium education competing with the one of the groups of the best of the competitors in the city.

But math being more of a subject where one has to answer on a answer paper, I managed to score just above the border line. I guess the gods of algebra and calculus had and probably still have a strong vow of apathy towards me. I never managed to come out good in these two domains but geometry was fun and trig was generally a cake. Another perspective for this could be that I never tried taking on complex geometry or trigonometry.

In spite of such a long history of non performance and incompetence in maths the discipline has not ceased to amaze and lure me into conquering it. Just that recently the motivation to conquer it is so that I can master the complex looking calculations of the world of finance. With this high hope I have convinced a gentle man to help me out and take me through the complex looking puzzle of math that can be and is used in finance. Hope the gods are kind with me this time, hope I can put the demons of mathematics to rest this time. It should be a worthy wait to see the results.

Oops you earn too much.

Among the best things that can happen thru chain mails is that once in a blue moon you one can get a pearl or an absolute diamond... listed below is my recollection of 1 such mail, which sounded better in the original chain.

An economics professor explaining the concept of taxation and tax breaks to the poor to his rapt attentive class....
9 men used to meet at a specific pub every day for their group beer session, of the nine 2 were in the rich category, 3 in the middle income category and 4 in the poor category. Considering their differences in income they decided to split the bill of $ 9 thus. the rich 2 pay $ 3 each and the middle 3 pay $ 1 each. The poor 4 being poor were allowed the luxury of having their drink free. This seen as a fair arrangement continued for quite some time. Considering that the 9 were his long time customers the pub decides to provide them with a discount of 10% on their beer. This 10 % was split based on the contribution of the individual, resulting in a 30p discount per rich guy and a 10p discount per middle income guy. based on the new arrangement, the poor felt cheated that they didnt gain anything from the discount, the middle felt that their discount was far less than the rich 3's. The middle and the poor hence accused the rich of cornering all the benefits and beat them up and the rich 3 didnt turn for drink the next day. The next day the pub wouldn't allow the remaining 6 to enter since they couldnt pay for the drinks.

This is the probably one of the best description of taxation and tax breaks system. There is a limit that a government can impose tax on the tax payers. After a threshold it is inevitable that the tax payers simply run away, then wonder who will be paying the tax.


One of the first things that came to my mind on hearing PM Dr.MS comment on CEO earnings was the above story. How many times have we heard the story of killing the golden hen laying goose. But nope the story is relevant only for the 4-8 year old kids with the adult politicians however educated and smart they be, refuse to go by that.
Today the CEOs are earning much hence make them cut their salaries, get brownie points of being an Aam Aadmi guy but then tomorrow not many would prefer to be CEOs in the country. Then what, run a Vodafone or Airtel or Tata Group with Aam aadmis? or even better sarkari bureaucrats? The former I dont thing will be an option in the wildest of imaginations of the aam aadmi himself and the latter, well the infamous hindu rate of growth stands testimony to the approach.

Interestingly if you keep slashing everyone's salary but the fraternity of politicians and the allied to bring about an equality, then who will fund the country's bill? do we print rupee notes to fund our deficits? All this will portend to the '91 pawing of our gold assets to BoE which would be 1 backward step for the government and a giant leap backward in terms of progress for India.
Also by then the aam aadmi would be completely empowered since there would be ne one else left.

A better way to decrease the inequality would be if the govt cuts on its bureaucratic spending and use the savings for better infrastructure and social support systems. But then that wouldnt win yo political votes would it, hence what a stupid thing to say from me. huh.